Balance Sheet Acknowledgement Extends Limitation for Section 7 IBC Even Without a Loan Agreement: NCLAT
- REEDLAW
- Sep 17
- 4 min read
REEDLAW Legal News Network reports: In a pivotal ruling on 15 September 2025, the National Company Law Appellate Tribunal (NCLAT), New Delhi, clarified that acknowledgment of debt in a corporate balance sheet constitutes a valid written acknowledgment under Section 18 of the Limitation Act, thereby extending the limitation period for filing a Section 7 application under the Insolvency and Bankruptcy Code (IBC). The Tribunal ruled that such an acknowledgement remains effective for limitation purposes even in the absence of a formal loan agreement between the parties.
The NCLAT Principal Bench, comprising Justice Rakesh Kumar Jain and Justice Mohd. Faiz Alam Khan (Judicial Members) and Mr. Naresh Salecha (Technical Member), while adjudicating a company appeal, held that the acknowledgement of debt recorded in a corporate balance sheet serves as a valid acknowledgement under Section 18 of the Limitation Act. This acknowledgement, the Tribunal emphasised, is sufficient to extend the limitation period for initiating proceedings under Section 7 of the Insolvency and Bankruptcy Code even in the absence of a formal loan agreement.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, dismissed an appeal against the order dated 13 December 2024 of the National Company Law Tribunal (NCLT), Kolkata Bench, which had admitted a Section 7 application under the Insolvency and Bankruptcy Code, 2016 (IBC) and initiated the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Appellant argued that an advance of ₹50 lakh had been received in 2009 from an erstwhile creditor for the supply of textile materials and that the entire amount stood adjusted through alleged supplies completed on 1 April 2016 under 23 invoices worth ₹72,39,520. It contended that no financial debt existed under Section 5(8) of the IBC, the petition was time-barred, and the amount reflected in the 2016–2017 balance sheet represented other creditors, relying on a Chartered Accountant’s certificate.
The Financial Creditor established that an inter-corporate loan of ₹50 lakh had been disbursed on 7 November 2009 through RTGS with an agreed interest of 9% per annum. Tax was deducted at source (TDS) on the interest from assessment years 2010–2011 to 2015–2016, and successive balance sheets from 2009–2010 through 2016–2017 consistently recorded the amount as an unsecured loan or long-term borrowing. Demand notices were served in April 2016 and February 2019, but the Corporate Debtor failed to repay.
The Appellate Tribunal examined the bank statements, audited financial statements, and the continuous acknowledgement of liability in successive balance sheets. It held that the deduction of TDS under Section 194A of the Income-tax Act, 1961, confirmed the nature of the transaction as a financial debt for the time value of money. The Tribunal ruled that the acknowledgement of debt in the balance sheet as on 31 March 2017 constituted a valid written acknowledgement under Section 18 of the Limitation Act, 1963, thereby extending the limitation period by three years.
The Appellant’s claim that the advance was discharged through fabric supply was rejected as implausible. The alleged invoices lacked purchase orders, credible supporting evidence, or adequate freight charges, and the Corporate Debtor’s own inventory figures contradicted the assertion of a sudden large-scale supply. Even after the purported settlement, the same loan amount continued to appear in the 31 March 2017 balance sheet, further undermining the defence.
The NCLAT concluded that the absence of a formal written loan agreement did not negate the existence of a financial debt under Section 5(8) of the IBC. Citing precedents including Innoventive Industries Limited v. ICICI Bank and Another, REEDLAW 2017 SC 08563 rulings, it reaffirmed that financial debt may be proven through documentary evidence such as financial statements, TDS records, demand notices, and balance sheet entries without the necessity of a formal loan contract. Finding that the Financial Creditor had demonstrated disbursement of funds for the time value of money, default in repayment, and acknowledgement of liability within limitation, the Tribunal upheld the NCLT’s order admitting the Section 7 application. The appeal was dismissed, and the CIRP against the Corporate Debtor continued, with pending interlocutory applications disposed of and no order as to costs.
Mr. Krishnendu Datta, Sr. Advocate, along with Mr. Ritesh Agrawal and Ms. Priyanshi Sharma, Advocate, represented the Appellant.
Mr. Sunil Choraria, Advocate, appeared for the respondent No. 1/RP.
Ms. Pooja Agrawal, Advocate, appeared for the Respondent No. 2.
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