Advocate Shikhhar Gupta
Advocate Ankush Bhardwaj
Recently, a three judge bench of National Company Law Appellate Tribunal (NCLAT) in V. Padmakumar vs. Stressed Assets Stabilisation Fund (SAFS) & Anr.[i] considered the issue that ‘whether admission of debt in balance sheet would amount to acknowledgement of debt which would further amount to extension of period of limitation as per Section 18 of the Limitation Act, 1963 (Limitation Act)’. The issue in the said matter before the NCLAT was whether an application under Section 7 of the Insolvency & Bankruptcy Code, 2016 (I&B Code) would be barred by limitation even after claim is acknowledged in the Audited Balance Sheet for the F.Y. 2011-12 & 2012-13 by the Corporate Debtor. It was further contended by the Corporate Debtor that the application under Section 7 of the I&B Code was barred by limitation as the account of the ‘Corporate Debtor’ was declared NPA in year 2009 and decreed in 2013.
Section 18 of the Limitation Act stipulates that written acknowledgment would extend the period of limitation when acknowledgment is duly signed by the debtor or his authorised representative[ii]. The Hon’ble Supreme Court in the matter of Vashdeo R. Bhojwani vs. Abhyudaya Co-operative Bank Limited and another.[iii] held that as per Section 18, a fresh period of limitation shall be computed from the time when the acknowledgement was so signed. It is clear that the applications filed under Section 7 and 9 of the I&B Code from the inception of the code, are governed by Article 137 of the Limitation Act which is in the nature of a residuary article.
Stand taken by NCLAT
The majority view taken by the Bench presided by Chairperson S.J. Mukhopadhyaya relied significantly upon a verdict in G. Eswaro Rao vs. Stressed Assets Stabilisation Fund[iv], wherein the Appellate Tribunal noticed the provision of acknowledgment in writing under Section 18 of the Limitation Act and Section 92 of the Companies Act, 2013. It was held that Section 92 of the Companies Act, mandates a company to prepare an annual return in the prescribed manner and in case the company fails to file its annual return under sub-section (4), before the expiry of the period specified, it is punishable with fine and the officers of the company on such default are also punishable with imprisonment or fine or both. Thus, if Balance Sheet/ Annual Return of the ‘Corporate Debtor’ amounts to acknowledgement under Section 18 of the Act, then no limitation would be application because it is mandatory for the ‘Corporate Debtor’ to file the Balance Sheet/ Annual Return. This would make the very existence of Section 18 of the Act redundant.
Justice A.I.S. Cheema, on the other hand, in his minority view, relied upon plethora of judgements where it has been held that the entries in the books of accounts would amount to an acknowledgement of the liability withing the meaning of Section 18 of the Act and would further extend the period of limitation for discharging the liabilities as debt.[v] He supported his conclusion by further relying upon a judgement by the Hon’ble High Court of Delhi in Sheetal Fabrics vs. Coir Cushions Ltd.[vi] which laid emphasis on the necessary actions which are needed for treating the Balance Sheet as acknowledgement of debt. First, the Balance Sheet should be passed by the shareholders at the appropriate meeting; and secondly, the same shall be accompanied by the Director’s Report. Though the Balance Sheet is a separate statutory document, but the same would only amount to acknowledgement if it is passed by the shareholders along with the Directors’ Report. Similar view was taken by the Hon’ble High Court of Delhi in Larsen & Tubro Ltd. vs. Commercial electric Works[vii], S.C. Gupta vs. Allied Beverages Company Pvt. Ltd.[viii] wherein it was held that the acknowledgement made by a company in its balance sheet has the effect of extending the period of limitation for the purpose of Section 18 of the Limitation Act.
Even the Supreme Court of India in A.V. Murthy vs. B.S. Nagabasavanna[ix] and S. Natrajan vs. Sama Dharman[x], while dealing with issue of limitation under Section 138 of Negotiable Instruments Act, 1881, held that amount acknowledged by the company, may amount to acknowledgment and the creditor might have a fresh period of limitation from the date on which the acknowledgement was made.
The Hon’ble High Court of Calcutta in In Re. Padam Tea Co. Ltd.[xi], while considering whether a claim for winding up of company was barred by limitation held that acknowledgment of debt in balance cannot be considered as extension of liability in which director’s report clearly points that claim shown in the balance sheet is barred by limitation. It is a well settled position of law that admission should be in clear, unambiguous and unqualified[xii].
In view of the conflicting opinion between various judicial forums, the issue whether admission of debt in balance sheet of the Company amounts to acknowledgment of debt under Section 18 of the Limitation Act and extend the limitation for purpose of filing Section 7 or Section 9 application under I&B Code still remains to be settled.
[i] Company Appeal (AT) (Insolvency) No. 57 of 2020
[ii] Ghulam Murtaza vs Mt. Fasiunnissa Bibi AIR 1935 All 129, 152 Ind Cas 370
[iii] 2019 (9) SCC 158
[iv] Company Appeal (AT) (Insolvency) No. 1097 of 2019
[v] Mahabir Cold Storage vs. CIT (1991) 188 ITR 91
[vi] 120 (2005) DLT 693
[vii] 67 (1997) DLT 387
[viii] (2009) 163 DLT 495
[ix] (2002) 2 SCC 642
[x] 2015 (2) RCR (Criminal) 854
[xi] AIR 1974 Cal 170
[xii] Syndicate Bank vs. R. Veeramma (2003) 2 SCC 15