Insolvency and Bankruptcy Code, 2016 – s.7 – Some original lenders of the corporate debtor, assigned the debts owed to them by the corporate debtor to the appellant – Appellant took actual physical possession of project assets of the corporate debtor under the SARFAESI Act and filed application u/s.7 of IBC before the National Company Law Tribunal (NCLT) for default from the corporate debtor – As the relevant form indicating the date of default did not indicate any such date, this was subsequently made up by the appellant 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 – NCLT admitted the s.7 application, observing that balance sheets of the corporate debtor, wherein it acknowledged its liability, were signed before expiry of three years from the date of default, and entries in such balance sheets being acknowledgements of the debt due for purposes of s.18 of the Limitation Act, the s.7 application was not barred by limitation – Whether entries in balance sheets of a corporate debtor would amount to acknowledgement of debt for purpose of extending limitation u/s.18 of the Limitation Act – Held: An entry made in the books of accounts, including the balance sheet, can amount to an acknowledgement of liability within the meaning of s.18 of the Limitation Act – Though the filing of a balance sheet is by compulsion of law, the acknowledgement of a debt is not necessarily so – Provisions of the Companies Act show that filing of a balance sheet in accordance with the provisions of the Companies Act is mandatory, any transgression of the same being punishable by law – However, what is of importance is that notes that are annexed to or forming part of such financial statements are expressly recognised by s.134(7) – Equally, the auditor’s report may also enter caveats with regard to acknowledgements made in the books of accounts including the balance sheet – Thus, there is a compulsion in law to prepare a balance sheet but no compulsion to make any particular admission, as it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgement of liability has, in fact, been made, thereby extending limitation u/s.18 of the Limitation Act – Limitation Act, 1963 – s.18 – Companies Act, 2013 – ss.2(40), 90, 128, 129, 134 and 137 – Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002.
Insolvency and Bankruptcy Code, 2016 – s.238A – Whether s.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, is also applicable under s.238A, given the expression “as far as may be” governing the applicability of the Limitation Act to the IBC – Held: The aforesaid question is no longer res integra as two recent judgments of this Court have applied the provisions of s.14 and s.18 of the Limitation Act to the IBC – Limitation Act, 1963 – s.18.
Limitation Act, 1963 – s.9 – Principle of s.9 of the Limitation Act is to be strictly adhered to, namely, that when time begins to run, it cannot be halted, except by a process known to law. Precedents – Binding precedent – Rule of stare decisis – Every argumentative novelty does not undo a settled position of law – Constitution of India – Art. 141.
Disposing of the matters, the Court
HELD: 1. Several judgments of this 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, 1963. [Para 14][541F-G]
2. An exhaustive judgment of the Calcutta High Court in Bengal Silk Mills Co. case held that an acknowledgement of liability that is made in a balance sheet can amount to an acknowledgement of debt. Importantly, this judgment holds that though the filing of a balance sheet is by compulsion of law, the acknowledgement of a debt is not necessarily so. In fact, it is not uncommon to have an entry in a balance sheet with notes annexed to or forming part of such balance sheet, or in the auditor’s report, which must be read along with the balance sheet, indicating that such entry would not amount to an acknowledgement of debt for reasons given in the said note. [Para 16][543-E-F; 547-B-C]
3. The position under the Companies Act, 2013 qua any compulsion of law for filing of balance sheets and acknowledgements made therein needs to be examined. Section 2(40) of the Companies Act, 2013 defines financial statement. Under Section 92, every company is to prepare an annual return containing certain particulars. Vide Section 128, every company shall prepare and keep at its registered office, books of accounts and financial statements for every financial year. Section 129 refers directly to financial statements. Likewise, under Section 134, financial statements are to be approved by the Board of Directors before they are signed, and the auditor’s report, as well as a report by the Board of Directors, is to be attached to each financial statement. Under Section 137, copies of financial statements are then to be filed with the Registrar of Companies. A perusal of the aforesaid Sections would show that there is no doubt that the filing of a balance sheet in accordance with the provisions of the Companies Act is mandatory, any transgression of the same being punishable by law. However, what is of importance is that notes that are annexed to or forming part of such financial statements are expressly recognised by Section 134(7). Equally, the auditor’s report may also enter caveats with regard to acknowledgements made in the books of accounts including the balance sheet. A perusal of the aforesaid would show that the statement of law contained in Bengal Silk Mills, that there is a compulsion in law to prepare a balance sheet but no compulsion to make any particular admission, is correct in law as it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgement of liability has, in fact, been made, thereby extending limitation under Section
18 of the Limitation Act. [Paras 21, 22][550-F-G; 551-C-D; 553B-C, G; 555-D-G; 557-A-B; 558-G-H; 559-A-C]
V. Padmakumar v. Stressed Assets Stabilisation Fund, Company Appeal (AT) (Insolvency) No. 57 of 2020 (Majority judgment of Full Bench of NCLAT decided on 12.03.2020) – overruled.
