Balance sheets can acknowledge debt and extend limitation in insolvency, even when filed through supplementary material.
A Section 7 application may rely on supplementary or additional affidavits even if the prescribed form is not formally amended, because the form is not a plaint and relevant material can be placed on record before final order. The appellate tribunal may also consider earlier-year balance sheets filed before it where their authenticity is not disputed and limitation must be assessed on the complete material. Balance sheets for 31 March 2015, 31 March 2016 and 31 March 2017 were treated as a written acknowledgment of continuing liability and subsisting debt, so limitation was extended under Section 18 of the Limitation Act and the insolvency admission was sustained.
Issues: (i) Whether a financial creditor may rely on materials filed by way of supplementary or additional affidavit in a Section 7 application even if the relevant column in the prescribed form was not amended; (ii) Whether balance sheets for earlier years filed before the appellate tribunal, but not before the adjudicating authority, can be looked into; (iii) Whether the balance sheets for the years ending 31 March 2015, 31 March 2016 and 31 March 2017 contain an unequivocal acknowledgment of debt so as to extend limitation under Section 18 of the Limitation Act, 1963.
Issue (i): Whether a financial creditor may rely on materials filed by way of supplementary or additional affidavit in a Section 7 application even if the relevant column in the prescribed form was not amended?
Analysis: A Section 7 application is filed in a statutory form and is not a plaint. The prescribed form contains limited particulars, and there is no statutory bar on filing additional material before the adjudicating authority until a final order is passed. Supplementary or additional affidavits form part of the pleadings for proceedings before the tribunal, and a rigid insistence on formal amendment of the form is not warranted where relevant material has otherwise been placed on record.
Conclusion: The financial creditor was entitled to rely on supplementary material without amending the relevant column in the form.
Issue (ii): Whether balance sheets for earlier years filed before the appellate tribunal, but not before the adjudicating authority, can be looked into?
Analysis: The appellate tribunal has procedural powers to receive documents and regulate its own process in the interests of justice. The earlier-year balance sheets were filed with the reply before the appellate tribunal, were not shown to be incorrect, and were not met with any rejoinder disputing their authenticity. The prior reference to the 2016-17 balance sheet did not exclude consideration of the earlier balance sheets, especially where the question of limitation had to be examined on the complete material available.
Conclusion: The balance sheets for 31 March 2015 and 31 March 2016 could be looked into along with the 31 March 2017 balance sheet.
Issue (iii): Whether the balance sheets for the years ending 31 March 2015, 31 March 2016 and 31 March 2017 contain an unequivocal acknowledgment of debt so as to extend limitation under Section 18 of the Limitation Act, 1963?
Analysis: Section 18 requires a written and signed acknowledgment of liability made before expiry of the prescribed period. The balance sheets disclosed secured borrowings, repayment terms, and the continuing liability to banks and financial institutions. A caveat or claim for damages did not destroy the acknowledgment, because the statute permits acknowledgment even if accompanied by a refusal to pay or a set-off claim. On the facts, the entries were treated as clear admissions of a subsisting jural relationship and continuing liability, sufficient to give rise to a fresh period of limitation.
Conclusion: The balance sheets contained an unequivocal acknowledgment of liability and the Section 7 application was within limitation.
Final Conclusion: The insolvency admission was sustained, the liquidation order also stood, and both appeals failed on limitation and consequential relief.
Ratio Decidendi: In insolvency proceedings, a duly signed balance sheet may amount to acknowledgment of liability under Section 18 of the Limitation Act, 1963 if, read as a whole, it evidences a continuing subsisting debt, and such acknowledgment may be relied upon through supplementary material and documents filed before the appellate tribunal where their authenticity is not disputed.