Asset Reconstruction Company (india) Limited v. Bishal Jaiswal & Anr.
R. F. NARIMAN, J.
Civil Appeal No.323 of 2021
1. In 2009, Corporate Power Ltd. [“ the corporate debtor”] set
up a thermal power project in Jharkhand, and for so doing, avail ed of
loan facilities from various lenders, including the State Bank of India
[“SBI”]. The account of the corporate debtor was declared as a non-
performing asset by SBI on 31.07.2013. On 27.03.2015, SBI issued a
loan-recall notice to the corporate debtor in its capacity as the lenders’
agent. On 31.03.2015, some of the original lenders of the corporate debtor,
namely, India Infrastructure Finance Company Limited, SBI, State Bank
of Hyderabad, State Bank of Bikaner and Jaipur, State Bank of Patiala,
and State Bank of Travancore assigned the debts owed to them by the
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR.
corporate debtor to the appellant, the Asset Reconstruction Com pany
(India) Limited. On 20.06.2015, the appellant issued a notice under
Section 13(2) of the Securitisation and Reconstruction of Financial Assets
and Enforcement of Securities Interest Act, 2002 [“ SARFAESI Act”]
on behalf of itself and other consortium lenders to the corporate debtor.
On 01.06.2016, the appellant took actual physical possession of the project
assets of the corporate debtor under the SARFAESI Act. On 26.12.2018,
the appellant filed an application under Section 7 of the Insolvency and
Bankruptcy Code, 2016 [“ IBC”] before the National Company Law
Tribunal, Calcutta [“ NCLT ”] for a default amounting to
Rs.5997,80,02,973/- from the corporate debtor. As the relevant form
indicating the date of default did not indicate any such d ate, this was
made up by the appellant on 08.11.2019 by filing a supplementary affidavit
before the NCLT, specifically mentioning the date of default and annexing
copies of balance sheets of the corporate debtor, which, according to
the appellant, acknowledged periodically the debt that was due. On
19.02.2020, the Section 7 application was admitted by t he NCLT,
observing that the balance sheets of the corporate debtor , wherein it
acknowledged its liability, were signed before the expiry of three years
from the date of default, and entries in such balance sheets being
acknowledgements of the debt due for the purposes of Section 18 of the
Limitation Act, 1963 [“LimitationAct”], the Section 7 application is not
barred by limitation. In an appeal filed to the National Company Law
Appellate Tribunal [“NCLAT”], the corporate debtor relied upon the
Full Bench judgment of the NCLAT in V. Padmakumar v. Stressed
Assets Stabilisation Fund , Company Appeal (AT) (Insolvency) No.
57 of 2020 (decided on 12.03.2020) [“ V. Padmakumar”], in which a
majority of four members [Justice (Retd.) A.I.S. Cheema, Member
(Judicial), dissenting] held that entries in balance sheets would not amount
to acknowledgement of debt for the purpose of extending limitation under
Section 18 of the Limitation Act. After a preliminary hea ring, a three-
Member Bench passed an order on 25.09.2020 doubting the correctness
of the majority judgment of the Full Bench and referred the matter to the
Acting Chairman of the NCLAT to constitute a Bench of coordinate
strength to reconsider the judgment in V. Padmakumar (supra).
2. A five-Member Bench of the NCLAT, vide the impugned
judgment dated 22.12.2020, refused to adjudicate the question referred,
stating that the reference to the Bench was itself inc ompetent.
531
3. Shri Ramji Srinivasan, learned Senior Advocate appearing on
behalf of the appellant, has assailed the impugned judgment, arguing that
the majority judgment of the Full Bench of the NCLA T in
V. Padmakumar (supra) was clearly per incuriam as it has not
considered various binding judgments of this Court and that the said
judgment was wholly incorrect in rejecting the reference out of hand at
a preliminary stage. For this purpose, he referred to a number of judgments
of this Court in which it has been made clear that vide Section 238A of
the IBC, Section 18 of the Limitation Act is applicable to a proceeding
under Section 7 of the IBC. Also, according to the learne d Senior
Advocate, the judgments of the High Courts and the judgments of this
Court have expressly held that entries made in signed balance sheets of
the corporate debtor would amount to acknowledgements of liability and
have, therefore, correctly been relied upon by the NCLT on the facts of
this case. He argued, relying upon certain judgments, that the reference
made to the five-Member Bench by the three-Member Be nch was
perfectly in order and ought to have been answered on merits. He also
argued that the constitution of the five-Member Bench which pa ssed
the impugned judgment was not in order as three out of the five members
of the said Bench were members who assented with the majority opinion
in V. Padmakumar (supra), the dissentient member not being made
part of the Bench so formed. This, according to him, was contrary to the
principles of natural justice. He also argued that the fact that a balance
sheet has to be filed under compulsion of law does not mean that an
acknowledgement of debt has also to be made under compulsion of law,
and for this purpose, he referred to two High Court judgments.
4. Refuting the aforesaid submissions, Shri Abhijeet Sinha, learned
Advocate appearing on behalf of the Respondents, argued tha t the
Explanation to Section 7, read with the definition of “default” contained
in Section 3(12) of the IBC, would preclude the application of Section 18
of the Limitation Act inasmuch as a default in respect of a financial debt
would include a financial debt owed not only to the applicant-financial
creditor, but to all other financial creditors of the corporate debt or. He
then referred to the rationale for enacting Section 238A by referring to
the Insolvency Committee Report which introduced the aforesaid Section
and strongly relied upon the fact that in all these c ases, recovery
proceedings were ongoing before the Debt Recovery Tribunal a nd/or
the appellate authority under the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 [“ Recovery of Debts Act ”] and that,
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
by not applying Section 18 of the Limitation Act to the IBC, recoveries
will not be thwarted. He also added that the main plank of the submission
of the appellant was that a huge sum of Rs.12,000 crore would otherwise
go down the drain if acknowledgements in balance sheets were not to
be looked at, and stressed the fact that this would be rel evant only in
recovery proceedings and not in proceedings before the IBC, which are
not meant to be recovery proceedings at all, as has been held in several
judgments of this Court. He then relied upon two High Court judgments,
from the Andhra Pradesh High Court and Gauhati High Court, to buttress
his submission that via Section 18 of the Limitation Act, entries made in
balance sheets do not amount to acknowledgement of debt. He al so
stressed the fact that no date of default has been mentioned in the original
form that was submitted with the Section 7 application, and that this
would, therefore, be a non-curable defect, on account of whi ch the
Section 7 application should have been dismissed at the threshol d. He
then took us to various judgments of this Court which made it clear that
if a period of three years had elapsed from the date of declaration of the
account of a corporate debtor as a non-performing asset, the claim filed
by a creditor is a dead claim which cannot be resurrected having recourse
to Section 18 of the Limitation Act. Finally, he argued that the balance
sheets in the present case did not amount to acknowledgement of liability
inasmuch as the auditor’s report, which must be read along with the
balance sheets, would make it clear that there was no unequivocal
acknowledgement of debt, but that caveats had been entered by way of
notes in the auditor’s report.
5. After hearing counsel for both sides, it is important to first advert
to the rationale for the enactment of Section 238A of the IB C, which
was enacted by way of the Insolvency and Bankruptcy Code (Sec ond
Amendment) Act, 2018 w.e.f. 06.06.2018. Section 238A of IBC reads
as follows:
“238A. Limitation.—The provisions of the Limitation Act, 1963
(36 of 1963) shall, as far as may be, apply to the proceedings or
appeals before the Adjudicating Authority, the National Company
Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt
Recovery Appellate Tribunal, as the case may be.”
6. In Jignesh Shah v. Union of India, (2019) 10 SCC 750, this
Court referred to the Report of the Insolvency Law Committee of March,
2018, which led to the introduction of Section 238A, as follows:
533
“8. In para 7 of the said judgment [ B.K. Educational Services
(P) Ltd. v. Parag Gupta and Associates , (2019) 11 SCC 633],
the Report of the Insolvency Law Committee of March 2018 was
referred to as follows: ([ B.K. Educational Services (P)
Ltd. v. Parag Gupta and Associates , (2019) 11 SCC 633], SCC
pp. 644-45, para 11)
“11. Having heard the learned counsel for both sides, it is
important to first set out the reason for the introduction of
Section 238-A into the Code. This is to be found in the Report
of the Insolvency Law Committee of March 2018, as follows:
‘28. Application of Limitation Act, 1963
28.1. The question of applicability of the Limitation
Act, 1963 (“the Limitation Act”) to the Code has been
deliberated upon in several judgments of NCLT and NCLA T.
The existing jurisprudence on this subject indicates that if a
law is a complete code, then an express or necessar y
exclusion of the Limitation Act should be respected. [Ravula
Subba Rao v. CIT, AIR 1956 SC 604] In light of the
confusion in this regard, the Committee deliberated on
the issue and unanimously agreed that the intent of the
Code could not have been to give a new lease of life to
debts which are time-barred. It is settled law that when a
debt is barred by time, the right to a remedy is time-barred.
[Punjab National Bank v. Surendra Prasad Sinha , 1993
Supp (1) SCC 499 : 1993 SCC (Cri) 149] This requires
being read with the definition of “debt” and “claim” in the
Code. Further, debts in winding-up proceedings cannot be
time-barred [ Interactive Media and Communication
Solution (P) Ltd. v. GO Airlines Ltd. , 2013 SCC OnLine
Del 445 : (2013) 199 DLT 267] , and there appears to be no
rationale to exclude the extension of this principle of law to
the Code.
28.2. Further, non-application of the law on limitation
creates the following problems: first, it re-opens the right of
financial and operational creditors holding time-barred debts
under the Limitation Act to file for CIRP, the trigger f or
which is default on a debt above INR one lakh. The purpose
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
of the law of limitation is ‘ to prevent disturbance or
deprivation of what may have been acquired in equity
and justice by long enjoyment or what may have been
lost by a party’s own inaction, negligence or lache s’
[Rajender Singh v. Santa Singh , (1973) 2 SCC 705].
Though the Code is not a debt recovery law, the trigger
being “default in payment of debt” renders the exclusion of
the law of limitation counter-intuitive. Second, it re-opens
the right of claimants (pursuant to issuance of a public
notice) to file time-barred claims with the IRP/RP, whi ch
may potentially be a part of the resolution plan. Such a
resolution plan restructuring time-barred debts and claims
may not be in compliance with the existing laws for the
time being in force as per Section 30(4) of the Code.
28.3. Given that the intent was not to package the
Code as a fresh opportunity for creditors and claimants
who did not exercise their remedy under existing laws
within the prescribed limitation period, the Committ ee
thought it fit to insert a specific section applyin g the
Limitation Act to the Code . The relevant entry under the
Limitation Act may be on a case-to-case basis. It was further
noted that the Limitation Act may not apply to applications
of corporate applicants, as these are initiated by the
applicant for its own debts for the purpose of CIRP and are
not in the form of a creditor’s remedy.’”
(emphasis in original)
A perusal of the above would show that considering that the
Limitation Act applies only to courts, unless made statutorily applicable
to tribunals, the Committee was of the view that such Act s hould be
made to apply to the IBC as well, observing that though the IBC is not a
debt recovery law, the trigger being “default in payment of debt” would
render the exclusion of the law of limitation “counter-intuitive”. Thus, it
was made clear that an application to the IBC should not amount to
resurrection of time-barred debts which, in any other forum, would have
been dismissed on the ground of limitation.
