Balance sheets signed by suspended directors during CIRP are valid acknowledgments under Section 18 of Limitation Act

NCLAT Overturns NCLT Order, Validates Balance Sheet Acknowledgments in Insolvency Case, State Bank of India's appeal against Bernard John allowed, confirming the binding effect of balance sheet acknowledgments on personal guarantors.

The National Company Law Appellate Tribunal (NCLAT) Principal Bench in New Delhi has set aside an order by the National Company Law Tribunal (NCLT), Indore Bench, which had dismissed a petition by the State Bank of India (SBI) against Shri Bernard John, a personal guarantor to a corporate debtor, on the grounds of limitation. In its comprehensive judgment dated October 17, 2025, the NCLAT clarified that balance sheet acknowledgments extend the limitation period for initiating insolvency proceedings against personal guarantors.

The case revolved around the insolvency resolution process initiated by SBI under Section 95 of the Insolvency and Bankruptcy Code, 2016, against Bernard John, who had provided a personal guarantee for the debts of M/s GEI Industrial Systems Ltd. The NCLT had initially dismissed the application on July 16, 2024, stating that the balance sheets, which SBI relied upon as acknowledgments of debt, were not signed by the guarantor himself, thereby rendering the application time-barred.

However, the NCLAT found that the balance sheets of the corporate debtor for financial years 2016-17 to 2019-20, which acknowledged the outstanding liabilities, effectively extended the limitation period. The tribunal underscored the contractual clauses in the guarantee deed, which stipulated that any acknowledgment by the corporate debtor would be binding on the guarantor. The bench, comprising Justice Yogesh Khanna and Mr. Indevar Pandey, ruled that the liability of the guarantor is co-extensive with that of the principal debtor, aligning with Section 128 of the Indian Contract Act, 1872.

Additionally, the tribunal addressed the issue of guarantee invocation, affirming that the demand-cum-recall notice issued by SBI on September 30, 2016, constituted a valid invocation of the guarantee. The NCLAT emphasized that the acknowledgment of debt in balance sheets, even if signed by suspended directors during the Corporate Insolvency Resolution Process (CIRP), is legally binding, given their statutory duty under the Companies Act, 2013.

This decision reaffirms the principle that balance sheet acknowledgments can extend the limitation period for insolvency proceedings and underscores the co-extensive nature of guarantor liability. The NCLAT's judgment provides clarity on the applicability of balance sheet acknowledgments in insolvency cases, setting a precedent for similar cases in the future.

Bottom Line:

Balance sheets signed by suspended directors during CIRP are valid acknowledgments under Section 18 of the Limitation Act - Acknowledgment by Corporate Debtor binds the Personal Guarantor under Section 128 of Indian Contract Act, 1872 - Guarantee properly invoked by demand notice.

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Section 95, Limitation Act, 1963 Section 18, Contract Act, 1872 Section 128

State Bank of India v. Shri Bernard John, (NCLAT)(Principal Bench, New Delhi) : Law Finder Doc Id # 2796838