Case Note & Summary
The appeal was filed by IL&FS Financial Services Limited (Financial Creditor) against the order of the National Company Law Tribunal, Guwahati Bench, which dismissed its Section 7 application under the Insolvency and Bankruptcy Code, 2016 (IBC) against Adhunik Meghalaya Steels Private Limited (Corporate Debtor) as time-barred. The Financial Creditor had disbursed a loan of Rs 24.44 Crore on 17.03.2015 under a Loan Agreement dated 27.02.2015. The Corporate Debtor defaulted, and the account was declared NPA on 01.03.2018. A notice of default was issued on 10.07.2018, followed by a recall notice on 10.08.2018. The Section 7 application was filed on 15.01.2024 claiming Rs 55.45 Crore. The Adjudicating Authority held that the application was beyond the three-year limitation period from the date of default (01.03.2018). The Financial Creditor appealed, arguing that the Corporate Debtor's balance sheet for FY 2019-20 acknowledged the debt under 'secured borrowings', extending limitation under Section 18 of the Limitation Act, 1963. The NCLAT, relying on Vidya Sagar v. UCO Bank and L.C. Mills v. Aluminium Corpn. of India Ltd., held that an acknowledgment in a balance sheet constitutes a valid acknowledgment of liability even without specifying the creditor's name. The appeal was allowed, the impugned order was set aside, and the Section 7 application was restored for fresh adjudication on merits.
Headnote
A) Limitation Act - Acknowledgment of Debt - Section 18 - Balance Sheet as Acknowledgment - The issue was whether the Corporate Debtor's balance sheet for FY 2019-20, recording an amount under 'secured borrowings', constituted an acknowledgment of liability under Section 18 of the Limitation Act, 1963, thereby extending the limitation period for filing a Section 7 application under the IBC. The NCLAT held that such recording in the balance sheet amounts to a clear acknowledgment of debt, even if the creditor's name is not specified, relying on Vidya Sagar v. UCO Bank and L.C. Mills v. Aluminium Corpn. of India Ltd. (Paras 4-6, 10-12). B) Insolvency and Bankruptcy Code - Initiation of Corporate Insolvency Resolution Process - Section 7 - Limitation - The Adjudicating Authority had dismissed the Section 7 application as time-barred, holding that the default date was 01.03.2018 (NPA declaration) and the application filed on 15.01.2024 was beyond three years. The NCLAT reversed this, finding that the balance sheet acknowledgment extended limitation, and the application was within time. (Paras 2, 10-12).
Issue of Consideration
Whether the Section 7 application filed by the Financial Creditor under the Insolvency and Bankruptcy Code, 2016 was barred by limitation, and whether acknowledgment of debt in the Corporate Debtor's balance sheet extended the limitation period under Section 18 of the Limitation Act, 1963.
Final Decision
Appeal allowed. Impugned order dated 16.05.2024 set aside. Section 7 application restored to the file of Adjudicating Authority for fresh adjudication on merits in accordance with law.
Law Points
- acknowledgment of debt in balance sheet constitutes acknowledgment of liability under Section 18 of Limitation Act
- 1963
- even without specifying creditor's name
- limitation period for Section 7 IBC application extended by acknowledgment in balance sheet
- Section 18 of Limitation Act applies to IBC proceedings
