There is a common assumption that once a personal guarantee is signed, the person remains liable indefinitely, or at least until the borrower’s debt is repaid in full, and creditors often assume the same. The law, however, tells a different story. Like every legal remedy, proceedings against a personal guarantor are subject to limitation, and the limitation period decides how long a creditor has. If the prescribed period expires before legal action is initiated, the consequences can be significant.

The difficulty lies in identifying when that period begins. Is it when the borrower defaults? When is the loan account declared an NPA? When can the creditor invoke the guarantee? Or can subsequent events extend or revive the limitation period altogether?

These questions have become some of the most frequently contested issues in proceedings against personal guarantors under the Insolvency and Bankruptcy Code, 2016 (Code or IBC). Ever since the provisions relating to personal guarantors to corporate debtors were notified, the enforcement of a Personal Guarantee under the Code has moved from the periphery to the centre of recovery litigation.

When does the clock start against a guarantor?

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A guarantee does not automatically come into operation the moment the borrower misses a payment. The creditor must formally invoke the guarantee in the manner prescribed under the guaranteed deed. Such invocation may take the form of a formal demand notice, recall notice, legal notice or any other communication calling upon the guarantor to discharge the guaranteed debt.

In appropriate cases, courts have also recognised that a notice issued under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), may amount to a deemed invocation of the guarantee, depending upon its contents and the terms of the guaranteed deed. Equally important is whether the notice of invocation was duly served on the guarantor, since service may be a relevant factor in determining whether the guarantee was validly invoked and whether the guarantor had a reasonable opportunity to honour the demand.

Courts have consistently held that the date of default of the guarantor is not necessarily the same as that of the principal borrower. In the context of limitation for invoking personal guarantee, the guarantor’s obligation, and consequently the starting point of limitation against them, generally arises only when the guarantee has been validly invoked and the guarantor, having been given a reasonable time to pay, fails to honour the demand.

How the Personal Guarantee Limitation Period works – the three-year window under IBC 2016

Under Article 137 of the Limitation Act, 1963, any application for which no specific period of limitation is provided must be filed within three years from the date when the right to apply accrues. The Supreme Court, followed by the NCLAT and the NCLT, has confirmed that proceedings under Section 7 against corporate debtors and the Section 95 application against a Personal Guarantor under IBC are governed by this three year period (see: B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates, Civil Appeal No. 23988 of 2017 (SC); Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd., Civil Appeal No. 4952 of 2019 (SC)).

This means that from the date of default, whether that of the borrower or the guarantor, depending on the facts, a creditor typically has three years to file a Section 95 application against a Personal Guarantor under IBC, failing which the application can be dismissed at the threshold, however large the default. Three years sounds straightforward, but in practice, the calculation is anything but simple, because of events that either pause the clock or reset it entirely.

Resetting the clock – Acknowledgement of Debt under Section 18

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The most reliable and most contested principle available to creditors who may have missed the three-year window is the acknowledgement of debt. Section 18 of the Limitation Act, 1963 provides that if a person, before the prescribed period of limitation expires, makes an acknowledgement of a present subsisting liability, a fresh period of limitation begins from the date of that acknowledgement.

The key requirements are that the acknowledgement of debt must be made before the original limitation period expires; it must be in writing and signed by the person making it; it must acknowledge a present, subsisting liability; and it must indicate a legal relationship between the parties, such as debtor and creditor. It need not contain an explicit admission of liability in so many words; courts have consistently held that the intention to acknowledge can be gathered from the general tenor, background, and context of the document. Even letters of settlement and One Time Settlement (OTS) proposals have been treated as valid acknowledgements in appropriate circumstances (see: Laxmi Pat Surana v. Union Bank of India and Anr., Civil Appeal No. 2734 of 2020 (SC)).

Balance sheets as Acknowledgement of Debt

One of the most litigated questions is whether entries in a company’s audited balance sheet, financial statements or independent auditor’s report reflecting an outstanding debt constitute a valid acknowledgement under Section 18. The Supreme Court has answered this in the affirmative, subject to an important caveat. An entry relating to an outstanding debt, whether classified as a short-term or long-term borrowing, in a balance sheet duly approved and signed by the authorised persons of the company, may constitute a valid acknowledgement of debt and furnish a legitimate basis for extending the period of limitation, provided such acknowledgement was made before the expiry of the original limitation period.

The logic is straightforward: when a company’s board approves an audited balance sheet that shows a debt as outstanding, they are, in effect, admitting to the public and to the creditor that the liability exists and has not been discharged (see: Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal & Anr., Civil Appeal No. 323 of 2021 (SC); IL&FS Financial Services Limited v. Adhunik Meghalaya Steels Private Limited, Civil Appeal No. 5787 of 2025 (SC)).

Conclusion

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The law of limitation exists to bring finality to disputes. Without it, creditors could pursue debtors indefinitely, and no business could ever truly move forward. But the law also recognises that the mere passage of time should not extinguish a genuine, undeniable debt, particularly when the parties themselves have continued to acknowledge it. For creditors and guarantors alike, the Personal Guarantee Limitation Period is rarely a mere date on a calendar; understanding when it commences and the events that may extend or renew it is often decisive in determining legal rights and remedies.

Note: This article is intended for general informational purposes only. Specific cases may vary significantly based on individual facts and the evolving interpretation of law by courts and tribunals.

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Ascentium India is a premier professional services firm specialising in insolvency, bankruptcy and debt resolution, with expertise across the full spectrum of proceedings under the IBC 2016 along with other services. We advise creditors, corporates, promoters and financial institutions on corporate and personal insolvency, personal and corporate guarantee matters, debt restructuring, resolution plans, creditor claims and recovery strategies. Our end-to-end, legally aligned solutions deliver practical and commercially sound outcomes that protect stakeholder rights, maximise value and ensure efficient resolution at every stage. To learn more about our services, please email us at in-info@ascentium.com or reach out to us via WhatsApp at (+91) 77380 66622.

Authored by:
Rithvik D | IBC

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