National Company Law Appellate Tribunal, New Delhi: In an appeal filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) challenging the Adjudicating Authority’s order dismissing Section 7 IBC application, a Division Bench of Ashok Bhushan, J., and Barun Mitra (Technical Member), upheld the Adjudicating Authority’s order that the Section 7 IBC application is time-barred. The NCLAT held that the acknowledgment in Balance sheet for the purpose of limitation under Section 18 of the Limitation Act, 1963 has to be counted from the date of signing of the Balance sheet and not from the date of its uploading with the Registrar of Companies (RoC) on the MCA portal.
Factual Matrix
The instant matter pertains to a loan agreement dated 27-02-2015, executed between IL&FS Financial Services Ltd. (Appellant-Financial Creditor) and Adhunik Meghalaya Steels Pvt. Ltd. (Respondent-Corporate Debtor), wherein the Financial Creditor disbursed ₹24.44/- crore out of a sanctioned amount of ₹30/- crore. The loan was secured by pledging 8,10,804 shares of Corporate Debtor in favor of the Financial Creditor.
Upon the Corporate Debtor’s failure to repay, the account was declared Non-Performing Asset (NPA) on 01-03-2018. Subsequent notices of default and recall notices were issued on 10-07-2018 and 10-08-2018, respectively. However, no repayment was made, prompting the appellant to file a Section 7 IBC application on 15-01-2024, seeking a claim of ₹55.45/- crore.
The Adjudicating Authority, vide order dated 16-05-2024, dismissed the application and held that it was barred by limitation. Aggrieved by the impugned order, the appellant filed an appeal before NCLAT challenging the same.
Moot Point
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Whether the Section 7 IBC application filed barred by limitation under the Limitation Act, 1963?
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Whether the balance sheets of the Corporate Debtor, particularly for FY 2019-20, constituted an acknowledgment of liability under Section 18 of the Limitation Act, thereby extending the limitation period?
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Whether the date of signing or the date of filing/uploading the balance sheet with the MCA/RoC should be considered for computing limitation?
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Whether the Supreme Court’s decision in Cognizance for Extension of Limitation, In re, (2022) 3 SCC 117, regarding COVID-19 limitation extension were correctly applied by the Adjudicating Authority?
Parties’ Contentions
The Financial Creditor-appellant contended that the Corporate Debtor acknowledged the debt in its balance sheets up to FY 2019-20, listing an amount of ₹24.41 crore under “secured borrowings” and this acknowledgment as per Section 18 of the Limitation Act, extended the limitation period. It was contended that the Adjudicating Authority misapplied the application of Cognizance for Extension of Limitation, In re (Supra) excluded the period from 15-03-2020 to 28-02-2022 for limitation purposes. It was stated that the balance sheet for FY 2019-20 was signed on 12-08-2020 but uploaded on the MCA portal only on 14-02-2021 and contended that limitation should be computed from the date of filing with the RoC (14-02-2021), rather than the signing date. It was lastly contended that considering the acknowledgment in the FY 2019-20 balance sheet and COVID-19 limitation extensions, Section 7 IBC application was within time.
However, the Corporate Debtor-respondent contended that the date of default was 01-03-2018, and the three-year limitation expired on 28-02-2021. It was contended that the Section 7 IBC application was filed on 15-01-2024 which clearly time barred. It was contended that balance sheets can only extend limitation if they unequivocally acknowledge the debt owed to a specific creditor and the Corporate Debtor’s FY 2019-20 balance sheet did not mention Financial Creditor by name, and therefore, no jural relationship is established.
Court’s Observations
Balance Sheet acknowledgment not sufficient
The NCLAT examined whether the balance sheets of the Corporate Debtor for the financial years 2016-17 to 2019-20 constituted an acknowledgment of debt, thereby extending the limitation period under Section 18 of the Limitation Act. The NCLAT stated that it is a well-settled principle that an acknowledgment of debt in a duly signed and authenticated balance sheet can extend the limitation period, however, such acknowledgment must be clear, unambiguous, and establish a jural relationship between the creditor and debtor. The NCLAT referred to Bishal Jaiswal v. Asset Reconstruction Co. (India) Ltd., (2021) 6 SCC 366, where the Supreme Court reaffirmed that a balance sheet entry can be treated as an acknowledgment only if it unequivocally indicates the existence of a legally subsisting debt.
