Balance Sheet Acknowledgement Binds Guarantor u/s 128 Contract Act: NCLAT Sets Aside NCLT’s Limitation Bar in SBI's Section 95 Petition [Read Order]

The National Company Law Appellate Tribunal (NCLAT) Principal Bench, New Delhi, has allowed the section 95 petition filed by the State Bank of India (SBI) against the respondent, ruling that the petition is not time-barred and the acknowledgement of debt in the balance sheet binds the guarantor of the corporate debtor (CD) under section 128 of the Contract Act.

The matter arose from the dismissal of SBI’s application under Section 95 of the Insolvency and Bankruptcy Code, 2016 (IBC), seeking initiation of insolvency resolution against Bernard John, personal guarantor of GEI Industrial Systems Ltd. The NCLT had held the petition barred by limitation, reasoning that balance sheets relied upon as acknowledgements of debt were not signed by the guarantor himself.

GEI Industrial Systems Ltd. obtained credit facilities from SBI and other consortium banks between 2009 and 2015. To secure repayment, Bernard John, then Whole-time Director, executed multiple deeds of guarantee, reaffirming his personal liability.

The corporate debtor’s account was classified as NPA on 28 May 2016, with dues exceeding ₹35 crore. SBI issued a recall-cum-demand notice on 30 September 2016, invoking the guarantees and demanding repayment within seven days. Default crystallised on 7 October 2016.

Subsequently, ICICI Bank, as lead lender, initiated recovery proceedings before the DRT and issued SARFAESI notices. Meanwhile, insolvency proceedings against the corporate debtor were admitted by the NCLT, Ahmedabad, in July 2017.

SBI filed its claim in CIRP and later, in January 2021, issued a demand notice under Rule 7(1) of the 2019 Rules against Bernard John, followed by a Section 95 petition before NCLT Indore.

The NCLT dismissed the petition as time-barred, holding that the limitation expired three years after default (7 October 2019). It rejected reliance on balance sheets of FY 2016–17 to FY 2019–20, stating they were not signed by the guarantor and hence did not constitute a valid acknowledgement under Section 18 of the Limitation Act.

SBI contended that the recall notice of 30 September 2016 validly invoked the guarantee. Also, Balance sheets of the corporate debtor, signed by directors and auditors, consistently acknowledged dues, thereby extending the limitation. Clauses 12 and 19 of the 2015 guarantee deed expressly bind the guarantor to acknowledgements made by the borrower. And the Supreme Court’s suo motu extension of limitation during COVID-19 further kept the petition within time.

Bernard John argued that the 2015 guarantee deed was defective and never validly invoked. Also, the recall notice did not amount to the invocation of the guarantee. The Balance sheets signed by suspended directors during CIRP were invalid, unapproved, and legally non-existent under the Companies Act. Hence, no valid acknowledgement extended limitation, making the petition hopelessly barred.

The appellate tribunal framed three issues: (i) limitation, (ii) validity of balance sheet acknowledgements, and (iii) invocation of the guarantee. It held that the recall notice of 30 September 2016 constituted the invocation of the guarantee, fixing default on 7 October 2016

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The two-member bench comprising Yogesh Khanna (Judicial Member) and Indevar Pandey (Technical Member) observed that the balance sheets of the corporate debtor acknowledging dues, even if signed by suspended directors, are valid under law and bind the guarantor by virtue of the guarantee deed clauses and Section 128 of the Contract Act.

Such acknowledgements extended the limitation under Section 18 of the Limitation Act, keeping the Section 95 petition filed in October 2021 within time, especially with the Supreme Court’s COVID-19 extension orders.

The NCLAT set aside the NCLT’s order and revived SBI’s Section 95 petition against Bernard John.

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