Fresh Period Of Limitation U/S 18 Of Limitation Act Begins From Date When Balance Sheet Is Signed By Corporate Debtor: NCLAT
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member) and Mr. Barun Mitra (Technical Member) has held that a fresh period of limitation under Section 18 of the Limitation Act, 1963 (Limitation Act) for the purpose of filing an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (Code) begins from the date the...
The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member) and Mr. Barun Mitra (Technical Member) has held that a fresh period of limitation under Section 18 of the Limitation Act, 1963 (Limitation Act) for the purpose of filing an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (Code) begins from the date the balance sheet is signed by the authorized signatories of the corporate debtor, not from the date it is uploaded on the Ministry of Corporate Affairs (MCA) website.
Brief Facts:
A Loan Agreement had been executed between the IL&FS Financial Services Ltd (Financial Creditor) and the Adhunik Meghalaya Steels Pvt. Ltd. (Corporate Debtor) on 27.02.2015 for a loan of Rs 30 Cr. against which an amount of Rs 24.44 Cr. was disbursed on 17.03.2015.
Since the Corporate Debtor failed to repay the outstanding debt in terms of the loan facility documents, the Financial Creditor declared the account of the Corporate Debtor as Non-Performing Assets (NPA) on 01.03.2018.
Since the Corporate Debtor did not make good the debt liability, the Financial Creditor filed a Section 7 application on 15.01.2024 for a claim amount of Rs 55.45 Cr. The Section 7 application was rejected by the Adjudicating Authority on the grounds of being time-barred.
Against this order, the present appeal has been filed.
Contentions:
The Appellant submitted that though the Account of the Corporate Debtor had been declared NPA on 01.03.2018, however, as the Corporate Debtor continued to acknowledge their debt liability in their Balance sheets even after the date of default, the period of limitation continued to be extended in terms of Section 18 of the Limitation Act.
The Supreme Court in Vidya Sagar Vs UCO Bank 2024 held that an acknowledgment of debt in a balance sheet constitutes an acknowledgement of liability even if it does not specify the exact nature of the liability or a name of particular creditor.
It was also argued that filing of the balance sheet with the RoC serves as the acknowledgement of the debt. The corporate debtor's deliberate delay in filing the balance sheet prevents them from claiming the limitation period starts from when the sheet was signed rather than filing date.
Per contra, the Respondent submitted that the date of default was 1 March 2018 therefore the application under section 7 of the code had to be filed by 28 February 2021. Due to the Supreme Court's suo moto orders passed during COVID, the limitation period would get extended by further 90 days until 30 May 2022. However, the petition was filed on 15 January 2024 which was well beyond the limitation period.
Lastly, it was submitted that the admission in a Balance sheet has to be qua the particular creditor for Balance sheet acknowledgement. The Appellant has failed to establish any jural relationship between the Financial Creditor and Corporate Debtor and the Bishal Jaiswal judgment clearly states that the Adjudicating Authority cannot get into investigations to find out the borrower in respect of whom the credit amount stands reflected in the Balance sheet of the Corporate Debtor.
Observations:
The Tribunal noted that if a corporate debtor acknowledges its debt in writing within 3 year limitation period, it extends it by another three years under section 18 of the Limitation Act. The Supreme Court in Tulip Star held that a balance sheet entry can serve as an acknowledgement of debt for the purpose of limitation.
The Tribunal further said that even if acknowledgement of liability in the FY 2017-2018 balance sheet extended the limitation, the three period from the date when the sheet was signed would have ended on 1 September 2021. As this fell within the excluded period under the Suo Moto orders passed by the Supreme Court, the period extended by 90 days would have still ended on 30 May 2022. Therefore, the application under section 7 of the code filed on 5 January 2024 was time barred.
The Tribunal in G.S. Buildtech Pvt. Ltd. Vs Ardree Infrastructure Venture Pvt. Ltd. held that a fresh period of limitation begins from the date when the balance sheet is signed by an authorised signatory.
Similarly, the Andhra Pradesh High Court in Vijaya Kumar Machinery & Electrical Stores Versus Alaparthi Lakshmikanthamma (1968) held that the date of signing and presenting the balance sheet is crucial, as its submission to the general meeting or tax authorities constitutes an acknowledgment of a subsisting liability on the date of the signature and presentation of the balance sheet.
The Tribunal rejected the argument of the Appellant that a fresh period of limitation should begin from the date when the balance sheet was uploaded on the MCA Portal and not from the date when it was signed. There is no mandatory requirement to consider the date of upload for the purpose of limitation. Since the balance sheet was signed on 12 August 2020, the section 7 petition filed on 15 January 2024 was clearly barred by limitation.
Accordingly, the present appeal was dismissed.
Case Title: IL&FS Financial Services Limited Versus Adhunik Meghalaya Steels Private Limited
Case Number: Company Appeal (AT) (Insolvency) No. 1379 of 2024
Judgment Date: 25/03/2025
For Appellant: Mr. Krishnendu Dutta, Sr. Advocate with Ms. Niharika Sharma and Ms. Kiran Sharma, Advocates.
For Respondent : Mr. Ramji Srinivasan, Sr. Advocate with Mr. Swarnendu Chatterjee (AOR), Mr. Nilay Sengupta, Mr. D.N. Sharma, Mr. Sujit Banerjee, Ms. Deepakshi Garg and Ms. Harshita Rawat, Advocates.