7. From the above, it is clear that the principle of Section 9 of the
Limitation Act is to be strictly adhered to, namely, that when time begins
535
to run, it cannot be halted, except by a process known to law. One
question that arises before this Court is whether Sect ion 18 of the
Limitation Act, which extends the period of limitation depending upon an
acknowledgement of debt made in writing and signed by the corporate
debtor, is also applicable under Section 238A, given the expression “as
far as may be” governing the applicability of the Limitation Act to the
IBC.
8. The aforesaid question is no longer res integra as two recent
judgments of this Court have applied the provisions of Section 14 and
Section 18 of the Limitation Act to the IBC. Thus, in Sesh Nath Singh
v. Baidyabati Sheoraphuli Co-operative Bank Ltd. , Civil Appeal
No. 9198 of 2019 (decided on 22.03.2021), after setting out the issues
that arose in that case in paragraph 57, and after referr ing to Section
238A of IBC, held:
“66. Similarly under Section 18 of the Limitation Act, an
acknowledgement of present subsisting liability, made in writing
in respect of any right claimed by the opposite party and signe d
by the party against whom the right is claimed, has the effect of
commencing of a fresh period of limitation, from the date on which
the acknowledgement is signed. However, the acknowledgement
must be made before the period of limitation expires.
67. As observed above, Section 238A of the IBC makes the
provisions of the Limitation Act, as far as may be, applicable to
proceedings before the NCLT and the NCLAT. The IBC does
not exclude the application of Section 6 or 14 or 18 or any other
provision of the Limitation Act to proceedings under the IBC in
the NCLT/NCLAT. All the provisions of the Limitation Act are
applicable to proceedings in the NCLT/NCLAT, to the extent
feasible.
68. We see no reason why Section 14 or 18 of the Limitation Act,
1963 should not apply to proceeding under Section 7 or Section 9
of the IBC. Of course, Section 18 of the Limitation Act is not
attracted in this case, since the impugned order of the NCLA T
does not proceed on the basis of any acknowledgement.”
9. Nearer home, in Laxmi Pat Surana v. Union Bank of India,
Civil Appeal No. 2734 of 2020, a judgment delivered on 26.03.2021, this
Court, after referring to various judgments of this Court, including t he
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
judgment in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium
Industries (P) Ltd., (2020) 15 SCC 1 [“Babulal”], then held:
“35. The purport of such observation has been dealt with in the
case of Babulal Vardharji Gurjar (II) [Babulal Vardharji
Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd. , (2020)
15 SCC 1]. Suffice it to observe that this Court had not ruled out
the application of Section 18 of the Limitation Act to the
proceedings under the Code, if the fact situation of the case s o
warrants. Considering that the purport of Section 238A of the
Code, as enacted, is clarificatory in nature and being a procedural
law had been given retrospective effect; which included application
of the provisions of the Limitation Act on case-to-case basis.
Indeed, the purport of amendment in the Code was not to reopen
or revive the time barred debts under the Limitation Act. At the
same time, accrual of fresh period of limitation in terms of Section
18 of the Limitation Act is on its own under that Act. It will not be
a case of giving new lease to time barred debts under the existing
law (Limitation Act) as such.
36. Notably, the provisions of Limitation Act have been made
applicable to the proceedings under the Code, as far as may be
applicable. For, Section 238A predicates that the provisi ons of
Limitation Act shall, as far as may be, apply to the proceedings or
appeals before the Adjudicating Authority, the NCLAT, the DRT
or the Debt Recovery Appellate Tribunal, as the case may be .
After enactment of Section 238A of the Code on 06.06.2018,
validity whereof has been upheld by this Court, it is not open to
contend that the limitation for filing application under Section 7 of
the Code would be limited to Article 137 of the Limitation Act and
extension of prescribed period in certain cases could be only under
Section 5 of the Limitation Act. There is no reason to exclude the
effect of Section 18 of the Limitation Act to the proceedin gs
initiated under the Code. Section 18 of the Limitation Act reads
thus:
“18. Effect of acknowledgement in writing .–(1) Where,
before the expiration of the prescribed period for a suit or
application in respect of any property or right, an
acknowledgement of liability in respect of such property or
right has been made in writing signed by the party against whom
537
such property or right is claimed, or by any person through
whom he derives his title or liability, a fresh period of limitation
shall be computed from the time when the acknowledgement
was so signed.
(2) Where the writing containing the acknowledgement is
undated, oral evidence may be given of the time when it was
signed; but subject to the provisions of the Indian Evidence
Act, 1872 (1 of 1872), oral evidence of its contents shall not be
received.
Explanation.–For the purposes of this section,–
(a) an acknowledgement may be sufficient though it omits to
specify the exact nature of the property or right, or avers
that the time for payment, delivery, performance or
enjoyment has not yet come or is accompanied by a refusal
to pay, deliver, perform or permit to enjoy, or is coupled
with a claim to set off, or is addressed to a person other
than a person entitled to the property or right;
(b) the word “signed” means signed either personally or by an
agent duly authorised in this behalf; and
(c) an application for the execution of a decree or order shall
not be deemed to be an application in respect of any
property or right.”
37. Ordinarily, upon declaration of the loan account/debt as NPA
that date can be reckoned as the date of default to enab le the
financial creditor to initiate action under Section 7 of the Code .
However, Section 7 comes into play when the corporate debtor
commits “default”. Section 7, consciously uses the expressi on
“default” - not the date of notifying the loan account of the
corporate person as NPA. Further, the expression “default” ha s
been defined in Section 3(12) to mean non-payment of “debt”
when whole or any part or instalment of the amount of debt has
become due and payable and is not paid by the debtor or the
corporate debtor, as the case may be. In cases where the corporate
person had offered guarantee in respect of loan transactio n, the
right of the financial creditor to initiate action against such entity
being a corporate debtor (corporate guarantor), wou ld get
triggered the moment the principal borrower commits default due
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
to non-payment of debt. Thus, when the principal borrower and/
or the (corporate) guarantor admit and acknowledge their liability
after declaration of NPA but before the expiration of three years
therefrom including the fresh period of limitation due to
(successive) acknowledgements, it is not possible to extricate them
from the renewed limitation accruing due to the effect of Section
18 of the Limitation Act. Section 18 of the Limitation Ac t gets
attracted the moment acknowledgement in writing signed by the
party against whom such right to initiate resolution process under
Section 7 of the Code enures. Section 18 of the Limitation Ac t
would come into play every time when the principal borrower
and/or the corporate guarantor (corporate debtor), as the cas e
may be, acknowledge their liability to pay the debt . Such
acknowledgement, however, must be before the expiration of the
prescribed period of limitation including the fresh period of limitation
due to acknowledgement of the debt, from time to time, for
institution of the proceedings under Section 7 of the Code. Further,
the acknowledgement must be of a liability in respect of which
the financial creditor can initiate action under Section 7 of the
Code.”
10. Given the aforesaid, it is not possible to accede to the arguments
made by Shri Sinha that Section 18 of the Limitation Act can not be
made applicable by reason of the arguments put forth by him. As has
been held in Ambika Prasad Mishra v. State of U.P. , (1980) 3 SCC
719, every argumentative novelty does not undo a settled position of
law. Krishna Iyer, J., speaking for a Bench of five learned Judges, stated
thus:
“5. … But, after listening to the Marathon erudition from eminent
counsel, a 13-Judge Bench of this Court upheld the vires of Article
31-A in unequivocal terms. That decision binds, on the simple
score of stare decisis and the constitutional ground of Article 141.
Every new discovery or argumentative novelty cannot undo or
compel reconsideration of a binding precedent. In this view, other
submissions sparkling with creative ingenuity and presented with
high pressure advocacy, cannot persuade us to reopen what wa s
laid down for the guidance of the nation as a solemn proposition
by the epic Fundamental Rights case [(1973) 4 SCC 225 : 1973
Supp SCR 1]. From Kameshwar Singh [AIR 1952 SC 252 : 1952
539
SCR 889 : 1952 SCJ 354] (1952) and Golak Nath [I.C. Golak
Nath v. State of Punjab, AIR 1967 SC 1643 : (1967) 2 SCR 762
: (1967) 2 SCJ 486] (1967) through Kesavananda [(1973) 4 SCC
225 : 1973 Supp SCR 1] (1973) and Kanan Devan [Kanan Devan
Hills Produce Co. Ltd. v. State of Kerala , (1973) 1 SCR 356 :
(1972) 2 SCC 218 : AIR 1972 SC 2301] (1972) to Gwalior Rayons
[State of Kerala v. Gwalior Rayon Silk Mfg. (Wvg). Co.
Ltd.(1973) 2 SCC 713 : (1974) 1 SCR 671] (1976) and after Article
31-A has stood judicial scrutiny although, as stated earlier, we do
not base the conclusion on Article 31-A. Even so, it is fundamental
that the nation’s Constitution is not kept in constant uncertainty by
judicial review every season because it paralyses, by per ennial
suspense, all legislative and administrative action on vital issues
deterred by the brooding threat of forensic blow up. This , if
permitted, may well be a kind of judicial destabilisation of State
action too dangerous to be indulged in save where national crisis
of great moment to the life, liberty and safety of this country and
its millions are at stake, or the basic direction of the nation itself is
in peril of a shake-up. It is surely wrong to prove Justice Roberts
of the United States Supreme Court right when he sa id:
[Smith v. Allwright, 321 US 649, 669, 670 (1944)]
“The reason for my concern is that the instant decis ion,
overruling that announced about nine years ago, tends to bring
adjudications of this tribunal into the same class as a restricted
railroad ticket good for this day and train only…. It is regrettable
that in an era marked by doubt and confusion, an era whose
greatest need is steadfastness of thought and purpose, this Court
which has been looked to as exhibiting consistency in
adjudication, and a steadiness which would hold the balance
even in the face of temporary ebbs and flows of opinion, should
now itself become the breeder of fresh doubt and confusion in
the public mind as to the stability of our institutions.”
(emphasis supplied)
11. Section 18 of the Limitation Act reads as follows:
“18. Effect of acknowledgement in writing .—(1) Where,
before the expiration of the prescribed period for a suit or
application in respect of any property or right, an acknowledgement
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
of liability in respect of such property or right has bee n made in
writing signed by the party against whom such property or right is
claimed, or by any person through whom he derives his title or
liability, a fresh period of limitation shall be computed from the
time when the acknowledgement was so signed.
(2) Where the writing containing the acknowledgement is undated,
oral evidence may be given of the time when it was signed; but
subject to the provisions of the Indian Evidence Act, 1872 (1 of
1872), oral evidence of its contents shall not be received.
Explanation.—For the purposes of this section,—
(a) an acknowledgement may be sufficient though it omits to
specify the exact nature of the property or right, or avers that
the time for payment, delivery, performance or enjoyment has
not yet come or is accompanied by refusal to pay, delive r,
perform or permit to enjoy, or is coupled with a claim to s et
off, or is addressed to a person other than a person entitled to
the property or right,
(b) the word “signed” means signed either personally or by an
agent duly authorised in this behalf, and
(c) an application for the execution of a decree or order shall not
be deemed to be an application in respect of any property or
right.”
