The Three Members Bench of National Company Law Appellate Tribunal, New Delhi (#NCLAT), vide its Judgment dated 25.09.2020 in the case of Bishal Jaiswal v. Asset Reconstruction Company (India) Ltd and Another [CA (AT) (Ins) No. 385/2020] opined and held that Judgment rendered by Five Hon’ble Members of this Appellate Tribunal in the Case of V. Padamakumar vs. Stressed Assets Stabilization Fund (SASF) & Anr [CA (AT)(Ins)No. 57/2020] (V. Padma Kumar Case) requires reconsideration with respect to whether reflection of #debt in a #balancesheet is ‘acknowledgement of debt’ for the purpose of Section 18 of the #Limitation Act 1963 (Limitation Act).
Section 18 of the Limitation Act uses the term ‘acknowledgement’ to mean an admission of an existing liability in lieu of which the period of limitation is extended.
Brief facts of the instant case are that the Corporate Power Ltd (Corporate Debtor) had availed the loan from the Infrastructure Finance Co. Ltd., (Consortium Lenders or Banks) for setting up 1080 MW coal-based plant at Chandwa of Latehar District in the State of Jharkhand in two phases. The Corporate Debtor has availed loan facilities aggregating to Rs.5997,80,02,973/- (Rupees Five Thousand Nine Hundred Ninety-Seven Crore Eighty Lakhs Two Thousand Nine Hundred Seventy-Three only) from Consortium Lenders and loan agreements have been executed between the Corporate Debtor and the Consortium Lenders.
However, the Corporate Debtor failed to repay the dues under the facilities granted by the Banks. The Banks had assigned the debt in favour of Asset Reconstruction Company (India) Ltd (Financial Creditor). Therefore, the Financial Creditor has filed the Application under Section 7 of the Insolvency and Bankruptcy Code 2016 (IBC).
NCLT Decision: The National Company Law Tribunal, New Delhi (NCLT) has admitted the Application on the ground that the debt and default are not under-challenge and with respect to the issue of limitation of the said Application it observed that in the Balance Sheet the Corporate Debtor, admitted its liability, which was signed prior to the expiry of three years from the date of default. It is an acknowledgement of debt in terms of Section 18 of the Limitation Act and is therefore, not barred by Limitation. Being aggrieved with the said decision the Corporate Debtor filed the Appeal before the NCLAT.
Contentions: The Corporate Debtor (Appellant) contended before the NCLAT that the Application is barred by Limitation. The account of the Appellant was declared as Non-Performing Assets on 28.02.2014. The Application under Section 7 of the IBC was filed in December 2018, i.e. after a delay of almost five years. Therefore, the Corporate Debtor’s Balance Sheet cannot be considered as an Acknowledgement under Section 18 of the Limitation Act, 1963 and this Section cannot be applied in Insolvency Cases.
It relied on the V. Padama Kumar Case (Supra) wherein the issue was considered explicitly by the Five Hon’ble Members of the NCLAT and it was held that the Books of Accounts are to be prepared as per Section 92 of the Companies Act, 2013. Therefore, it cannot amount to an acknowledgement for Section 18 of the Limitation Act. The acknowledgement to extend the period of limitation should be voluntary and cannot be given under the compulsion of law or with the threat of any penalty or punishment.
However, the Financial Creditor contended that it is settled law that the entries made in the Balance Sheet of the Company amounts to an acknowledgement of debt under Section 18 of the Limitation Act, for the same he placed reliance on the law laid down by Hon’ble Supreme Court in various Judgments. It further contended that the issue framed in the V. Padama Kumar Case (Supra) was not whether Section 18 of Limitation Act is applicable to Insolvency Cases? The issue formulated in the said case was whether Section 18 of the Limitation Act, 1963 could be applied to the facts of the present case which deal with Insolvency?
NCLAT Decision
During the course of arguments, a Judgment rendered by Five Hon’ble Members of NCLAT in V. Padma Kumar Case (Supra) has been cited. After hearing the contentions of the Parties the NCLAT in the instant case made the following issue and decided that:
“Hon’ble Supreme Court and various Hon’ble High Courts have consistently held that an entry made in the Company’s Balance Sheet amounts to an acknowledgement of debt under Section 18 of the Limitation Act, 1963, in view of the settled law, V. Padmakumar’s Case requires reconsideration.”
It is further held the following essential reasons for reconsideration of V. Padma Kumar’s (Supra) Judgment:
- There is consistent view of the Hon’ble Supreme Court and various High Courts that the entries in the Balance Sheet of the Company are to be treated as an acknowledgement of debt for the purpose of Section 18 of Limitation Act and the majority view in V. Padma Kumar’s Case (Supra) is contrary to settled law.
- In V. Padama Kumar’s Case (Supra) minority view is in the line of settled law that Balance Sheet of the Company be treated as acknowledgement of debt for the purpose of Section 18 of the Limitation Act. In the majority Judgment no reasons have been assigned for disagreement with this view.
- In V. Padama Kumar’s Case (Supra), it is discussed that the Balance Sheet of the Company is prepared pursuant to Section 92 of the Companies Act, 2013 and filing of Balance Sheet/Annual Return being mandatory under Section 92 (4) of the Companies Act, 2013, failing of which attracts penal action under Section 92 (5) and (6) of the Act. And that the Balance Sheet is a Financial Statement.
- In V. Padama Kumar’s Case (Supra) it is held that the Balance Sheet is required to be prepared under the obligation cast under Section 92 of the Companies Act, 2013. Therefore, Acknowledgement should be voluntary and cannot be given under compulsion of law or with the threat of any penalty/punishment. It is also important to note that Hon’ble Calcutta High Court in the case of Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, [(1961) SCC Online Cal 128] and Hon’ble High Court of Delhi in the case of South Asia Industries (P) Ltd. vs. Krishna Shamsher Jung Bahadur Rana and Ors. MANU/DE/0372/1972 held that merely on the ground that the Balance Sheet of the Company is prepared under the compulsion of law or in discharge of statutory duty cannot be held that the Balance Sheet of the Company cannot amount to an acknowledgement of liability.
Therefore, the NCLAT declined the contentions of the Corporate Debtor that Section 18 of Limitation Act is not applicable to Insolvency Cases. It finally held that V. Padma Kumar’s (Supra) Judgment requires reconsideration. Thus in view of the aforesaid reasons the Three Members Bench of NCLAT referred the matter to a Bench of Five Hon’ble Members of this NCLAT.
Lakshmi Vishwakarma
Associate
The Indian Lawyer