Creditor’s Name Not Essential in Balance Sheet for Valid Acknowledgement: Supreme Court Upholds IL&FS IBC Plea as Within Limitation
- REEDLAW
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The Supreme Court held that the creditor’s name need not be expressly mentioned in a balance sheet for it to constitute a valid acknowledgement under Section 18 of the Limitation Act, and accordingly upheld the IL&FS IBC plea as being filed within the prescribed limitation period.
The Supreme Court Bench comprising Justice Manoj Misra and Justice K.V. Viswanathan, while adjudicating an appeal, held that a balance sheet can constitute a valid acknowledgement of debt under Section 18 of the Limitation Act even if it does not expressly name the creditor, provided it reflects a subsisting liability and indicates a jural relationship. Such an acknowledgement, the Court observed, extends the limitation period. Additionally, the Court clarified that its COVID-19 extension order dated 10.01.2022, specifically Para 5(I), excluded the period from 15.03.2020 to 28.02.2022 for the purpose of limitation, thereby rendering the Section 7 IBC application filed on 15.01.2024 as being within the prescribed time.
The Supreme Court considered whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016, filed by the appellant-financial creditor was barred by limitation. The application had been dismissed by the NCLT and the NCLAT on the ground that it was filed beyond the prescribed period. The appellant had granted a loan of ₹30 crores to the corporate debtor under a loan agreement dated 27.02.2015, which was secured by a pledge of shares. The account was classified as a Non-Performing Asset on 01.03.2018, and a recall notice was issued on 10.08.2018. The Section 7 application was filed on 15.01.2024, claiming a default of over ₹55 crores and relying on acknowledgements in the Balance Sheets from FY 2015–16 to FY 2019–20, particularly the one signed on 12.08.2020.
The Supreme Court examined the legal position on what constitutes a valid acknowledgement under Section 18 of the Limitation Act. It reiterated that an acknowledgement must relate to a subsisting liability and indicate a jural relationship between the parties, such as that of debtor and creditor. The intention to acknowledge such liability could be implied and need not be expressly stated, and courts were permitted to take the surrounding circumstances into account when interpreting such documents. Referring to earlier precedents, including Khan Bahadur Shapoor and Lakshmirattan Cotton Mills, the Court emphasized that documents must be construed in their proper context to determine whether they amount to an acknowledgement of liability.
The Court found that the Balance Sheet for FY 2019–20, when read alongside the financial statements from previous years, clearly reflected continuing secured borrowings corresponding to the original loan. The cash flow statement further revealed that no repayments were made during FY 2019–20, indicating that the debt remained outstanding. Although the name of the appellant was not expressly mentioned, the Court relied on its ruling in Vidyasagar Prasad v. UCO Bank and Another, REEDLAW 2024 SC 10546 to hold that such absence would not defeat an acknowledgement, particularly when the financial statements were prepared in the prescribed format and accompanied by notes reflecting continuing liability.
On the question of limitation, the Court clarified that the acknowledgement dated 12.08.2020 extended the limitation period up to 11.08.2023. Considering the impact of the COVID-19 pandemic, it applied its order dated 10.01.2022 and held that sub-para (I) of paragraph 5 thereof would govern the computation of limitation. Thus, the entire period from 15.03.2020 to 28.02.2022 stood excluded, and the extended limitation recommenced from 01.03.2022 to run until 28.02.2025. Since the application had been filed on 15.01.2024, it was held to be within the prescribed limitation period.
The Court rejected the contention of the respondent that sub-para (III) of the order of 10.01.2022 applied, noting that the limitation had not expired during the exclusion period, and hence the grant of 90 days’ time from 01.03.2022 was inapplicable. It held that the Balance Sheet for FY 2019–20 constituted a valid acknowledgement under Section 18 and that the benefit of the Supreme Court’s COVID-19 extension orders applied to the appellant’s case. Consequently, the judgments of the NCLT and NCLAT were set aside, the appeal was allowed, and the matter was remitted to the adjudicating authority to proceed afresh, treating the Section 7 application as having been filed within limitation.
Mr. Ritin Rai, Senior Advocate, represented the Appellant.
Mr. Ramji Srinivasan, Senior Advocate, appeared for the Respondent.
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