The National Company Law Appellate Tribunal (NCLAT) has held that the three-month period prescribed under Section 121(2) of the Insolvency and Bankruptcy Code, 2016 (IBC) for filing a bankruptcy application is directory and not mandatory. 

The bench of Justice N. Seshasayee (Member Judicial) and Arun Baroka (Member Technical) ruled that the Adjudicating Authority has the power to condone delay by invoking Section 238A of the IBC read with Section 5 of the Limitation Act, 1963, where sufficient cause is shown. 

The dispute arose from various credit facilities sanctioned by Cosmos Co-Operative Bank to a corporate debtor between 2013 and 2017. One of the directors had executed personal guarantees in favour of the bank.

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Following the commencement of the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor in December 2019, the bank initiated insolvency proceedings against the personal guarantor under Section 95 of the IBC. The application was admitted in June 2022 after the Resolution Professional reported that the guarantor had admitted his inability to repay the debt.

Subsequently, no repayment plan was submitted by the personal guarantor. Acting under Sections 112 and 115(2) of the Code, the NCLT, by order dated 11 December 2023, permitted the creditors to initiate bankruptcy proceedings against the personal guarantor. 

However, the bank filed the bankruptcy application under Section 121 only on 12 June 2024.

The bank contended that it became aware of the NCLT’s order only in June 2024 because the Resolution Professional had communicated the order to a former employee instead of the authorised representative of the bank.

It also submitted that additional time was consumed in collecting documents from different branches across India and due to the temporary unavailability of its authorised signatory. The bank maintained that the delay was bona fide and no prejudice had been caused to the personal guarantor.

The NCLT nevertheless dismissed the application, holding that it had no jurisdiction to condone the delay beyond the statutory period. 

The principal question before the Appellate Tribunal was:

Whether the three-month period prescribed under Section 121(2) of the Insolvency and Bankruptcy Code for filing a bankruptcy application against a personal guarantor is mandatory or merely directory.

The Appellate Tribunal observed that although Section 121(2) uses the expression “shall”, the provision does not prescribe any consequence if the application is filed after three months.

According to the Tribunal, where the legislature intends to impose an absolute limitation, it expressly prescribes both an inner and an outer limit. Section 121 contains only a three-month timeline and does not provide any outer cap beyond which delay cannot be condoned. 

The Bench contrasted this with Section 61 of the IBC governing appeals before the NCLAT, where Parliament has specifically prescribed a maximum condonable period, thereby clearly indicating a mandatory limitation.

The Tribunal extensively relied upon several Supreme Court judgments interpreting procedural timelines, including: Surendra Trading Company v. Juggilal Kamlapat Jute Mills Company Ltd., where timelines for removal of defects and admission of CIRP applications were held to be directory. P.T. Rajan v. T.P.M. Sahir, holding that procedural provisions using the word “shall” may nevertheless be directory where no penal consequence is prescribed. Rani Kusum v. Kanchan Devi, emphasising that procedural law is intended to advance justice and should not defeat substantive rights. 

The Tribunal observed that these principles equally apply to Section 121(2) of the IBC.

The Bench held that since Section 121 does not expressly exclude the applicability of the Limitation Act, Section 5 of the Limitation Act continues to apply, thereby empowering the Adjudicating Authority to condone delay where sufficient cause exists.

The Tribunal concluded that the NCLT had wrongly assumed that it lacked jurisdiction to entertain such an application. 

The Appellate Tribunal also referred to the recommendations of the Bankruptcy Law Reforms Committee (BLRC)while explaining the legislative intent behind personal insolvency provisions.

Unlike the Corporate Insolvency Resolution Process, which is designed to be strictly time-bound, the personal insolvency framework deliberately provides flexibility to encourage settlements between creditors and debtors even after completion of the insolvency resolution process.

According to the Tribunal, interpreting Section 121(2) as a rigid limitation would discourage negotiated settlements and defeat the legislative objective behind the personal insolvency regime. 

Allowing the appeal, the NCLAT set aside the NCLT’s order dated 30 May 2025.

The Tribunal condoned the delay in filing the bankruptcy application, restored the bankruptcy petition for adjudication on merits, and directed the Adjudicating Authority to proceed with the application and pass appropriate orders regarding the bankruptcy order and appointment of a bankruptcy trustee within the timeline prescribed in the judgment. 

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