IBC | Naming Creditor In Balance Sheet Not Mandatory, Acknowledgment Extends Limitation: Supreme Court Allows IL&FS Plea

Reaffirming that an entry in a company's balance sheet amounts to a valid acknowledgment of debt under Section 18 of the Limitation Act, 1963 irrespective of the name of the creditor, the Supreme Court today (July 30) revived the dismissed insolvency plea filed by IL&FS against Adhunik Meghalaya Steels for a default of ₹55.45 crore, citing an acknowledgment of debt in the corporate debtor's balance sheet. The bench comprising Justices Manoj Misra and KV Viswanathan heard the case where the dispute arose from a ₹30 crore term loan extended by IL&FS to Adhunik in 2015, secured through a pledge of shares. Following a default, the account was declared a Non-Performing Asset (NPA) on March 1, 2018, and a recall notice was issued in August 2018. The Section 7 application for initiating Corporate Insolvency Resolution Process (“CIRP”) under Insolvency & Bankruptcy Code, 2016 (“IBC”) was eventually filed in January 2024, claiming a total outstanding of ₹55.45 crore. However, an entry was found in the Respondent's balance sheet acknowledging the debt due to the Appellant on 12.08.2020. The NCLT and NCLAT had dismissed the application as time-barred, holding that the 2019–20 balance sheet which did not name IL&FS as a creditor did not qualify as an acknowledgment of debt, and that the limitation period which ought to be expired by Feb. 2021, already expired by May 30, 2022, even accounting for the Covid-related extension. Aggrieved by these findings, the Appellant approached the Supreme Court. Setting aside the impugned findings, the judgment authored by Justice Viswanathan noted that the ₹24.41 crore entry in the Respondent's 2019–20 balance sheet matched earlier disclosures when IL&FS was named, which was not disputed by the Respondent in its reply to the Section 7 application. Thus, this entry constitutes an acknowledgment of debt entitling the benefit of extension of the limitation period to the Appellant, reckoned from the date of acknowledgement, i.e., 12.08.2020. Further, citing Vidyasagar Prasad v. UCO Bank and Anr., 2024 LiveLaw (SC) 825, the Court repelled the Respondent's argument about the name of the creditor not being mentioned, stating that entries in balance sheets can qualify as acknowledgments under Section 18, even if the creditor is not explicitly named.“The Balance Sheet of F.Y. 2019-20 was admittedly signed by the board of directors on 12.08.2020. This date was within the subsisting period of limitation for the reason that taking 01.03.2018 as the commencement of limitation, limitation ordinarily would have continued till 28.02.2021. Since an acknowledgment came into effect on 12.08.2020, limitation would have stood extended till 11.08.2023. However, Covid-19 intervened resulting in this Court passing a series of orders extending the period of limitation. The relevant order applicable in this case is the order of 10.01.2022.”, the court observed. “Keeping all these principles in mind, if we examine the facts of the present case, it will be clear that the Balance Sheet of F.Y. 2019- 20, viewed in the background of the other admitted documents, including the financial statements of the previous years, clearly constitutes a valid acknowledgment of a subsisting liability and indicated the existence of a jural relationship and an admission as to the existence of such relationship.”, the court added. Accordingly, the Appeal was allowed, and the matter was remitted to the adjudicating authority to proceed with and decide in accordance with law, treating the application under Section 7 of the IBC, filed by the appellant, as one filed within the limitation. Cause Title: IL & FS FINANCIAL SERVICES LIMITED VERSUS ADHUNIK MEGHALAYA STEELS PRIVATE LIMITEDCitation : 2025 LiveLaw (SC) 753Click here to read/download the judgmentAppearance: For Appellant(s) : Mr. Ritin Rai, Sr. Adv. Mr. Raunak Dhillon, Adv. Ms. Aishwarya Gupta, Adv. Ms. Niharika Shukla, Adv. Mr. Jeezan Pakhliwal, Adv. M/S. Cyril Amarchand Mangaldas Aor, AOR For Respondent(s) :Mr. Ramji Srinivasan, Sr. Adv. Mr. Pranav Sachdeva, AOR Mr. D.N. Sharma, Adv. Mr. Nilay Sengupta, Adv. Mr. Arjun Bhatia, Adv. Ms. Shefali Munde, Adv.Related : IBC | No Compulsion To Specify Names Of Creditors In Balance Sheet, General Entry Acknowledging Debt Sufficient To Initiate CIRP : Supreme CourtBalance Sheets Entries Can Amount To Acknowledgement Of Debt U/s 18 Limitation Act: Supreme Court Sets Aside NCLAT Full Bench Ruling

IBC | Naming Creditor In Balance Sheet Not Mandatory, Acknowledgment Extends Limitation: Supreme Court Allows IL&FS Plea

Yash Mittal

This is a premium content
Available exclusively to
Our subscribers

INR 1099+GST

Tags

Yash Mittal

IBC | Naming Creditor In Balance Sheet Not Mandatory, Acknowledgment Extends Limitation: Supreme Court Allows IL&FS Plea

Yash Mittal

This is a premium content Available exclusively to Our subscribers

INR 1099+GST

Tags

Yash Mittal

This is a premium content
Available exclusively to
Our subscribers