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Judgment
(Hybrid Mode)
Per : Justice Sharad Kumar Sharma, Member (Judicial):
The Appellant, in his capacity as the Suspended Director of M/s. SLS Power Corporation Limited, the Corporate Debtor, has invoked the appellate jurisdiction under Section 61 of the Insolvency and Bankruptcy Code, 2016 to file the present Appeal challenging the Impugned Order dated 07.04.2025 passed in CP (IB) No. 8/7/AMR/2022 by the Ld. NCLT, Amaravati Bench, whereby the Corporate Debtor has been admitted into the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the I&B Code, 2016.
In the proceedings CP(IB)/8/7/AMR/2022 before the Adjudicating Authority, the Financial Creditor had filed an application on 04.02.2022 under Section 7 of the I & B Code, read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, seeking commencement of the CIRP against the Corporate Debtor. The Financial Creditor in the said application alleged the amount in default to be Rs. 488,00,78,691/-, as on 31.12.2021 (inclusive of interest payable thereon) and that the date of default is 31.03.2015, the date on which the account of the Corporate Debtor was declared a ``Non-Performing Asset (NPA)’’.
The Financial Creditor had contended before Ld. NCLT that it had sanctioned Rs.151 Crore to the CD for setting up a 24 MW Mini-Hydel Project, that the CD was not able to pay the EMIs and therefore the account of the CD was declared as NPA on 31.03.2015 and hence the date of default would also fall on the same date. It was further stated that the Balance Sheets of the Corporate Debtor for the financial years 2016–17, 2017–18, 2018–19, and 2019–20 reflected the outstanding debt payable to the Financial Creditor which amounted to acknowledgement of debt in those years and hence, the application under Section 7 of the Code filed on 04.02.2022 is filed within limitation which should be admitted.
Upon being issued notice in the proceedings for initiation of the CIRP, the Corporate Debtor had contended that, the date of declaration of the account as NPA cannot be taken as the basis for determining the date of default, which under law is a necessary parameter required to be satisfied in proceedings under Section 7 of the I & B Code, 2016, that the mere declaration of the account as NPA on 31.03.2015, as reflected in Part IV of the Section 7 application, cannot be strictly construed as the actual date of default and that, the default had occurred much earlier, and therefore the proceedings initiated by the Financial Creditor would be barred by limitation.
In response, the Financial Creditor submitted before the Learned Adjudicating Authority that, as per the amortisation schedule placed before the Learned NCLT in terms of the Loan Agreement dated 06.01.2009, the original date of default could be considered as 31.12.2014, which corresponded to the failure of the Corporate Debtor to remit the 11th instalment as per the agreed repayment terms, and that, the said fact has been recorded in the amortisation schedule, given in Schedule V of the Section 7 Application and therefore, it is not correct to say that the actual default happened earlier and hence, the application under Section 7 is barred by limitation.
The Corporate Debtor had contended that even if it had failed to pay the EMIs as per the amortisation schedule, no default had in fact been committed by the Corporate Debtor so as to warrant initiation of proceedings under Section 7 of the I & B Code, because, the Loan had been rescheduled by virtue of a letter issued by the In support of this contention, the Corporate Debtor relied upon a letter issued by the Financial Creditor dated 29.12.2014, which prescribed a ``Revised Repayment Schedule’’ and as per this letter, the main loan repayment schedule was to commence from 30.06.2033.
The relevant conditions mentioned in the said Revised Repayment Schedule are extracted hereunder:
Re: Loan Sanctioned to you by IREDA (Project No. 1858)
Reschedulement of Loan Please refer to the Loan Agreement dated 06.01.2009, 08.02.2010 & 15.03.2011 entered into between your Company and IREDA and as amended from time to time, if any.
It is informed by the Company they could not pay the installments of interest and thus is in default in the payment of installment of interest for the quarters ended 30th June 2014 & 30th Sept 2014 due to shortfall in power generation from the project mainly on account of accumulation of silt in the cofferdam which was kept for 5 years, delayed monsoon etc. As requested by you and considering your representation that the revenue generation from the project is much lesser than projection, IREDA has decided to reschedule the loan and fund the interest in the following manner:
➢ To fund the interest dues for the period from 30.09.2014 to 30.06.2015 (Rs.28.78 Cr approx.) which will be repaid alongwith the existing funded interest (Rs.67.98 Cr.) in 56 quarterly structured installments starting from 30.06.2019 and ending on 31.03.2033.
➢ The Company will continue to pay interest on main loans and also on funded interest loans from Sept 2015 onwards.
➢ To start main loan repayments from 30.06.2033 (i.e. commencing immediately after repayment of funded interest loans) and ending on 31.03.2040 (i.e. 28 quarterly structured installments).’’
