Time Limit to File an Insolvency Petition

A creditor with a strong claim can still lose an insolvency petition for one reason: it was filed too late. The Insolvency and Bankruptcy Code itself does not set a time limit, but Section 238A applies the Limitation Act, 1963 to proceedings before the NCLT. The Supreme Court has held that an application under Section 7 or Section 9 falls under Article 137 of the Limitation Act, which allows three years from the date the right to apply accrues, that is, from the date of default.

That sounds simple, but most limitation disputes are about what happened in between. A letter from the debtor asking for more time, a part payment, an entry in the company's balance sheet, a one-time settlement offer, or the pandemic period can all change the calculation. This guide explains how limitation works for insolvency petitions, what can extend it, and how to check your own dates.

The rules in brief

When does the clock start?

For a loan, default happens when an instalment of principal or interest falls due and is not paid. Where a loan is recalled, the date of recall can matter. For banks, the date the account was classified as a non-performing asset is often used as a reference point, but the NPA date is not itself the date of default; default usually happened earlier, when payments stopped. The Supreme Court in B.K. Educational Services v Parag Gupta (2018) confirmed that the three-year period runs from the date of default.

For an operational debt, default happens when the invoice fell due and was not paid, which depends on the credit period agreed. Where there are many invoices, each has its own due date, and older invoices may be time-barred even if newer ones are not.

A decree or an arbitral award does not reset the limitation for an insolvency petition on the original debt in every case, but the Supreme Court in Dena Bank v C. Shivakumar Reddy (2021) held that a final judgment or decree for the debt, or a recovery certificate from a DRT, gives a fresh cause of action, so an insolvency application can be filed within three years of it.

Acknowledgments and part payments

Section 18 of the Limitation Act says that if, before the period expires, the debtor acknowledges the liability in writing, signed by the debtor or its agent, a fresh period of limitation starts from the date of the acknowledgment. Section 19 says the same for a payment on account of the debt, made before expiry, if the payment is acknowledged in writing.

Acknowledgments come in many forms: a letter asking for time, an email signed by an authorised person agreeing the balance, a ledger confirmation, a one-time settlement proposal, or a restructuring request. The acknowledgment need not promise to pay; it must recognise that the debt exists. It must be made while the original period is still running. An acknowledgment made after the three years have expired does not revive a time-barred debt under Section 18, though a written promise to pay a time-barred debt can create a new contract under Section 25(3) of the Contract Act.

Balance sheets are a special case. In Asset Reconstruction Company v Bishal Jaiswal (2021), the Supreme Court held that an entry in a company's audited balance sheet showing a debt as owed can amount to an acknowledgment, depending on the facts and any qualifying notes by the auditors. For lenders, this often extends limitation by several years, because companies record their borrowings every year.

How to check whether your petition is in time

Common situations and how limitation works

Defending on limitation

For a corporate debtor, limitation is often the strongest defence, but it needs care. Look at the creditor's own documents: does its date of default match the loan account? Are its claimed acknowledgments really signed by the company, and made before expiry? Does the balance sheet entry carry an auditor's qualification? Is any part of the claim for invoices that are already time-barred? An application can be dismissed as time-barred, or the amount within limitation may fall below Rs 1 crore. Raise limitation at the first opportunity, with a clear table of dates, because tribunals expect it to be pleaded specifically. See defending an insolvency petition.

Documents to collect when checking limitation

Personal guarantors and limitation

For personal guarantors, limitation generally runs from the date the guarantee was invoked, not from the borrower's default, because the guarantor's liability arises on invocation under the terms of most guarantee deeds. A lender pursuing a guarantor should check the date and proof of invocation, and any acknowledgments by the guarantor since. A guarantor defending a claim should check whether the guarantee was invoked properly and when. See personal guarantor insolvency explained.

Key rulings on limitation

Limitation for operational creditors

For suppliers, limitation usually runs separately for each invoice, from its due date. Where an account is running, with regular supplies and payments, tribunals have sometimes treated it as a mutual, open and current account, which can affect how payments are appropriated and when limitation starts. Where payments are not appropriated to specific invoices, Section 60 and 61 of the Contract Act may apply them to the oldest debts first, which can bring older invoices back into time. These points need careful analysis of the ledger, which is why we ask for the complete account history, not just the unpaid invoices.