Case Note & Summary
The appeal arose from the admission of a Section 7 application under the Insolvency and Bankruptcy Code, 2016 (IBC) by the National Company Law Tribunal (NCLT), Kolkata Bench, against the Corporate Debtor, which was affirmed by the National Company Law Appellate Tribunal (NCLAT). The appellant, a suspended director of the Corporate Debtor, challenged the admission primarily on the ground of limitation, arguing that the application was barred by time as the debt was declared a Non-Performing Asset (NPA) on 05.11.2014, and the Section 7 application was filed on 13.02.2019, beyond the three-year limitation period. The Corporate Debtor had availed loan and credit facilities from UCO Bank and other consortium banks for its Thermal Power Plant. After default, the account was declared NPA, and recovery proceedings under SARFAESI Act and DRT were initiated. UCO Bank filed the Section 7 application, which was resisted on grounds of limitation, lack of competent signing authority, and absence of debt. The NCLT rejected these objections, holding that the General Manager was authorized to sign, the debt existed, and the limitation was extended by acknowledgements in the balance sheets for the year ending 31.03.2017 and a one-time settlement (OTS) letter dated 07.06.2016. The NCLAT dismissed the appeal, relying on the balance sheet entries and the OTS letter as acknowledgements under Section 18 of the Limitation Act, 1963. Before the Supreme Court, the appellant argued that the balance sheet entries did not constitute a clear and unequivocal acknowledgement of debt. The Supreme Court, after considering the law, held that balance sheet entries, prepared in statutory format, are valid acknowledgements even if the creditor's name is not specifically mentioned, as the format does not require naming every creditor. The Court also noted that the OTS letter was an unequivocal acknowledgement. Applying Section 238A IBC, which makes the Limitation Act applicable, the Court found that the Section 7 application was within limitation due to these acknowledgements. The appeal was dismissed, upholding the admission of CIRP.
Headnote
A) Limitation Act, 1963 - Section 18 - Acknowledgement of Debt - Balance Sheet Entries - Entries in the balance sheet of a corporate debtor, prepared in statutory format under Schedule III of the Companies Act, 2013, constitute a valid acknowledgement of debt under Section 18 of the Limitation Act, 1963, even if the name of the specific creditor is not mentioned, as the format does not require naming every creditor. The acknowledgement indicates a jural relationship and subsisting liability. (Paras 7-8) B) Insolvency and Bankruptcy Code, 2016 - Section 7 read with Section 238A - Limitation - Applicability of Limitation Act - Section 238A IBC makes the provisions of the Limitation Act, 1963 applicable to proceedings under the Code. Consequently, Section 18 of the Limitation Act applies, and an acknowledgement of debt in writing before the expiry of the limitation period extends the period of limitation for filing a Section 7 application. (Paras 7-7.1) C) Insolvency and Bankruptcy Code, 2016 - Section 7 - Default - NPA Declaration - The date of default for initiating CIRP under Section 7 is the date of non-payment of debt, not necessarily the date of NPA declaration. However, an acknowledgement of liability after NPA declaration but before expiry of limitation can renew the limitation period under Section 18 of the Limitation Act. (Para 7) D) Limitation Act, 1963 - Section 18 - One-Time Settlement Proposal - A letter offering a one-time settlement (OTS) by the corporate debtor, not marked 'without prejudice', amounts to an unequivocal acknowledgement of subsisting liability and attracts Section 18 of the Limitation Act, extending the limitation period. (Para 5, 11.10)
Issue of Consideration
Whether entries in the balance sheet of the Corporate Debtor constitute a valid acknowledgement of debt under Section 18 of the Limitation Act, 1963, so as to extend the period of limitation for filing an application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
Final Decision
The Supreme Court dismissed the appeal, upholding the orders of NCLT and NCLAT admitting the Section 7 application and initiating CIRP against the Corporate Debtor.
Law Points
- Acknowledgement of debt in balance sheet extends limitation under Section 18 of Limitation Act
- 1963
- Section 238A IBC makes Limitation Act applicable to IBC proceedings
- Balance sheet entries need not name specific creditor
- One-time settlement proposal amounts to acknowledgement of liability