Based on the above, the CD had argued that the debt was not due and Section 7 application cannot be admitted.
However, the said arguments advanced by learned Counsel for the Corporate Debtor regarding the implications of the loan reschedulement are appreciated in the context of the commencement of liability for repayment under the Loan Agreement, was refuted by the Financial Creditor submitting that the reschedulement letter cannot be read in isolation from the other terms and conditions contained therein concerning the triggering of liability for repayment of the loan. According to the Financial Creditor, the reschedulement of the loan was subject to fulfilment of certain preconditions stipulated in the reschedulement letter dated 29.12.2014, and since, there was an apparent failure on the part of the Corporate Debtor to fulfil those preconditions, the reschedulement arrangement did not come into effect.
The terms and conditions for reschedulement arrangement are extracted below:
``Terms and Conditions:
A) The Company shall pay all the dues including liquidated damages, incidental and Legal charges, if any.
B) The borrower shall agree and undertake that the reschedulement will be effective only after payment of entire dues, LD, Incidental and Legal charges.
C) The Company shall furnish Post Dated Cheques (PDCs) toward revised repayment schedule.
D) The Company shall not use the project revenues for buy back of the CCDs subscribed by IFCI venture Capital Fund Ltd.
E) The performance of the project shall be reviewed again after a period of 2 years for acceterating the repayments and/or to take suitable decision. The Company shall abide by the decision of IREDA. F) The Company shall revise the Trust & Retention Account according to the revised repayment schedule, to the satisfaction of IREDA.
G) The Company shall deposit post dated cheques for installments principal, funded interest and installments of interest payable there on (one cheque for installment of loan, funded interest loan and installment of interest as per repayment schedule for each due date) along with the following undertakings:-
that the post dated cheques are issued from the main account of the Company and not from the no lien account ii) that the Company shall not issue instructions for the closure of the Bank Account and/or for stoppage of payment of the cheques to its Bankers.
iii) That the Company shall furnish Certificate from the Bank certifying the signatures of the signatories to the cheques and that the Bank Account can be operated jointly or singly as the case may be.’’
Accordingly, the Financial Creditor contended that as the preconditions for reschedulement of the loan and particularly the clauses A, B, C & G as above had not been complied with by the Corporate Debtor, the reschedulement as proposed in its letter dated 29.12.2014 could not be said to have crystallised to become binding upon the parties. Consequently, the conditions contained therein, including those relating to the revised amortisation schedule, cannot be relied upon and in the absence of a valid and effective reschedulement arrangement between the parties, the original amortisation schedule under the loan agreement would continue to govern the repayment obligations of the Corporate Debtor.
The issue that arose for consideration before the Ld. Adjudicating Authority was as to whether the conditions contained in Clauses of the reschedulement letter dated 29.12.2014 stood satisfied, in order to support the contention of the CD that the Loans got rescheduled as on 29.12.2014. The Financial Creditor placed on record a communication dated 25.09.2014 sent by the Corporate Debtor, containing the details regarding the amounts payable towards liquidated damages, incidental charges, and legal expenses to demonstrate that the CD was aware of his liability to pay the same and yet chose not to pay, thereby failing to satisfy Clause A and B of the said reschedulement arrangement subsequently reflected in the letter dated 29.12.2014. However, despite being asked to place the copies of post-dated cheques before the Ld. Tribunal, the Corporate Debtor did not place the same and placed a statement containing details of only four post-dated cheques issued by it.
In view of the above, the Ld. Adjudicating Authority concluded that the terms and conditions of the proposed reschedulement, has not been complied with and the argument that repayment obligations would commence only from 30.06.2033 and that the proceedings under Section 7 of the Code were therefore unsustainable cannot be accepted, and that the reschedulement letter dated 29.12.2014 did not acquire binding force in law to override the terms of the original Loan Agreement and that, issue of debt and default will have to be decided as per the original Loan Agreement.
The Corporate Debtor had attempted to rely upon Clause 6 of the Letter / Recall Notice dated 31.12.2020 issued by the FC to contend that, in view of the sanction letter dated 29.12.2014 confirming the reschedulement of the loan, the loan account ought not to have been classified as a Non-Performing Asset (NPA).
Clause 6 of the letter dated 31.12.2020 is extracted below:
``6. Since you have failed to make payment of the due instalments and have also committed other defaults in fulfilling the obligations resting upon you including the reschedulement of loans sanctioned to the company from time to time i.e. vide letter No. 221/2489/SHP/2008/IREDA dated 20.09.2013 and, vide letter No. 221/2489/shp/2008/IREDA/1515 dated 29.12.2014, your loan account was classified by IREDA as a Non-Performing Asset (NPA) on 31.03.2015.’’
