A 3-member bench of the National Company Law Appellate Tribunal has doubted the correctness of the decision rendered by a 5-member bench in the case V. Padamakumar Vs. Stressed Assets Stabilization Fund (SASF) & Anr which had held that entries in books of accounts will not amount to acknowledgment of debt under Section 18 of the Limitation Act, 1963.
The reference was made by a bench comprising Justice Jarat Kumar Jain, Member (Judicial), Justice Balvinder Singh, Member (Technical) and V.P Singh, Member (Technical) in the case Bishal Jaiswal vs Asset Reconstruction Company (India) Ltd and others.
The bench opined that the majority decision in V Padmakumar was rendered ignoring several precedents laid down by the Supreme Court and many High Courts.
The Tribunal gave seven reasons for seeking a reconsideration of the majority view of V Padmakumar as follows :
I. There is consistent view of the Hon'ble Supreme Court and High Court of Allahabad, Calcutta, Delhi, Karnataka, Kerala and Telangana that the entries in the Balance Sheet of the Company be treated as an acknowledgement of debt for the purpose of Section 18 of Limitation Act, 1963. The majority view in V. Padmakumar's Case is just contrary to settled law.
II. In V. Padamakumar's Case minority view is in the line of settled law that Balance Sheet of the Company, be treated as acknowledgement of debt for the purpose of Section 18 of the Limitation Act, 1963. In the majority Judgment no reasons have been assigned for disagreement with this view.
III. In support of majority Judgment in V. Padamakumar's Case none of the precedent cited before us.
IV. In V. Padamakumar's Case, it is discussed that the Balance Sheet of the Company is prepared pursuant to Section 92 of the Companies Act, 2013 and filing of Balance Sheet/Annual Return being mandatory under Section 92(4) of the Companies Act, 2013, failing of which attracts penal action under Section 92(5) and (6) of the Act. In our humble opinion Balance Sheet is not Annual Return but is a Financial Statement. Financial Statement is defined under Section 2(40) of the Companies Act, 2013.
V. In V. Padamakumar's Case it is held that the Balance Sheet is required to be prepared under the obligation casted under Section 92 of the Companies Act, 2013. Therefore, it cannot amount to an acknowledgement for Section 18 of the Limitation Act, 1963. The acknowledgement should be voluntary and cannot be given under compulsion of law or with the threat of any penalty/punishment. Hon'ble Calcutta High Court in the case of Bengal Silk Mills Co vs Ismail Golam Hossain Ariff and High Court of Delhi in the case of South Asia Industries Pvt. Ltd vs Krishna Shamsher Jung Bahadur Rana held that merely on the ground that the Balance Sheet of the Company is prepared under the compulsion of law or in discharge of statutory duty, it cannot be held that the Balance Sheet of the Company cannot amount to an acknowledgement of liability.
VI. The Balance Sheet is a material document attached with sanctity that must be submitted to ROC and is used for obtaining a business loan or investments. Relevant provisions in regard to Balance Sheet of the Company provided in Section 129, 130, 131, 134, 137, 143 and 397 of the Companies Act. Section 130 and 131 provides that a Company cannot reopen its Books of Account and Financial Statement without the Order made by the Court of Competent Jurisdiction or the Tribunal. Directors of the Company after making judgments and estimates that are reasonable and prudent cannot resile without permission of Tribunal.
VII. Section 397 of the Companies Act, provides that the documents filed for the purpose of Companies Act, and Rules made thereunder by a Company with the Registrar shall be admissible in any proceedings thereunder. Without proof or production of original as evidence of any contents of the original or of any fact stated therein of which direct evidence is admissible.
For the above reasons, the 3-member bench placed the matter before the Acting Chairperson for the constitution of an appropriate bench to reconsider the V Padmakumar decision.
The bench was considering an appeal filed by the corporate debtor against the order passed by the adjudicating authority admitting the insolvency petition filed by a consortium of lenders.
The corporate debtor contended that the application was filed beyond the period of 3 years limitation from the date of the accrual of the cause of action.
It was argued that the accounts were declared as Non-Performing Asset in February 2014 but the application under Section 7 of the Insolvecny and Bankruptcy Code was filed only in December 2018.
The adjudicating authority did not accept the contention that the application was time-barred, as the debt stood acknowledged by the entries in the books of accounts.
Hence, the right to sue stood extended in terms of Section 18.
Mr Abhijeet Sinha, Mr Sandeep Bajaj and Mr Devansh Jain were the Advocates for Appellant.
Mr Ramji Srinivasan, Sr. Advocate, Mr Abhirup Das Gupta and Mr Rishub Kapoor, Mr Varun Gupta, were the Advocates for R1.
Mr Sanjeev Kumar, Sr. Advocate, Mr Pankaj Dhanuka, Mr Anshul Sehgal, were the Advocates for R2.
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