Limitation in Section 7 IBC Applications and the Effect of Parallel SARFAESI Action: The Settled Principles

A financial creditor that has already started enforcing its security under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) may later initiate a corporate insolvency resolution process (“CIRP”) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”). This raises two important questions: what is the Section 7 IBC limitation period when the default occurred years earlier, and does pending SARFAESI action prevent the creditor from filing an insolvency application? The Supreme Court has addressed both issues through a series of important decisions, while the 2026 amendments to the IBC provide further clarity on the admission of Section 7 applications.

What Is the Limitation Period for a Section 7 IBC Application?

Section 238A of the IBC, inserted in 2018, applies the Limitation Act, 1963, as far as may be, to proceedings before the National Company Law Tribunal (“NCLT”) and the National Company Law Appellate Tribunal.

In B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633, the Supreme Court held that Article 137 of the Schedule to the Limitation Act governs applications under Sections 7 and 9 of the IBC. The right to apply accrues when the default occurs, and the limitation period is three years from the date of default.

Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1, applied this to a case where the date of default stated in the application was the date on which the account was classified as a non-performing asset. The Court held that limitation ran from that default, rejected the contention that the twelve-year period applicable to suits on a mortgage could be invoked for a Section 7 application, and emphasised that facts relied upon to extend limitation must be pleaded.

How to Extend or Save the Section 7 IBC Limitation Period

Acknowledgment of liability (Section 18, Limitation Act). A written acknowledgment signed by the debtor before the expiry of limitation starts a fresh period. In Laxmi Pat Surana v. Union Bank of India, (2021) 8 SCC 481, the Supreme Court confirmed that Section 18 applies to Section 7 applications. In Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal, (2021) 6 SCC 366, it held that entries in a company’s balance sheet can amount to acknowledgment, subject to the facts, including any qualifications in the auditor’s notes.

This line was developed in Vidyasagar Prasad v. UCO Bank, 2024 SCC OnLine SC 2993, and in IL&FS Financial Services Ltd. v. Adhunik Meghalaya Steels Pvt. Ltd., 2025 INSC 911 (Supreme Court, 30 July 2025). In the latter, the Court held that an entry in the corporate debtor’s balance sheet could constitute a valid acknowledgment even though the financial creditor was not named individually, and remitted the Section 7 application for decision on the footing that it was within limitation.

Exclusion of time spent in other proceedings (Section 14, Limitation Act). In Sesh Nath Singh v. Baidyabati Sheoraphuli Co-operative Bank Ltd. (Supreme Court, 22 March 2021), the Court held that Section 14, which excludes time spent prosecuting another proceeding with due diligence and in good faith before a forum unable to entertain it, can apply to Section 7 applications. It also held that the absence of a formal application for exclusion is not fatal. Whether particular SARFAESI proceedings qualify depends on whether their requirements are met on the facts; SARFAESI enforcement does not automatically stop limitation for an insolvency application.

Recovery certificates and decrees. In Dena Bank (now Bank of Baroda) v. C. Shivakumar Reddy, (2021) 10 SCC 330, the Court held that a final judgment or decree, or a recovery certificate issued by a Debts Recovery Tribunal, gives rise to a fresh right to apply. In Kotak Mahindra Bank Ltd. v. A. Balakrishnan (Supreme Court, 30 May 2022), it held that the holder of a recovery certificate is a financial creditor and may initiate a CIRP within three years of the certificate.

The COVID-19 exclusion. In In Re: Cognizance for Extension of Limitation (order dated 10 January 2022), the Supreme Court excluded the period from 15 March 2020 to 28 February 2022 in computing limitation. The IL&FS judgment applied that exclusion to a Section 7 application.

Does Pending SARFAESI Action bar a Section 7 Application?

The IBC does not make pending SARFAESI proceedings a ground for refusing a Section 7 application, and the statute points firmly the other way.

Overriding effect. Section 238 gives the IBC effect notwithstanding anything inconsistent in any other law.

Moratorium. Once a CIRP commences, Section 14(1)(c) prohibits any action to foreclose, recover or enforce any security interest, including under the SARFAESI Act. Enforcement that has begun must therefore stop on admission.

