DATE OF SIGNING THE BALANCE SHEET TO BE TAKEN FOR COMPUTING LIMITATION UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016

[DR.MARIAPPAN GOVINDARAJAN]

Limitation

Section 238A of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) provides the limitation for filing an application before the Adjudicating Authority for initiation of corporate insolvency resolution process under Section 7 or 9 or 10 of the Code.  The said section provides that the provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be.

Usually, the date of default will be considered for counting the limitation period.  If the debt is acknowledged by the corporate debtor before the expiration of the limitation period, then a fresh period of limitation shall be computed from the time when the acknowledgment was so signed, according to Section 18 of the Limitation Act, 1963.  Such acknowledgment need not be accompanied by a promise to pay expressly or even by implication. However, the acknowledgment must be made before the relevant period of limitation has expired.

Case laws

In VIDYASAGAR PRASAD VERSUS UCO BANK & ANR. - 2024 (10) TMI 1184 - SUPREME COURT wherein the Supreme Court held that an acknowledgment of debt in a balance sheet constitutes an acknowledgement of liability even if it does not specify the exact nature of the liability or a name of particular creditor.

In ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED VERSUS TULIP STAR HOTELS LIMITED & ORS. - 2022 (8) TMI 70 - SUPREME COURT, the Supreme Court took into reckoning the date of signing of balance sheet and not date of filing of balance sheet with MCA. It has been further contended that mere entries in Balance sheet cannot be taken as unequivocal and unqualified acknowledgment of debt particularly so when the name of Financial Creditor is not found to be specifically mentioned in the Balance sheet of FY 2019-20.   The admission in a Balance sheet has to be qua the particular creditor for Balance sheet acknowledgement.    The Adjudicating Authority cannot get into investigations to find out the borrower in respect of whom the credit amount stands reflected in the Balance sheet of the Corporate Debtor.

In IL&FS FINANCIAL SERVICES LIMITED VERSUS ADHUNIK MEGHALAYA STEELS PRIVATE LIMITED - 2025 (3) TMI 1355 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI, Adhunik Meghalaya Steels Private Limited entered into an agreement with the Financial Creditor, IL&FS Financial Service Limited for a loan of Rs.30 crores on 27.02.2015.  A sum of Rs. 24.44 crores were disbursed to the corporate debtor on 17.03.2015.  This loan was secured by 810804 shares of the corporate debtor.  The same was reflected in the agreement and in the form uploaded in MCA website.  Since the corporate debtor did not pay the loan the same was declared as Non-Performing Assets (‘NPA’ for short) on 01.03.2018.  The financial creditor issued a notice of default on 10.07.2018 to the corporate debtor. 

Since the corporate debtor did not pay the outstanding dues, corporate insolvency resolution process was initiated against the Corporate Debtor by the financial creditor.  The Adjudicating Authority dismissed the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short).  Aggrieved against this order the financial creditor, filed the present appeal before the National Company Law Appellate Tribunal (‘NCLAT’ for short). 

The appellant submitted the following before the NCLAT-

• The Adjudicating Authority has erroneously held that the Section 7 application had been filed beyond the permissible period of limitation of 3 years.
• The Account of the Corporate Debtor had been declared NPA on 01.03.2018.  However, the Corporate Debtor continued to acknowledge their debt liability in their Balance sheets even after the date of default, the period of limitation continued to be extended in terms of Section 18 of the Limitation Act.
• The Balance sheet of the Corporate Debtor for FY 2019-20 clearly recorded an amount of Rs 24.41 Cr. under “secured borrowings” which was a clear acknowledgement of liability.
• The Adjudicating Authority wrongly calculated the extension of limitation from the date of signing of the Balance sheet by the Corporate Debtor i.e. from 12.08.2020 instead of calculating it from the date it was uploaded on the MCA website i.e. on 14.02.2021.
• The filing of Balance sheet with the Registrar of Companies serves as the formal acknowledgment of debt by the debtor.
• The Supreme Court in its ‘suo-motu’ order held that the period commencing from 15.03.2020 to 28.02.2022 would be excluded for the calculation of limitation period.
• The Adjudicating Authority had wrongly applied paragraph 5.III of the suo moto orders of the Hon’ble Supreme Court in computing the limitation period.
• Section 7 application was filed on 15.01.2024 which fell within the limitation period.

The respondent submitted the following before the NCLAT-

• The date of default is 01.03.2018 and computing the limitation period from this date of default, the 3 years period for filing the Section 7 application ended on 28.02.2021.
• The last date 28.02.2021 fell within the Covid period which was covered by the suo moto orders of the Supreme Court.
• By applying the aforesaid extension, the limitation period would be extended by 90 days until 30.05.2022.
• The present petition was filed on 15.01.2024, which was much after the 90 days period allowed under para 5.III of the Supreme Court order.
• The Adjudicating Authority correctly dismissed the application as time barred.
• Even if the contention of the Appellant that the acknowledgement of the liability in the balance sheet of the Corporate Debtor of FY 2019-20 extended the period of limitation, is accepted, in such an event, since the said balance sheet was signed on 12.08.2020, the 3 years limitation period would have commenced from 12.08.2020 and the exclusion period under suo moto orders does not come to the rescue of the Appellant.
• The contention of the appellant that the trigger point for limitation is to commence not from the date when the Balance sheet was signed but from the date it was uploaded on the MCA Portal and registered with the Registrar of Companies is without any legal base.

The NCLAT considered the submissions of both the appellant and the respondent.  The NCLAT considered the question to be decided in the present appeal is as to whether the Section 7 application filed in the present application is time barred or otherwise.  The NCLAT analysed the suo moto order of the Supreme Court.  On analysis of the facts and circumstances of the case and also on the arguments put forth by them the Supreme Court was confined only  to find out whether the Balance sheets of the Corporate Debtor from 2016-17 onwards constitute sufficient ground for allowing extension of the period of limitation and the applicability of the suo moto orders of the Hon’ble Supreme Court.

The Supreme Court observed 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 3 years, which 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 Supreme Court also relied on its own judgments in ‘Tulip Star’. 

Even if the argument of the appellant is accepted that the acknowledgement of the liability in the balance sheet of the Corporate Debtor of FY 2017-18 extended the period of limitation, even in such an event, since the balance sheet was signed on 02.09.2018, the 3 years period would have ended on 01.09.2021. Since the date 01.09.2021 fell within the excluded period as provided under the suo moto orders, this would clearly have attracted para 5.III of the suo moto orders and the last date for filing for Section 7 petition would still have been a date on or before expiry of 90 days from 01.03.2022. Thus, the limitation period would have extended until 30.05.2022 and therefore the Section 7 application filed on 05.01.2024 would have been hit by limitation.

The Supreme Court observed that the Corporate Debtor had failed to file the Balance sheets on time with Registrar of Companies in violation of the statutory obligations under Companies Act, 2013.  The moot question that considered by the Supreme Court is as to 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 Registrar of Companies  on the MCA portal.

The Supreme Court also analysed the provisions of Section 18 of the Limitation Act, 1963.  The Supreme Court observed that conditions required for attracting Section 18 of the Act are as below-

• an admission or acknowledgement of liability;
• such acknowledgement must be in respect of a property or right;
• that the acknowledgement must be made before the expiry of limitation; and
• 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.  The plea of acknowledgment must relate to a present subsisting liability and indicate the existence of jural relationship between the parties such as that of debtor and creditor or the intention to admit such jural relationship.  It is now well settled that acknowledgment in the Balance Sheet is sufficient acknowledgment under Section 18 of the Limitation Act, 1963.  

The Supreme Court did 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.  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.