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Issues: (i) Whether the entries in the balance sheet of financial year 2019-20 constituted a valid acknowledgment of debt under Section 18 of the Limitation Act, 1963. (ii) Whether the limitation period for the Section 7 application under the Insolvency and Bankruptcy Code, 2016 was saved by the COVID-related exclusion order and was therefore within time.
Issue (i): Whether the entries in the balance sheet of financial year 2019-20 constituted a valid acknowledgment of debt under Section 18 of the Limitation Act, 1963.
Analysis: Section 18 applies to proceedings under the Insolvency and Bankruptcy Code, 2016 by virtue of Section 238A, and limitation for a Section 7 application is governed by Article 137 of the Limitation Act, 1963. Acknowledgment must relate to a subsisting liability and indicate the jural relationship of debtor and creditor, though the exact nature of the debt need not be specified. The Court held that a balance sheet must be examined case by case, in its surrounding context, and may constitute acknowledgment where its tenor shows an admission of continuing liability. Reading the financial statements of 2015-16, 2016-17, 2017-18 and 2019-20 together, the Court found that the 2019-20 balance sheet reflected the same borrowing, showed no repayment in the cash flow statement, and therefore evidenced that the debt remained unpaid.
Conclusion: Yes. The balance sheet of financial year 2019-20 constituted a valid acknowledgment of debt and admitted the subsisting jural relationship.
Issue (ii): Whether the limitation period for the Section 7 application under the Insolvency and Bankruptcy Code, 2016 was saved by the COVID-related exclusion order and was therefore within time.
Analysis: The acknowledgment in the balance sheet was signed on 12.08.2020, when limitation was still running. On that basis, the fresh period of limitation would ordinarily have extended till 11.08.2023. The Court held that paragraph 5(I) of the order dated 10.01.2022 excluded the period from 15.03.2020 to 28.02.2022 for all judicial and quasi-judicial proceedings, and that this exclusion governed the case. Paragraph 5(III) did not apply because limitation did not expire during the excluded period.
Conclusion: Yes. The application was within limitation, and paragraph 5(I), not paragraph 5(III), applied.
Final Conclusion: The orders of the NCLT and NCLAT were set aside, the Section 7 application was treated as filed within limitation, and the matter was sent back for consideration on merits.
Ratio Decidendi: An entry in a balance sheet can amount to acknowledgment under Section 18 of the Limitation Act, 1963 if, read in its surrounding context, it evidences a subsisting liability and the jural relationship of debtor and creditor; where such acknowledgment falls within the COVID exclusion period, the limitation computation must give effect to paragraph 5(I) of the Supreme Court's extension order.
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