Case Note & Summary
The appeal arose from the dismissal of an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 filed by IL&FS Financial Services Limited against Adhunik Meghalaya Steels Private Limited. The appellant had extended a term loan of Rs. 30 crores in 2015, secured by a pledge of shares. The respondent’s account was declared a non-performing asset on 1 March 2018, and a recall notice was issued on 10 August 2018. The appellant contended that the debt had been acknowledged in the respondent’s annual audited financial statements, specifically the balance sheet for FY 2019-20 signed on 12 August 2020, and that the limitation period stood extended by the Supreme Court’s suo motu orders in the pandemic period, making the application filed on 15 January 2024 timely. The respondent opposed, arguing that the claim was time-barred as the balance sheet did not name the creditor and no acknowledgment under Section 18 of the Limitation Act had been made. The NCLT, Guwahati Bench, and the NCLAT both held that the application was barred by limitation. The NCLT found no acknowledgment because the creditor’s name was absent from the balance sheet. The NCLAT held that even if the balance sheet entry constituted an acknowledgment, the application should have been filed by 30 May 2022, and was therefore delayed. The Supreme Court was called upon to decide whether the lower fora had correctly applied the law of limitation, particularly regarding the validity of the balance sheet acknowledgment and the interpretation of its own extension orders.
Headnote
A) Limitation Act - Acknowledgment of Debt - Section 18 - Balance Sheet Entries as Acknowledgment - Limitation Act, 1963, Section 18 - The NCLT and NCLAT held that the balance sheet for FY 2019-20 did not constitute a valid acknowledgment because it did not mention the financial creditor by name, despite showing the amount of secured borrowings and the same amount as previous years; the creditor's identity is essential for a valid acknowledgment. Held that the entry was insufficient under Section 18. (Paras 15-16)
B) Insolvency and Bankruptcy Code - Corporate Insolvency Resolution Process - Limitation for Section 7 Application - Insolvency and Bankruptcy Code, 2016, Section 7 - The date of default was 01.03.2018 and recall notice issued on 10.08.2018; limitation of three years would expire before the pandemic orders. According to NCLAT, even if acknowledgment occurred on 12.08.2020, the application had to be filed by 30.05.2022 in view of the Supreme Court's suo motu extension order. The application filed on 15.01.2024 was held to be time-barred. (Paras 13-16)
C) Limitation Act - Extension of Limitation - Exclusion of Period Under Supreme Court Orders - Limitation Act, 1963, Section 5 extension - The period from 15.03.2020 to 28.02.2022 was excluded and the balance period extended by 90 days from 01.03.2022, making the last date for filing 30.05.2022 where limitation expired during exclusion. The appellant's reliance on this extension was rejected as the application was still filed beyond the extended period. (Paras 5, 13)
D) Limitation Act - Date of Acknowledgment - Signing Date vs. Uploading Date of Balance Sheet - Limitation Act, 1963, Section 18 - The NCLAT examined whether the date of signing the balance sheet (12.08.2020) or the later date of uploading (14.02.2021) should be the date of acknowledgment for computing fresh limitation; the issue remains under consideration. (Para 16)
Issue of Consideration
Whether the NCLAT and NCLT were justified in dismissing the Section 7 application as barred by limitation, specifically whether entries in the balance sheet of FY 2019-20 constitute a valid acknowledgment of debt under Section 18 of the Limitation Act, 1963.
Final Decision
Decision not clearly stated
Law Points
- Legal points not extracted
- acknowledgment of debt under Section 18 Limitation Act
- balance sheet entries as acknowledgment of debt
- limitation period for Section 7 IBC application
- exclusion of time under Supreme Court suo motu orders
- secured borrowings and jural relationship
- relevance of creditor's name in balance sheet acknowledgment
Case Details
2025 LawText (SC) (07) 70
CIVIL APPEAL NO. 5787 OF 2025
Citation not available, 2025 INSC 911
Advocate name not mentioned
IL & FS Financial Services Limited
Adhunik Meghalaya Steels Private Limited
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Nature of Litigation
Civil appeal against the order of the National Company Law Appellate Tribunal (NCLAT) which upheld the National Company Law Tribunal (NCLT) decision dismissing a Section 7 application under the Insolvency and Bankruptcy Code, 2016 on the ground of limitation.
