TaxTMI 
TaxTMI 
2025 (8) TMI 99
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....lared as a Non-Performing Asset (NPA) as the respondent was unable to meet its debt obligations. 4. In the Section 7 IBC application filed by the appellant on 15.01.2024, a default amount of Rs. 55,45,97,395/- was set out and it was mentioned therein that the date of default was 01.03.2018; that it was duly recorded in the information utility as annexed; that a recall facility notice was issued on 10.08.2018 for which there was no response; that ever since the loan facility was extended in February 2015, the respondent acknowledged the liability and its default in all its year to year audited financial statements from 2015 till the latest available Balance Sheet for the financial year 2019-20; that the financials were duly filed by the respondent with the Registrar of Companies; that the Balance Sheet of F.Y. 2019-20 was duly approved by the Board of Directors and the date of signing of the said financial statement was 12.08.2020; the Balance Sheet of 2019-20 was made available to the public on 14.02.2021 and it was averred that the Section 7 application in view of the acknowledgement was filed on time. Reliance was also placed on the order dated 10.01.2022 of this Court in Suo ....
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....ember] Borrowings 01/04/2017 to 31/03/2018 01/04/2016 to 31/03/2017 01/04/2017 to 31/03/2018 01/04/2016 to 31/03/2017 Borrowings notes [Abstract] Details of borrowings [Abstract] Details of borrowings [LineItems] Borrowings 23,68,91,933 24,57,40,400 23,68,91,933 24,57,40,400 Nature of Security [Abstract] Nature of Security Secured by Pledge of 8,10,804 shares of Adhunik Metaliks Ltd. Secured by Pledge of 8,10,804 shares of Adhunik Metaliks Ltd. Secured by Pledge of 8,10,804 shares of Adhunik Metaliks Ltd. Secured by Pledge of 8,10,804 shares of Adhunik Metaliks Ltd. Details on Loans guaranteed [Abstract] Aggregate amount of loans guaranteed by directors 0 0 0 0 Aggregate amount of loans guaranteed by others ....
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....me. 11. It is, no doubt, true that there was no mention of the name of the appellant or any reference to the pledge of shares. Along with the Balance Sheet, as required under the Indian Accounting Standards (Ind AS) 7, a cash flow statement, (indirect) is also appended. The cash flow statement, (indirect) is set out hereunder : - Cash flow Statement, indirect 01/04/2019 to 31/03/2020 01/04/2018 to 31/03/2019 31/03/2018 Statement of cash flows [Abstract] Whether cash flow statement is applicable on company Yes Yes Cash flows from used in operating activities [Abstract] Profit before extraordinary items and tax -9,52,02,961 -29,34,997 Adjustments for reconcile profit (loss) [Abstract] Adjustments to profit (loss) [Abstract] Adjustments for depreciation and amortisation expense 6,45,289 6,80,044 Total adjustments to profit (loss) 6,45,289 6,80,044 Adjustments for working capital [Abstract] &....
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....902/- is added to Rs. 23,68,91,933/- a figure of Rs. 24,41,22,835/- would be arrived at. The appellant further argues that, as is clear from the cash flow statement, no part of cash flow proceeds was utilized in repayment of existing borrowings under the financial activities, since the amount under the head "Cash flows from (used in) financial activities" is Nil. According to the appellant, this lends support to the fact that the debt owed by the respondent to the appellant in the previous years remained unpaid even in 2019-20. It is by this process of reasoning that the appellant contended that there was clear acknowledgement of debt and the jural relationship in the Balance Sheet of F.Y. 2019-20. 13. The respondent filed a reply affidavit to the Section 7 application. It was contended that the Section 7 application was barred by limitation. Para 10, 23 and 24 of the reply are reproduced hereunder: - "10. Admittedly date of default, as per the own averment in the said application is 1st March 2018. Admittedly the Financial Creditor had declared the account of the CD as non performing asset on 1st March 2018 and had also issued Recall facilities Notice to the CD on 10th....
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....8 and the three-year period would have ended on 01.09.2021. According to the NCLAT, limitation would have extended in view of the order of this Court dated 10.01.2022. According to the NCLAT, limitation would stand extended under Para 5(III) up to 30.05.2022. The NCLAT further held that even if the entry in the Balance Sheet of F.Y. 2019-20 is taken, since the said Balance Sheet was signed on 12.08.2020, limitation would have extended only up to 30.05.2022. Thereafter, the NCLAT examined the argument whether the date of signing the Balance Sheet would be the relevant date or whether the date of uploading the Balance Sheet on the website of the Ministry of Corporate Affairs would be the relevant date for commencement of time. On this issue, it was held that the date of signing the Balance Sheet would be the relevant date and, on that basis, concluded that the Section 7 petition ought to have been filed on or before 30.05.2022. Holding so, it dismissed the appeal of the appellant. Aggrieved, the appellant is before us in appeal. CONTENTIONS OF LEARNED COUNSEL: - 17. We have heard Mr. Ritin Rai, learned Senior Counsel for the appellant and Mr. Ramji Srinivasan, learned Senior Co....
