Balance sheets can acknowledge debt and extend limitation for insolvency applications when they show a subsisting liability.

A signed balance sheet or financial statement may amount to acknowledgment of liability under Section 18 of the Limitation Act if it shows a present subsisting debtor-creditor relationship before expiry of limitation. Statutory preparation of the accounts does not by itself prevent acknowledgment, although notes or caveats may affect the factual inference. For a Section 7 insolvency application, Article 137 applies through Section 238A of the Insolvency and Bankruptcy Code, and fresh acknowledgments, settlement proposals, part-payments, or financial statements can extend limitation. On the stated facts, the debtor's written acknowledgments and financial statements kept the application within limitation.

---

---

Issues: (i) Whether entries in the corporate debtor's financial statements and balance sheets amounted to acknowledgment of liability so as to extend limitation under Section 18 of the Limitation Act, 1963; (ii) Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation and the admission of the corporate insolvency resolution process was liable to be set aside.

Issue (i): Whether entries in the corporate debtor's financial statements and balance sheets amounted to acknowledgment of liability so as to extend limitation under Section 18 of the Limitation Act, 1963.

Analysis: An acknowledgment under Section 18 must be in writing, signed, and must relate to a present subsisting liability made before expiry of the prescribed period. The Court reaffirmed that balance sheets and financial statements are not excluded merely because they are prepared under statutory compulsion; what matters is whether, on the facts, the entries show an unequivocal admission of the debtor-creditor relationship and liability. Caveats or disputes in notes to accounts may affect the inference, but do not as a matter of law prevent a balance sheet from amounting to acknowledgment. The Court held that the relevant financial statements here acknowledged the subsisting liability, with only a dispute as to the rate of interest.

Conclusion: The financial statements and balance sheets constituted acknowledgment of liability and extended limitation.

Issue (ii): Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation and the admission of the corporate insolvency resolution process was liable to be set aside.

Analysis: An application under Section 7 of the Insolvency and Bankruptcy Code, 2016 is governed by Article 137 of the Limitation Act, 1963, and the right to apply accrues on default. The Court held that Section 238A of the Insolvency and Bankruptcy Code, 2016 makes the Limitation Act applicable to insolvency proceedings, and that acknowledgment before expiry of the limitation period gives a fresh period of limitation. On the facts, the debtor's repeated written acknowledgments, settlement proposals, extensions sought, part-payments, and financial statements extended limitation beyond the date of filing. The Court further held that the NCLAT erred in treating books of account as incapable of constituting acknowledgment and in setting aside the admitted insolvency process on limitation grounds.

Conclusion: The Section 7 application was within limitation, and the orders of the NCLAT were unsustainable.

Final Conclusion: The insolvency admission was restored in substance, and the challenge based on limitation failed because the debtor's written acknowledgments and financial statements renewed the period of limitation.

Ratio Decidendi: A duly signed balance sheet or financial statement may amount to acknowledgment of liability under Section 18 of the Limitation Act, 1963 if it evidences a subsisting debtor-creditor relationship before expiry of limitation, and such acknowledgment extends the limitation period for a Section 7 insolvency application.

---