Entries In Books Of Accounts And/Or Balance Sheets Of Corporate Debtor Would Amount To Acknowledgment U/s. 18 Limitation Act: SC

The Supreme Court has set aside the decision of the National Company Law Appellate Tribunal holding that books of account of a company could not be treated as an acknowledgment of liability in respect of debt payable to a Financial Creditor.

The Bench of Justice Indira Banerjee and Justice JK Maheshwari observed thus- "It is well settled that entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgment under Section 18 of the Limitation Act."

The Court also opined that an application under Section 7 of the Insolvency and Bankruptcy Code 2016 would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, provided the debt was acknowledged by the Corporate Debtor before expiry of the period of limitation i.e. 3 years. The Court held that in that case the period of limitation would get extended by a further period of three years.

The Court was adjudicating upon an appeal filed by appellant-Asset Reconstruction Company (India) Limited against the order of the NCLAT holding that the Corporate Insolvency Resolution Process initiated by it against Corporate Debtor V. Hotels Limited was barred by limitation.

Senior Advocate Neeraj Kishan Kaul appeared for Asset Reconstruction Company (India) Limited whereas Senior Advocate Nakul Dewan appeared for respondents.

In March 2002 a loan agreement was executed by and between a consortium of banks and the Corporate Debtor, pursuant to which the Consortium collectively sanctioned loan to the extent of Rs.129,00,00,000/- to the Corporate Debtor.

Next Year, the Corporate Debtor entered into an arrangement with Abu Dhabi Commercial Bank (ADCB) whereby ADCB agreed to advance USD 29,000,000/- to the Corporate Debtor for repayment of the loan taken by the Corporate Debtor from the Consortium.

It was stated that the Corporate Debtor repaid the amount disbursed by Bank of India to the Corporate Debtor under the said loan agreement from out of funds disbursed to the Corporate Debtor by ADCB, between August and December 2003.

The amount of the Corporate Debtor was declared NPA on 1st December 2008.

The Supreme Court noted that by a letter dated 7th February, 2011, written well within three years, the Corporate Debtor acknowledged its liability and proposed a settlement. This was followed by several requests of extension of time to make payment and revised settlements.

On 6th April, 2013, the Corporate Debtor sought extension of time to pay Rs.239,88,27,673 outstanding as on 31st March 2013. On 19th April, 2013, the Corporate Debtor made payment of Rs.17,50,00,000/-. On 1st July, 2013, the Corporate Debtor acknowledged its liability – this was after the Appellant Financial Creditor revoked the settlement invoking the default clause.

The Court further noted that the Corporate Debtor acknowledged its liabilities in its financial statements from 2008-09 till 2016-17. The application under Section 7(2) of the IBC was filed on 3rd April 2018, well within the extended period of limitation.

In view of this, the Court held thus "…in our considered opinion an application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the perod of limitation would get extended by a further period of three years."

Therefore the Court found the impugned Order of NCLAT unsustainable under law and accordingly allowed the appeal.

Cause Title- Asset Reconstruction Company (India) Limited v. Tulip Star Hotels Limited & Ors.

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