By Lucy Rana and Nihit Nagpal
Law of Limitation prescribes the time limit for different types of suits for which an aggrieved person can approach the court for redressal. For Insolvency applications, the limitation period is 3 years.
Section 18 of the Limitation Act provides that when before the expiration of the limitation period an acknowledgment of liability in respect of the property or right has been made by the party against whom such property or right is claimed, a fresh period of limitation shall be computed from the time when the acknowledgment was so made.
Recently in Asset Reconstruction Company India Limited v. Bishal Jaiswal] the Hon’ble Supreme Court examined an interesting question if the balance sheets can amount to acknowledgment of debt under Section 18 of the Limitation Act.
Brief Facts of the case:
In 2009, Corporate Power Ltd. [“the corporate debtor”] to set up a thermal power project in Jharkhand, availed of loan from various lenders, including the State Bank of India [“SBI”] and later account of the corporate debtor was declared as a non-performing asset. Some of the original lenders of the corporate debtor assigned the debts owed to them by the corporate debtor to the Asset Reconstruction Company Limited [“A,”. The Appellant filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 [“IBC”] before the National Company Law Tribunal, Calcutta [“NCLT”] for a claiming default amount from the corporate debtor.
As the relevant form indicating the date of default did not indicate any such date the Appellant on by filing a supplementary affidavit before the NCLT, specifically mentioning the date of default and annexing copies of balance sheets of the corporate debtor, which, according to the Appellant, acknowledged periodically the debt that was due. Section 7 application was admitted by the NCLT, observing that the balance sheets of the corporate debtor, wherein it acknowledged its liability, were signed before the expiry of three years from the date of default, and entries in such balance sheets being acknowledgements of the debt due for the purposes of Section 18 of the Limitation Act, thus the Section 7 application is not barred by limitation.
In an appeal filed in the NCLAT, the corporate debtor relied upon the Full Bench judgment of the NCLAT in V. Padmakumar v. Stressed Assets Stabilization Fund in which a majority members held that entries in balance sheets would not amount to acknowledgement of debt for the purpose of extending limitation under Section 18 of the Limitation Act.
The issue raised before the Supreme Court in appeal was whether an entry made in a balance sheet of a corporate debtor would amount to an a acknowledgement of liability under Section 18 of the Limitation Act and Can acknowledgment of balance sheet be taken for the purpose of extending limitation?
CONTENTIONS BY RESPONDENT:
Respondents argued that the balance sheets in the present case did not amount to acknowledgement of liability and auditor’s report should be read along with the balance sheets, would make it clear that there was no unequivocal acknowledgement of debt.
That there has never been a pleading before either the NCLT or the NCLAT that an acknowledgement of liability contained in any of the balance sheets extended the limitation to file an insolvency application. On merits, if the auditor’s report were to be seen, there was no acknowledgement of liability.
The court also noted the judgment of Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, that there is a compulsion in law to prepare a balance sheet but no compulsion to make any particular as admission, and and evidence needs to place on record to establish an acknowledgement of liability.
Entry made in books of accounts, including balance sheet, can amount to acknowledgement of liability under Section 18 of Limitation Act
- After considering the arguments by both the counsels and judgments cited by the counsel of Appellant of the Supreme Court in Mahabir Cold Storage v. CIT, 1991 Supp (1) SCC 402; A.V. Murthy v. B.S. Nagabasavanna, (2002) 2 SCC 642; S. Natarajan vs. Sama Dharman, holding that the entries in the books of accounts would amount to an acknowledgement of the liability to within the meaning of Section 18 of the Limitation Act, 1963 and to extend the period of limitation for the discharge of the liability as debt.
- This court answered the issues in favor of Appellant and indicated that an entry made in the books of accounts, including the balance sheet, can amount to an acknowledgement of liability within the meaning of Section 18 of the Limitation Act.
- The Judgment clarifies and proves highly beneficial for prospective creditors/applicants to prove their acknowledgment of debts through entries in balance sheets of the corporate debtor and extension of limitation.
- Therefore, the balance sheets of the corporate debtor wherein the liability was acknowledged and were signed before the expiry of three years from the date of default can be taken on record to calculate the period imitation.
Limitation Period in Commercial Suits for Filing Written Submission Starts from the First Date of Service
India: Limitation Period for application to set aside arbitration award
-Pdf of the [Asset Reconstruction Company (India Limited v. Bishal Jaiswal]
- https://legislative.gov.in/sites/default/files/A1963-36.pdf – Pdf of Limitation Act, 1963
Section 18 of the Limitation Act, 1963
Effect of acknowledgment in writing.—
(1) Where, before the expiration of the prescribed period for a suit of application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.
(2) Where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received. Explanation.—For the purposes of this section,—
(a) an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set-off, or is addressed to a person other than a person entitled to the property or right;
(b) the word “signed” means signed either personally or by an agent duly authorised in this behalf; and
(c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right.
 CIVIL APPEAL NO.323 OF 2021