The Supreme Court dismissed an appeal challenging the initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor by UCO Bank. The Court upheld the findings of the National Company Law Appellate Tribunal (NCLAT) that the acknowledgment of debt in the balance sheets and a One Time Settlement (OTS) proposal extended the limitation period under Section 18 of the Limitation Act, 1963.

1. Background and Key Facts

The appellant, a suspended director of the Corporate Debtor, challenged the orders of the NCLT and NCLAT admitting the CIRP application under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016.

• Loan Default: The Corporate Debtor defaulted on loans taken from UCO Bank and other banks, with its account declared as a Non-Performing Asset (NPA) on 05.11.2014.
• Proceedings Initiated: UCO Bank filed a Section 7 application on 13.02.2019 to initiate CIRP. The Corporate Debtor raised objections based on limitation and other grounds.
  (Para 1-3)

2. Contentions of the Corporate Debtor

The Corporate Debtor primarily argued:

• The Section 7 application was barred by limitation as the default occurred in 2014.
• There was no clear acknowledgment of debt in the financial statements, and the balance sheets did not explicitly mention UCO Bank.
  (Para 3, 6, 8)

3. NCLT and NCLAT’s Findings

Both authorities held:

• The Corporate Debtor’s balance sheets for 2017 and 2019, as well as an OTS proposal letter from 2016, constituted an acknowledgment of debt, extending the limitation period under Section 18 of the Limitation Act, 1963.
  (Para 4, 5, 11)

4. Supreme Court’s Analysis

The Supreme Court reviewed the following:

• Acknowledgment of Debt in Balance Sheets: Referring to previous judgments like Asset Reconstruction Company vs. Bishal Jaiswal, the Court affirmed that acknowledgment of debt in balance sheets and auditor's notes extended the limitation period.
• OTS Proposal: A letter dated 07.06.2016 from the Corporate Debtor proposing an OTS with UCO Bank further confirmed the acknowledgment of a subsisting liability.
  (Para 7-10)

Acts and Sections Discussed:

• Insolvency and Bankruptcy Code, 2016 (IBC): Section 7 (Initiation of CIRP by Financial Creditor)
• Limitation Act, 1963: Section 18 (Effect of Acknowledgment in Writing)
• Companies Act, 2013: Section 129 (Financial Statements), Schedule III (Format for Financial Statements)

Ratio Decidendi:

1. Acknowledgment of Debt: Entries in the balance sheets and financial statements amount to acknowledgment of debt under Section 18 of the Limitation Act, extending the period of limitation.
2. OTS Proposal: Even a proposal for One-Time Settlement (OTS) constitutes acknowledgment of subsisting liability, attracting Section 18 of the Limitation Act.

Subjects:

Insolvency, Debt Acknowledgment, Limitation Period

CIRP, Insolvency and Bankruptcy Code, Debt, Limitation Act, Acknowledgment of Debt, OTS Proposal, NCLAT