Balance Sheet Acknowledgment Must Be Dated from Signing, Not Filing: NCLAT Upholds Time-Barred Dismissal of Section 7 Application

NCLAT held that acknowledgement of debt in a balance sheet triggers a fresh limitation period from the date of signing, not from the date of its filing with the Registrar of Companies, and accordingly upheld the dismissal of the Section 7 application as time-barred.

The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating a company appeal, held that for the purpose of extending limitation under Section 18 of the Limitation Act, 1963, the relevant date is the date on which the balance sheet acknowledging the debt is signed, and not the date it is filed with the Registrar of Companies (RoC). The Tribunal further observed that even after granting the benefit of the COVID-19 exclusion period, the Section 7 application filed on 15.01.2024 was barred by limitation.

IL&FS Financial Services Ltd. had filed an appeal before the National Company Law Appellate Tribunal (NCLAT) under Section 61 of the Insolvency and Bankruptcy Code, 2016, challenging the order dated 16.05.2024 passed by the NCLT Guwahati Bench. The Adjudicating Authority had dismissed the Section 7 application filed by the Appellant as barred by limitation. The application pertained to a ₹30 Crore loan disbursed in part to Adhunik Meghalaya Steels Pvt. Ltd. pursuant to a Loan Agreement dated 27.02.2015. The loan was secured by a pledge of shares, and the account was classified as NPA on 01.03.2018, following which notices of default and recall were issued in July and August 2018. The Appellant filed the Section 7 application on 15.01.2024.

The Appellant argued that the application was within limitation due to acknowledgements of debt by the Corporate Debtor in balance sheets for FYs 2016–17 to 2019–20, constituting valid acknowledgements under Section 18 of the Limitation Act. It was submitted that the date of uploading the balance sheet on the MCA portal should be treated as the trigger date for limitation, rather than the date of signing. Additionally, the Appellant invoked the Supreme Court's Suo Motu COVID limitation orders and argued that paragraph 5.I, which allowed for complete exclusion of the period from 15.03.2020 to 28.02.2022, was applicable rather than paragraph 5.III. It was also alleged that the corporate debtor’s delayed filing of balance sheets

violated statutory duties, and that they should not benefit from such delay.

The Respondent maintained that the limitation period commenced from the date of default, i.e., 01.03.2018, and that even with the benefit of the COVID exclusion, the extended limitation period expired on 30.05.2022. It was contended that the acknowledgement in the balance sheet was ineffective since it did not specifically name the financial creditor. Moreover, the Respondent cited judicial precedent to assert that the limitation should be calculated from the date of signing, not filing.

The NCLAT upheld the Adjudicating Authority’s reasoning, holding that even assuming the balance sheet for FY 2017–18 signed on 02.09.2018 amounted to a valid acknowledgement, the extended limitation would have expired by 01.09.2021. Applying the Suo Motu exclusion period from 15.03.2020 to 28.02.2022, the Tribunal observed that only a maximum of 90 days extension beyond 01.03.2022 under paragraph 5.III was available, making the outer deadline 30.05.2022. The Section 7 application, filed on 15.01.2024, was therefore clearly time-barred.

The Tribunal further rejected the Appellant’s claim that the date of uploading the balance sheet to the MCA portal should determine the acknowledgement date. Citing its own decision in G.S. Buildtech Private Limited v. Ardree Infrastructure Venture Private Limited, REEDLAW 2021 NCLAT Del 12597 and the Supreme Court's ruling in Asset Reconstruction Company (India) Limited v. Bishal Jaiswal and Another, REEDLAW 2021 SC 04535, the NCLAT reaffirmed that under Section 18 of the Limitation Act, a signed balance sheet is sufficient to extend limitation, and the relevant date is the date of signing. Supporting case law from the Andhra Pradesh, Madras, and Punjab High Courts was also relied upon to reject the uploading date theory.

Consequently, the appeal was dismissed, and the NCLT’s rejection of the Section 7 application as time-barred was upheld.

Mr. Krishnendu Dutta, Sr. Advocate, with Ms. Niharika Sharma and Ms. Kiran Sharma, Advocates, represented the Appellant.

Mr. Ramji Srinivasan, Sr. Advocate with Mr. Swarnendu Chatterjee (AOR), Mr. Nilay Sengupta, Mr. D.N. Sharma, Mr. Sujit Banerjee, Ms. Deepakshi Garg and Ms. Harshita Rawat, Advocates, appeared for the Respondent.

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