Balance-sheet acknowledgment extends limitation where the debt entry is unequivocal and not qualified by an auditor's note.

Balance-sheet entries may constitute acknowledgment of liability for limitation purposes under Section 18 of the Limitation Act, 1963 where they are unequivocal and not negated by a qualifying auditor's note. On the facts, the corporate debtor's balance-sheets for FY 2014-15 and FY 2015-16 recorded default and outstanding bank dues, amounting to clear acknowledgment of the debt despite a later challenge to the NPA classification. Those acknowledgments extended limitation for the Section 7 insolvency application, rendering it within time and sustaining the admission order and the consequential liquidation order.

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Issues: Whether the corporate debtor's balance-sheets for the financial years 2014-15, 2015-16 and 2016-17 amounted to acknowledgment of liability under Section 18 of the Limitation Act, 1963 so as to extend limitation for the Section 7 application under the Insolvency and Bankruptcy Code, 2016.

Analysis: The debt had been classified as non-performing asset on 6.8.2012 and the corporate debtor did not promptly dispute that classification before the lender's authorities. The balance-sheet for FY 2014-15 recorded default in repayment and stated the outstanding bank dues, and the balance-sheet for FY 2015-16 continued to reflect the same borrowing. The judgment applied the principle that an entry in a balance-sheet can constitute acknowledgment of liability, but the effect depends on whether the entry is unequivocal or qualified by a caveat in the auditor's note. On the facts, the earlier balance-sheets contained clear acknowledgment of the debt, and the later challenge to the NPA declaration did not negate the acknowledgment for limitation purposes.

Conclusion: The balance-sheets constituted valid acknowledgment of liability and extended limitation under Section 18 of the Limitation Act, 1963. The Section 7 application was within limitation and the admission order, as well as the liquidation order consequential to it, were upheld.

Ratio Decidendi: An entry in a corporate debtor's balance-sheet may extend limitation under Section 18 of the Limitation Act, 1963 only when it amounts to an unequivocal acknowledgment of liability, assessed with any caveat in the auditor's note on a case-by-case basis.

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