12. In an illuminating discussion on the reach of Section 18 of the
Limitation Act, including the reach of the Explanation to the said Section,
this Court, in Khan Bahadur Shapoor Fredoom Mazda v. Durga
Prasad , (1962) 1 SCR 140 [“ Shapoor Fredoom Mazda ”], after
referring to Section 19 of the Limitation Act, 1908, which corresponds to
Section 18 of the 1963 Act, held:
“It is thus clear that acknowledgement as prescribed by Section
19 merely renews debt; it does not create a new right of action. It
is a mere acknowledgement of the liability in respect of the right
in question; it need not be accompanied by a promise to pay either
expressly or even by implication. The statement on which a plea
of acknowledgement is based must relate to a present subsisting
liability though the exact nature or the specific character of the
said liability may not be indicated in words. Words used in the
541
acknowledgement must, however, indicate the existence of jural
relationship between the parties such as that of debtor and creditor,
and it must appear that the statement is made with the intention to
admit such jural relationship. Such intention can be infer red by
implication from the nature of the admission, and need not be
expressed in words. If the statement is fairly clear then the
intention to admit jural relationship may be implied from it. The
admission in question need not be express but must be made in
circumstances and in words from which the court can reasonably
infer that the person making the admission intended to refer to a
subsisting liability as at the date of the statement. In const ruing
words used in the statements made in writing on which a plea of
acknowledgement rests oral evidence has been expressly excluded
but surrounding circumstances can always be considered. Stated
generally courts lean in favour of a liberal construction of such
statements though it does not mean that where no admission is
made one should be inferred, or where a statement was made
clearly without intending to admit the existence of jural relationship
such intention could be fastened on the maker of the statement by
an involved or far-fetched process of reasoning. Broadly stat ed
that is the effect of the relevant provisions contained i n Section
19, and there is really no substantial difference between the parties
as to the true legal position in this matter.”
(at pages 144-145)
13. The next question that this Court must address is as to whether
an entry made in a balance sheet of a corporate debtor would amount to
an acknowledgement of liability under Section 18 of the Limitation Act.
14. Several judgments of this Court have indicated that an entry
made in the books of accounts, including the balance sheet, can amount
to an acknowledgement of liability within the meaning of Section 18 of
the Limitation Act. Thus, in Mahabir Cold Storage v. CIT, 1991 Supp
(1) SCC 402, this Court held:
“12. The entries in the books of accounts of the appellant would
amount to an acknowledgement of the liability to M/s Prayagchand
Hanumanmal within the meaning of Section 18 of the Limitation
Act, 1963 and extend the period of limitation for the discharge of
the liability as debt. …”
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
15. Likewise, in a case concerning the dishonour of a cheque
under Section 138 of the Negotiable Instruments Act, 1881, this Court,
in A.V. Murthy v. B.S. Nagabasavanna , (2002) 2 SCC 642 [“ A.V.
Murthy”], held:
“5. … It is also pertinent to note that under sub-section (3) of
Section 25 of the Indian Contract Act, 1872, a promise, made in
writing and signed by the person to be charged therewith, or by
his agent generally or specially authorized in that behalf, to pay
wholly or in part a debt of which the creditor might have enforced
payment but for the law for the limitation of suits, is a valid contract.
Moreover, in the instant case, the appellant has submitted before
us that the respondent, in his balance sheet prepared for e very
year subsequent to the loan advanced by the appellant, had shown
the amount as deposits from friends. A copy of the balance sheet
as on 31-3-1997 is also produced before us. If the amount borrowed
by the respondent is shown in the balance sheet, it may amount to
acknowledgement and the creditor might have a fresh period of
limitation from the date on which the acknowledgement was made.
However, we do not express any final opinion on all these aspects,
as these are matters to be agitated before the Magistra te by way
of defence of the respondent.”
The judgment in A.V. Murthy (supra) was followed in
S. Natarajan vs. Sama Dharman, Crl. A. No. 1524 of 2014 (decided
on 15.07.2014) as follows:
“7. In this connection, we may usefully refer to a judgment of this
Court in A.V. Murthy v. B.S. Nagabasavanna [A.V. Murthy v.
B.S. Nagabasavanna , (2002) 2 SCC 642] where the accused
had alleged that the cheque issued by him in favour of the
complainant in respect of sum advanced to the accused by t he
complainant four years ago was dishonoured by the bank for the
reasons “account closed”. The Magistrate had issued summons
to the accused. The Sessions Court quashed the proceedings on
the ground that the alleged debt was barred by limitation at the
time of issuance of cheque and, therefore, there was no legall y
enforceable debt or liability against the accused u nder the
Explanation to Section 138 of the NI Act and, therefore, t he
complaint was not maintainable. While dealing with the challenge
to this order, this Court observed that Under Section 118 of the NI
543
Act, there is a presumption that until the contrary is proved, every
negotiable instrument was drawn for consideration. This Court
further observed that Section 139 of the NI Act specifically notes
that it shall be presumed unless the contrary is proved, that the
holder of a cheque received the cheque of the nature referred to
in Section 138 of the NI Act for discharge, in whole or in part, of
any debt or other liability. This Court further observed that under
Sub-section (3) of Section 25 of the Contract Act, a promise,
made in writing and signed by the person to be charged therewith,
or by his agent generally or specially authorized in that behalf, to
pay wholly or in part a debt of which the creditor might ha ve
enforced payment but for the law for the limitation of suits, is a
valid contract. Referring to the facts before it, this Court observed
that the complainant therein had submitted his balance sh eet,
prepared for every year subsequent to the loan advanced by the
complainant and had shown the amount as deposits from friends.
This Court noticed that the relevant balance sheet is also produced
in the Court. This Court observed that if the amount borrowed by
the accused therein is shown in the balance sheet, it may amount
to acknowledgement and the creditor might have a fresh period
of limitation from the date on which the acknowledgement was
made. …”
16. An exhaustive judgment of the Calcutta High Court in Bengal
Silk Mills Co. v. Ismail Golam Hossain Ariff, 1961 SCC OnLine Cal
128 : AIR 1962 Cal 115 [“ Bengal Silk Mills ”] held that an
acknowledgement of liability that is made in a balance sheet can amount
to an acknowledgement of debt as follows:
“9. In support of the contention that the balance-sheets do n ot
amount to acknowledgements of liability, because they w ere
prepared under compulsion of law Mr. Banerji relies upon th e
decision in Kashinath v. New Akot Ginning and Pressing Co.
Ltd., I.L.R. 1950 Nag. 562 at 568 : A.I.R. 1951 Nag. 255. It is
true that the balance-sheets were required to be made both by
the Indian Companies Act, 1913 as also by the articles of association
of the defendant company. There was a compulsion upon the
managing agents to prepare the documents but there wa s no
compulsion upon them to make any particular admission. They
faithfully discharged their duty and in doing so they made honest
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
admissions of the Company’s liabilities. Those admissions, though
made in discharge of their duty, are nevertheless conscious and
voluntary admissions. A document is not taken out of the purview
of section 19 of the Indian Limitation Act merely on the ground
that it is made under compulsion of law, see Venkata v. Partha
Saradhi, 1892 I.L.R. 16 Mad. 220 at 222, Udaya Thevar v.
Subrahmania Chetti , (1896) 6 M.L.J. 266, 269, Good v.
Jane Job, 120 E.R. 810 at 812. I am unable to agree with the
reasoning of the Nagpur decision that a balance-sheet does not
save limitation because it is drawn up under a duty to set out the
claims made on the company and not with the intentio n of
acknowledging liability. The balance-sheet contains admissi ons
of liability; the agent of the company who makes and signs i t
intends to make those admissions. The admissions do not cease
to be acknowledgements of liability merely on the ground that
they were made in discharge of a statutory duty. I notice t hat in
the Nagpur case the balance-sheet had been signed by a director
and had not been passed either by the Board of Directors or by
the company at its annual general meeting and it seems that the
actual decision may be distinguished on the ground that the balance-
sheet was not made or signed by a duly authorized agent of the
company.
10. Mr. Banerji next contends that none of the balance-sheets
contains an admission of liability subsisting on the date of which it
is made. According to him the balance-sheet for the year ende d
30-11-1936 which was made on 1-6-1937 contains an admission
of past liability as on 30-11-1936 but not an admission of liability
existing on 1-6-1937. Mr. Banerji contends that such an admission
does not satisfy the test of an acknowledgement under section 19
of the Indian Limitation Act. His contention is supported by Jwala
Prasad v. Jwala Bank Ltd., A.I.R. 1957 All. 143 at 145. In that
case the Allahabad High Court held that the balance-sheet did not
contain any acknowledgement of an existing liability and therefore
could not be treated as an acknowledgement under section 19.
Mr. Banerji also relied upon the decisions in Kandasami Reddi v.
Suppammal, I.L.R. 45 Mad. 443, Venkata v. Partha Saradhi,
I.L.R. 18 Mad. 220, Rustomji on Limitation , 6th Edition, pages
191–193 and the cases collected therein. Now it is well s ettled
that in order to satisfy the test of an acknowledgement unde r
545
section 19 the admission of liability must be an admiss ion of
subsisting liability. In Kandasami Reddi v. Suppammal, I.L.R.
45 Mad. 443 at 445, Ayling J. said, “Liability can only signify present
liability at the time of acknowledgement and this is clearl y laid
down in Venkata v. Parthasaradhi , (1893) 16 Mad. 220.” In
Venkata v. Parthasaradhi, I.L.R. 16 Mad. 220 at 223 Muttasami
Ayyar, J. said, “It is therefore necessary that upon a rea sonable
construction of the language used by the debtor in writing the
relation of debtor and creditor must appear to be distinctly admitted,
that it must be admitted also to be a subsisting jural relation, and
then an intention to continue it until it is lawfully determined must
also be evident.” The section requires a definite admission of
liability in respect of the debt, but even an admission that the debt
existed at a previous date may, having regard to the langua ge
used and the surrounding circumstances, amount to an implied
representation that the debt is still subsisting (se e Maniram
Seth v. Seth Rupchand, I.L.R. 33 Cal. 1047 P.C.). In my opinion
the balance-sheets satisfy the test of an acknowledgement under
section 19. Each of them contains an admission that balances
have been struck at the end of the previous year and that a definite
sum has been found to be the balance then due to the creditor.
The natural inference to be drawn from the balance-sheet is that
the closing balance due to the creditor at the end of the previous
year will be carried forward as the opening balance due to him at
the beginning of the next year. In each balance-sheet there is thus
an admission of a subsisting liability to continue the relat ion of
debtor and creditor and a definite representation of a prese nt
intention to keep the liability alive until it is lawfully determined by
payment or otherwise. There is necessarily a time lag be tween
the date of the signing of the balance-sheet and the end of t he
previous year. The balance-sheet contains no admission of the
amount due on the date of the signature, that amount may be and
often is different from the amount shown as due at the end of the
previous year, but that fact alone does not take the document out
of the purview of section 19. Take the case of a banker and it s
depositor. Suppose the banker sends to the depositor a monthly
statement of account made for the month of February 1961 and
signed on March 15, 1961. The statement gives the balance due
on February 28, 1961. The amount due on March 15 may be quite
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
different; the banker might have been made payments for th e
customer, nevertheless the statement amounts to a suff icient
acknowledgement under section 19. I am therefore unable to agree
with the decision in Jwala Prasad v. Jwala Bank Ltd. , A.I.R.
