Balance Sheet Entries Revive Time-Barred Debt, Paves Way for CIRP Against Vibrant Content: NCLT Mumbai
Introduction
The National Company Law Tribunal (NCLT), Mumbai Bench, comprising Mr. Sushil Mahadeorao Kochey (Judicial Member) and Mr. Prabhat Kumar (Technical Member), admitted an insolvency petition filed by the Central Bank of India against Vibrant Content Pvt. Ltd. The Tribunal held that acknowledgment of debt in the corporate debtor’s balance sheet constitutes a valid acknowledgment under Section 18 of the Limitation Act, thereby extending the period of limitation. The Bench further observed that decisions of a larger bench hold binding precedence, relying on Puneet P. Bhatia v. ASREC (India) Ltd. & Anr., to permit amendment of the date of default.
Factual background
The Central Bank of India had extended three term loans to Vibrant Content Pvt. Ltd. amounting to approximately ₹47 crore. The account was classified as Non-Performing Asset (NPA) on 29 August 2018, and a demand notice was issued on 14 July 2020. Upon non-payment, the Bank initiated proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), seeking commencement of the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor.
Procedural background
The corporate debtor objected to the maintainability of the petition, asserting that it was barred by limitation since it was filed more than six years after the NPA classification. It also challenged the amendment sought by the financial creditor to insert the date of default, arguing that such an amendment would alter the very foundation of the petition. The Bank, however, maintained that the corporate debtor’s audited balance sheets for subsequent financial years acknowledged the outstanding debt, thereby extending the limitation under Section 18 of the Limitation Act.
Issues
1. Whether the acknowledgment of debt in the balance sheet constitutes a valid acknowledgment under Section 18 of the Limitation Act, thereby extending the limitation period.
2. Whether amendment of the date of default in a Section 7 petition is permissible under the IBC.
Contentions of parties
Corporate debtor’s contentions: The corporate debtor contended that the petition was time-barred as it was filed beyond three years from the NPA date. It argued that the financial creditor’s subsequent amendment of the default date was impermissible and relied on Vasavai Power Services (P) Ltd. to contend that such amendments alter the maintainability of the petition. The debtor further asserted that balance sheets merely disclosed NPA classification and did not amount to acknowledgment of liability.
Financial creditor’s contentions: The Central Bank of India argued that the corporate debtor’s audited financial statements clearly recorded the subsisting liability and therefore constituted a valid acknowledgment under Section 18 of the Limitation Act. The Bank also relied on Puneet P. Bhatia v. ASREC (India) Ltd. to assert that the Tribunal has discretion to allow amendment of pleadings before final adjudication.
Reasoning and analysis
The Tribunal observed that entries in balance sheets amount to acknowledgment of liability even if the creditor’s name is not expressly mentioned, relying on IL&FS Financial Services Ltd. The Bench noted that the corporate debtor’s balance sheets for FY 2018–19, FY 2019–20, and FY 2022–23 evidenced acknowledgment of a subsisting debt and renewal of the jural relationship, thereby extending the limitation period.
On the issue of amendment, the Tribunal emphasized that the IBC permits procedural flexibility, allowing parties to amend pleadings before final orders are passed. Referring to Puneet P. Bhatia, which was decided by a three-member bench, the Tribunal held that this precedent prevails over Vasavai Power Services, a two-member bench decision. Consequently, the amendment of the default date was deemed valid and non-prejudicial to the corporate debtor.
Implications
This decision reinforces the principle that acknowledgment of debt in audited financial statements constitutes a valid acknowledgment under Section 18 of the Limitation Act, effectively extending the limitation period for initiating insolvency proceedings. It underscores the Tribunal’s pragmatic approach to procedural flexibility under the IBC, ensuring that technical objections do not frustrate substantive justice. Moreover, by reiterating the precedence of larger bench decisions, the NCLT has clarified the hierarchy of judicial authority within insolvency jurisprudence.
In this case the appellant was represented by Ms. Mily Ghoshal a/w Mr. Aditya Mishra, Advocates. Meanwhile the respondent was represented by Mr. Pallav Pakale i/b Ms. Anjali S, Advocate.