ASSET RECONSTRUCTION COMPANY (INDIA ) LTD. VS BISHAL JAISWAL & ANR : CASE SUMMARY
The Supreme Court in Asset Reconstruction Company (India) Ltd. Vs Bishal Jaiswal & Anr (2021 ) SCC Online SC 321 held that entry made in balance sheet may be treated as acknowledgment under Section 18 of Limitation Act and will depend on facts of each case.
FACTS OF THE CASE
The Corporate Power Ltd (Corporate Debtor) set up thermal power project in Jharkhand and for doing so availed loan facilities from various lenders including the State Bank of India in 2009. The account of Corporate Debtor was declared NPA on 31.07.2013. SBI issued loan recall notice on 27.03.2015. On 31.03.2015, some of the lenders assigned debt to the appellant. The appellant issued notice under Section 13 (2) of SARFAESI Act.
The Appellant also filed an application under Section 7 of IBC for a default amounting to Rs. 5997, 80,02,973/- against the Corporate Debtor. As the application did not indicate date of default, a supplementary affidavit was filed showing date and default and annexing copies of balance sheets of the Corporate Debtor which acknowledged periodically the debt that was due. NCLT admitted the application considering entries in balance sheet as acknowledgment under Section 18 of the Limitation Act, 1963.
An appeal was filed before NCLAT, which allowed the same on the ground that Full Bench of NCLAT in V. Padmakumar Vs. Stressed Assets Stabilisation Fund (Company Appeal (AT) Insolvency No 57 of 2020) has held that an entry made in balance sheet would not amount to acknowledgement of debt for the purpose of extending limitation under Section 18 of Limitation Act.
FINDINGS OF THE SUPREME COURT
The Supreme Court noted that Section 238A of the IBC applies provisions of Limitation Act, 1963 to Insolvency and Bankruptcy Code, 2016. The Supreme Court relied on Shesh Nath Singh Vs Baidyabati Sheoraphuli Co-operative Bank Ltd and Laxmi Pat Surana Vs Union of India and observed that Section 14 and Section 18 of the Limitation Act are applicable to IBC proceedings..
The Supreme Court relied on Mahabir Cold Storage Vs CIT , 1991 Supp 1 SCC 402 , A. V. Murthy Vs. B. S. Nagabasavanna (2002) 2 SCC 642, S. Natarajan Vs. Sama Dharman Crl. A. No. 1524/2014 and observed that entry made in books of accounts, including the balance sheet can amount to an acknowledgement of liability within the meaning of Section 18 of the Limitation Act.
The Supreme Court observed several relevant sections of the Companies Act, 2013 and observed that filing of balance sheet has been made mandatory under Companies Act. Notes forming part of such financial statements are expressly recognized by Section 134 (7). The Supreme Court noted that law contained in Bengal Silk Mills Co. Vs. Ismail Golam Hosaain Ariff 1961 SCC Online Cal 128 to the effect that there is a compulsion of law to prepare a balance sheet but no compulsion to make any particular admission is correct in law. It will depend on facts of each case as to whether an entry made in balance sheet qua a particular creditor is unequivocal or has been entered into with caveats, which has to examined on a case to case basis to establish whether an acknowledgement of liability has , in fact, been made.
The Supreme Court held that majority decision of the Full Bench in V Padmakumar is contrary to the several judgments. The minority judgment has reached to correct conclusion. The supreme Court set aside the majority judgment.
The Supreme Court also set aside judgment of NCLAT dated 22.12.2020 and remanded the matter back to NCLAT to decide according to law.
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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.