Limitation For Action Against Personal Guarantor Begins Only On Clear Invocation Of Guarantee: NCLAT Chennai

The Chennai Bench of the National Company Law Appellate Tribunal (NCLAT) on 9 April 2026 held that limitation for initiating insolvency proceedings against a personal guarantor under Section 95 of the Insolvency and Bankruptcy Code, 2016 starts only when the guarantee is clearly and unequivocally invoked, and not from earlier communications that only show default or an intention to recall the loan.

A Bench comprising Judicial Member Justice Sharad Kumar Sharma upheld the order of the NCLT, Hyderabad, which admitted insolvency proceedings initiated by the National Bank for Agriculture and Rural Development (NABARD) against M. Chandra Bushanaswamy Reddy (appellant). It held:

“Consequently, the 'company appeal' lacks 'merit', and the same is 'dismissed'. All pending interlocutory applications would stand closed.”

The appellant contended that the insolvency proceedings initiated by NABARD were barred by limitation as they were initiated beyond three years from the alleged date of default. He submitted that communications dated 29 January 2016 and 30 November 2018 constituted loan recall or demand notices, and that initiation of proceedings in 2023 therefore violated Article 137 of the Limitation Act, 1963.

The Tribunal examined the communications and held that neither could be treated as a loan recall notice or invocation of the guarantee. It observed that the letter dated 29 January 2016 was addressed to the corporate debtor and not the personal guarantor. It observed:

“…this communication dated 29.01.2016, not being a direct address to the personal guarantor by the creditor, cannot be treated as a recall notice for the purpose of determining limitation.”

The Tribunal further clarified that the letter dated 30 November 2018 only warned of possible legal action and did not satisfy the statutory requirement of a demand notice under Section 95 of the IBC.

It noted that the first clear and unequivocal invocation of the personal guarantee occurred through a communication dated 3 August 2020, wherein the creditor explicitly invoked the guarantee and demanded repayment from the personal guarantor.

Accordingly, the NCLAT held that the proceedings were within the limitation period prescribed under Article 137 of the Limitation Act and dismissed the appeal.