Jignesh Shah v. Union of India, (2019) 10 SCC 750 : [2019] 12 SCR 678; Sesh Nath Singh v. Baidyabati Sheoraphuli Co-operative Bank Ltd., 2021 (4) SCALE 499; Laxmi Pat Surana v. Union Bank of India, 2021 (5) SCALE 20; Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1; Ambika Prasad Mishra v. State of U.P., (1980) 3 SCC
719 : [1980] 3 SCR 1159; Khan Bahadur Shapoor Fredoom Mazda v. Durga Prasad, [1962] 1 SCR 140; Mahabir Cold Storage v. CIT, (1991) 1 Suppl. SCC 402 : [1990] 3 Suppl. SCR 469; A.V. Murthy v. B.S. Nagabasavanna, (2002) 2 SCC 642 : [2002] 1 SCR 906; and S. Natarajan v. Sama Dharman, 2014 (9) SCALE 3 – relied on.
Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, (1961) SCC OnLine Cal 128 : AIR 1962 Cal 115; South Asia Industries (P) Ltd. v. General Krishna Shamsher Jung Bahadur Rana, (1972) SCC OnLine Del 185 : ILR (1972) 2 Del 712; Pandam Tea Co. Ltd., In re, 1973 SCC OnLine Cal 93 : AIR 1974 Cal 170; Hegde & Golay Limited v. State Bank of India, (1985) SCC OnLine Kar 428 : ILR 1987 Kar 2673; Bhajan Singh Samra v. M/s. Wimpy International Ltd., (2011) SCC OnLine Del 4888 : (2011) 185 DLT 428; CIT-III v. Shri Vardhman Overseas Ltd., (2011) SCC OnLine Del 5599 : (2012) 343 ITR 408; Shahi Exports Pvt. Ltd. v. CMD Buildtech Pvt. Ltd., (2013) SCC OnLine Del 2535 : (2013) 202 DLT 735; 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: (2017) 4 KLJ 80; Zest Systems Pvt. Ltd. v. Center for Vocational and Entrepreneurship Studies, (2018) SCC OnLine Del 12116; and Agni Aviation Consultants v. State of Telangana, (2020) SCC OnLine TS 1462 : (2020) 5 ALD 561– approved.
Kashinath Sankarappa v. New Akot Cotton Ginning & Pressing Co. Ltd., (1949) SCC OnLine MP 123; Kashinath Sankarappa Wani v. New Akot Cotton Ginning and Pressing Co. Ltd., [1958] SCR 1331; Vijayalakshmi v. Hari Hara Ginning and Pressing, Nandigaon, OS A No.40 of 1998 (decided by Andhra Pradesh High Court on 03.03.1999); Ajit Chandra Bagchi v. Harishpur Tea Company (P.) Ltd., (1990) SCC OnLine Gau 24 : AIR 1991 Gau 92; Vashdeo R.
Bhojwani v. Abhyudaya Coop. Bank Ltd., (2019) 9 SCC
158 : [2019] 12 SCR 75; B. K. Educational Services (P) Ltd. v. Parag Gupta & Associates, (2019) 11 SCC
633 : [2018] 12 SCR 794; Sagar Sharma v. Phoenix Arc (P) Ltd., (2019) 10 SCC 353; and Kamlesh Babu v. Lajpat Rai Sharma, (2008) 12 SCC 577 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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