1957 All. 144.
11. To come under section 19 an acknowledgement of a debt
need not be made to the creditor nor need it amount to a promise
to pay the debt. In England it has been held that a balance-she et
of a company stating the amount of its indebtedness to the creditor
is a sufficient acknowledgement in respect of a specialt y debt
under section 5 of the Civil Procedure Act, 1833 (3 and 4 Will —
4c. 42), see Re: Atlantic and Pacific Fibre Importing and
Manufacturing Co. Ltd. , 1928 Ch. 836 under section 1 of Lord
Tentenden’s Act, 1828 (9 Geo. 4, c. 14) read with section 13 of
the Mercantile Law Amendment Act, 1856 (19 and 20 Vict. c.
97), see Re: The Coliseum (Burrow) Ltd., (1930) 2 Ch. 44 at 47
and under sections 23 and 24 of the Limitation Act, 1939 (c. 21),
see Ledingham v. Bermejo Estancia Co. Ltd. , (1947) 1 A.E.R.
749 and Jones v. Bellgrove Properties Ltd., (1949) 2 K.B. 700,
on appeal from (1949) 1 A.E.R. 498. Section 5 of the C ivil
Procedure Act, 1833 did not require that the acknowledgement
should be given to the claiming creditor and consequentl y a
balance-sheet containing an admission of indebtedness to the
debenture holders was a sufficient acknowledgement of liability
in respect of the debentures under that section, though it was sent
only to the debenture holders who happened to be the shareholders
of the company and not to the other debenture holders, see Re:
Atlantic and Pacific Fibre Importing and Manufacturing Co.
Ltd., (1928) 1 Ch. 836. Under Tentenden’s Act, 1828 as also under
the Limitation Act, 1939 (c. 21) the acknowledgement must be
made to the creditor or his agent and if the balance-sheet is se nt
to a shareholder who is also a creditor the requirements of those
Acts were satisfied, see Re: The Coliseum (Burrow) Ltd., (1930)
2 Ch. 44 at 47, Jones v. Bellgrove Properties Ltd. , (1949) 1
A.E.R. 498 at 504 affirmed (1949) 2 K.B. 700. The decision in
the last case has been followed in India and it has been held that
an admission of indebtedness in a balance-sheet is a suffici ent
acknowledgement under section 19 of the Indian Limitation Act,
see Raja of Vizianagram v. Official Liquidator, Vizianagram
547
Mining Co. Ltd. , (1951) 2 M.L.J. 535 at 550-1 : A.I.R. 1952
Mad. 136 at 145, Lahore Enamelling and Stamping Co.
Ltd. v. A.K. Bhalla, A.I.R. 1958 Punjab 341 at 347, First National
Bank Ltd. v. The Mandi (State) Industries Ltd., (1957) 59 Punjab
Law Reports 589 and in an unreported decision of S.R. Das Gupta,
J. in matter No. 449 of 1955 Re: Vita Supplies Corporation Ltd.
decided on December 7, 1956.”
Importantly, this judgment holds that though the filing of a balance
sheet is by compulsion of law, the acknowledgement of a d ebt is not
necessarily so. In fact, it is not uncommon to have an entry in a balance
sheet with notes annexed to or forming part of such balance sheet, or in
the auditor’s report, which must be read along with the balance s heet,
indicating that such entry would not amount to an acknowledgement of
debt for reasons given in the said note.
17. Bengal Silk Mills (supra) also dealt with the judgment in
Kashinath Sankarappa v. New Akot Cotton Ginning & Pressi ng
Co. Ltd., 1949 SCC OnLine MP 123 : AIR 1951 Nag 255 [“Kashinath”]
by distinguishing the said judgment on the ground that the balance sheet
in that case was not made or signed by a duly authorised agent of the
company. Quite apart from this, if the said judgment is pe rused, what
becomes clear is that the observation made in paragraph 20 is really an
obiter observation, as the High Court went on to hold in paragraph 26
that the balance sheets that were produced were nev er proved in
accordance with law, apart from being validly rejec ted by the
shareholders, as a result of which, such balance sheets could not, therefore,
operate as acknowledgements of liability under Section 19 of the
Limitation Act, 1908.
18. In an appeal to the Supreme Court in Kashinath Sankarappa
Wani v. New Akot Cotton Ginning and Pressing Co. Ltd. , 1958
SCR 1331, this Court referred to Section 3(b) of the C ommercial
Documents Evidence Act (XXX of 1939) and then held that under the
said Act, the balance sheet of the respondent company for the year
1940-1941 should have been admitted in evidence. This Court held that,
unfortunately, the provisions of the said Act had not been brought to the
attention of the High Court. However, having so held, this Court then
went on to hold that on the facts of that case, no presumption that the
balance sheet was duly made under Section 3(b) could be rais ed, as a
result of which there could be no acknowledgement of liability on the
facts of that case.
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
19. Two other judgments – of the Andhra Pradesh High Court
and the Gauhati High Court – were also relied upon by the counsel for
the respondents. So far as the Andhra Pradesh High Court is concerned,
in Vijayalakshmi v. Hari Hara Ginning and Pressing, Nandigaon ,
OS A No. 40 of 1998 (decided on 03.03.1999), Liberhan, C.J. differed
from a Karnataka High Court judgment which stated that showing of an
amount in a balance sheet would amount to an acknowledgement under
Section 18 of the Limitation Act. This was done as follows:
“5. The learned Counsel for the appellant relied on a decision of
the Karnataka High Court in State Bank of India v. Hegde and
Golay Ltd., 1985 SCC OnLine Kar 428 : ILR 1987 Kar 2673,
wherein it is observed that showing of an amount in a balan ce
sheet amounts to an acknowledgement in terms of the Indian
Limitation Act. Consequently, the amount having been admitted
and the respondent having not paid the same, the petition required
admission as laid down by the said judgment that civil suit as well
as legal proceedings can continue simultaneously. W ithout
expressing our opinion on the law laid down in the said judgment,
though it cannot be categorically laid down that mere showing a
debt due in a balance-sheet would amount to acknowledgement,
we may observe that it is a well-established law that for giving an
acknowledgement, a person has to be conscious of his act to the
knowledge of the other person. Merely showing a debt in a
balance-sheet cannot, prima facie, as presently advised, be termed
to be an acknowledgement in terms of the Indian Limitation Act.
The acknowledgement as envisaged by the Limitation Act
categorically had to be with the intention of accepting th e debt
with the object of extending the limitation for recovery, which is
not the case herein. Thus, we do not find the case in hand to be
covered by the law laid down by the said judgment though we
have our own doubts with respect to correctness of the law laid
down in the said judgment.”
This judgment does not, in any manner, even purport to lay down
the law. That apart, the statement that an acknowledgement, as envisaged
by the Limitation Act, has to be with the intention of accepting the debt
with the object of extending the limitation for recovery is de hors Section
18 of the Limitation Act and directly contrary to Shapoor Fredoom
Mazda (supra) which is, in fact, referred to in the very next paragraph
549
of the aforesaid judgment. Shapoor Fredoom Mazda (supra) had made
it plain that all that was necessary was that the ackno wledgement
establishes a jural relationship of debtor and creditor, which undoubtedly
was established on the facts of that case. This judgment, therefore, cannot
avail the respondents.
20. Reliance was also placed on a judgment of the Gauhati High
Court in Ajit Chandra Bagchi v. Harishpur Tea Company (P.) Ltd.,
1990 SCC OnLine Gau 24 : AIR 1991 Gau 92. In particular, paragraphs
9 and 10 were relied upon by learned counsel for the respondents. These
paragraphs state:
“9. I may now turn to the next submission of learned counsel for
the appellants - defendants that the plaintiff failed to p rove that
the amounts in question were due from the defendants. The
contention of the counsel is that the plaintiff simply produced before
the court certain books of account and balance sheets. No ef fort
was made even to prove the individual entries in the said books of
account. The claim was sought to be established by the plaintif f
simply on the basis of the balance appearing in the books of account
of plaintiff itself as outstanding against the Tea Estates of the
defendants. It was submitted that the books of account or t he
balance sheets showing the amount due from the defendants are
not sufficient without other evidence to prove the debt. The learned
counsel in this connection relied on section 34 of the Evidence
Act, which provides that even entries in the books of account
regularly kept in the course of business, which are relevant , are
alone not sufficient evidence to charge any person with liability.
Learned counsel also relied on the Illustration given to the sai d
section, which is as follows:
“A sues B for Rs. 1000, and shows entries in his account-
books showing B to be indebted to him to this amount. The
entries are relevant, but are not sufficient without other evidence
to prove the debt.”
On the basis of the aforesaid provision it was submitted that the
entries in the books of account showing the defendants to be
indebted to the plaintiff for certain amount might be relevant but
are not sufficient to prove the debt. In the instant case, the learned
counsel submitted, even the entries have not been proved. What
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
is sought to be proved is the balance appearing in the accounts or
in the balance sheet as due from the defendants. Such a course is
not permissible except in a case of “accounts stated”. Admittedly,
the present case is not one of “accounts stated”.
10. I have carefully considered the submissions. I find that neither
the individual entries have been proved by the plaintiff nor there is
any material whatsoever other than the books of account or the
balance sheet to prove that the transactions in question in fac t
took place. No decree can therefore, be obtained by the plaintiff
merely on the basis of certain entries in the account books or the
balance shown to be due at the end of the year in such accounts
or in the balance sheets. The admitted position in the instant case
is that no evidence has been adduced by the plaintiff to prove the
transactions which had been categorically denied by the defendants
in their written statement. In that view of the matter e ven on
facts it has to be held that the plaintiffs failed to prove that the
amount claimed in the suit was due from the defendants. In view
of the aforesaid finding, I am of the opinion that the learned trial
court was not justified in decreeing the suit. The suit was barred
by limitation except in so far as it relates to recovery of a sum of
Rs. 30/-. Besides, the plaintiff also failed to prove the de bt in
accordance with law. Under the circumstances, the suit should
have been dismissed.”
This judgment also does not take the case of the respondents any
further as, like the Nagpur High Court judgment in Kashinath (supra),
the entries in the books of accounts were not proved on the facts of that
case.
21. We must now examine the position under the Companies Act,
2013 [“CompaniesAct”] qua any compulsion of law for filing of balance
sheets and acknowledgements made therein. Section 2 (40) of the
Companies Act defines financial statement as follows:
“2. Definitions .—In this Act, unless the context otherwise
requires,—
xxx xxx xxx
(40) “financial statement” in relation to a company, includes—
(i) a balance sheet as at the end of the financial year;
551
(ii) a profit and loss account, or in the case of a compan y
carrying on any activity not for profit, an income and
expenditure account for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any
document referred to in sub-clause (i) to sub-clause (iv):
Provided that the financial statement, with respect to One
Person Company, small company and dormant company, may not
include the cash flow statement;
xxx xxx xxx”
Under Section 92, every company is to prepare an annual return
containing certain particulars as follows:
“92. Annual return.—(1) Every company shall prepare a return
(hereinafter referred to as the annual return) in the presc ribed
form containing the particulars as they stood on the close of the
financial year regarding—
(a) its registered office, principal business activities, particulars
of its holding, subsidiary and associate companies;
(b) its shares, debentures and other securities and shareholding
pattern;
(c) [* * *];
(d) its members and debenture-holders along with changes
therein since the close of the previous financial year;
(e) its promoters, directors, key managerial personnel along with
changes therein since the close of the previous financial
year;
(f) meetings of members or a class thereof, Board and its
various committees along with attendance details;
(g) remuneration of directors and key managerial personnel;
(h) penalty or punishment imposed on the company, its directors
or officers and details of compounding of offences and
appeals made against such penalty or punishment;
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
(i) matters relating to certification of compliances, disc losures
as may be prescribed;
(j) details, as may be prescribed, in respect of shares held by
or on behalf of the Foreign Institutional Investors; and
(k) such other matters as may be prescribed,
and signed by a director and the company secretary, or where
there is no company secretary, by a company secretary in practice:
Provided that in relation to One Person Company and small
company, the annual return shall be signed by the co mpany
secretary, or where there is no company secretary, by the director
of the company:
Provided further that the Central Government may prescribe
abridged form of annual return for “One Person Company, small
company and such other class or classes of companies as may be
prescribed.
