Balance-sheet acknowledgments can extend limitation against a personal guarantor where the guarantee binds borrower admissions.

A Section 95 IBC application was held to be within limitation where default crystallised on the demand-cum-recall notice date, later balance-sheet acknowledgments of liability extended limitation under Section 18 of the Limitation Act, and the Supreme Court's exclusion orders covered 15.03.2020 to 28.02.2022. Those acknowledgments were treated as legally effective against the personal guarantor because the guarantee deed made the borrower's acknowledgment binding on the guarantor and the guarantor's liability was co-extensive with the principal debtor under Section 128 of the Contract Act. A demand-cum-recall notice addressed to the guarantors and demanding payment within seven days was held to validly invoke the personal guarantee; the dismissal of the Section 95 petition was set aside.

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Issues: (i) Whether the application under Section 95 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation; (ii) Whether acknowledgments in the Corporate Debtor's balance sheets were legally valid and extended limitation against the personal guarantor; (iii) Whether the personal guarantee had been validly invoked.

Issue (i): Whether the application under Section 95 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation.

Analysis: The default was taken to have crystallised on 07.10.2016 after the demand-cum-recall notice. The ordinary limitation period under Article 137 of the Limitation Act, 1963 would therefore expire on 07.10.2019, unless extended by a valid acknowledgment under Section 18 of the Limitation Act, 1963 or by exclusion of time under the Supreme Court's limitation orders. The balance sheets of the Corporate Debtor for successive financial years contained acknowledgments of the outstanding liability, and the period from 15.03.2020 to 28.02.2022 was also excluded.

Conclusion: The application was not barred by limitation and the finding of time-bar was erroneous.

Issue (ii): Whether acknowledgments in the Corporate Debtor's balance sheets were legally valid and extended limitation against the personal guarantor.

Analysis: The balance sheets were treated as valid acknowledgments of subsisting liability. The signing of financial statements by directors or suspended directors for statutory compliance under Sections 134 and 137 of the Companies Act, 2013 did not destroy their legal efficacy as acknowledgments. The guarantee deed further provided that any acknowledgment by the borrower would bind the guarantor, and the guarantor's liability was co-extensive under Section 128 of the Indian Contract Act, 1872. On that basis, the borrower's acknowledgment operated against the guarantor as well.

Conclusion: The balance-sheet acknowledgments were valid and extended limitation against the personal guarantor.

Issue (iii): Whether the personal guarantee had been validly invoked.

Analysis: The demand-cum-recall notice dated 30.09.2016 was addressed to the guarantors and required payment within seven days, failing which action would follow against them. This was held to amount to invocation of the guarantee. The objection that invocation occurred only later was rejected as factually incorrect.

Conclusion: The personal guarantee was validly invoked.

Final Conclusion: The appeal succeeded, the order dismissing the Section 95 petition was set aside, and the matter was directed to proceed before the Adjudicating Authority.

Ratio Decidendi: A company's balance-sheet acknowledgment can extend limitation against a personal guarantor where the guarantee deed makes the borrower's acknowledgment binding on the guarantor and the guarantor's liability is co-extensive with that of the principal debtor; a recall notice addressed to the guarantor can constitute valid invocation of the guarantee.

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