2025 (3) TMI 1355 - AT - IBC

NCLAT upholds rejection of Section 7 petition filed beyond limitation period despite debt acknowledgment in balance sheet

IL&FS Financial Services Limited Versus Adhunik Meghalaya Steels Private Limited

The NCLAT dismissed the financial creditor's appeal against rejection of a Section 7 application on limitation grounds. The corporate debtor's balance ... Dismissal of Section 7 application filed by the Financial Creditor-Appellant on the grounds of being time-barred - sufficient ground for allowing extension of the period of limitation and the applicability of the suo moto orders of the Hon’ble Supreme Court or not - HELD THAT:- It is well settled that if a corporate debtor acknowledges its debt in writing before the expiration of the three-year period, the limitation period would be extended by another three years. This is in conformity with Section 18 of the Limitation Act, which allows for the revival of the limitation period based on the acknowledgment of debt. The question of acknowledgement of liability made in a Balance sheet as acknowledgement of debt has been considered by the Hon’ble Supreme Court in Tulip Star [2022 (8) TMI 70 - SUPREME COURT] wherein it has been held that balance sheet entry can be regarded as an acknowledgment of liability for the purpose of limitation law. The argument canvassed by the Appellant that there is acknowledgement of debt in the balance sheet for FY 2019-20 considered, and it is noticed that the said balance sheet of FY 2019-20 was signed on 12.08.2020, Even in this case, para 5.III of the suo moto orders would have been attracted and the last date for filing of Section 7 petition would have continued until expiry of 90 days from 01.03.2022. Since the Section 7 petition was filed on 15.01.2024, it, therefore, stood clearly time-barred. The Adjudicating Authority has correctly held that the exclusion period under suo moto orders does not come to the rescue of the Appellant even in this case. Whether acknowledgment in Balance sheet for the purpose of limitation has to be counted from the date of signing of the Balance sheet or from the date of its uploading with the RoC on the MCA portal? - HELD THAT:- The conditionalities required for attracting Section 18 of the Limitation Act, 1963 are (i) an admission or acknowledgement of liability; (ii) such acknowledgement must be in respect of a property or right; (iii) that the acknowledgement must be made before the expiry of limitation and (iv) that it should be in writing and signed by the party against whom such property or right is claimed. The Explanation clause thereto, however, provides that an acknowledgment may be sufficient though it may omit to specify the exact nature or the specific character of the said liability. However, the person acknowledging must be conscious of his liability and commitment should be made towards that liability - Any writing to be an acknowledgment of liability must entail an admission of a subsisting jural relationship between the parties and there should be a conscious affirmation of an intention of continuing such relationship in respect of this existing liability. Guidance also provided by judgement of Hon’ble High Court of Andhra Pradesh in Vijaya Kumar Machinery & Electrical Stores Versus Alaparthi Lakshmikanthamma [1968 (1) TMI 23 - ANDHRA PRADESH HIGH COURT] wherein it has been held that that the date on which the balance-sheet was signed is material to constitute an acknowledgment. Conclusion - There are no error on the part of the Adjudicating Authority to have relied on the date of signing of the Balance sheet for extension of limitation period - There is no merit in the argument of the Appellant that the Adjudicating Authority had wrongly calculated the extension of limitation from the date of signing of the Balance sheet by the Corporate Debtor i.e. on 12.08.2020 instead of calculating it from the date it was uploaded on the MCA website i.e. on 14.02.2021. There is no mandatory requirement for factorising the date of uploading of the balance sheet on the MCA portal for computing the period of limitation. There are no merits in the appeal - appeal dismissed. ISSUES PRESENTED and CONSIDEREDThe primary issue considered was whether the Section 7 application filed by the Appellant-Financial Creditor was time-barred. This involved determining:Whether the acknowledgment of debt in the Corporate Debtor's balance sheets extended the limitation period under Section 18 of the Limitation Act.The correct interpretation and application of the suo moto orders by the Supreme Court concerning the extension of limitation periods due to the COVID-19 pandemic.Whether the limitation period should commence from the date the balance sheet was signed or from the date it was uploaded to the MCA portal.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework involved Section 18 of the Limitation Act, which allows for the extension of the limitation period based on the acknowledgment of debt. The Tribunal also considered precedents such as the Supreme Court's judgments in Vidya Sagar Vs UCO Bank, L.C. Mills v. Aluminium Corporation of India Ltd., and Asset Reconstruction Company (India) Ltd. Vs Tulip Star Hotels Ltd. & Ors.Court's Interpretation and ReasoningThe Tribunal examined whether the balance sheets of the Corporate Debtor constituted an acknowledgment of debt that would extend the limitation period. It also analyzed the application of the Supreme Court's suo moto orders regarding the COVID-19 pandemic's impact on limitation periods.Key Evidence and FindingsThe balance sheets for FY 2016-17 to FY 2019-20 were scrutinized to determine if they acknowledged the debt. The Tribunal noted that the balance sheet for FY 2019-20 was signed on 12.08.2020 and uploaded on the MCA portal on 14.02.2021. The Tribunal also considered the arguments regarding the applicability of the Supreme Court's suo moto orders.Application of Law to FactsThe Tribunal applied Section 18 of the Limitation Act, concluding that the acknowledgment of debt in the balance sheets extended the limitation period. However, it determined that the limitation period should be calculated from the date of signing the balance sheet, not the date of uploading.Treatment of Competing ArgumentsThe Appellant argued that the limitation period should be extended based on the acknowledgment in the balance sheets and the suo moto orders. The Respondent contended that the application was time-barred, arguing that the limitation period expired before the Section 7 application was filed. The Tribunal sided with the Respondent, finding that the application was time-barred.ConclusionsThe Tribunal concluded that the Section 7 application was time-barred, as the limitation period expired before the application was filed. The acknowledgment of debt in the balance sheets did not extend the limitation period sufficiently to bring the application within the permissible timeframe.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal ReasoningThe Tribunal emphasized the importance of the date of signing the balance sheet as the trigger for the limitation period: 'Basis the above precedent, we do not find any error on the part of the Adjudicating Authority to have relied on the date of signing of the Balance sheet for extension of limitation period.'Core Principles EstablishedThe acknowledgment of debt in a balance sheet can extend the limitation period under Section 18 of the Limitation Act, but the period is calculated from the date of signing, not the date of uploading to the MCA portal.The Supreme Court's suo moto orders provide specific extensions for limitation periods affected by the COVID-19 pandemic, but these must be applied according to the specific circumstances of each case.Final Determinations on Each IssueThe Tribunal determined that the Section 7 application was time-barred, as the limitation period expired before the application was filed. The acknowledgment of debt in the balance sheets did not extend the limitation period sufficiently to bring the application within the permissible timeframe. The appeal was dismissed, and the impugned order was upheld.