However, Ld. Adjudicating Authority held that Clause 6 as above clearly establishes that the CD has defaulted in fulfilling its obligations, including those related to reschedulement, of the sanctioned loans, and that the FC is within its rights to classify the Loan Account as NPA.
Upon consideration of the material on record and the various documents relating to the classification of the loan account as an NPA and the effect of the alleged reschedulement, the Ld. Adjudicating Authority, came to the conclusion that there was no dispute regarding the existence of debt and default and that as per the repayment schedule contained in the original Loan Agreement, the date of default is 31.12.2014.
Ld. Adjudicating Authority also noted that in the Balance Sheets of the CD for the Financial Years 2016-17, 2017-18, 2018-19 and 2019-20, the said debt stood acknowledged as outstanding in the form of entry in Note 2(iv) as ``long-term Borrowings as secured Borrowing from Financial Institutions – IREDA’’ and had duly extracted the same in the impugned order. On this basis, Ld. Adjudicating Authority concluded that even though the period of limitation for initiating action would have expired on 31.12.2017, the same stood extended because of the aforesaid entries in the Balance Sheet and that since 2019-20 Balance Sheet entry also confirms the debt outstanding from IREDA, the limitation stood extended upto 31.03.2023 on the basis of ratio laid down by the judgment of the Hon’ble Supreme Court in Dena Bank v. C. Shivakumar Reddy, reported in (2021) 10 SCC 330.
In the said judgment, it has been observed that while considering an application under Section 7 of the I&B Code, the issue of limitation is not required to be determined solely on the basis of the date on which the account was declared as a “Non-Performing Asset (NPA)”. The limitation period may also be reckoned from the date of acknowledgment of debt, as reflected in the Balance Sheets of the Corporate Debtor.
In this context, reference was made to paragraph 140 of the aforesaid judgment, which is extracted hereunder:
``140. To sum up, in our considered opinion an application under Section 7 IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the corporate debtor as NPA, if there were an acknowledgment of the debt by the corporate debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years.’’
Based on the aforesaid reasoning, the Ld. Adjudicating Authority concluded that a financial debt and default existed and that the threshold requirement under Section 7 of the I&B Code stood satisfied, and that, it is not barred by limitation. Consequently, the application filed under Section 7 seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor was admitted. The said order of admission is the Impugned Order presently under challenge in the instant Company Appeal.
Learned Counsel for the Appellant, while pressing the Appeal, has reiterated his submissions and contended that once the date of default had been shown in Part IV of the Section 7 application as 31.03.2015, based on the classification of the account as a “Non-Performing Asset (NPA)”, the same could not subsequently be altered by Ld. NCLT as 31.12.2014. He has further stated that Ld. NCLT on his own has extended the limitation period, upto 31.03.2023 based on its interpretation of the Judgment in Dena Bank v. C. Shivakumar Reddy, and on the entries in Balance Sheets of the Corporate Debtor under the head of long-term borrowings, without any pleading made to that effect in Part IV of the Application, which is not permissible in law.
Learned Counsel for the Appellant has further contended that:-
Firstly, that a reading of the findings recorded by the Ld. Tribunal would indicate that no effective opportunity of hearing was provided to the Corporate Debtor.
Secondly, that owing to the alleged procedural infirmity, the entire proceedings stood vitiated.
Thirdly, that the determination of limitation was erroneously made by the Ld. Tribunal by wrongly applying the principles contained in Section 18 of the Limitation Act.
Fourthly, that the revised repayment schedule extending the repayment period had been wrongly rejected by the Ld. Tribunal on the ground of non-fulfilment of preconditions, whereas, according to the Appellant, all such conditions had in fact been satisfied and despite the same and the relevant materials on record, Ld. Tribunal had proceeded to pass the impugned order.
He has contended that once the date of default had been specifically pleaded in the Section 7 application by the Financial Creditor to be that of 31.03.2025, the same could not subsequently be altered in the manner determined by the Ld. Adjudicating Authority.
In support of this contention, learned Counsel for the Appellant relied upon the judgment of the Principal Bench in Deepak Mahadev Shirke v. Unity Small Finance Bank Limited & Anr., rendered in CA (AT) (CH) (INS) No. 490/2025. Particular reliance was placed on paragraph 22 of the said judgment, wherein it was observed that when the applicant itself has pleaded a specific date of default in the application under Section 7 of the Code, the same ought not to be altered on the basis of acknowledgment reflected in the Balance Sheets of the Corporate Debtor for the purpose of determining limitation.