(2) The annual return, filed by a listed company or, by a company
having such paid up capital or turnover as may be prescrib ed,
shall be certified by a company secretary in practice in the
prescribed form, stating that the annual return discloses the facts
correctly and adequately and that the company has complied with
all the provisions of this Act.
(3) Every company shall place a copy of the annual return on the
website of the company, if any, and the web-link of such annual
return shall be disclosed in the Board’s report.
(4) Every company shall file with the Registrar a copy of the
annual return, within sixty days from the date on which the annual
general meeting is held or where no annual general meeting is
held in any year within sixty days from the date on which t he
annual general meeting should have been held together with the
statement specifying the reasons for not holding the annual general
meeting, with such fees or additional fees as may be prescribed.
(5) If any company fails to file its annual return under sub-section
(4), before the expiry of the period specified therein, such company
and its every officer who is in default shall be liable to a penalty
of ten thousand rupees and in case of continuing failure, with a
553
further penalty of one hundred rupees for each day after the first
during which such failure continues, subject to a maximum of two
lakh rupees in case of a company and fifty thousand rupees in
case of an officer who is in default.
(6) If a company secretary in practice certifies the annual return
otherwise than in conformity with the requirements of this section
or the rules made thereunder, he shall be liable to a penalty of two
lakh rupees.”
Vide Section 128, every company shall prepare and keep at its
registered office, books of accounts and financial statements for every
financial year, as follows:
“128. Books of account, etc., to be kept by company .—(1)
Every company shall prepare and keep at its registered off ice
books of account and other relevant books and papers and financial
statement for every financial year which give a true and fair view
of the state of the affairs of the company, including that of its
branch office or offices, if any, and explain the transactions effected
both at the registered office and its branches and such books shall
be kept on accrual basis and according to the double entry system
of accounting:
Provided that all or any of the books of account aforesaid
and other relevant papers may be kept at such other place in
India as the Board of Directors may decide and where such a
decision is taken, the company shall, within seven days thereof,
file with the Registrar a notice in writing giving the full address of
that other place:
Provided further that the company may keep such books of
account or other relevant papers in electronic mode in such manner
as may be prescribed.
xxx xxx xxx”
Section 129, which is of importance, refers directly to financia l
statements and states as follows:
“129. Financial statement.—(1) The financial statements shall
give a true and fair view of the state of affairs of the company or
companies, comply with the accounting standards notified under
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
Section 133 and shall be in the form or forms as may be provided
for different class or classes of companies in Schedule III:
Provided that the items contained in such financial statements
shall be in accordance with the accounting standards:
Provided further that nothing contained in this sub-section
shall apply to any insurance or banking company or any company
engaged in the generation or supply of electricity, or to any other
class of company for which a form of financial statement has
been specified in or under the Act governing such c lass of
company:
Provided also that the financial statements shall not be treated
as not disclosing a true and fair view of the state of affairs of the
company, merely by reason of the fact that they do not disclose—
(a) in the case of an insurance company, any matters which
are not required to be disclosed by the Insurance Act,
1938 (4 of 1938), or the Insurance Regulatory and
Development Authority Act, 1999 (41 of 1999);
(b) in the case of a banking company, any matters which are
not required to be disclosed by the Banking Regulation
Act, 1949 (10 of 1949);
(c) in the case of a company engaged in the generation or
supply of electricity, any matters which are not required
to be disclosed by the Electricity Act, 2003 (36 of 2003);
(d) in the case of a company governed by any other law for
the time being in force, any matters which are not required
to be disclosed by that law.
(2) At every annual general meeting of a company, the Board of
Directors of the company shall lay before such meeting financial
statements for the financial year.
xxx xxx xxx
(5) Without prejudice to sub-section (1), where the f inancial
statements of a company do not comply with the accounti ng
standards referred to in sub-section (1), the company shall disclose
in its financial statements, the deviation from the acco unting
555
standards, the reasons for such deviation and the financial effects,
if any, arising out of such deviation.
xxx xxx xxx
(7) If a company contravenes the provisions of this section, the
managing director, the whole-time director in charge of finance,
the Chief Financial Officer or any other person charged by the
Board with the duty of complying with the requirements of th is
section and in the absence of any of the officers mentioned above,
all the directors shall be punishable with imprisonment for a term
which may extend to one year or with fine which shall not be less
than fifty thousand rupees but which may extend to five lakh
rupees, or with both.
Explanation.—For the purposes of this section, except
where the context otherwise requires, any reference to the
financial statement shall include any notes annexed to or forming
part of such financial statement, giving information required to be
given and allowed to be given in the form of such notes under this
Act.”
Likewise, under Section 134, financial statements a re to be
approved by the Board of Directors before they are signed, and the
auditor’s report, as well as a report by the Board of Dire ctors, is to be
attached to each financial statement as follows:
“134. Financial statement, Board’s report, etc .—(1) The
financial statement, including consolidated financial statement, if
any, shall be approved by the Board of Directors before they are
signed on behalf of the Board by the chairperson of the company
where he is authorised by the Board or by two directors out of
which one shall be managing director, if any, and the Chief
Executive Officer, the Chief Financial Officer and the company
secretary of the company, wherever they are appointed, or in the
case of One Person Company, only by one director, for submission
to the auditor for his report thereon.
(2) The auditors’ report shall be attached to every fin ancial
statement.
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
(3) There shall be attached to statements laid before a comp any
in general meeting, a report by its Board of Directors, which shall
include—
xxx xxx xxx
(f) explanations or comments by the Board on every
qualification, reservation or adverse remark or disclaimer
made—
(i) by the auditor in his report; and
(ii) by the company secretary in practice in his secretarial
audit report;
(g) particulars of loans, guarantees or investments under
Section 186;
xxx xxx xxx
Provided that where disclosures referred to in this sub-
section have been included in the financial statements, such
disclosures shall be referred to instead of being repeate d in the
Board’s report:
xxx xxx xxx
(4) The report of the Board of Directors to be attache d to the
financial statement under this section shall, in case of a One Person
Company, mean a report containing explanations or comments by
the Board on every qualification, reservation or adverse rema rk
or disclaimer made by the auditor in his report.
xxx xxx xxx
(7) A signed copy of every financial statement, inc luding
consolidated financial statement, if any, shall be issued, circulated
or published along with a copy each of—
(a) any notes annexed to or forming part of such financial
statement;
(b) the auditor’s report; and
(c) the Board’s report referred to in sub-section (3).
(8) If a company is in default in complying with the provisions of
this section, the company shall be liable to a penalty of three lakh
557
rupees and every officer of the company who is in default shall
be liable to a penalty of fifty thousand rupees.”
Under Section 137, copies of financial statements are then to be
filed with the Registrar of Companies as follows:
“137. Copy of financial statement to be filed with
Registrar.—(1) A copy of the financial statements, including
consolidated financial statement, if any, along wit h all the
documents which are required to be or attached to such financial
statements under this Act, duly adopted at the annual general
meeting of the company, shall be filed with the Registrar within
thirty days of the date of annual general meeting in such manner,
with such fees or additional fees as may be prescribed:
Provided that where the financial statements under sub-
section (1) are not adopted at annual general meeting or adjourned
annual general meeting, such unadopted financial statements along
with the required documents under sub-section (1) shall be filed
with the Registrar within thirty days of the date of annual general
meeting and the Registrar shall take them in his re cords as
provisional till the financial statements are filed with him after
their adoption in the adjourned annual general meeting for that
purpose:
Provided further that financial statements adopted in the
adjourned annual general meeting shall be filed with the Registrar
within thirty days of the date of such adjourned annual general
meeting with such fees or such additional fees as m ay be
prescribed:
Provided also that a One Person Company shall file a copy
of the financial statements duly adopted by its member, along with
all the documents which are required to be attached to such
financial statements, within one hundred eighty days from the
closure of the financial year:
Provided also that a company shall, along with its financial
statements to be filed with the Registrar, attach the accounts of
its subsidiary or subsidiaries which have been incorporated outside
India and which have not established their place of business in
India.
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
Provided also that in the case of a subsidiary which has
been incorporated outside India (herein referred to as “foreig n
subsidiary”), which is not required to get its financial stateme nt
audited under any law of the country of its incorporation and which
does not get such financial statement audited, the requirements of
the fourth proviso shall be met if the holding Indian company files
such unaudited financial statement along with a declaration to this
effect and where such financial statement is in a language oth er
than English, along with a translated copy of the financial statement
in English.
(2) Where the annual general meeting of a company for any year
has not been held, the financial statements along w ith the
documents required to be attached under sub-section (1), duly
signed along with the statement of facts and reasons for not holding
the annual general meeting shall be filed with the Registrar within
thirty days of the last date before which the annual general meeting
should have been held and in such manner, with such fees or
additional fees as may be prescribed.
(3) If a company fails to file the copy of the financial statements
under sub-section (1) or sub-section (2), as the case may be, before
the expiry of the period specified therein, the company shall be
liable to a penalty of ten thousand rupees and in case of continuing
failure, with a further penalty of one hundred rupees for each day
during which such failure continues, subject to a maximum of two
lakh rupees, and the managing director and the Chief Financi al
Officer of the company, if any, and, in the absence of the managing
director and the Chief Financial Officer, any other director who is
charged by the Board with the responsibility of complying with
the provisions of this section, and, in the absence of any such
director, all the directors of the company, shall be shall be liable to
a penalty of ten thousand rupees and in case of continuing failure,
with a further penalty of one hundred rupees for each day after
the first during which such failure continues, subject to a maximum
of fifty thousand rupees.”
22. A perusal of the aforesaid Sections would show that there is
no doubt that the filing of a balance sheet in accorda nce with the
provisions of the Companies Act is mandatory, any transgression of the
same being punishable by law. However, what is of importance is that
559
notes that are annexed to or forming part of such financial statements
are expressly recognised by Section 134(7). Equally, the auditor’s report
may also enter caveats with regard to acknowledgements made i n the
books of accounts including the balance sheet. A perusal of the aforesaid
would show that the statement of law contained in Bengal Silk Mills
(supra), 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 acknowledgement of liability has, in
fact, been made, thereby extending limitation under Section 18 of the
Limitation Act.
23. The judgment in Bengal Silk Mills (supra) has been referred
to with approval in various other judgments. Thus, in South Asia
Industries (P) Ltd. v. General Krishna Shamsher Jung Bahadu r
Rana, 1972 SCC OnLine Del 185 : ILR (1972) 2 Del 712 , the Delhi
High Court held:
“46. Shri Rameshwar Dial argued that statements in the balance-
sheet of a company cannot amount to acknowledgement of liability
because the balance-sheet is made under compulsion of the
provisions in the Companies Act. There is no force in this argument.
