9911796707
TMI Blog2023 (11) TMI 781X X X X Extracts X X X X X X X X Extracts X X X X ..... lid acknowledgment of debts but also observed that 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 - the status of balance sheets as valid acknowledgment of debts needs to be examined depending upon the facts of each case while considering the mention of such non-acknowledging statements in the annexed notes or the auditor s report. The Adjudicating Authority has concluded after scrutinizing the balance sheet and the caveats/notice attached thereto that acknowledgments contained in the balance sheet extends the limitation period and hence the Section 7 application is well within the extended limitation period and thus maintainable. The balance sheets contain an acknowledgement of debt from SBI, the original lender and assignment of the said debt to KMBL. Merely because the notes to the account and the director s report narrate the different stages of subsequent litigation with respect to the said unsecured loan, it cannot be said that these notes in any manner diminish the relevance and import of the debt which finds mention in the balance sheets for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted various financial assistance to the Corporate Debtor from the year 1984, which came to be renewed/enhanced/reduced from time to time. SBI vide its Arrangement Letter sanctioned renewed/reduced credit facilities aggregating to Rs.3.95 crores on 02.02.2002. The Corporate Debtor executed an Agreement of Hypothecation of Goods and Assets in favour of the Financial Creditor. The Corporate Debtor was declared to be NPA in 2001 having failed to pay the interest due. SBI issued a Legal Notice on the Corporate Debtor on 18.08.2003 recalling the loan facility for non-payment of dues and in 2004 filed an application against the Corporate Debtor before DRT. Assignment Agreement came to be executed by and between SBI and Kotak Mahindra Bank Ltd. ( KMBL in short), the Financial Creditor/Respondent No.1 on 16.01.2006. DRT passed an order dated 15.03.2007 inter-alia directing the Corporate Debtor to pay Rs.1.81 crore and issued Interim Recovery Certificate. KMBL issued a Demand Notice upon the Corporate Debtor under Section 13(2) of the SARFAESI Act on 06.07.2007. DRAT vide its judgment dated 26.08.2009 dismissed the Appeal filed by the Corporate Debtor challengi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons made by the Appellant, it was submitted by the Learned Counsel for Respondent No.1 that though the financial facility was extended by SBI originally, SBI had assigned the debts along with the underlying securities in favour of KMBL. Based upon the said assignment of debt, KMBL was substituted in place of SBI by the DRT which passed its orders on 11.10.2006 which was not challenged by the Corporate Debtor. The DRT in its order had issued interim recovery certificate which order was based on the admission of liability in the balance sheet in the books of accounts for the year 2004-05 wherein the Corporate Debtor had categorically admitted that an amount of Rs.1.81 crore was due and payable by them. It has been further contended that since 2005 onwards, the Corporate Debtor has been acknowledging the outstanding dues in their audited balance sheet without fail. Since the acknowledgment has been continuing, till 2018, the Section 7 application having been filed on 11.10.2019, the said application fell within the prescribed limitation period. As regards the OTS letter, it was admitted by the Respondent No. 1 that the same being dated 09.07.2010 and not 09.07.2018, and hence not pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, it was pointed out that the Hon ble Supreme Court in the judgment of Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal (2021) 6 SCC 366 ( Bishal in short) has categorically held that entries made in the balance sheet would amount to acknowledgment only if it is an unequivocal and unconditional entry without any note/caveat attached thereto. It has been further submitted that in the judgment of this Tribunal in CA (AT) (Ins.) 991 of 2020 in ARCIL v. Uniworth Textiles Ltd. ( Uniworth in short) it has also been held that a caveat in the Director s Report disputing a liability forming part of the balance sheet cannot be taken as an unqualified acknowledgment of debt. Reference was also made to the judgment of this Tribunal in CA (AT) (Ins.) No. 350 of 2023 in Abhiruchi Vision Pvt. Ltd. v. Jayaswal Neco Industries Ltd. ( Abhiruchi in short) where it has been held that the presence of a caveat corresponding to the entry of liability in the balance sheet of the Corporate Debtor does not amount to acknowledgment of debt. Stating that in the present case, the notes appended to the balance sheets reveals that there is a denial of the liability, hence, the entries relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed. (2) Where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received. Explanation. For the purposes of this section, (a) an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, in Mahabir Cold Storage v. CIT, 1991 Supp (1) SCC 402, this Court held: 12. The entries in the books of accounts of the appellant would amount to an acknowledgment of the liability to M/s Prayagchand Hanumanmal within the meaning of Section 18 of the Limitation Act, 1963 and extend the period of limitation for the discharge