By Manish Doshi, Advocate
email@example.com | April, 19 2021
In a recent judgement delivered by the Hon’ble Supreme Court of India, in Asset Reconstruction Company (India) Limited v. Bishal Jaiswal & Anr, important questions arose for the consideration of the Court:-
A. Whether Section 18 of the Limitation Act, 1963 [“the Limitation Act”], which extends the period of limitation depending upon an acknowledgement of debt made in writing and signed by the corporate debtor, is also applicable under Section 238A of the Insolvency and Bankruptcy Code, 2016 [“the IBC”] given the expression “as far as may be” governing the applicability of the Limitation Act to the IBC?
B. Whether an entry made in a balance sheet of a corporate debtor would amount to an acknowledgement of liability under Section 18 of the Limitation Act?
C. To examine the position under the Companies Act, 2013 [“Companies Act”] qua any compulsion of law for filing of balance sheets and acknowledgements made therein;
D. To examine the legality of the National Company Law Appellate Tribunal (NCLAT) judgment in V. Padmakumar v. Stressed Assets Stabilisation Fund, where it was held that that entries in balance sheets would not amount to acknowledgement of debt for the purposes of extending limitation under Section 18 of the Limitation Act.
The undisputed and controverted facts are that in 2009, the Corporate Debtor setup a thermal power project in Jharkhand and for doing so availed loans from various lenders. The account of the corporate debtor was declared as a non-performing asset by one of the lender on 31-7-2013 and issued a loan recall notice on 27-3-2015. On 31-3-2015, some of the original lenders assigned the debts owed to them by the Corporate Debtor to the Appellant Asset Reconstruction Company (India) Limited (ARCIL). ARCIL issued a notice under Section 13(2) of the SARFAESI Act and took actual physical possession on 1-6-2016. ARCIL filed an application under section 7 of IBC before the National Company Law Tribunal, Calcutta (NCLT) for default in payments and as the relevant form indicating the date of default did not indicate any such date, ARCIL filed a supplementary affidavit specifically mentioning the date of default and annexing copies of balance sheets of the corporate debtor, which, according to ARCIL acknowledged periodically the debt that was due. On 19-2-2020, a Section 7 application was admitted by the NCLT by observing that the balance sheets of the corporate debtor wherein it acknowledged its liability were signed before the expiry of prescribed period of three years from the date of default and entries in such balance sheets being acknowledgments of the debt due for the purposes of section 18 of the Limitation Act and Section 7 application is not barred by limitation. The Corporate Debtor, in appeal filed before the NCLAT, relied upon the judgment V. Padmakumar of the NCLAT where , it had been 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. However, on 25-9-2020 another bench of the NCLAT doubted the correctness of the Full Bench judgment and suggested the constitution of another Bench to reconsider the judgment in V. Padmakumar (supra). However, the Five-Member Bench of the NCLAT, vide impugned Judgment dated 22-12-2020, refused to adjudicate the question stating that the reference to the Bench was itself incompetent; subsequently, the matter reached the Supreme Court by way of appeal. The first question before the Supreme Court was, whether Section 18 of the Limitation Act, which extends the period of limitation depending upon an acknowledgement of debt made in writing and signed by the corporate debtor, was also applicable under Section 238A given the expression “as far as may be” governing the applicability of the Limitation Act to the IBC.
While dealing with aforesaid questions, the Supreme Court adverted to the rationale for the enactment of 238A of the IBC , which reads as under:
238A. Limitation.—The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be.
The Supreme Court has also considered various judgments  wherein the Report of the Insolvency Law Committee of March, 2018 observing that though the IBC is not a debt recovery law, the trigger being “default in payment of debt” would render the exclusion of the law of limitation as “Counter-intuitive” and have come to conclusion that the question of sections 14 and 18 of the Limitation are applied in the IBC and is no longer res integra.
The Supreme Court has also considered second question “whether an entry made in a balance sheet of a corporate debtor would amount to an acknowledgement of liability under Section 18 of the Limitation Act”.
While considering the aforesaid question, it is recorded by the Supreme Court that several judgments of the Supreme Court have 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 Supreme Court has also examined the position under the Companies Act qua any compulsion of law for filing of balance sheets and acknowledgements made therein.
While considering the aforesaid questions, the Supreme Court reproduced certain sections  of the Companies Act and concluded that there is no doubt that the filing of a balance sheet in accordance with the provisions of the Companies Act is mandatory and any transgression of the same being punishable by law. It is also recorded that notes that re annexed to or forming part of such financial statements are expressly recognised by section 134(7) of the companies act and equally, the auditor’s report may also enter caveats with regard to acknowledgements made in the books of accounts including the balance sheet. The said statement of law contained in Bengal Silk Mill . The Hon’ble Court has also considered various judgments  passed by various courts on the aforesaid proposition and concluded that decision of full bench in V. Padmakumar (supra) is contrary to the aforesaid catena of judgments and holds that entries in balance sheets would amount to acknowledgement of debt for the purposes of extending limitation under section 18 of the Limitation Act.
 Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1
 Mahabir Cold Storage v. CIT, 1991 Supp (1) SCC 402; A.V. Murthy v. B.S. Nagabasavanna, (2002) 2 SCC 642
 Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, 1961 SCC OnLine Cal 128 : AIR 1962 Cal 115;
 Section 2(40) “financial statement”; Section 92-Annual return; Section 128-Books of account etc., to be kept by company; Section 129-Financial Statement; Section 134-Financial Statement, Board’s report etc; Section 137-Copy of financial statement to the filed with Registrar;
 South Asia Industries (P) Ltd. v. General Krishna Shamsher Jung Bahadur Rana, 1972 SCC OnLine Del 185; Pandam Tea Co. Ltd., 1973 SCC OnLine Cal 93; Hegde & Golay Limited v. State Bank of India, 1985 SCC OnLine Kar 428; Bhajan Singh Samra v. M/s. Wimpy International Ltd., 2011 SCC OnLine Del 4888; CIT-III v. Shri Vardhman Overseas Ltd., 2011 SCC OnLine Del 5599; Shahi Exports Pvt. Ltd. v. CMD Buildtech Pvt. Ltd., 2013 SCC OnLine Del 2535; N.S. Atwal v. Jindal Steel and Power Ltd., 2013 SCC OnLine Del 3902; M/s. Al-Ameen Limited v. K.P. Sethumadhavan, 2017 SCC 50 OnLine Ker 11337; Zest Systems Pvt. Ltd. v. Center for Vocational and Entrepreneurship Studies, 2018 SCC OnLine Del 12116; Agni Aviation Consultants v. State of Telangana, 2020 SCC OnLine TS 1462;