TaxTMI 
TaxTMI 
TaxTMI 
Balance sheet may be a written confirmatory statement for limitation purposes a discussion in view of judgment of honourable Supreme Court.
Recent judgment of the honourable Supreme Court:
2021 (4) TMI 753 - SUPREME COURT
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED VERSUS BISHAL JAISWAL & ANR. And various judgments referred to therein for detailed study.
Relevant provisions which were referred and considered by the honourable Supreme Court, inter alia includes:
General laws:
The Limitations Act 1963.
The Indian Evidence Act, 1872 (1 of 1872),
The Negotiable Instruments Act, 1881
The Commercial Documents Evidence Act (XXX of 1939)
Corporate laws:
- Particularly provisions about financial statement, returns and reports having communication and reports about state of affairs of company were under consideration.
Laws relating to debt recovery and incidental to debt recovery:
The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 [“Recovery of Debts Act”]
The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 [“SARFAESI Act”]
The Insolvency and Bankruptcy Code, 2016 [“IBC”]
The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018.
Some laws providing exceptions of disclosures in financial statements of specified type of companies:
The Insurance Act, 1938 (4 of 1938).
The Insurance Regulatory and Development Authority Act, 1999 (41 of 1999).
The Banking Regulation Act, 1949 (10 of 1949).
The Electricity Act, 2003 (36 of 2003).
Disclosures or non-disclosures or disclosure in particular manner can have a bearing on the nature of acknowledgement or confirmation of a liability of company.
Specific provision of the Limitation Act, 1963:
Section 18 of the Limitation Act reads thus:
“18. Effect of acknowledgement in writing.–(1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgement 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 acknowledgement was so signed.
(2) Where the writing containing the acknowledgement 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 acknowledgement 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.”
Section 238A of IBC reads as follows:
“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.”
In simple words author understand that on consideration of various provisions and judgments on issues honourable Supreme Court held that an entry or disclosure in financial statements of a company ( which include balance sheet) or balance sheet and related disclosures in other cases amount to confirmation in writing of liabilities stated, mentioned or disclosed in the balance sheet and accompanying documents which are part and parcel of financial statement of company( or other entity – added by author). Therefore, if a liability is stated in the balance sheet which is signed by appropriate functionaries of company or entity the limitation period get extended from the date of such signing of balance sheet.
However, there can be some more issues about disclosed liability, when any particular liability is not specifically disclosed, but is included in group of liabilities, as generally happen in case of companies and particularly in relation to general liabilities which are not required to be disclosed with names and other particulars of creditors. In such cases details of liabilities will have to be gathered and Courts can ask debtor to furnish the same.
Therefore, obtaining regularly confirmations from debtors is important. A letter sent with statement of account for confirmation, which is received and is not refuted by Debtor can in some circumstances amount to confirmation.
Even a letter sent by auditors of creditor, with statement of account for confirmation, which is received and is not refuted, in writing by Debtor can in some circumstances amount to confirmation in writing.
In the confirmation letters a statement that it will amount to confirmation unless any objection is raised in writing and delivered in writing to the creditor or his auditor or other agent within a reasonable time.
For detailed discussions readers are requested to read the judgment of the Supreme Court and various judgments referred to therein.