2026 (2) TMI 540 - AT - IBC

Limitation under the Insolvency and Bankruptcy Code: acknowledgment in balance sheets extends limitation; appeal dismissed.

Date of default under the Insolvency and Bankruptcy Code determines limitation; the tribunal treated the date of default as 31.10.2019 but accepted ... Limitation under the Insolvency and Bankruptcy Code - Date of Default as determinant of limitation - acknowledgement of debt in balance sheets as extending limitation - admission threshold u/s 7(5)(a) - inapplicability of ICAI guidance note Clause 8.3.1.2 to vitiate acknowledgment - Limitation - HELD THAT:- Section 7 application filed by the Respondent, the date of default was mentioned as 31.10.2019 which was based on the inspection conducted by RBI. We also take into consideration that the Corporate Debtor had acknowledged the debt of Respondent Bank in the letter of acknowledgement dated 31.12.2021, which was signed by the present Appellant along with Ms. Sweety Singh as Suspended Director of the Corporate Debtor i.e. by both the Suspended Directors of the Corporate Debtor. We shall take into consideration the relevant acknowledgements which have been made by the Corporate Debtor. We also need to note that the debt is also acknowledged in the balance sheet of the Corporate Debtor for the period ending 2019 to 2021 under the heading of short terms borrowing and long term borrowings. As per the Suo-moto judgement of the Hon’ble Supreme Court of India, the period from 15.03.2020 to 20.02.2020, stand automatically excluded for the purpose of limitation. The Section 7 petition was filed by the Respondent on 27.06.2023 which fall within limitation on the strength of acknowledgements of the debts by the Corporate Debtor in the balance sheets as discussed above. Thus, all six loans have been acknowledged by the Suspended Directors of the Corporate Debtor on 31.12.2021, thereby extending the limitation further. We are of the considered view that there was clear debt for which default took place and the same was duly acknowledged by the Corporate Debtor in their various balance sheets as well as the acknowledgement letters discussed and quoted above. Non-compliance of Clause 8.3.1.2 of the guidance note issued by ICAI - HELD THAT:- It is the case of the Appellant that since balance sheets did not provides the bifurcation of borrowing of the Corporate Debtor under proper heads as mandated by the guidance notes issued by the ICAI, the acknowledgement relied upto, for limitation purpose is perverse. On this issue, we do not find any merit in the contentions of the Appellant for the simple reason that it was for the Appellant to prepare the balance-sheet in according with the laid down Accounting standards and guidance note issued by the ICAI. The Appellant, having not complied with the same, if at all, cannot now take shelter of the same at this stage. Having said so, we do not find Clause 8.3.1.2 at all related to the controversy, the Appellant tried to raise in the pleadings before us and has brought out in the rejoinder reply. The purported claims of the Appellant regarding non classification of the borrowing into sub-classification as per guidance note, do not support the cause of the Appellant as the sub-classification is basically for secured creditors and unsecured creditors. In either case, any financial creditor, even being unsecured creditor, is within the right to file Section 7 petition in case default occurs. Since, the claim 8.3.1.2 of the guidance note itself is negated by us, there is no need for us to refer to the judgement quoted by the Appellant in this regard. However, for the sake of completeness, we shall refer to the said judgement of Collector of Central Excise [1999 (8) TMI 920 - SUPREME COURT (LB)] also. We are of considered view that the Apex Court judgement only confirms that the ICAI is the authoritative body in the matter of laying down the Accounting standards and the guidance notes. We do not find this issue at all applicable as the applicability of accounting standard is not an issue before us. Incidentally, the appeal was heard and was reserved for judgement on 19.01.2026 granting 07 days for submitting written submissions vide our order dated 19.01.2026. We are constrained to record that till date no written submissions have been submitted, hence we have decided the same, based on record available with us. In any case, written submissions perhaps would have only given same/similar details, as such no prejudice would have been caused to either of the parties. Thus, we do not find any error in the Impugned Order. The Appeal devoid of any merits stands rejected. Issues: (i) Whether the Section 7 application was barred by limitation having regard to the Date of Default and NPA classification; (ii) Whether acknowledgements of debt in the corporate debtor's balance sheets and the acknowledgement letter dated 31.12.2021 validly extended the period of limitation.Analysis: The Appellate Tribunal examined the date(s) relied upon for computing limitation, the effect of the Hon'ble Supreme Court's suo-moto extension of limitation for the COVID period, and the evidentiary effect of acknowledgements of debt in the corporate debtor's audited balance sheets and the written acknowledgement dated 31.12.2021. The Tribunal noted that the Section 7 application stated the date of default as 31.10.2019 based on RBI inspection and NPA classification, and that the corporate debtor had, inter alia, recorded the liabilities in its balance sheets for FY 2019-2021 and executed an acknowledgement letter signed by the suspended directors on 31.12.2021. Applying the Supreme Court's exclusion of limitation from 15.03.2020 to 28.02.2022, and treating the balance-sheet entries and the signed acknowledgement as fresh acknowledgements capable of extending limitation, the Tribunal found the Section 7 petition filed on 27.06.2023 (recorded in proceedings) to be within the extended limitation period. The Tribunal also considered and rejected the appellant's contention that non-compliance with ICAI guidance note clause 8.3.1.2 rendered the balance-sheet acknowledgements invalid, finding that the accounting classification issue was for the corporate debtor to raise earlier and did not negate the acknowledgements for limitation purposes. The Tribunal further observed that the Adjudicating Authority had examined documentation establishing debt and default and that, at the admission stage, the statutory threshold for a Section 7 admission (existence of financial debt, amount, and default) had been prima facie met.Conclusion: The appeal is without merit and is rejected; the admission of the Section 7 application and initiation of CIRP by the Adjudicating Authority are sustained because the limitation defence fails in view of the corporate debtor's acknowledgements and the applicable exclusion of the COVID period.