Analysis on
- Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal & Anr: Supreame Court, Held, Balance sheet can amount to acknowledgement of debt.
- V. Padmakumar v. Stressed Assets Stabilisation Fund & Anr. Company Appeal (AT) (Insolvency) No. 57 of 2020[1] NCLT Held, Balance Sheet do not amount to an acknowledgement of debt in terms of Section 18 of the Limitation Act.
- Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Ltd, Civil Appeal No. 6347 of 2019 Supreme court, Held, Section 18 of the Limitation Act, 1963, is inapplicable to an application filed under Section 7 of the Insolvency and Bankruptcy Code (IBC).
In a judgment of Asset Reconstruction Company (India) Ltd v. Bishal Jaiswal & Anr. Dated 15th April 2021.[2]
In this significant judgment the Supreme Court took cognizance of the fact that even though balance Sheet filing is under the ambit of the statutory requirement of the Companies Act, 2013, the same thing can be said to be amounting to acknowledgment of debt, considering the factual matrix of each case. In this judgment the Supreme Court also set aside the majority decision given by the National Company Law Tribunal (NCLT) in the case of V. Padmakumar v. Stressed Assets Stabilisation Fund.
Factual Matrix
The appellant of Asset Reconstruction Company (India) Ltd filed an application under the provisions of Section 7 of Insolvency & Bankruptcy Code, 2016 (IBC) for the Corporate Insolvency Resolution Process (CIRP) to be initiated against Corporate Power Ltd. NCLT, Kolkata admitted the application after observing that the liability was acknowledged by the Corporate Debtor before the expiry of the limitation period of three years from the date of default and thus, the Section 7 Application was not barred by any limitation.
Bishal Jaiswal, a suspended director of Corporate Power Ltd. filed an appeal against the order given by the NCLT. In his appeal he relied upon V. Padmakumar v. Stressed Assets Stabilisation Fund & Anr. In this case it was held by the NCLT that entries in a Balance Sheet did not amount to an acknowledgment of debt under Section 18 of Limitation Act. Thus, contended that the application filed by Asset Reconstruction Company India Limited (ARCIL) under Section 7 of IBC, 2016 was prevented by limitation.
The three-member bench of NCLAT doubted the judgment passed by five-member bench of NCLT in V. Padmakumar. After observing V. Padmakumar, the appellate tribunal decided that it required reconsideration for observing that entries in a Balance Sheet do not amount to an acknowledgement of debt in terms of Section 18 of the Limitation Act. After due consideration, the three-judge bench passed a reference order for a five-member bench to be constituted to reconsider majority decision in V. Padmakumar.
The reference was then heard by a five-judge bench, where it was observed that Section 18 of the Limitation Act would not apply to the proceedings taking place under the ambit of IBC, 2016. Aggrieved by the order, (ARCIL) filed an appeal before the apex court. While hearing this appeal, the Supreme Court also heard appeals against NCLT’s judgment in V. Padmakumar.
Analysis
In this judgment, the Supreme Court clarified that entries in a Balance sheet do indeed amount to acknowledgement of debt for the purpose of extending the limitation period under Section 18 of the Limitation Act. It had been unnecessarily made complex by conflicting judgments of the NCLT. But the Supreme Court has finally clarified which factors are needed to be necessarily undertaken to confirm whether an entry in the Balance Sheet can be seen as an acknowledgment under Section 18 of the Limitation Act.
[1] https://nclat.nic.in/Useradmin/upload/7982247415e6a2b56e8bef.pdf
[2] https://ibbi.gov.in/uploads/order/6f46d35423eabba10c230c216c6c78d9.pdf