In the Indian corporate landscape, timing is everything when a company defaults on its obligations. Under the Insolvency and Bankruptcy Code (IBC), a creditor must initiate insolvency proceedings within a strict three-year window from the date of default, as prescribed under Article 137 of the Limitation Act, 1963. However, real-world commerce is rarely that rigid; financial distress usually triggers extended negotiations, restructuring proposals, and deferred payment promises.
This introduces a critical intersection between insolvency law and Section 18 of the Limitation Act, which dictates that if a debtor acknowledges a subsisting liability in a signed, written statement before the expiration of the prescribed period, the limitation clock completely resets, granting a fresh three-year window from the date of such acknowledgment. For a corporate entity, this must be a conscious, intentional admission executed by an authorized representative, such as a director or signatory.
For years, defaulting debtors attempted to bypass this rule by arguing that the IBC was a self-contained code and that the limitation timer ran inexorably from the date of Non-Performing Asset (NPA) classification. The Supreme Court of India decisively dismantled this defense, establishing that a company's commercial admissions cannot be ignored simply because a dispute enters the realm of insolvency.
1. One-Time Settlement (OTS) Proposals Reset the Clock
Dena Bank (now Bank of Baroda) v. C. Sivakumar Reddy (2021) 10 SCC 330; Vidyasagar Prasad v. UCO Bank, 2024 AIR Supreme Court 5464.
In the above mentioned cases, it was discussed that signing and submitting an OTS proposal acts as a written acknowledgement of liability. This resets the limitation clock, granting a fresh 3-year period from the date the proposal was signed. This principle is heavily utilized in insolvency and recovery proceedings (such as under the IBC or DRT) to prevent debtors from escaping liability by citing the initial NPA (Non-Performing Asset) date.
2. Restructuring Agreements and Continuous Commercial Conduct
In B. Prashanth Hegde v. State Bank of India, 2026(2) Apex Court Judgements (SC) 609, the Hon'ble Supreme Court held that where corporate debtor acknowledged debts in balance sheets and entered into restructuring agreements, such acknowledgement extended limitation period under Section 18 of Limitation Act. Application filed within extended limitation period is not barred.
3. Entries in Balance Sheets are Valid Acknowledgments
In Asset Reconstruction Company (India) Limited vs. Bishal Jaiswal, 2021(6) SCC 366, the Hon'ble Court held that entries made in company's balance sheets amounts to acknowledgment of debt for the purpose of extending limitation under Section 18 of the 1963 Act.
This judgment was widely followed by the Hon'ble NCLAT and Hon'ble NCLTs across India.
Recently, in the case of Vidyasagar Prasad v. UCO Bank, 2024 AIR Supreme Court 5464, the Hon'ble Court observed that entries in the balance sheets amount to clear acknowledgment of debt, even if said entry fails to mention the name of financial creditor.
4. Admission of Claims by an IRP/RP is NOT an Acknowledgment
In Shankar Khandelwal v. Omkara Asset Reconstruction Pvt. Ltd., 2026 AIR Supreme Court 2132, the Hon'ble Supreme Court held that scope and ambit of Section 18 of the 1963 Act are well-settled. For a writing to constitute a valid acknowledgment, it must be made by the party against whom the right is claimed, or by a person duly authorized on its behalf; it must be made before the expiration of the prescribed period of limitation; and, most importantly, it must evince a conscious and unequivocal intention to admit a subsisting jural relationship and an existing liability.
A mere reference to a past transaction or a bald recital of a debt, without an intention to admit liability, would not suffice. The provisions of the Code and the Regulations were considered by this Court and it has been held that Resolution Professional (RP) has no adjudicatory powers and his role involves collation of claims. RP performs its administrative duties under Section 18 of the Code.
The admission of a claim by RP is merely an administrative/clerical task performed as part of its statutory duties under Section 18 of the Code and, therefore, admission of claim by RP only means induction/entry of a claim. An admission of a claim by RP is akin to mere recital/reference of debt, which does not amount to an acknowledgment under Section 18 of the 1963 Act.
5. Liability of Principal Debtor and Corporate Guarantor
In the case of ICICI Bank Limited v. ERA Infrastructure (India) Limited, 2026 AIR Supreme Court 1371, the Hon'ble Supreme Court held that Section 60(2) of IBC allows adjudicating authority to entertain insolvency applications against principal debtor and guarantor simultaneously. Liability of guarantor under Section 128 of the Indian Contract Act is co-extensive with principal debtor. Further, no statutory provision mandates election of claims under IBC, hence restricting creditor's claim would be unwarranted.
In another important ruling of Bank of India vs. Bimalkumar Manubhai Savalia, decided on 14.03.2023, the Hon'ble Supreme Court held that an acknowledgement of debt under Section 18 of the Limitation Act, 1963 is sufficient to extend the limitation period even if it is not accompanied by a promise to pay. Communication indicating jural relationship between creditor and debtor is adequate to constitute acknowledgement of debt.
Conclusion
The concept of "acknowledgment" hinges on a conscious, intentional admission of a subsisting jural relationship. The Supreme Court has progressively broadened this scope to include active commercial conduct, such as signing One-Time Settlement (OTS) proposals, entering restructuring agreements, and making clear entries in corporate balance sheets (even without explicitly naming the creditor). Crucially, these acknowledgments extend the limitation period even without an explicit promise to pay.
However, the judiciary draws a sharp line regarding administrative processes. The admission of a claim by a Resolution Professional (RP) is merely a clerical task and does not qualify as a valid acknowledgment of debt, as it lacks the debtor's intentional admission of liability.
Ultimately, the jurisprudence outlined above prevents the law from being overly rigid, ensuring that genuine commercial acknowledgments protect a creditor's right to initiate insolvency while safeguarding the process from administrative exploitation. Rather, it ensures that the IBC remains an effective tool for genuine asset resolution rather than a loophole for deliberate defaulters to escape their debts.
