The Supreme Court in its judgement in Asset Reconstruction Company (India) Limited v. Bishal Jaiswal & Anr. (CIVIL APPEAL NO.323 OF 2021) clarified the question of law and held that entries in the balance sheet can be taken as an acknowledgement of outstanding debt for the purpose of Section 18 of the Limitation Act, 1963. The judgement came from a bench comprising of Justice Rohinton Nariman, BR Gavai and Hrishikesh Roy.
Section 18 of the Limitation Act, 1963 extends the period of limitation in the case of any property or right when the party against whom the action is to be taken acknowledges in writing an outstanding liability within the prescribed limitation period.
The case before the apex court was concerning a loan taken by Corporate Power Ltd. back in 2009 for setting up a power plant in Jharkhand. The loan was declared a Non-Performing Asset by the lenders, including State Bank of India, and reconstruction proceedings were initiated under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI) by engaging the appellant, Asset Reconstruction Company (India) Limited. On 20.06.2015, the appellant issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 on behalf of itself and other consortium lenders to the corporate debtor. On 01.06.2016, the appellant took actual physical possession of the project assets of the corporate debtor under the SARFAESI Act. On 26.12.2018, 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 default amounting to Rs.5997,80,02,973/- from the corporate debtor.
Before the NCLT the appellant's initial plaint did not mention the date of the default and was allowed to make up by filing an additional affidavit. Along with the affidavit, the appellant also filed copies of the debtors balance sheet to show periodic acknowledgement of the debt that was due. The appellants application was accepted by the NCLT stating that the mention of the debt in the balance sheet during the limitation period of three years can be seen as acknowledgement which extends the limitation period under Section 18 of the Limitation Act, 1963.
The corporate debtor preferred an appeal before the National Company Law Appellate Tribunal (NCLAT) challenging the admission of its balance sheet as an acknowledgement of outstanding debt.The corporate debtor relied upon the Full Bench judgment of the NCLAT in V. Padmakumar v. Stressed Assets Stabilisation Fund, 2020 in which a majority of four members held that entries in balance sheets would not amount to an acknowledgement of debt to extend limitation under Section 18 of the Limitation Act, 1963.
But the three-member bench which heard the present matter raised suspicion on the obiter of the V. Padmakumar judgement and referred the matter to the Chairman of NCLAT to constitute a bench to reconsider the matter. The five-member bench constituted for the purpose refused to consider the matter stating itself to be incompetent and the appellant moved to the Supreme Court in appeal.
Senior Advocate Ramji Srinivasan appearing before the Supreme Court for the appellant argued that the full bench judgement of NCLAT in V. Padmakumar neglected several binding precedents set by the apex court. Reliance was placed on Section 238A of the IBC to show that Section 18 of the Limitation Act applies to a proceeding under Section 7 of the IBC. The lawyer also brought to the attention of the court several binding precedents to support his case.
Advocate Abhijeet Sinha appearing for the respondent argued that Section 18 of the Limitation Act, 1963 will only apply to recovery proceedings and not to proceedings under IBC. He also argued that the auditors notes attached to the balance sheet shows that the entries were not considered as acknowledgements of outstanding debt.
Justice Nariman in his judgement referred to recent judgements of the apex court in Sesh Nath Singh v. Baidyabati Sheoraphuli Co-operative Bank Ltd., 2019 and Laxmi Pat Surana v. Union Bank of India, 2020 which laid down that Section 18 of the Limitation Act, 1963 applies to IBC proceedings.
The court referred to several past judgements like the Calcutta High Court judgement in Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, 1962 to prove that acknowledgement of liability that is made in a balance sheet can amount to an acknowledgement of debt.
The judgement the Supreme court had set aside the judgements of NCLAT in V. Padmakumar and the present case. The matter in the appeal was remanded to the NCLAT to reconsider according to the law laid down by the Supreme Court in its judgement.
