Balance-sheet acknowledgment of debt can extend limitation where financial statements clearly disclose continuing liability.

Balance-sheet entries can amount to acknowledgment of debt for limitation purposes when, read with auditor's notes and management comments, they show an unequivocal continuing liability. The principle is applied case by case: a balance-sheet entry is not automatically an acknowledgment, but caveats, auditor observations, or a counterclaim do not necessarily negate liability if the financial statements still clearly disclose the borrowing. Where the statements are prepared in the ordinary course and reflect the debt over multiple years, Section 18 of the Limitation Act may extend limitation and preserve a Section 7 insolvency application.

---

---

Issues: Whether entries in the corporate debtor's balance sheets, read with the auditor's notes and management comments, constituted acknowledgment of debt so as to extend limitation under Section 18 of the Limitation Act, 1963 and sustain the Section 7 application.

Analysis: The balance sheets recorded the financial creditor's loans under long-term borrowings and disclosed the liability over multiple years. The Court applied the principle that a balance sheet entry is not automatically an acknowledgment in every case, but must be examined on the facts to see whether the entry is unequivocal or qualified by caveats. On reading the balance-sheet entries together with the auditor's notes, the Court found that the notes did not detract from the acknowledgment. The management comments themselves also detailed the borrowing history and continuing financial facilities, which reinforced the existence of debt. The presence of a counterclaim did not negate an otherwise clear acknowledgment of liability. The financial statements were prepared in the ordinary course and submitted under the Companies Act, which supported their evidentiary value.

Conclusion: The balance sheets contained acknowledgment of debt within the meaning of Section 18 of the Limitation Act, 1963, the Section 7 application was not time-barred, and the admission of insolvency proceedings was upheld.

Ratio Decidendi: An entry in a balance sheet constitutes acknowledgment of debt for limitation purposes when, on a case-by-case reading of the financial statements and accompanying notes, it is unequivocal and not displaced by mere caveats, auditor observations, or a counterclaim.

---