Limitation and debt acknowledgement under IBC turn on clear, unqualified admission in balance sheets and accompanying reports.

A Section 7 IBC application was treated as time-barred where the default dated 31 December 2013 and the account was classified as NPA on 30 March 2014, but the petition was filed only on 31 October 2018. The balance sheet and auditors' report for the year ended 31 March 2016 did not amount to a clear and unqualified acknowledgement of liability under Section 18 of the Limitation Act, because the accompanying reports referred both to unpaid bank dues and to statements denying default to financial institutions. On that reading, the corporate debtor had not unequivocally admitted the debt, so limitation was not extended.

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Issues: Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation, and whether the entries in the corporate debtor's balance sheet amounted to acknowledgement of liability so as to extend the period of limitation.

Analysis: The relevant default was of 31 December 2013 and the account was declared NPA on 30 March 2014, while the Section 7 application was filed on 31 October 2018. The balance sheet and auditors' report for the year ended 31 March 2016 were examined to determine whether they contained a clear acknowledgement of debt. The materials relied upon recorded that the company had failed to repay bank dues, that the account had been declared NPA, and that the matter was pending before the Debts Recovery Tribunal. However, the report also stated that the company had not defaulted in repayment to financial institutions, and the directors' report did not contain an unqualified admission of liability. On a reading of the balance sheet along with the accompanying reports, the corporate debtor did not unequivocally acknowledge the alleged debt so as to attract Section 18 of the Limitation Act, 1963.

Conclusion: The claim was held to be time-barred, and the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 ought not to have been admitted.

Final Conclusion: The appellate tribunal set aside the admission order, dismissed the Section 7 application, and restored the corporate debtor to management through its board of directors.

Ratio Decidendi: For limitation purposes, a balance sheet extends time only when read with the accompanying reports it contains a clear and unqualified acknowledgement of a subsisting liability.

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