In the first place, section 18 of the Limitation Act, 1963, requires
only that the acknowledgement of liability must have been made
in writing, but it does not prescribe that the writing should be in
any particular kind of document. So, the fact that the writi ng is
contained in a balance-sheet is immaterial. In the second place, it
is true that section 131 of the Companies Act, 1913 (section 210
of the Companies Act, 1956) makes it compulsory that an annual
balance sheet should be prepared and placed before the Company
by the Directors, and section 132 (section 211 of the Companies
Act, 1956) requires that the balance-sheet should c ontain a
summary, inter alia, of the current liabilities of the company. But,
as pointed out by Bachawat J. in Bengal Silk Mills v. Ismail
Golam Hossain Ariff, A.I.R. 1962 Calcutta 115 although there
was statutory compulsion to prepare the annual balance-she et,
there was no compulsion to make any particular admission, and a
document is not taken out of the purview of section 18 of the
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
Indian Limitation Act, 1963 (section 19 of the Indian Limitation
Act, 1908) merely on the ground that it is prepared under
compulsion of law or in discharge of statutory duty. Refere nce
may also be made to the decisions in Raja of Vizianagram
v. Vizianagram Mining Co. Ltd. , A.I.R. 1952 Madras
136, Jones v. Bellgrove Properties Ltd., (1949) 1 All E.R. 498;
and Lahore Enamelling and Stamping Co. v. A.K. Bhalla, A.I.R.
1958 Punjab 341, in which statements in balance-she ets of
companies were held to amount to acknowledgements of liability
of the companies.
47. Shri Rameshwar Dial referred to the decision of the Privy
Council in Consolidated Agencies Ltd. v. Bertram Ltd., (1964)
3 All. E.R. 282. We shall advert to this decision presently when
we deal with another argument of Shri Rameshwar Dial, and it is
sufficient to state so far as the argument under consid eration is
concerned that even in this decision of the Privy Council it ha s
been recognised that balance-sheets could in certain circumstances
amount to acknowledgements of liability. It cannot, therefore, be
said as a general proposition of law that statements in balance-
sheets of a company cannot operate at all as acknowledgements
of liability as contended by Shri Rameshwar Dial.
48. The learned counsel next argued that the words used in the
entry in the balance-sheet in the present case did not amount t o
any acknowledgement of liability. We do not think so. The words
used in the entry apparently show that in explaining its cur rent
liabilities and the provisions made for the same, it was stated that
there was a sum of Rs. 7,87,150.42 held in share-holders’ suspense
account for payment to the share-holders of the Indian National
Airways Limited (in voluntary liquidation — since dissolved). The
words used clearly acknowledge the liability. The learned single
Judge also took the same view as regards the words used in the
balance-sheet. In Lahore Enamelling and Stamping Co. Ltd. v.
A.K. Bhalla, Tek Chand J. held that “debts due to creditors not
mentioned by name but included in the item relating to “Loans
(unsecured)” or as due to “Sundry Creditors” mentioned in the
balance-sheet amount to an “acknowledgement” of liability for
the purposes of section 19 of the Indian Limitation Act, 1908.
There was thus no force in the argument of the learned counsel.
xxx xxx xxx
561
51. The next argument was that the balance-sheet was no doubt
signed by two Directors, but they did not sign as duly authorised
agents of the transferee company as required by explanation (b)
to section 18 of the Limitation Act. There is no substance in this
argument. The Companies Act, 1956, came into force in 1956.
Section 210 of the Act requires the Board of Directors to la y a
balance-sheet before the company at the Annual General Meeting.
Section 211 prescribes the form and contents of a balance-sheet.
The form of balance-sheet is given in Part 1 of Schedule VI to
the Act, and according to it the current liabilities and provisions
have to be set out in the balance-sheet. Section 215(i)(ii) requires
that the balance-sheet should be signed on behalf of the Board of
Directors, inter alia, by the Secretary of the Company and by
not less than two Directors of the company. Section 215(3) provides
that a balance-sheet shall be approved by the Board of Directors
before it is signed on behalf of the Board of Direc tors in
accordance with section 215(i)(ii) and before it is submitted to the
Auditors for their report thereon. Thus, the statement of current
liabilities and provisions in the balance-sheet has to be approved
by the Board of Directors before it is signed by the Secretary and
two Directors on behalf of the Board. In other words, the balance-
sheet is signed by the Secretary and two Directors at the instance
and on the approval of the Board of Directors of the company .
After the balance-sheet is audited, section 216 requires th at the
Auditors’ report should be attached to the balance-sheet , and
section 217 requires the Board of Directors also to make a report.
The balance-sheet together with the Auditors report and the
Board’s report are then required to be placed before the company
at the annual general meeting for adoption of the balance-sheet.
After the balance-sheet has been so laid before the compa ny at
the annual general meeting, section 220 requires that three copies
of the balance-sheet should be filed with the Registrar. In the
present case, the balance-sheet (Schedule D to Annexure J) was
signed by the Secretary and two Directors, and Annex ure J
contains the Auditors’ report and the Board’s report. It was stated
in the judgment of the learned single Judge that the balance-sheet
was adopted by the company and the same was not disputed before
us. It is thus quite clear that the balance-sheet was signed by duly
authorised agents of the company.”
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
24. The judgment of Sabyasachi Mukharji, J. (as His Lordship
then was), sitting singly in the Calcutta High Court, has, in Pandam Tea
Co. Ltd., In re, 1973 SCC OnLine Cal 93 : AIR 1974 Cal 170, held as
follows:
“4. Now the question is whether the statements, which are
contained in the profits and loss accounts and the assets an d
liabilities side indicating the liability of the petitioning creditor along
with the statement of the Directors made to the shareholde rs as
Directors’ report should be read together and if so whether reading
these two statements together these amount to an
acknowledgement as contemplated under Section 18 of the
Limitation Act, 1963, or Section 19 of the Limitation Act, 1908. In
my opinion, both these statements have to be read together. The
balance-sheet is meant to be presented and passed b y the
shareholders and is generally accompanied by the Directors’ report
to the shareholders. Therefore in understanding the balance-sheets
and in explaining the statements in the balance-sheets, the balance-
sheets together with the Directors’ report must be taken together
to find out the true meaning and purport of the statements. Counsel
appearing for petitioning creditor contended that under the statute
the balance-sheet was a separate document and as such if there
was unequivocal acknowledgement on the balance-sheet th e
statement of the Directors’ report should not be ta ken into
consideration. It is true the balance-sheet is a statutory document
and perhaps is a separate document but the balance-sheet not
confirmed or passed by the shareholders cannot be accepted as
correct. Therefore, in order to validate the balance-sheet, it must
be duly passed by the shareholders at the appropriate meet ing
and in order to do so it must be accompanied by a report, if any,
made by the Directors. Therefore, even though the balance-sheet
may be a separate document these two documents in the fact s
and circumstances of the case should be read together and should
be construed together. It was held by the Supreme Court in the
case of L.C. Mills v. Aluminium Corpn. of India Ltd. , (1971) 1
SCC 67 : AIR 1971 SC 1482, that it was clear that the statement
on which the plea of acknowledgement was founded should relate
to a subsisting liability as the section required and it should be
made before the expiration of the period prescribed under t he
Act. It need not, however, amount to a promise to pay for an
563
acknowledgement did not create a new right of action but merely
extended the period of limitation. The statement need not indicate
the exact nature or the specific character of the liability. The words
used in the statement in question must, however, relate to a present
subsisting liability and indicate the existence of a jural relationship
between the parties such as, for instance, that of a debtor and a
creditor and the intention to admit such jural relationship. Such an
intention need not, however, be in express terms and could be
inferred by implication from the nature of the admission and the
surrounding circumstances. Generally speaking, a li beral
construction of the statement in question should be given. That of
course did not mean that where a statement was made without
intending to admit the existence of jural relationship, such intention
should be fastened on the person making the statement by an
involved and far-fetched reasoning. In order to find out the intention
of the document by which acknowledgement was to be construed
the document as a whole must be read and the intention of the
parties must be found out from the total effect of the docum ent
read as a whole. …”
25. In Hegde & Golay Limited v. State Bank of India , 1985
SCC OnLine Kar 428 : ILR 1987 Kar 2673, the Karnataka High Court
held as follows:
“43. Re. Point (e). The acknowledgement of liability contained in
the balance-sheet of a company furnishes a fresh starting point of
limitation. It is not necessary, as the law stands in India, that the
acknowledgement should be addressed and communicated to the
creditor.
We are in respectful agreement with the view taken by the
Learned Company Judge on the point. The position of law that an
acknowledgement of debts in the balance-sheets of a Company
does furnish fresh starting point of limitation is too well settled to
need any elaborate discussion (See: Jones v. Bellgrove Properties
Ltd. [1949 (1) All ER 498], In Re: Campania de Electricidad
[1980 Ch D 146], Babulal Rukmanand v. Official Liquidator
[AIR 1968 Rajasthan 214] and Bengal Silk Mills Co. v. Ismail
Golam Hossain Ariff [AIR 1962 Calcutta 115]). We see no
substance in this contention either.”
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
26. In Bhajan Singh Samra v. M/s. Wimpy International Ltd.,
2011 SCC OnLine Del 4888 : (2011) 185 DLT 428, the Delhi High Court
held:
“13. Having heard the parties, this Court is of the opinion that the
petitioning-creditor has to satisfy the Court that the debt on which
the petition is based was due and payable on the date of the petition.
Certainly a time barred debt cannot be the basis of a winding up
petition. However, admission of a debt either in a balance sheet
or in the form of a letter duly signed by the respondent, woul d
amount to an acknowledgement, extending the period of limitation.
Section 18(1) of the Limitation Act, 1963 incorporates the said
principle. Section 18(1) of the Limitation Act, 1963 reads as under:
“18. Effect of acknowledgement in writing.
(1) Where, before the expiration of the prescribed period for a
suit or application in respect of any property or right, an
acknowledgement of liability in respect of such property or
right has been made in writing signed by the party against whom
such property or right is claimed, or by any person through
whom he derives his title or liability, a fresh period of limitation
shall be computed from the time when the acknowledgement
was so signed.
xxx xxx xxx”
14. The Allahabad High Court in the case of Fortis Financial
Services Ltd. v. KHSL Industries Ltd., (1999) 95 Company Cases
622 (All) held that an acknowledgement by an Assistant Vice -
President of the debtor company was sufficient for computing a
fresh period of limitation from the date of such acknowledgement.
15. The Calcutta High Court in the case of Bengal Silk Mills
Co. v. Ismail Golam Hossain Ariff, AIR 1962 Cal. 115 held that
in an appeal arising from a money decree against a compa ny,
even statement of a liability in the balance-sheet of the company
amounted to admission/acknowledgement of a debt giving rise to
a fresh period of limitation, notwithstanding the fact tha t the
balance-sheet was prepared under ‘compulsions of statute and of
the articles of association of the company’.
565
16. In Vijaya Kumar Machinery & Electrical Stores v.
Alaparthi Lakshmikanthamma , (1969) 74 ITR 224 (AP), the
Andhra Pradesh High Court after following Bengal Silk Mills
Co. (supra), Raja of Vizianagram v. Official Liquidator,
Vizianagram Mining Company Limited , AIR 1952 Mad. 1361,
Lahore Enamelling and Stamping Co. Ltd. v. A.K. Bhalla, AIR
1958 Punj. 341 and Jones v. Bellgrove Properties Ltd., (1949) 2
All.ER 198 held, “ What emerges from a consideration of the
above decision is that the date of signing the balan ce-sheet
by the second defendant started a fresh period of limitatio n”.