Remedy Sought
The appellant financial creditor sought initiation of corporate insolvency resolution process against the respondent corporate debtor for an alleged default of Rs. 55,45,97,395/- under a term loan agreement, contending that the debt was acknowledged in the balance sheet and the application was within time due to limitation extensions.
Filing Reason
The respondent had failed to repay the term loan; the account was declared a non-performing asset on 01.03.2018, and a recall notice was issued on 10.08.2018. The appellant relied on entries in the financial statements as acknowledgments and the Supreme Court suo motu limitation extension orders to justify the filing of the application on 15.01.2024. The respondent argued that the claim was time-barred and no valid acknowledgment existed.
Previous Decisions
The NCLT, Guwahati Bench, dismissed the Section 7 application as barred by limitation, holding that the balance sheet for FY 2019-20 did not constitute a valid acknowledgment of debt because it did not name the financial creditor. The NCLAT dismissed the appeal, holding that even if acknowledgment was made, the application should have been filed by 30.05.2022, and was therefore time-barred.
Issues
Whether the NCLAT and NCLT were justified in dismissing the Section 7 application as time-barred.
Whether the balance sheet for FY 2019-20 constituted a valid acknowledgment of debt under Section 18 of the Limitation Act, 1963, despite not naming the financial creditor.
Whether the date of acknowledgment is the date of signing the balance sheet (12.08.2020) or the date of uploading (14.02.2021).
Whether the Supreme Court's suo motu orders extending limitation applied to the facts and made the application timely.
Submissions/Arguments
Appellant argued that the debt was acknowledged in the audited financial statements from 2015-16 to 2019-20; the FY 2019-20 balance sheet signed on 12.08.2020 amounted to a fresh acknowledgment within the original three-year limitation period from 01.03.2018. The applicant further contended that under the cash flow statement, no repayment was shown to the appellant, indicating the liability subsisted. Reliance was placed on the Supreme Court's suo motu orders to exclude the period 15.03.2020 to 28.02.2022, making the application filed on 15.01.2024 well within time.
Respondent argued that the date of default was 01.03.2018, and limitation expired on 09.08.2021, and even with the Supreme Court's extension, the last date for filing was 29.05.2022 (90 days after 28.02.2022). It denied that the balance sheet entries constituted acknowledgment, as they did not accept any liability and the creditor was not named. It asserted the claim was hopelessly time-barred.
Ratio Decidendi
Ratio not explicitly mentioned
Judgment Excerpts
The short question that arises for consideration is whether the National Company Law Appellate Tribunal (for short ‘NCLAT’) and the National Company Law Tribunal (for short ‘NCLT’) were justified in dismissing the Section 7 application filed by the appellant against the respondent under the Insolvency and Bankruptcy Code, 2016 (for short ‘IBC’), on the ground that the same was being barred by limitation.
Admittedly date of default, as per the own averment in the said application is 1st March 2018. Admittedly the Financial Creditor had declared the account of the CD as non performing asset on 1st March 2018 and had also issued Recall facilities Notice to the CD on 10th August 2018. Hence, the Limitation period of 3 (three) years under the Limitation Act 1963 to initiate any action against the CD from 10th August 2018 has already been expired on 9th August 2021.
The NCLT, Guwahati Bench held that there was no acknowledgement of liability in the Balance Sheet of F.Y. 2019-20, since the name of the financial creditor did not appear in the Balance Sheet.
Procedural History
The appellant granted a term loan facility of Rs. 30 crores to the respondent on 27.02.2015, secured by pledge of shares. The respondent’s account was declared NPA on 01.03.2018, and a recall notice was issued on 10.08.2018. The respondent’s annual financial statements from 2015-16 to 2019-20 were filed, with the last balance sheet signed on 12.08.2020 and uploaded on 14.02.2021. The appellant filed a Section 7 IBC application before the NCLT, Guwahati, on 15.01.2024, claiming a default of Rs. 55,45,97,395/-. The NCLT dismissed the application as time-barred on the ground that the balance sheet of FY 2019-20 did not acknowledge the debt because the creditor’s name was not mentioned. The appellant appealed to the NCLAT, which dismissed the appeal, holding that even if acknowledgment occurred, the application had to be filed by 30.05.2022. The appellant then preferred the present civil appeal before the Supreme Court.
Acts & Sections
- Insolvency and Bankruptcy Code, 2016: Section 7
- Limitation Act, 1963: Section 18
