IBC| Acknowledgement Of Debt In Balance Sheets Of Company Amounts To Acknowledgement Of Liability: SC Upholds NCLAT Order
|The Supreme Court has upheld NCLAT’s order affirming the initiation of CIRP proceedings by the UCO Bank against a corporate debtor, holding that acknowledgement of debt in the balance sheets of the company amounts to an acknowledgement of the liability.
The Court dismissed the appeal filed by the suspended director of the Corporate Debtor assailing the order of the National Company Law Appellate Tribunal (NCLAT) affirming the order of the National Company Law Tribunal (Adjudicating Authority) admitting the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) for initiating Corporate Insolvency Resolution Process (CIRP) proceedings against the Corporate Debtor.
A Bench of Justice Pamidighantam Sri Narasimha and Justice Sandeep Mehta held, “Following the principles as expounded in the case of Bishal Jaiswal (Supra), the Adjudicating Authority as well as the NCLAT have examined the case in detail and have come to the conclusion that the entry made in the balance sheet coupled with the note of the auditor of the appellant clearly amounts to acknowledgement of the liability. We see no reason whatsoever to take a different view of the matter. Their findings are fortified.”
Senior Advocate Balbir Singh represented the appellant, while AOR Partha Sil appeared for the respondents.
The Corporate Debtor had defaulted on repayment availed loan and credit facilities from the UCO Bank (Bank). The Corporate Debtor’s account was declared as Non-Performing Asset (NPA) and proceedings under the SARFAESI Act and DRT for recovery of dues was also initiated.
The Corporate Debtor resisted the proceedings initiated under Section 7 of the IBC on the grounds that there was no acknowledgement of the debt in the financial statements as well as auditor’s report of the Corporate Debtor.
The Supreme Court held that the findings arrived at by the Adjudicating Authority and NCLAT were correct in law. The Bench noted that the NCLAT had remarked, “The Company's balance sheet is prepared in the statutory format as per Schedule 3rd of the Companies Act 2013, which does not provide for giving the specific name of every secured or unsecured creditor.”
The Court noted that both the Adjudicating Authority and NCLAT had also considered the Corporate Debtor’s proposal of One Time Settlement (OTS) to the Bank along with the entries in the balance sheets amounting to a clear acknowledgement of the debt.
The Bench remarked that the balance sheet entry mentioning “company has made certain defaults in the repayment of term loans and interest” was an acknowledgment of the debt.
The Court referred to its decision in Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal (2021) wherein it was observed that there was no compulsion for Companies to make any particular admissions in the balance sheet, except for what is prescribed. It was also clarified that “there is a compulsion in law to prepare a balance sheet but no compulsion to make any particular admission, is correct in law as it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgment of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act.”
Consequently, the Court held, “Having examined the matter in detail, we are of the opinion that the findings arrived at by the Adjudicating Authority and NCLAT are correct in law and fact.”
Accordingly, the Supreme Court dismissed the appeal.
Cause Title: Vidyasagar Prasad v. UCO Bank & Anr. (Neutral Citation: 2024 INSC 810)
Appearance:
Appellant: Senior Advocate Balbir Singh; AOR Soayib Qureshi; Advocates Sandeep Bajaj, Devansh Jain, Naman Tandon and Vasudha Chadha
Respondents: AOR Partha Sil and Gopal Prasad; Advocates Tavish Bhushan Prasad, Sayani Bhattacharya and Srijit Datta