NCLAT Overturns Tribunal's Decision, Extends Limitation Period for Insolvency Proceedings Acknowledgment of Debt by Principal Borrower in Financial Statements Extends Limitation for Corporate Guarantors
In a landmark judgment dated December 23, 2025, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, set aside the order of the Adjudicating Authority that dismissed UCO Bank's application under Section 7 of the Insolvency and Bankruptcy Code, 2016, against corporate guarantors of Ankit Metal & Power Ltd. The Tribunal held that the acknowledgment of debt in the financial statements and balance sheets by the principal borrower extends the limitation period for initiating insolvency proceedings against corporate guarantors.
The case, UCO Bank v. M/S Poddar Mech Tech Services Pvt. Ltd., revolved around the issue of whether the limitation period for filing insolvency proceedings against corporate guarantors could be extended based on acknowledgments of debt made by the principal borrower. UCO Bank had extended a working capital facility to Ankit Metal & Power Ltd., which later defaulted on its payments and was classified as a Non-Performing Asset (NPA). Despite a restructuring agreement, the borrower failed to comply with the terms, leading to insolvency proceedings.
The Tribunal's earlier decision rejected UCO Bank's application against corporate guarantors on the grounds of being time-barred. However, the NCLAT overturned this, citing Section 18 of the Limitation Act, 1963, which states that an acknowledgment of liability in writing extends the limitation period. The Tribunal emphasized that the liability of corporate guarantors is co-extensive with the principal borrower, as per Section 128 of the Indian Contract Act, 1872.
Additionally, the NCLAT noted that the Supreme Court's order excluding the limitation period due to the COVID-19 pandemic should have been considered, further extending the limitation period. The exclusion period from March 15, 2020, to February 28, 2022, was applicable, rendering the Tribunal's dismissal of the application as patently illegal.
The judgment is significant in clarifying the applicability of Section 18 of the Limitation Act to insolvency proceedings, ensuring that acknowledgments in financial documents by borrowers can impact the limitation period for related parties like corporate guarantors. The decision also underscores the importance of considering legal directions regarding pandemic-related exclusions in limitation periods.
UCO Bank's appeals were allowed, and the matter was remanded to the Tribunal for fresh consideration, with instructions to hear the parties and decide in accordance with the updated legal framework. This decision is expected to have a wide-reaching impact on insolvency proceedings involving corporate guarantors across India.
Bottom Line:
Acknowledgement of debt in financial statements and balance sheets by the principal borrower also extends the limitation period for initiating insolvency proceedings against corporate guarantors under the Insolvency and Bankruptcy Code, 2016.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Section 7, Limitation Act, 1963 Section 18, Indian Contract Act, 1872 Section 128