Admission criteria after 26 May 2026. The Insolvency and Bankruptcy Code (Amendment) Act, 2026 substituted Section 7(5). The Adjudicating Authority must, within fourteen days, admit the application if a default has occurred, the application is complete and no disciplinary proceeding is pending against the proposed resolution professional. Explanation I states that where these requirements are met, “no other ground shall be considered to reject” the application. The existence of a parallel recovery proceeding is not among the permissible grounds.

Proof of default through information utilities. Explanation II to Section 7(5) provides that where a financial institution files a record of default from an information utility with its application, that record is sufficient for the Adjudicating Authority to ascertain default.

Pending SARFAESI steps may still be relevant in other ways. They may bear on whether the application is bona fide, on penalty exposure for frivolous or vexatious proceedings under new Section 64A, or on how the secured creditor is treated in any later liquidation. But they are not, in themselves, a bar to admission.

Secured Creditors if Liquidation Follows

If the CIRP ends in liquidation, the amended Section 52(2) requires a secured creditor intending to realise its security outside the liquidation estate to inform the liquidator, and identify the asset, within fourteen days of the liquidation commencement date; otherwise the security interest is deemed relinquished. Where more than one secured creditor holds security over the same asset, realisation requires the agreement of secured creditors holding at least sixty-six per cent of the value of the claims secured by it. These changes apply to liquidations initiated after 26 May 2026.

Summary of Principles

Limitation remains a threshold issue in a Section 7 IBC application, depending on the pleaded date of default, the documents on record, and whether any acknowledgment of debt or exclusion of time is properly pleaded and proved.

FAQs

1. What is the limitation period for a Section 7 IBC application?
Generally, a Section 7 application must be filed within three years from the date of default under Article 137 of the Limitation Act.

2. Can a creditor file Section 7 proceedings after starting SARFAESI action?
Yes. Pending SARFAESI proceedings do not, by themselves, bar a financial creditor from initiating CIRP under Section 7.

3. Can acknowledgment of debt extend limitation under the IBC?
Yes. A valid written acknowledgment under Section 18 of the Limitation Act can start a fresh limitation period.

4. Does SARFAESI enforcement stop once CIRP begins?
Yes. On admission of the Section 7 application and commencement of CIRP, the Section 14 moratorium generally restricts enforcement of security interests.

5. Can time spent in other proceedings be excluded from limitation?
Yes, Section 14 of the Limitation Act may permit exclusion where its statutory requirements are satisfied.

Legal Information Disclaimer

This article provides general information about Indian law as it stood on 16 September 2026. It is not legal advice, and reading it does not create an advocate–client relationship. Statutes, rules and judicial interpretations change, and their application depends on the facts of each matter. Readers should consult the current official text of the laws and judgments cited and should not act on this information without advice specific to their circumstances. This article is published for legal awareness and education and is not intended to advertise or solicit professional work.

Sources / Authorities

1. Insolvency and Bankruptcy Code, 2016 — Sections 7, 14, 52, 64A, 238, 238A (as amended) — IBBI – Legal Framework
2. Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026) — Gazette text (IBBI); Notification S.O. 2625(E) dated 22 May 2026 — IBBI
3. Limitation Act, 1963 — Sections 14 and 18; Article 137 of the Schedule
4. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 — Section 13
5. B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633
6. Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1
7. Laxmi Pat Surana v. Union Bank of India, (2021) 8 SCC 481
8. Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal, (2021) 6 SCC 366
9. Sesh Nath Singh v. Baidyabati Sheoraphuli Co-operative Bank Ltd., Supreme Court of India, 22 March 2021 — Indian Kanoon
10. Dena Bank (now Bank of Baroda) v. C. Shivakumar Reddy, (2021) 10 SCC 330
11. Kotak Mahindra Bank Ltd. v. A. Balakrishnan, Supreme Court of India, 30 May 2022 — Indian Kanoon
12. Vidyasagar Prasad v. UCO Bank, 2024 SCC OnLine SC 2993
13. IL&FS Financial Services Ltd. v. Adhunik Meghalaya Steels Pvt. Ltd., 2025 INSC 911, Civil Appeal No. 5787 of 2025, Supreme Court of India, 30 July 2025 — Supreme Court of India
14. In Re: Cognizance for Extension of Limitation, Suo Motu Writ Petition (C) No. 3 of 2020, order dated 10 January 2022

Download Booklet on Limitation Act in India – Legal Deadlines & Case Laws