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....application. Further, it was argued that in Vidyasagar Prasad (supra) there was an OTS proposal given which was construed as an acknowledgement in that case. Learned Senior Counsel contended that the Tribunals below have correctly applied Para 5(III) of the order of this Court dated 10.01.2022 in Suo Moto Writ Petition (C) No. 3 of 2020 and, as such, the limitation for filing the application expired on 30.05.2022, and the application having been filed on 05.01.2024, it has rightly been held to be barred by limitation. QUESTION FOR CONSIDERATION: - 21. The principal question, as highlighted earlier, that arises for consideration is whether the Tribunals below were justified in holding that the Section 7 application under the IBC filed by the appellant on 15.01.2024 was barred by time? In answering the above question, two incidental questions do arise; (i) Does the entry in the Balance Sheet of F.Y. 2019-20 constitute a valid acknowledgement of debt by the respondent under Section 18 of the Limitation Act, 1963 ? (ii) If the answer to the above question is in the affirmative, will Para 5(I) or 5(III) of the order dated 10.01.2022 passed by this Court in Suo Moto Writ Petition N....
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....upled with a claim to set off, or is addressed to a person other than a person entitled to the property or right, (b) the word "signed" means signed either personally or by an agent duly authorised in this behalf, and (c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right." 25. The question as to what constitutes a valid acknowledgment has come up for consideration before this Court both under the Limitation Act, 1908 and the Limitation Act, 1963. 26. The earliest pronouncement of this Court was in Khan Bahadur Shapoor Fredoom Mazda v. Durga Prasad Chamaria and Others, 1961 SCC OnLine SC 147. Justice P. B. Gajendragadkar (as His Lordship then was) while construing Section 19 of the Limitation Act, 1908 which is similar to Section 18 of the Limitation Act, 1963 held as under: - "6. It is thus clear that acknowledgment as prescribed by Section 19 merely renews debt; it does not create a new right of action. It is a mere acknowledgment of the liability in respect of the right in question; it need not be accompanied by a promise to pay either expressly or even by implication....
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.... always be considered and that Courts lean in favour of a liberal construction of such statements, though intention cannot be fastened by an involved or far-fetched process of reasoning. 28. After setting out the law, the Court in Khan Bahadur Shapoor (supra) took up for consideration the question whether the letter of 05.03.1932 written by respondent no. 2 mortgagor in that case, to the respondent no. 1 mortgagee construed an acknowledgement. While construing the said letter of 05.03.1932, the Court found it appropriate to read it in the context of an earlier letter of 26.11.1931 written by R- 2 mortgagor to R-1 Mortgagee and used the earlier letter to construe the letter of 05.03.1932 and particularly the phrase "interested" mentioned in the letter of 05.03.1932. This Court, while construing the letter of 05.03.1932 as an acknowledgment in favor of the Mortgagee respondent no. 1, held as under: - "12. It is now necessary to consider the document on which the plea of acknowledgment is based. This document was written on 5-3-1932. It, however, appears that on 26-11-1931, another letter had been written by Respondent 2 to Respondent 1; and it would be relevant to conside....
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....sion in November, 1931. The previous incident shows that when the property was put to sale by the first mortgagee the mortgagor rushed to the second mortgagee to stop the sale, and this obviously was with a view to persuade the second mortgagee to prevent the sale which would otherwise affect his own interest as such mortgagee. The theory that the letter refers to the interest of Respondent 1 as an intending lessee or purchaser is far-fetched, if not absolutely fantastic. Negotiations in that behalf had been unsuccessful in 1926 and for nearly five years thereafter nothing was heard about the said proposal. In the context it seems to us impossible to escape the conclusion that the interest mentioned in the letter is the interest of Respondent 1 as a puisne mortgagee and when the said letter appeals to him to take up the whole it can mean nothing other than the whole of the mortgagee's interest including the interest of the prior mortgagee. An appeal to Respondent 1 to stop the sale on payment of Rs 10,000 as he in fact had stopped a similar sale in November 1931 is an appeal to ensure his own interest in the security which should be kept intact and that can be achieved only if ....
