NCLT Kolkata Held That Acknowledgment Of Liability By Principal Borrower Extends Limitation Period For Personal Guarantor

The NCLT, Special Bench, Kolkata through its judgment dated 18.06.2026, in Indian Bank vs. Santosh Jhawar, Personal Guarantor of M/s Burgundy Life Style Pvt. Ltd.¹ , held that an acknowledgment of liability by Principal Borrower extends the limitation period for Personal Guarantor and maintainability of a Section 95 proceeding is not conditioned upon prior initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Principal Borrower.

In the present matter, Indian Bank (“Financial Creditor”), had sanctioned working capital facilities to M/s Burgundy Life Style Pvt Ltd. (“Principal Borrower”) and to secure such facilities, a Deed of Guarantee was executed by, inter alia, Mr. Santosh Jhawar, personal guarantor (“PG”). The Financial Creditor filed an application under Section 95 of the Insolvency and Bankruptcy Code, 2016 ( “IBC”) read with Rule 7(2) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 (“Personal Guarantor Rules”) against the PG, pursuant to which the Resolution Professional submitted his report under Section 99 of IBC recommending initiation of insolvency resolution process against the PG. The PG opposed the petition on, inter alia, grounds of limitation that the default admittedly occurred on 31.03.2016 and last settlement proposal was made on 21.05.2019, however, the petition was filed on 10.06.2024.

On the ground of limitation, NCLT held that liability of guarantor is co -extensive with the Principal Borrower and an acknowledgment of liability by Principal Borrower extends limitation period for PG. NCLT noted that since letters of One Time Settlement were issued by Principal Borrower even on 06.03.2020 and Principal Borrower had acknowledged debt in its audited balance sheets for FY 2019 -20 and 2021 -22 even though it does not contain the name of the Financial Creditor, the petition has been filed within limitation period of three years. Further, on the ground of no prior initiation of CIRP against the Principal Borrower, NCLT held that the maintainability of a Section 95 proceeding is not conditioned upon prior or parallel initiation of CIRP against the Principal Borrower, and consequently, no explanation is warranted for the Financial Creditor's choice to proceed directly against PG.

Accordingly, NCLT admitted the application and initiated CIRP against the PG.

Footnote        

^{1 I.A. (IB) No. 1690/KB/2024 in C.P. (IB) No. 193/KB/2024}

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