NCLT Kolkata admits insolvency proceedings against a personal guarantor, clarifying limitation and guarantor liability under IBC.

June 18, 2026 : The National Company Law Tribunal (NCLT), Kolkata Bench, has admitted an insolvency resolution application against Santosh Jhawar, the personal guarantor of Burgundy Life Style Pvt. Ltd., holding that acknowledgements of debt made by the principal borrower extend the limitation period for proceedings against a guarantor as well. In a significant ruling under the Insolvency and Bankruptcy Code, 2016 (IBC), the Tribunal rejected all objections raised by the personal guarantor and initiated the insolvency resolution process under Section 100 of the Code.

The case arose from credit facilities sanctioned by Indian Bank, formerly Allahabad Bank, to Burgundy Life Style Pvt. Ltd. in March 2010 for its working capital requirements. To secure the facilities, a personal guarantee was executed by Santosh Jhawar. After the borrower allegedly defaulted in repayment obligations, the loan account was classified as a Non-Performing Asset (NPA) on March 31, 2016. The bank subsequently issued a demand notice under Section 13(2) of the SARFAESI Act, 2002, invoking the personal guarantees and demanding repayment of outstanding dues.

According to the Tribunal, the principal borrower repeatedly acknowledged its debt through one-time settlement proposals issued between 2019 and 2020 and also reflected the liability in audited balance sheets for the financial years 2019-20 and 2021-22. These acknowledgements became central to the dispute because the personal guarantor argued that the insolvency application filed on June 10, 2024, was barred by limitation, contending that the original default occurred in 2016.

The Tribunal examined the legal effect of debt acknowledgements under Section 18 of the Limitation Act, 1963, and relied on the Supreme Court’s landmark judgment in Laxmi Pat Surana v. Union Bank of India. Referring to the ruling, the Bench observed that an acknowledgement of debt by the principal borrower extends the limitation period for initiating proceedings against a guarantor because the liability of a guarantor is co-extensive with that of the borrower under Section 128 of the Indian Contract Act, 1872. The Tribunal quoted the Supreme Court’s observation that “the financial creditor has not only the right to recover the outstanding dues by filing a suit, but also has a right to initiate resolution process against the corporate person whose liability is co-extensive with that of the principal borrower.”

The Bench also referred to a recent NCLAT decision reaffirming that an acknowledgement of debt by the principal debtor extends limitation against the guarantor. Based on the settlement proposals and financial statements placed on record, the Tribunal concluded that the debt had been continuously acknowledged within the statutory period and that a fresh limitation period arose each time such acknowledgement was made. Consequently, the insolvency application filed by Indian Bank in June 2024 was held to be within the prescribed limitation period.

Rejecting the guarantor’s argument that there was no valid acknowledgement of debt in the borrower’s books, the Tribunal relied on recent Supreme Court jurisprudence holding that entries in balance sheets can constitute valid acknowledgements of liability even when the creditor’s name is not specifically mentioned, provided the overall context establishes the existence of a continuing debtor-creditor relationship. The Bench held that the borrower’s financial statements clearly reflected a subsisting liability and therefore satisfied the requirements of Section 18 of the Limitation Act.

The personal guarantor also challenged the validity of the demand notice issued by the bank, alleging lack of authority and improper service. However, the Tribunal found no evidence supporting the allegation regarding authority. On the issue of service, the Bench observed that the notice had been sent to the guarantor’s last known address mentioned in the guarantee deed and that service at the last known address is legally valid even if the notice is not physically received. The Tribunal noted that a debtor cannot take advantage of a failure to update address records and later challenge the validity of service.

Another important objection raised by the guarantor was that the bank had not first initiated Corporate Insolvency Resolution Process (CIRP) against the principal borrower. The Tribunal firmly rejected this contention, holding that proceedings against a personal guarantor under Section 95 of the IBC are not dependent on prior or parallel insolvency proceedings against the corporate debtor. Referring to NCLAT precedent, the Bench stated that a financial creditor is legally entitled to proceed directly against a personal guarantor and is not required to justify the absence of CIRP proceedings against the borrower company.

After considering the report submitted by the Resolution Professional under Section 99 of the IBC, the Tribunal found merit in the recommendation to admit the insolvency application. It therefore admitted the petition under Section 100 and commenced the insolvency resolution process against Santosh Jhawar. Simultaneously, a moratorium under Section 101 of the IBC was declared, resulting in a stay on legal actions relating to debts, restrictions on creditors from initiating fresh proceedings, and limitations on the debtor’s ability to transfer or dispose of assets.

The Tribunal appointed insolvency professional Chandra Kumar Jain to continue as Resolution Professional and directed him to issue a public notice inviting claims from creditors. He has also been tasked with preparing a list of creditors, facilitating the preparation of a repayment plan, and carrying out duties prescribed under the IBC and related regulations. The matter has been listed for further consideration on July 31, 2026.

The ruling is significant for banks, financial institutions and personal guarantors because it reinforces the legal principle that acknowledgements of debt by a borrower can keep claims alive against guarantors for limitation purposes. It also clarifies that creditors can directly invoke insolvency proceedings against personal guarantors without first initiating insolvency proceedings against the principal borrower. The decision is expected to strengthen recovery mechanisms available to lenders under the Insolvency and Bankruptcy Code while highlighting the continuing legal exposure faced by personal guarantors long after the original default if the debt continues to be acknowledged by the borrower.

Case Reference: Indian Bank v. Santosh Jhawar, Personal Guarantor of Burgundy Life Style Pvt. Ltd., CP (IB) No. 193/KB/2024, NCLT Kolkata Special Bench