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....e of the High Court's view in regard to the letter (Exh. 1), it would be necessary to examine the correspondence which previously ensued between the parties and the surrounding circumstances which led to that letter." Thereafter, after examining the correspondence, this Court concluded as under in Para 18:- "18. It must follow from these facts that there was a subsisting account in the name of the appellant-company in the books of the corporation in which interest on the balance shown therein from time to time was being credited and in which amounts in respect of items passed during the course of reconciliation were also being credited. The statement in the letter (Exh. 1) that "after all the above adjustments the position will be as per statement attached", that is to say, that there was a balance of Rs 1,07,447-13-11 due and payable to the appellant-company, must clearly amount to an acknowledgment within the meaning of Section 19(1). In our view if the letter (Exh. 1) were to be looked at in the background of the controversy between the parties, which controversy was as aforesaid, limited to the question as to the correctness of the amount claimed by the appellan....
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....auditor's report may also enter caveats with regard to acknowledgments made in the books of accounts including the balance sheet. A perusal of the aforesaid would show that the statement of law contained in Bengal Silk Mills [Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, 1961 SCC OnLine Cal 128 : AIR 1962 Cal 115], that there is a compulsion in law to prepare a balance sheet but no compulsion to make any particular admission, is correct in law as it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgment of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act." (Emphasis supplied) 34. The other aspect which remains to be examined is the contention of the respondent that the name of the appellant is nowhere mentioned in the Balance Sheet of F.Y. 2019-20 and as such the Balance Sheet of F.Y. 2019-20 cannot be construed as an acknowledgement of any jural relationship between the parties. To Counter this aspect, appell....
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....Bank relied on judgment of this court in Lakshmirattan Cotton Mills Co. Ltd. v. Aluminium Corporation of India Ltd. [(1971) 1 SCC 67......" (Emphasis supplied) 36. It will be noticed that even in Vidyasagar Prasad (supra) a similar argument about the name of creditor not being mentioned was repelled and additionally the aspect of the proposal given by the corporate debtor therein for a one-time settlement was taken into account as an additional aspect in favour of acknowledgment of debt. 37. The respondent herein contends that Vidyasagar Prasad (supra) could not be said to have laid a law for general application with regard to entries in Balance Sheet wherein the names of the creditor are mentioned and additionally contended that in that case an OTS proposal was also available to buttress the point of acknowledgment. 38. We have independently examined the facts of the present matter to construe whether the entries in the Balance Sheet of F.Y. 2019-20 constitute a valid acknowledgement. As to whether a certain document in a given case constitutes a valid acknowledgement would depend on the facts and circumstances of each case. We do no better than recall the observ....
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....ction 18 of the 1963 Act deals with the effect of acknowledgment in writing. Sub-section (1) thereof provides that where, before the expiration of the prescribed period for a suit or application in respect of any right, an acknowledgment of liability in respect of such right has been made in writing signed by the party against whom such right is claimed, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed. The Explanation to this section provides that an acknowledgment may be sufficient though it omits to specify the exact nature of the right or avers that the time for payment has not yet come or is accompanied by a refusal to pay, or is coupled with a claim to set-off, or is addressed to a person other than a person entitled to the right." 41. Keeping all these principles in mind, if we examine the facts of the present case, it will be clear that the Balance Sheet of F.Y. 2019- 20, viewed in the background of the other admitted documents, including the financial statements of the previous years, clearly constitutes a valid acknowledgment of a subsisting liability and indicated the existence of a jural relationship and an admission ....
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....nowledgment came into effect on 12.08.2020, limitation would have stood extended till 11.08.2023. However, Covid-19 intervened resulting in this Court passing a series of orders extending the period of limitation. The relevant order applicable in this case is the order of 10.01.2022. 45. Parties were at daggers drawn on the aspect whether sub Para (I) of Para 5 of the order of 10.01.2022 would apply or sub Para (III) would apply. Para 5 of the order dated 10.01.2022 reads as under: - "5. Taking into consideration the arguments advanced by learned counsel and the impact of the surge of the virus on public health and adversities faced by litigants in the prevailing conditions, we deem it appropriate to dispose of the M. A No. 21 of 2022 with the following directions: I. The order dated 23.03.2020 is restored and in continuation of the subsequent orders dated 08.03.2021, 27.04.2021 and 23.09.2021, it is directed that the period from 15.03.2020 till 28.02.2022 shall stand excluded for the purposes of limitation as may be prescribed under any general or special laws in respect of all judicial or quasi-judicial proceedings. II. Consequently, the balance peri....