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of <h1>Supreme Court extends limitation period for acknowledgments in balance sheets under Insolvency and Bankruptcy Code</h1> The Supreme Court held in a case involving the application of Section 18 of the Limitation Act to proceedings under the Insolvency and Bankruptcy Code ... Initiation of CIRP - NCLT rejected the application - NPA - Period of limitation - NCLT that, a statement contained in the balance sheet cannot be treated as an acknowledgement of liability under Section 18 of the Limitation Act - Proposal of OTS is older than 3 months - HELD THAT:- The decisions in Sesh Nath Singh [2021 (3) TMI 1183 - SUPREME COURT], Laxmi Pat Surana [2021 (3) TMI 1179 - SUPREME COURT] and Asset Reconstruction Company [2021 (4) TMI 753 - SUPREME COURT] have subsequently been followed in numerous decisions of this Court delivered by two-Judge Benches, namely: Dena Bank v C. Shivakumar Reddy [2021 (8) TMI 315 - SUPREME COURT], STATE BANK OF INDIA VERSUS VIBHA AGRO TECH LIMITED [2021 (10) TMI 1348 - SUPREME COURT], Devas Multimedia Private Ltd. v Antrix Corporation Ltd. and Another [2022 (1) TMI 774 - SUPREME COURT] and SVG Fashions Pvt. Ltd. (Earlier Known As SVG Fashions Ltd.) v Ritu Murli Manohar Goyal and Another [2022 (4) TMI 16 - SUPREME COURT] - In all these decisions the principles emerged that An acknowledgement in a balance sheet without a qualification can be relied upon for the purpose of the proceedings under the IBC. In view of the above decisions, the position of law has been set at rest. Neither the NCLT nor the NCLAT had the benefit of adjudicating upon the factual controversy in the context of the decisions of this Court. The principles which emerge are that: (i) The provisions of Section 18 of the Limitation Act are not alien to and are applicable to proceedings under the IBC; and (ii) An acknowledgement in a balance sheet without a qualification can furnish a legitimate basis for determining as to whether the period of limitation would stand extended, so long as the acknowledgement was within a period of three years from the original date of default. It is also noted that Mr Niranjan Reddy has relied upon documentary material to indicate that the acknowledgements of liability were within a period of three years from the date of default and, hence, the applicant filed by the appellant under Section 7 of the IBC was within limitation. Reliance has also been placed on the letter of revival dated 26 April 2015 and the offer of OTS on 6 November 2015. Since we are inclined to restore the proceedings back to the NCLT for fresh adjudication in view of the decisions of this Court noted above, we are not entering upon the factual dispute on whether the application filed under Section 7 of the IBC would result in an initiation of the CIRP in the present case. The appropriate course of action would be to keep open all rights and contentions of the parties on merits to be adjudicated upon before the NCLT. The proceedings shall stand restored to the file of the NCLT for adjudication afresh, keeping all rights and contentions of the parties open on the factual aspects of the controversy. Issues Involved:1. Application of Section 18 of the Limitation Act to proceedings under the Insolvency and Bankruptcy Code (IBC).2. Validity of acknowledgments in balance sheets for extending the limitation period.3. Determination of the date of default and its impact on the limitation period.Detailed Analysis:1. Application of Section 18 of the Limitation Act to Proceedings under the IBC:The primary issue was whether Section 18 of the Limitation Act, which allows for the extension of the limitation period through acknowledgment of debt, applies to proceedings under the IBC. The NCLT and NCLAT had initially rejected the application under Section 7 of the IBC on the ground of limitation, holding that the application was beyond the three-year period from the date of default. They relied on the decision in V Padmakumar v Stressed Assets Stabilisation Fund, which stated that balance sheet entries could not be considered as acknowledgments of liability under Section 18 of the Limitation Act.However, this position was overruled by the Supreme Court in Asset Reconstruction Company (India) Limited v Bishal Jaiswal, where it was held that acknowledgments in balance sheets could indeed extend the limitation period. This was further supported by the judgments in Sesh Nath Singh v Baidyabati Sheoraphuli Coop. Bank Ltd. and Laxmi Pat Surana v Union Bank of India, which confirmed that Section 18 of the Limitation Act applies to IBC proceedings.2. Validity of Acknowledgments in Balance Sheets for Extending the Limitation Period:The Supreme Court clarified that an acknowledgment in a balance sheet without a qualification could be relied upon for extending the limitation period under Section 18 of the Limitation Act. This principle was established in Asset Reconstruction Company, which noted that the preparation of balance sheets is mandatory under the Companies Act, and any acknowledgment of debt therein can extend the limitation period if it is unequivocal and without caveats.The Court emphasized that each case must be examined on its facts to determine whether an acknowledgment of liability has been made in the balance sheet, thereby extending the limitation period.3. Determination of the Date of Default and Its Impact on the Limitation Period:The NCLT and NCLAT had initially determined that the date of default was 10 June 2014, when the respondent’s account was declared as a Non-Performing Asset (NPA). They held that the application under Section 7 of the IBC, filed on 19 September 2018, was barred by limitation as it was beyond the three-year period from the date of default.However, the Supreme Court noted that the acknowledgment of liability within three years from the date of default could extend the limitation period. The Court observed that the appellant had provided documentary evidence indicating acknowledgments of liability within the three-year period, such as the letter of revival dated 26 April 2015 and the offer of a one-time settlement on 6 November 2015.Conclusion:The Supreme Court set aside the judgments of the NCLT and NCLAT and restored the proceedings back to the NCLT for fresh adjudication. The Court directed the NCLT to consider the applicability of Section 18 of the Limitation Act in light of the Supreme Court’s decisions and to determine whether the acknowledgments of liability were within the prescribed period, thereby extending the limitation period.The NCLT was instructed to expeditiously dispose of the application under Section 7 of the IBC within three months from the date of the Supreme Court’s order, keeping all rights and contentions of the parties open for adjudication. Pending applications, if any, were disposed of.
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