Continued Reflection Of Debt In Balance Sheet Amounts To Acknowledgement U/S 18 Of Limitation Act: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) has held that a default in repayment obligations is said to occur when the debt is continuously reflected in the Corporate Debtor's balance sheets over an extended period, particularly when no fresh borrowing was undertaken during that time. In such circumstances, the continued inclusion of the liability constitutes a clear acknowledgment of debt under Section 18 of the Limitation Act. Therefore, the period of limitation for filing an application under Section 7 of the Insolvency and Bankruptcy Code stands extended, even if the Financial Creditor's name is not expressly mentioned in the balance sheets. Brief Facts: Bank of Baroda sanctioned Extol Industries Ltd. term loans totaling ₹12.72 Cr. and a cash credit limit of ₹15 Cr., restructured and renewed in 2013. The Corporate Debtor regularly repaid the dues, evidenced by a No Due Certificate dated 16.01.2016. Despite this, the Bank arbitrarily classified the account as NPA on 31.03.2016 and filed an application under section 7 of the Code in 2024, which was erroneously admitted by the Adjudicating Authority which has been challenged in this appeal. The Appellant submitted that the impugned order overlooks that the date of default cited in Part-IV of the Section 7 application is based on an invalid NPA classification. The Financial Creditor issued a No Due Certificate (NDC) on 16.01.2016, confirming no default existed. Yet, the account was arbitrarily classified as NPA on 31.03.2016, violating RBI guidelines which require a 90-day default period. For 31.03.2016 to be the NPA date, default should have occurred by 31.12.2015—contradicted by the NDC. It was further argued that Section 7 petition was time-barred since the date of default therein was depicted as 31.03.2016, while the Section 7 petition was filed in 2024 after eight years. It was also submitted that having been denied the right of opportunity to be heard, the impugned order was vitiated for having been passed in gross violation of the principles of natural justice. In reply, the Respondent submitted that the plea of incorrect NPA classification is unsustainable, as the basis of the challenge—communication dated 16.01.2016—cannot invalidate the Section 7 petition. For admitting such an application, the Adjudicating Authority only needs to verify the existence of a debt and a default, both of which were never denied by the Corporate Debtor. It was further submitted that the Adjudicating Authority, in paras 17–18 of the impugned order, rightly recorded the presence of debt and default. Since the default persisted even post-NPA classification, the debt remained continuous and subsisting. Observations: The Tribunal noted that on examining the letter dated 16.01.2016—the core of the Appellant's claim against the NPA classification—it appears the No Due Certificate (NDC) was issued at the request of the Corporate Debtor, but its purpose remains unclear, as the letter does not specify why it was sought. Additionally, the NDC is vague: it omits critical information such as account numbers, loan facility details, and the status of repayments. Therefore, it holds limited evidentiary value in assessing the Corporate Debtor's financial standing or the validity of the NPA classification. It further observed that the Corporate Debtor's accounts were classified as NPA on 31.03.2016 by the Central Statutory Auditors of the Financial Creditor, with a simultaneous request for deposit of minimum overdue sums to regularize the accounts. This communication also offered an opportunity to resolve the issue through repayment. It further said that however, there is no evidence of the Appellant making any such payments. This indicates a continuing default predating 31.03.2016. Instead of addressing the repayment, the Appellant opted to challenge the NPA classification through multiple litigations. The Tribunal further observed that the statement of accounts submitted under the Bankers' Books Evidence Act, corroborated by entries in the Corporate Debtor's balance sheets and the tabular chart shared by the Financial Creditor on 28.04.2016, collectively establish that the default occurred prior to the NPA classification. When these documents are read together, it becomes evident that the Corporate Debtor had been in default of its repayment obligations to the Financial Creditor since at least 31.03.2016. It further noted that although the Financial Creditor's name does not appear in the balance sheets from FY 2015–16 to FY 2021–22, its explicit mention in the FY 2022–23 balance sheet confirms the debtor-creditor relationship. The outstanding loan amount listed matches the figures shown in earlier balance sheets, indicating that this is ...

Continued Reflection Of Debt In Balance Sheet Amounts To Acknowledgement U/S 18 Of Limitation Act: NCLAT

Mohd Malik Chauhan

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