17. Consequently, in the present case, the acknowledgement of
the petitioner’s loan of Rs. 50,000/- by Chartered Accountant of
respondent-company vide letters dated 23 rd February, 2002 and
21st November, 2002, as well as in the respondent-company’s
balance sheets for the years ended 31st March, 2004, 31st March,
2005 and 31st March, 2006 not only extends the period of limitation
but also constitutes fresh cause of action for filing a winding up
petition. Accordingly, the present winding up petition is withi n
limitation.”
27. In CIT-III v. Shri Vardhman Overseas Ltd. , 2011 SCC
OnLine Del 5599 : (2012) 343 ITR 408, the Delhi High Court held:
“17. In the case before us, as rightly pointed out by the Tribunal,
the assessee has not transferred the said amount from the creditors’
account to its profit and loss account. The liability was shown in
the balance sheet as on 31 st March, 2002. The assessee being a
limited company, this amounted to acknowledging the debts in
favour of the creditors. Section 18 of the Limitation Act, 1963
provides for effect of acknowledgement in writing. It says where
before the expiration of the prescribed period for a suit in respect
of any property or right, an acknowledgement of liability in respect
of such property or right has been made in writing signed by the
party against whom such property or right is claimed, a f resh
period of limitation shall commence from the time when the
acknowledgement was so signed. In an early case, in England,
in Jones v. Bellgrove Properties, (1949) 2KB 700, it was held
that a statement in a balance sheet of a company presente d to a
creditor-share holder of the company and duly signed by th e
directors constitutes an acknowledgement of the debt. In Mahabir
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
Cold Storage v. CIT (1991) 188 ITR 91 : 1991 Supp (1) SCC
402, the Supreme Court held:
“The entries in the books of accounts of the appellant would
amount to an acknowledgement of the liability to Messrs.
Prayagchand Hanumanmal within the meaning of Section 18
of the Limitation Act, 1963, and extend the period of limitation
for the discharge of the liability as debt.”
In several judgments of this Court, this legal position has b een
accepted. In Daya Chand Uttam Prakash Jain v. Santosh Devi
Sharma 67 (1997) DLT 13, S.N. Kapoor J. applied the principle
in a case where the primary question was whether a suit under
Order 37 CPC could be filed on the basis of an acknowledgement.
In Larsen & Toubro Ltd. v. Commercial Electric Works 67 (1997)
DLT 387 a Single Judge of this Court observed that it is we ll
settled that a balance sheet of a company, where the defendant s
had shown a particular amount as due to the plaintiff, would
constitute an acknowledgement within the meaning of Section 18
of the Limitation Act. In Rishi Pal Gupta v. S.J. Knitting &
Finishing Mills Pvt. Ltd. 73 (1998) DLT 593, the same view
was taken. The last two decisions were cited by Geeta Mittal, J.
in S.C. Gupta v. Allied Beverages Company Pvt. Ltd. (decided
on 30/4/2007) and it was held that the acknowledgement made by
a company in its balance sheet has the effect of extending the
period of limitation for the purposes of Section 18 of the Limitation
Act. In Ambika Mills Ltd. Ahmedabad v. CIT Gujarat (1964) 54
ITR 167, it was further held that a debt shown in a balance sheet
of a company amounts to an acknowledgement for the purpose
of Section 19 of the Limitation Act and in order to be so, the
balance sheet in which such acknowledgement is made need not
be addressed to the creditors. In light of these authorities, it must
be held that in the present case, the disclosure by the ass essee
company in its balance sheet as on 31 st March, 2002 of the
accounts of the sundry creditors’ amounts to an acknowledgement
of the debts in their favour for the purposes of Section 18 of the
Limitation Act. The assessee’s liability to the credi tors, thus,
subsisted and did not cease nor was it remitted by the credit ors.
The liability was enforceable in a court of law.”
567
28. In Shahi Exports Pvt. Ltd. v. CMD Buildtech Pvt. Ltd. ,
2013 SCC OnLine Del 2535 : (2013) 202 DLT 735, the Delhi High Court
held:
“7. It is hardly necessary to cite authorities in support of the well-
established position that an entry made in the company’s balance
sheet amounts to an acknowledgement of the debt and has the
effect of extending the period of limitation under section 18 of the
Limitation Act, 1963. However, I may refer to only one decision
of the learned single judge of this Court (Manmohan, J.) in Bhajan
Singh Samra v. Wimpy International Ltd. 185 (2011) DLT 428 for
the simple reason that it collects all the relevant authorities on the
issue, including some of the judgments cited before me on behalf
of the petitioners. This judgment entirely supports the petitioners
on this point.”
29. In N.S. Atwal v. Jindal Steel and Power Ltd. , 2013 SCC
OnLine Del 3902, the Delhi High Court held:
“11. This Court in ESPN Software India (P) Ltd. v. Modi
Entertainment Network Ltd., [2012] 173 Comp Cas 465 (Delhi),
noted that:
“17. Admission in balance-sheet is per-se an admission of
liability…
xxx xxx xxx
19. This entry clearly states that an amount of Rs. 8,00,04,000/
- is due and payable by the respondent in accordance with the
terms of the contract. This document has been signed by the
directors of the company and its Company Secretary on
31.10.2002.”
Similarly, in Bhajan Singh Samra v. Wimpy International Ltd.,
[2012] 173 Comp Cas 455 (Delhi), the Court noted:
“13. Having heard the parties, this Court is of the opinion that
the petitioning-creditor has to satisfy the Court that the debt on
which the petition is based was due and payable on the date of
the petition. Certainly a time barred debt cannot be the b asis
of a winding up petition. However, admission of a debt either
in a balance sheet or in the form of a letter duly signed by the
respondent, would amount to an acknowledgement …”
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
Similar findings have also been recorded by the Calcutta H igh
Court in Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff ,
AIR 1962 Cal 115, paragraph 12, and Raja of Vizianagram v. The
Official Liquidator, Vizianagram Mining Company Lim ited,
Vizagapatam, AIR 1952 Mad 136. Indeed, the entry admits such
liability towards JSPL for the amount claimed, and no explanation
that may be provided, or circumstance surrounding the entry, can
alter the fact of that liability. Thus, while this admission establishes
liability, the fact is traced to the exchange of letters mentioned
above, thus bringing the case within Order XXXVII CPC.”
30. In M/s. Al-Ameen Limited v. K.P. Sethumadhavan, 2017
SCC OnLine Ker 11337 : (2017) 4 KLJ 80, the Kerala High Court held:
“7. The inclusion of a debt in a balance sheet duly prepared and
authenticated would amount to admission of a liability and therefore
satisfies the requirement of law for a valid acknowledgement under
Section 18 of the Act. We may recapitulate the words of Mr.
Justice P. Subramonian Poti in Krishnan Assari v. Akilakerala
Viswakarma Maha Sabha [1980 KLT 515 (DB)] and the
following is the extract:
“10. How far the balance sheets could be acted upon in deciding
the claim of the appellant is the next question. The appellant
relies on the balance sheets as acknowledgement of liabili ty
contemplated in S. 18 of the Limitation Act, 1963. Under S. 18
an acknowledgement of liability signed by the party against
whom the right is claimed gives rise to a fresh period of
limitation. Under Explanation (b) to the Section the word
‘signed’ means signed either personally or by an agent duly
authorised. A company being a corporate body acts through its
representatives, the Managing Director and the Board o f
Directors. Under S. 210 of the Companies Act it is the statutory
duty of the Board of Directors to lay before the Company a t
every annual general body meeting a balance sheet and a profit
and loss account for the preceding financial year. S. 211 directs
that the form and contents of the balance sheet should be as
set out in Part I of Schedule VI. The said form stipulate s for
the details of the loans and advances and also of sun dry
creditors. The balance sheet should be approved by the Board
of Directors, and thereafter authenticated by the Manager or
569
the Secretary if any and not less than two directors one of
whom should be the Managing Director. (See S. 215). The
Act also provides for supply of copies of the balance sheet to
the members before the company in general meeting. Going
by the above provisions, a balance sheet is the statement of
assets and liabilities of the company as at the end of the financial
year, approved by the Board of Directors and authenticated in
the manner provided by law. The persons who authenticate
the document do so in their capacity as agents of the company.
The inclusion of a debt in a balance sheet duly prepared and
authenticated would amount to admission of a liability and
therefore satisfies the requirements of law for a v alid
acknowledgement under S. 18 of the Limitation Act, even
though the directors by authenticating the balance sheet merely
discharge a statutory duty and may not have intended to make
an acknowledgement.”
31. In Zest Systems Pvt. Ltd. v. Center for Vocational and
Entrepreneurship Studies, 2018 SCC OnLine Del 12116, the Delhi
High Court held:
“5. In Shahi Exports Pvt. Ltd. v. CMD Buildtech Pvt. Ltd. (supra)
this court held as follows:—
“7. It is hardly necessary to cite authorities in support of the
well-established position that an entry made in the company’s
balance sheet amounts to an acknowledgement of the debt
and has the effect of extending the period of limitation under
section 18 of the Limitation Act, 1963. However, I may refer
to only one decision of the learned single judge of this Court
(Manmohan, J.) in Bhajan Singh Samra v. Wimpy
International Ltd., 185 (2011) DLT 428 for the simple reason
that it collects all the relevant authorities on the issue, including
some of the judgments cited before me on behalf of t he
petitioners. This judgment entirely supports the petitioners on
this point.”
6. In view of the legal position spelt out in judgments noted above,
the acknowledgement of the debt in the balance sheet extend s
the period of limitation. The acknowledgement is as on 31.3.2015.
This suit is filed in 2017. The suit is clearly within limitation. The
present application is allowed.”
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
32. In Agni Aviation Consultants v. State of Telangana, 2020
SCC OnLine TS 1462 : (2020) 5 ALD 561, the High Court of Telangana
held:
“107. In several cases, various High Courts have held that an
acknowledgement of liability in the balance sheet by a Company
registered under the Companies Act, 1956 extends the period of
limitation though it is not addressed to the creditor specifically.
(Zest Systems Pvt. Ltd. v. Center for Vocational and
Entrepreneurship Studies, 2018 SCC OnLine Del 12116, Bhajan
Singh Samra v. Wimpy International Ltd., 2012 SCC OnLine
Del 2939, Vijay Kumar Machinery and Electrical Stores v.
Alaparthi Lakshmi Kanthamma, (1969) 74 ITR 224 (AP), and
Bengal Silk Mills Company, Raja of Vizianagram v. Official
Liquidator, Vizianagram Mining Company Limited, AIR 1952
Mad 1361).
108. Therefore it is not necessary that the acknowledgement of
liability must be contained in a document addressed to the creditor
i.e. the petitioners in the instant case.”
33. It is, therefore, clear that the majority decision of the Full
Bench in V. Padmakumar (supra) is contrary to the aforesaid catena of
judgments. The minority judgment of Justice (Retd.) A.I.S. Chee ma,
Member (Judicial), after considering most of these judgments, has reached
the correct conclusion. We, therefore, set aside the majority judgment of
the Full Bench of the NCLAT dated 12.03.2020.