The NCLAT noted that in the present case, the balance sheet for FY 2019-20 recorded an outstanding liability of ₹24.41/- crore under “secured borrowings”, however, the name of Financial Creditor was not specifically mentioned. The NCLAT referred to Asset Reconstruction Co. (India) Ltd. v. Tulip Star Hotels Ltd., (2020) 5 SCC 313, where the Supreme Court held that a generic balance sheet entry cannot be treated as an acknowledgment unless the specific name of the creditor is reflected.
The NCLAT held that acknowledgment of liability, as contemplated under Section 18 of the Limitation Act, must establish a direct and express acknowledgment of debt towards a particular creditor. The NCLAT held that since the appellant’s name is absent in the balance sheet entry for FY 2019-20, the same weakens the claim of acknowledgment.
Application of Supreme Court’s suo motu order
The NCLAT noted that the core question is whether Para 5.I or Para 5.III of the Cognizance for Extension of Limitation, In re (Supra) applicable in the present case. The NCLAT noted that Para 5.III of the order states that if the limitation period expired between 15-03-2020 and 28-02-2022, an additional 90 days from 01-03-2022 is granted.
The NCLAT stated that the appellant’s reliance on Para 5.I is misplaced, as that clause applies only when a longer period of limitation remains. The NCLAT held that the Adjudicating Authority rightly applied Para 5.III, granting a 90-day extension, which expired on 30-05-2022.
Signing Date v. Date of Uploading of Balance Sheet
The NCLAT rejected appellant’s contention that the limitation period should be calculated from the date of uploading the balance sheet on the MCA portal, 14-02-2021 rather than the date of signing, 12-08-2020. The NCLAT held that the relevant date for computation of limitation is the date of signing the balance sheet by the authorised signatory, not the date of its filing with the Registrar of Companies.
The NCLAT relied on G.S. Buildtech (P) Ltd. v. Ardee Infrastructure, 2021 SCC OnLine NCLAT 4979, where it was categorically held that the acknowledgment of liability under Section 18 of the Limitation Act is triggered on the date the balance sheet is signed, not when it is uploaded and Vijaya Kumar Machinery & Electrical Stores v. Alaparthi Lakshmikanthamma, 1968 SCC OnLine AP 219, where it was reiterated that the limitation period starts from the date the acknowledgment is signed and not from the date it is made public.
Applying these principles, the NCLAT held that since the balance sheet for FY 2019-20 was signed on 12-08-2020, the limitation period will expire on 11-08-2023 if it is to be extended by acknowledgment. Therefore, the NCLAT held that even assuming the acknowledgment was valid, the Section 7 IBC application filed on 15-01-2024 is time-barred.
The NCLAT also examined the charge form dated 27-02-2015, which the appellant sought to rely upon to establish the continuing nature of the debt, but outrightly rejected the argument. The NCLAT noted that more than ten years have elapsed, and as per settled legal principles, an old charge form could not be relied upon to establish an ongoing acknowledgment of liability.
NCLAT’s Decision
The NCLAT dismissed the appeal and upheld the Adjudicating Authority’s order that the Section 7 IBC application is time-barred.
[IL&FS Financial Services Ltd. v. Adhunik Meghalaya Steels (P) Ltd., Company Appeal (AT) (Insolvency) No. 1379 of 2024, Decided on 25-03-2025]
*Judgment by Barun Mitra (Technical Member)
Advocates who appeared in this case :
Mr. Krishnendu Dutta, Sr. Advocate with Ms. Niharika Sharma and Ms. Kiran Sharma, Counsel for the Appellant
Mr. Ramji Srinivasan, Sr. Advocate with Mr. Swarnendu Chatterjee (AOR), Mr. Nilay Sengupta, Mr. D.N. Sharma, Mr. Sujit Banerjee, Ms. Deepakshi Garg and Ms. Harshita Rawat, Counsel for the Respondent
