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Asset Reconstruction Company v. Bishal Jaiswal &Anr. 2021 SCC OnLine SC 321 by -Shashwat Shekhar


The law of limitations establishes a time restriction for certain sorts of lawsuits in which an aggrieved party can seek remedy in court. The limitation period for insolvency applications is three years. When the party against whom the property or right is claimed makes an acknowledgment of liability in respect of the property or right before the expiration of the limitation period, a new period of limitation is computed from the time the acknowledgment was made, according to Section 18 of the Limitation Act. The Hon’ble Supreme Court recently considered whether balance sheets might amount to an admission of debt under Section 18 of the Limitation Act2 in Asset Reconstruction Company India Limited v. Bishal Jaiswal.
Facts of the Case
In 2009, Corporate Power Ltd. [herein after referred to as corporate debtor] set up a thermal power project in Jharkhand, and for so doing, availed of loan facilities from various lenders, including the State Bank of India [herein after referred to as 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 corporate debtor to the appellant, the Asset Reconstruction Company (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, 20023 [herein after referred to as 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 applied Section 7 of the Insolvency and Bankruptcy Code, 20164 [herein after referred to as IBC] before the National Company Law Tribunal, Calcutta [herein after referred to as NCLT] for a default amounting to Rs.5997,80,02,973/- from the corporate debtor.
The appellant made up for the lack of a date of default on the relevant form by filing a supplementary affidavit before the NCLT on 08.11.2019, specifically mentioning the date of default and annexing copies of the corporate debtor’s balance sheets, which according to the appellant acknowledged the debt that was due regularly. The NCLT admitted the Section 7 application on 19.02.2020, observing that the corporate debtor’s balance sheets, in which it acknowledged its liability, were signed before the expiration of three years from the date of default, and that entries in such balance sheets were acknowledgments of the debt due for Section 18 of the Limitation Act, 1963 [hereinafter referred to as Liability”Act].
Issues of the Case
Whether the acknowledgment of balance sheet can be considered as acknowledgment of debts under Section 18 of the Limitation Act?
Legislations Used
Section 13(2) of the SARFAESI Act, 20025: “When a borrower who is obligated to a secured creditor under a security agreement defaults on repayment of a secured debt or any installment thereof, and his account in respect of such debt is classified as a non-performing asset by the secured creditor, the secured creditor may require the borrower to discharge his liabilities to the secured creditor in full by notice under sub-section (4)”.
Section 7 of the Insolvency and Bankruptcy Code, 20166: “A financial creditor either by itself or jointly with 1 [other financial creditors, or any other person on behalf of the financial creditor, as may be notified 2 by the Central Government] may apply for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.”
Section 238A of the Insolvency and Bankruptcy Code, 20167: “The provisions of the Limitation Act, 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.”
Section 3 (12) of the Insolvency and Bankruptcy Code, 20168: “default” means non- payment of debt when whole or any part or installment of the amount of debt has become due and payable and is not 1 [paid] by the debtor or the corporate debtor, as the case may be.”
Section 18 of the Limitation Act, 19639: Effect of acknowledgment in writing —

(1) “When a party against whom such property or right is claimed, or any person through whom he derives his title or liability, makes an acknowledgment of liability in writing signed by the party against whom such property or right is claimed, before the expiration of the prescribed period for a suite of application in respect of such property or right, a new period of limitation shall be computed from the time when the acknowledgment was so signed”
(2) “Where the writing containing the acknowledgment 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, oral evidence of its contents shall not be received. Explanation. — For this section”, —
(a) “an acknowledgment 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 authorized 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.”
Section 2(40) of the Companies Act10: “financial statement” concerning a company, includes—
(i) a balance sheet as at the end of the financial year;