34. The NCLAT, in the impugned judgment dated 22.12.2020,
has, without reconsidering the majority decision of the Full B ench in
V. Padmakumar (supra), rubber-stamped the same. We, therefore, set
aside the aforesaid impugned judgment also.
35. On the facts of this case, the NCLT, by its judgment date d
19.02.2020, recorded that the default in this case had been admitted by
the corporate debtor, and that the signed balance sheet of the corporate
debtor for the year 2016-2017 was not disputed by the corporate debtor.
As a result, the NCLT held that the Section 7 application was not barred
by limitation, and therefore, admitted the same. We have alre ady set
aside the majority judgment of the Full Bench of the NCLAT dated
12.03.2020, and the impugned judgment of the NCLAT dated 22.12.2020
in paragraphs 33 and 34. This appeal is, therefore, allowed, and the matter
571
is remanded to the NCLAT to be decided in accordance with t he law
laid down in our judgment.
Civil Appeal No.3 of 2021
1. This appeal raises a direct challenge to the majority judgment
of the Full Bench of the NCLAT dated 12.03.2020. Suffice it to say that
Shri Shyam Divan, learned Senior Advocate appearing on behalf of the
appellant-financial creditor, relied upon this Court’s judgment in Vashdeo
R. Bhojwani v. Abhyudaya Coop. Bank Ltd., (2019) 9 SCC 158, to
argue that limitation starts running from the date a recovery certificate
has been obtained pursuant to proceedings before the Debt s Recovery
Tribunal under the Recovery of Debts Act. On facts, he arg ued that
such a certificate was issued on 31.08.2009 after which, there were
several letters written by the corporate debtor, M/s Utta ra Fashion
Knitwear Ltd., acknowledging liability to pay loans that had been availed
by it. He pointed out that whereas the NCLT had, by an order da ted
21.11.2019, admitted the appellant’s application under Section 7 of the
IBC; the NCLAT had, vide the impugned judgment, set aside the NCLT
order on the ground that an entry in a balance sheet cannot amount to an
acknowledgement of liability for the purpose of Section 18 of the
Limitation Act. As a matter of fact, he argued, in the alternat ive, that
even if dues were stated to be recoverable on and from th e loan-recall
notice dated 31.10.2002, there were balance sheets right from 2002 up
till 2010, followed by various letters from the corporate debtor, which
would show a consistent course of acknowledgement of liability, thereby
extending limitation until the Section 7 application was f iled by the
appellant on 24.06.2019. He, therefore, argued that the present appeal
be remanded to the NCLAT for decision on the point of limitation.
2. Shri Jayesh Dolia, learned advocate appearing on behalf of the
respondents, argued that since service was not effe cted on the
respondents, nobody was present before the NCLT when it passed an ex
parte order admitting the Section 7 application. In any event, he argued,
that on the facts of this case, time began to run at least in 2002, and an
application filed in 2019 obviously cannot be said to be within limitation,
as the three-year period under Article 137 of the Limitation Act has long
expired.
3. We have already set aside the Full Bench judgment date d
12.03.2020 in Civil Appeal No.323 of 2021. Given the argument of Shri
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
Dolia that service was not properly effected upon th e respondents, it
would be in the fitness of things to send the matter back to the NCLT for
a de novo hearing. Parties are allowed to amend their pleadings, i f
necessary. The Civil Appeal is allowed in the aforesaid terms.
Civil Appeal No.3765 of 2020
1. In this appeal, Shri Mukul Rohatgi, learned Senior Advocat e
appearing on behalf of the appellant, assails a judgment dated 14.10.2020
passed by the NCLAT. On the facts of this case, he candidly admits that
despite the fact that an application under Section 7 of the IBC was filed
on 23.07.2018, and amended once, no plea qua any acknowledgement
of liability was made. The NCLT, by an order dated 14.12.2018, h eld
that despite the fact that the corporate debtor’s account was declared to
be a non-performing asset from 2010 onwards, since, according to the
NCLT, there was a continuing cause of action in the facts of this case,
the Section 7 application was admitted. In an appeal filed by the suspended
Managing Director of the corporate debtor to the NCLAT, by an order
dated 26.09.2019, the NCLAT held that the relevant date from which
limitation must be determined is 01.12.2016, i.e. the date on which the
IBC came into force, and therefore, dismissed the appeal . This Court,
by its order dated 21.10.2019, set aside the order of the NCLAT and
remanded the matter to the NCLAT to re-examine the q uestion of
limitation, having regard to the judgments in B.K. Educational Services
(P) Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633 and Sagar
Sharma v. Phoenix Arc (P) Ltd., (2019) 10 SCC 353.
2. The NCLAT, by the impugned order dated 14.10.2020, found
that the appellant had classified the corporate debtor’ s account as a
non-performing asset on 28.05.2014. However, the said date was changed
to 31.01.2010 after an attempt to restructure the corporate d ebtor’s
account failed. The three other banks forming part of the consortium of
lenders, viz., Punjab National Bank, Corporation Bank, and UCO Bank,
had also classified the account of the corporate debtor as a non-performing
asset on 30.06.2014, 31.12.2014, and 31.12.2014, respectively. Even if
the date of default was taken to be the last of these dates, i.e. 31.12.2014,
the NCLAT held that the three-year period under Article 137 of the
Limitation Act had expired on 30.12.2017, and that since the amended
application under Section 7 of the IBC had been filed only on 23.07.2018,
it was barred by limitation. The NCLAT, therefore, allowed the appeal.
573
3. Shri Rohatgi pointed out that in the written submissions filed by
the appellant on 21.09.2020, after judgment was reserved by the NCLAT
on 17.09.2020, it was pointed out that the corporat e debtor had
acknowledged its liability in its balance sheet for the yea r 2014-2015,
and that 31.01.2010 could not be taken to be the date of default for the
reasons given in the written submissions. These written submissions were
not taken into account when the NCLAT delivered the impugned
judgment.
4. Shri C.A. Sundaram, learned Senior Advocate appearing on
behalf of the respondents, has countered each of th ese
submissions. According to him, written submissions can never be a
substitute for pleadings, and if pleadings are deficient, t here ends the
matter. Admittedly, on facts, there has never been a pleading b efore
either the NCLT or the NCLAT that an acknowledgement of l iability
contained in any of the balance sheets extended limitation. He also argued
that, on merits, if the auditor’s report were to be see n, there is no
acknowledgement of liability, as any so-called acknowledgement has, in
fact, been qualified by notes made by the auditor. This being the case,
no opportunity should now be given to the appellant to go back to t he
NCLAT, the appellant having already amended its pleadings once, and
this Court having already remanded the matter to NCLAT, which, on the
second round, decided the appeal in favour of the respondents.
5. Shri Rohatgi countered this by presenting an application before
us to amend the pleadings, stating that this can be allowed even at this
stage, as per the judgments of this Court.
6. There can be no doubt whatsoever that the appellant has been
completely remiss and deficient in pleading acknowledgement of liability
on the facts of this case. However, given the staggering amount allegedly
due from the respondents, we afford one further opportunity to the
appellant to amend its pleadings so as to incorporate what is stated in the
written submissions filed by it before the NCLAT, subjec t to costs of
Rs.1,00,000/- to be paid by the appellant to the respondents within a
period of four weeks from today.
7. We, therefore, allow the appeal, set aside the judgment of the
NCLAT dated 14.10.2020, and restore the appeal to the file to be decided
in light of our judgment in Civil Appeal No. 323 of 2021.
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
8. Interim order passed by this Court on 16.12.2020 stands vacated.
Civil Appeal No.3228 of 2020
1. In this appeal, the judgment of the NCLAT dated 07.02.2020 is
assailed, in which the NCLAT has held that entries made in bala nce
sheets of the corporate debtor for the years ending 2014-2015, 2 015-
2016, and 2016-2017 cannot amount to acknowledgements of liability, as
a result of which the NCLT order admitting the appellant’s application
under Section 7 of the IBC was set aside.
2. Suffice it to say that the basis of the Section 7 application in this
case was a DRT decree dated 17.08.2018, pursuant to which a recovery
certificate dated 19.06.2019 was issued. The Section 7 application
averred that the date of the DRT decree furnished the cause of action
and, thus, was the starting point of limitation in this case.
3. Shri Sidhartha Barua, learned counsel appearing on behalf of
the appellant, has argued that this appeal deserves to be allowed and the
matter sent back to the NCLAT to be decided in accordance w ith our
judgment delivered in Civil Appeal No.323 of 2021.
4. Shri Saurabh Kirpal, learned Senior Advocate appearing on
behalf of the respondents, has argued that no plead ing qua
acknowledgement of liability was made before either the NCLT or the
NCLAT. Instead, the only pleading that was made was that the date of
default was the date on which the DRT decree was passed, w hich is
wholly incorrect in law. The Section 7 application being hopelessly time
barred, no opportunity should now be given to the appellant to renege on
this pleading.
5. As decided by us in Civil Appeal No.323 of 2021, we give one
more opportunity to the appellant in this case to amend its pleading on
payment of costs of Rs.1,00,000/- to the respondents within four weeks
from today. The NCLAT judgment dated 07.02.2020 is set aside and the
matter is remanded to the NCLAT to decide the matte r afresh in
accordance with the law laid down in Civil Appeal No.323 of 2021.
Civil Appeal arising out of SLP (Civil) No.1168 of 2021
1. Leave granted.
2. This appeal is against the judgment dated 15.10.2020 of the
Calcutta High Court which set aside two orders of the NCLT – (i) order
575
dated 19.08.2019 whereby the NCLT admitted the appellant’s application
under Section 7 of the IBC, and (ii) order dated 20.02.2020, whereby
the NCLT ordered liquidation of the corporate debtor.
3. Shri Sanjay Kapur, learned counsel appearing on behalf of the
appellant, assailed the judgment of the Calcutta High Court, and argued
that an efficacious alternative remedy was available to the respondent
before the NCLAT, as a result of which the High Court ought not to
have interfered with the judgment of the NCLT. On the other hand, Shri
Poddar, learned counsel appearing on behalf of the respondent, has sought
to support the judgment of the High Court with reference to Kamlesh
Babu v. Lajpat Rai Sharma, (2008) 12 SCC 577, and paragraph 23 in
particular, stating that a jurisdictional point was raised as to limitation, as
a result of which the Calcutta High Court took up a petition filed under
Article 227 of the Constitution of India and correctly set aside the orders
of the NCLT.
4. There can be no doubt that the NCLT had, in its order date d
19.08.2019, stated that Article 63(a) of the Limitation Act would apply
instead of Article 137, contrary to what has been held by us in s everal
judgments. It cannot, therefore, be said that the Calcutta Hi gh Court
wrongly exercised jurisdiction in setting aside this finding. However, the
High Court then went on to refer to certain balance sheets that had been
produced, thereby extending limitation under Section 18 of the Limitation
Act, but held that given the judgment in Babulal (supra), such balance
sheets could not extend limitation.
5. Given the judgment delivered in Civil Appeal No.323 of 2021,
the impugned judgment in this appeal also deserves to be set aside. The
appeal is, therefore, allowed. If the respondent wishes to file an appeal
before the NCLAT against the orders of the NCLT dated 19.08.2019
and 20.02.2020, it may do so within a period of four weeks from the date
of this judgment. The appeal will thereafter be decided on its merits,
keeping in view the statement of the law laid down in Civil Appeal No.323
of 2021.
Devika Gujral Matters disposed of.
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]