of the liability as debt 35. A perusal of the aforesaid sections would show that there is no doubt that the filing of a balance sheet in accordance with the provisions of the Companies Act is mandatory, any transgression of the same being punishable by law. However, what is of importance is that notes that are annexed to or forming part of such financial statements are expressly recognised by Section 134(7). Equally, the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bank has filed a suit for a recovery of the loan before the DRT Jabalpur and the proceedings are in progress before the DRT. The same balance sheet of FY 2005-06 also reflects the corresponding figures as on 31.03.2005 also. Though the balance sheet for FY 2004-05 has not been enclosed, it has been stated that the Hon'ble DRT had issued an interim recovery certificate dated 15.03.2007 on the basis of the balance sheet for FY 2004-05. Even otherwise it is also noted that the default date is stated to be since 31.03.2001. Following that, on 02.02.2002, the Financial Creditor had revised limits and reduced that to Rs. 3.5 crores only. On 05.02.2002, the Board of Directors of Corporate Debtors had also given its ascent. But then due to further default, the Financial Creditor had issued on 18.08.2003 the recall notice for the entire facility and thus the default date for balance amount (on reduced limit] can be taken as 18.08.2003 also. Thus on consideration of these facts, acknowledgement as per balance sheet as on 31.03.2006 extends the limitation till that day and as such there is no ambiguity. Then the balance sheet as on 31.03.2007 (for FY 2006-07) reflects the secured l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otak Mahindra Bank Limited has not been provided for the year as the liability amount and transfer of a security interest has been disputed. For a ready reference the entire note at 4.2 (b) is reproduced here as under: 4.2 (b) (i) Financial liabilities and borrowings: - Working capital facilities were originally sanctioned by State Bank of India Gwalior. The said loan was secured by first on all assets of the company and a personal guarantee by Managing Director, a Promoter and two Former Directors of the Company. The said working capital facilities were further secured by mortgage of land, building and plant and machinery of the units of the company. (ii) During August, 2003, State Bank of India had cancelled the limits and recalled the loans and filed a suit before the DRT Jabalpur for recovery of the amount due. Subsequently, State Bank of India had assigned the said loan to Kotak Mahindra Bank Limited (KMBL), pursuant to the execution of a deed of assignment on 16.01.2006. (iii) The loan payable to KMBL has been consistently considered as unsecured, as no charge on the assets has ever been created/registered in its favour. KMBL had issued a notice dated 06.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. The Adjudicating Authority has concluded after scrutinizing the balance sheet and the caveats/notice attached thereto that acknowledgments contained in the balance sheet extends the limitation period and hence the Section 7 application is well within the extended limitation period and thus maintainable. We now proceed to examine whether this finding of the Adjudicating Authority is sustainable. 20. We notice that until 31.03.2007 the outstanding amount of Rs.1.81 crore was figuring in the balance sheet of the Corporate Debtor as Secured Loans as at page 785 of Appeal Paper book ( APB in short). In the balance sheet as on 31.03.2009, the same amount continues to be shown as part of Loan Fund but as Unsecured Loan as at page 793 of APB. We also find that the reason for reclassifying the loan as unsecured loan has also been appended at the notes to Financial Statement at page 794 of APB. In the balance sheets of the Corporate Debtor for FY 2013-14, 2014-15, 2015-16 and 2016-17, the amount of Rs. 1.81 crore continues to be shown under the sub-heading of Short Term Borrowings under the head of Current Liabilities . 21. This brings us to the question whether the Adjud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heets for the purposes of Section 18 of the Limitation Act. Such caveat/information, read together with the balance-sheet do not negate the acknowledgment of that liability. Hence, in view of the facts of this case we are of the considered opinion that the judgements of this Tribunal in Uniworth supra and Abhiruchi supra do not come to the aid of the Appellant. 24. The Adjudicating Authority therefore committed no error in holding that the Section 7 application filed by the Respondent No. 1 was not barred by time there being continuous acknowledgment in their respective balance sheets of the Corporate Debtor which acknowledgment was within the meaning of Section 18 of the Limitation Act extending the period of limitation by fresh period of limitation by each acknowledgment. 25. We would however like to add that the Adjudicating Authority committed a mistake in inter alia predicating the extension of limitation period also on the basis of an OTS proposal from the Corporate Debtor to KMBL dated 09.07.2010 by wrongly holding it to be dated 09.07.2018. Since it is of 2010 vintage, it cannot be relied upon for extension of limitation until 2019. Be that as it may, it is clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
