Audited balance sheets can acknowledge debt and extend limitation for a section 7 insolvency application.

Audited balance sheets recording an outstanding liability and security created on assets constituted written acknowledgment of debt under section 18 of the Limitation Act, 1963, because the entries were made before expiry of the basic limitation period and were supported by signed audited statements. That acknowledgment extended limitation for the section 7 insolvency application under the Insolvency and Bankruptcy Code, 2016. The period during which the corporate debtor's reference remained pending before BIFR under the sick industrial company regime was not treated as making the application time-barred. On that basis, the limitation objection was found unsustainable and the insolvency application was liable to be admitted.

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Issues: (i) Whether entries in the corporate debtor's audited balance sheets amounted to acknowledgment of debt under section 18 of the Limitation Act, 1963 so as to extend limitation for a petition under section 7 of the Insolvency and Bankruptcy Code, 2016. (ii) Whether the period during which the corporate debtor's reference remained pending before BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 was liable to be excluded while computing limitation.

Issue (i): Whether entries in the corporate debtor's audited balance sheets amounted to acknowledgment of debt under section 18 of the Limitation Act, 1963 so as to extend limitation for a petition under section 7 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The financial creditor relied on the audited balance sheets of the corporate debtor from 2004-05 to 2016-17, which recorded the outstanding liability and the security created on the assets of the corporate debtor. The entries were made before the expiry of the basic limitation period and were supported by duly signed audited statements. Such disclosure constituted a written acknowledgment of liability within the meaning of section 18 of the Limitation Act, 1963.

Conclusion: The balance sheet entries amounted to acknowledgment of debt and extended the limitation period in favour of the appellant.

Issue (ii): Whether the period during which the corporate debtor's reference remained pending before BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 was liable to be excluded while computing limitation.

Analysis: The corporate debtor's reference under the SICA regime remained pending for a substantial period and the Tribunal noted that the insolvency proceedings could not be tested on the footing adopted by the Adjudicating Authority without accounting for the legal effect of the BIFR proceedings. In view of the acknowledgment in the balance sheets and the governing limitation principles applicable to proceedings under the Code, the claim could not be treated as time-barred.

Conclusion: The relevant period could not be treated as rendering the section 7 application barred by limitation.

Final Conclusion: The limitation objection was unsustainable, and the insolvency application deserved to be admitted rather than rejected.

Ratio Decidendi: A duly audited balance sheet reflecting an outstanding liability constitutes acknowledgment of debt under section 18 of the Limitation Act, 1963, and can extend limitation for a section 7 proceeding under the Insolvency and Bankruptcy Code, 2016.

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