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of <h1>Financial statement acknowledgments extend limitation period for IBC applications</h1> <h3>Asset Reconstruction Company (India) Limited Versus Tulip Star Hotels Limited & Ors.</h3> Asset Reconstruction Company (India) Limited Versus Tulip Star Hotels Limited & Ors. - TMI Issues Involved:1. Whether the application under Section 7 of the Insolvency and Bankruptcy Code (IBC) filed by the Financial Creditor was barred by limitation.2. Whether the acknowledgments in the financial statements of the Corporate Debtor extended the period of limitation.3. The relevance and impact of the Corporate Debtor's payments and settlement proposals on the limitation period.4. The applicability of Section 18 of the Limitation Act to the proceedings under the IBC.5. The interpretation of financial statements and balance sheets as acknowledgments of debt.Detailed Analysis:Issue 1: Limitation Bar for Section 7 ApplicationThe primary issue revolved around whether the application under Section 7 of the IBC, filed by the Financial Creditor, was barred by limitation. The Corporate Debtor argued that the application was barred by limitation as it was filed about eight/nine years after the account was declared a non-performing asset (NPA) on 1st December 2008. The NCLAT had held that the application was barred by limitation, emphasizing that the Financial Creditor failed to bring any acknowledgment in writing by the Corporate Debtor acknowledging the liability in respect of the debt.Issue 2: Acknowledgments in Financial StatementsThe Financial Creditor contended that the Corporate Debtor acknowledged its liabilities in its financial statements from 2008-09 to 2016-17, which extended the period of limitation. The Supreme Court observed that the balance sheet for the financial year 2014-15, signed on 14th May 2015, acknowledged the continuance of the jural relationship of debtor and creditor between the Appellant and the Corporate Debtor and the existence of financial liability. The application under Section 7 of the IBC was filed on 3rd April 2018, within three years from the date on which the balance sheet was signed.Issue 3: Payments and Settlement ProposalsThe Corporate Debtor made several payments and proposals for settlement, which were considered by the Supreme Court. For instance, on 19th April 2013, the Corporate Debtor paid Rs.17,50,00,000/- towards part repayment of the aggregate assigned debt. The Supreme Court noted that any part payments made by the Corporate Debtor would first be appropriated towards the interest amount due, as held in previous judgments.Issue 4: Applicability of Section 18 of the Limitation ActThe Supreme Court reiterated that Section 18 of the Limitation Act applies to proceedings under the IBC. An acknowledgment of liability in writing, signed by the party against whom such property or right is claimed, would extend the period of limitation. The Court referred to previous judgments, including Sesh Nath Singh and Bishal Jaiswal, affirming that the IBC does not exclude the application of Section 18 of the Limitation Act.Issue 5: Interpretation of Financial Statements and Balance SheetsThe Court held that entries in the books of accounts and/or balance sheets of a Corporate Debtor amount to an acknowledgment under Section 18 of the Limitation Act. The Court cited various judgments, including Bengal Silk Mills and South Asia Industries, which held that statements in the balance sheet of a company could amount to an acknowledgment of liability. The balance sheets for the financial years 2014-15 and 2015-16, signed on 14th May 2015 and 29th August 2016 respectively, acknowledged the existence of the jural relationship of debtor and creditor and the financial liability of the Corporate Debtor to the Appellant.ConclusionThe Supreme Court concluded that the application under Section 7 of the IBC was not barred by limitation. The acknowledgments in the financial statements extended the period of limitation, and the application was filed within the extended period. The Court set aside the impugned judgment and order of the NCLAT, allowing the appeals.
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