(ii) a profit and loss account, or in the case of a company 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, concerning one-person company, small company, dormant company and private company (if such private company is a start-up may not include the cash flow statement.)”
Contentions from the Appellant’s side
Shri Ramji Srinivasan, learned Senior Advocate appearing on behalf of the appellant, has attacked the impugned judgment, claiming that the majority judgment of the NCLAT in V. Padmakumar v. Stressed Assets Stabilisation Fund was clearly per incuriam because it failed to consider various binding judgments of this Court, and that the said judgment was wholly incorrect in rejecting the reference. He cited several decisions from this Court in which it was established that under Section 238A of the IBC, Section 18 of the Limitation Act applies to a case under Section 7 of the IBC.”
According to the learned Senior Advocate, the judgments of the High Courts and this Court have specifically concluded that entries made in the corporate debtor’s signed balance sheets would amount to acknowledgments of obligation, and so have been legitimately relied on 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 Bench was perfectly in order and ought to have been answered on merits.
He further contended that the five-member Bench that issued the impugned judgment was not properly constituted since three of the five members were members who agreed with the majority view in V. Padma Kumar (supra), and the dissentient member was not included in the Bench. 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 acknowledgment of debt has also to be made under compulsion of law, and for this purpose, he referred to two High Court judgments.
Contentions from the Respondent’s side
Shri Abhijeet Sinha, learned Advocate appearing on behalf of the Respondents, argued that 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 since a default in respect of financial debt would include a financial debt owed not only to the applicant- financial creditor butto all other financial creditors of the corporate debtor. 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 cases, recovery proceedings were ongoing before the Debt Recovery Tribunal and/or the appellate authority under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 [hereinafter referred to as Recovery of Debts Act] and that, 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 acknowledgments in balance sheets were not to be looked at, and stressed the fact that this would be relevant 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 Guwahati High Court, to buttress his submission that via Section 18 of the Limitation Act, entries made in balance sheets do not amount to an acknowledgment of debt. He also 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 which the Section 7 application should have been dismissed at the threshold.
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 nonperforming asset, the claim filed by a creditor is a dead claim which cannot be resurrected having recourse to Section 18 of the Limitation Act.
Analysis of the Judgment
Whether Section 18 of the Limitation Act is also applicable under Section 238A:

After hearing all the contentions, the court first discussed Section 238A of the IBC and referred to various cases11, which stated that first, it is vital to explain why Section 238-A should be inserted in the Code. This can be seen in the March 2018 Report of the Committee on Insolvency Law. In the present case law on this subject, if a law is a full code, the limits Act should be expressly or necessarily excluded12. The committee pondered on the subject and determined unanimously that the Code could not have been designed to give debts that were prohibited from the deadline a new lease of life. It is legally regulated that the right to a remedy is restricted if a debt is prohibited by time.13
This needs the interpretation of the definition of “debt” and “claim” in the Code. Moreover, debts in winding-up procedures cannot be time-barred and the extension of this concept of law to the Code seems to be unjustified. Moreover, a failure to implement the restricted legislation creates challenges in reopening the right to file with CIRP, which is a trigger for a default on debt over one lakh rupees, of financial and operational creditors holding time- barred debts under the Limitation Act. The law of restriction aims at preventing disruption or loss of what may be obtained through long-standing enjoyment in equity and justice or what was lost by the party’s inaction, negligence, or contempt14.
While the Code is not a debt recovery legislation, “default in debt recovery” triggers counter- intuitive exclusion of limitation legislation. Second, it re-opens the right of claimants to submit time-barred IRP/RP claims, which may be a part of the settlement plan, subject to the release of the public notice. Such a resolution plan may not, for the time being, be under current legislation, under Section 30(4) of the Code, for restructuring time-barred debts and claims. Since the intention was not to offer creditors and claimants who did not exercise their right under existing laws within the limitation period, the Committee considered it appropriate to add a particular provision of the Limitation Act to the Code.
The appropriate entry may be on a case-by-case basis under the Limitation Act. The limits law also did not apply to corporate applicants’ petitions as they were begun in the form of a remedy for the debt of a creditor, which is for the CIRP. A reconsideration of what has been said shows that given that the Limitation Act only applies to tribunals except as it is statutory, the Committee believed that this Act should be applied also to the IBC, and noted that although the IBC is not the debt recovery law, the trigger of the ‘default in debt payment’ would render the limitation law excluded. It was therefore shown that a request to the IBC should not amount to the resurgence of time-barred obligations which would be revoked based on limitations in any other venue. It is evident from above that it is essential to rigorously adhere to the premise of Section 9 of the Limits Act which is that when time starts to run it cannot be stopped other than through a law procedure.”
The principal question before the court was whether, given the term “as far as possible” which regulates the applicability of the Limitation Act to the IBC, Section 18 of the Limitation Act, which extends the limitation period depending on an acknowledgment of the debt by written”and signed by the corporation’s debt, is also applicable under Section 238A. The aforementioned issue is no longer integrated as the requirements of Section 14 and Section 18 of the IBC Limitation Act have been implemented in two recent decisions of this Court.
Position under Companies Act, 2013:

The Court then reviewed the situation of any legal necessity to submit balances and recognitions made therein under the Company Act of 2013. The Tribunal further looked at the definitions of annual returns, books of account, and financial statements, and concluded that it is apparent that submitting a balance sheet is required by law, and that any breach is punishable by law under the Company Act’s requirements. However, the important thing is that notes attached or included in such financial statements are specifically acknowledged in

Section 134(7). In addition, the auditor’s report might make warnings on recognition in the accounts’ books, including balance sheets.
Judicial indiscipline:

The Tribunal further stated that the rule of law generates doubt in ‘judicial discipline’ and undermines public belief. If the red line is crossed by the disdain of the binding precedent, the legal proposal becomes questionable. Such a misadventure leads to confusion about the accepted legal position.The Court referred to the case of Central Board of Dawoodi Bohra Community v. State of Maharashtra15, whereon every future smaller or coequal bench, a judgment of a bench of greater strength was held to be binding. A bench of co-equal strength can only voice an opinion that doubts the valid view of co-equal strength taken by the previous bench. They also mentioned the case of Keshav Mills Co. Ltd. v. CIT, where one of the reasons for bringing”“an appeal was the form of infirmity or mistake. The relevant considerations would be whether patent elements remained undetected or if the attention of the Court had not been called to any of the legislative provisions relevant and relevant or had not been noted by any prior decision of the Supreme Court.
Taking into account all the decisions stated by the two parties’ respective lawyers, the Court threw aside by a majority the V. Padma Kumar Judgment. Therefore, by its decision on 19.02.2020, the NCLT noted that the company debtor had confessed a default in this instance, and it did not contest the signed corporate debtor balance statement for 2016-2017. The NCLT consequently concluded that the application under Section 7 was not limited and admitted that limitation. The NCLAT’s full bench decision of 12.03.2020 and the impugned NCLAT decision of 22.12.2020 in paragraphs 33 and 34 have previously been dismissed. Therefore, this appeal is granted and the case shall be referred back to the NCLAT for its resolution in line with the legislation of their opinion.”
After understanding the judgment, it can be concluded that Entry into books would be a recognition of obligation within the meaning of Article 18 of the 1963 Limitation Act and an extension of the limitation period for discharge of responsibility as a debt. The court answered the issues in favor of the Appellant and indicated that an entry made in the books of accounts, including the balance sheet, can amount to an acknowledgment of liability within the meaning of Section 18 of the Limitation Act. The Judgment clarifies and proves highly beneficial for prospective creditors/applicants to prove their acknowledgment of debts through entries in balance sheets of the corporate debtor and extension of limitation. Therefore, the balance sheets of the corporate debtor wherein the liability was acknowledged and were signed before the expiry of three years from the date of default can be taken on record to calculate the period imitation.

1 Student at National Law University, Odisha
2 Limitation Act 1963, S 18.

3 Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act 2002, s 13(2).
4 Insolvency and Bankruptcy Code2016, S 7.
5 Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act 2002, s 13(2).
6 Insolvency and Bankruptcy Code 2016, S 7.

7 Insolvency and Bankruptcy Code 2016, s 238(A).
8 Insolvency and Bankruptcy Code 2016, s 3(12).
9 Limitation Act 1963, S 18.

10 Companies Act 2013, S. 2(40).

11 B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates, (2019) 11 SCC 633; Jignesh Shah v. Union of India, (2019) 10 SCC 750
12 Ravula Subba Rao v. CIT, AIR 1956 SC 604
13 Punjab National Bank v. Surendra Prasad Sinha, 1993 Supp (1) SCC 499: 1993 SCC (Cri) 149
14 Rajender Singh v. Santa Singh, (1973) 2 SCC 705

15 Central Board of Dawoodi Bohra Community v. State of Maharashtra, (2005) 2 SCC 673