Paragraph 22 of the aforesaid judgment is extracted hereunder:
``22. From a reading of the above-quoted paragraphs of the Bishal Jaiswal judgment supra, it is clear that the Hon’ble Supreme Court did not allow the date of default to be amended merely on the basis of oral arguments. For extending the period of limitation, the concerned parties were directed by the Hon’ble Apex Court to necessarily amend their pleadings. Once the Section 7 application is filed, the date of default in Part-IV becomes binding. We however notice that in the instant case, the Respondent No.1 failed to bring about change in the date of default through a formal amendment in the Section 7 petition. The date of default has been held to be the date of arbitral award by the Adjudicating Authority without the Respondent No.1 having made a formal pleading to that effect. The Respondent No.1 not having amended their petition or made pleadings to the effect that the date of default had changed, the Adjudicating Authority could not have held that the arbitral award of 28.04.2022 had reset the limitation period. In the given facts and circumstances, we are therefore inclined to agree with the Appellant that the Adjudicating Authority has erred in extending the period of limitation basis the arbitral award.’’
In sofar as the ratio propounded in the judgment of Deepak Mahadev Shirke (supra) is concerned, there can be no doubt regarding the principle laid down therein, namely that the date of default as stated in an application filed under Section 7 of the Code cannot ordinarily be altered at a subsequent stage on the basis of later developments or facts that may become available to the applicant thereafter. The said principle itself was derived from the earlier judgment in Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal.
However, in the present case, the said principle may not have contextual applicability in view of the specific facts and circumstances of the matter. There is no dispute raised by the Appellant regarding the Amortization Schedule of the original Loan Agreement and the period upto which the CD has made payments. It is relevant to note that even if the Financial Creditor has mentioned a particular date of default here, 31.03.2015, that cannot be treated as an immutable or rigid yardstick for determining date of default if the documents presented before the Ld. Adjudicating Authority establish a different date. For example, had the date of default as established by the document been favourable to the Appellant, would he have insisted on not changing the date of default? Therefore, irrespective of what the FC may claim, Ld. Adjudicating Authority is within its rights to determine the date of default as per the documents presented.
In respect of aspect of limitation Section 18 of the Limitation Act, made applicable to proceedings under the I&B Code by virtue of Section 238A of the Code, provides that acknowledgment of liability made before expiry of the limitation period extends the limitation period. Such acknowledgment may be reflected in various forms, including communications such as emails or correspondence, as well as entries in the books of accounts or balance sheets of the Corporate Debtor and these documents cannot be ignored. In light of the law laid down in Dena Bank v. C. Shivakumar Reddy (supra), such acknowledgment would constitute the relevant basis for determining limitation under Article 137 of the Limitation Act.
The provisions of Section 18 of the Limitation Act are clear that where, before the expiry of the prescribed period of limitation for filing a suit or application, an acknowledgment of liability is made, a fresh period of limitation begins to run from the date of such acknowledgment. In the present case, the acknowledgment is reflected in the balance sheets of the Corporate Debtor under the head of long-term borrowings for the subsequent financial years up to 2020. In such circumstances, the approach adopted by the Ld. Adjudicating Authority in holding the limitation stood extended upto 31.03.2023 and that, the Section 7 application was within limitation cannot be said to be contrary to law.
Therefore, although the judgment in Deepak Mahadev Shirke (supra) lays down a correct principle, the applicability of any precedent necessarily depends on the facts and circumstances of each case. The said judgment cannot be construed in a manner that would require the Tribunal to ignore documentary evidence reflecting acknowledgment of liability.
In the present case, therefore, the principles referred to in paragraph 22 of Deepak Mahadev Shirke may not strictly apply. While it may be correct as a general proposition that the date of default mentioned in the application should not ordinarily be altered, it is equally necessary to consider the settled position of law regarding acknowledgment of liability. Where such acknowledgment is evident from the records of the Corporate Debtor itself, including its books of accounts and balance sheets, the same must be taken into account for the purpose of determining limitation.
Another contention raised by the Corporate Debtor is that no sanctity could be attached to the proceedings because there was no material to demonstrate how the amounts towards liquidated damages, incidental charges, and legal expenses were determined and that in the absence of specific principles governing the determination of such charges, non payment of the same will not lead to cancellation of reschedulement of the loan repayment.
However, upon examining the record, particularly the contents of the letter dated 25.09.2014 written by the Corporate Debtor, it becomes evident that reference was made therein to restructuring of facilities and to the liabilities towards liquidated damages, incidental charges, and legal expenses. If the said letter dated 25.09.2014 (Annexure–R3 to the counter affidavit) is taken into consideration, it clearly reflects that, as per paragraph 3 of the said communication, the Corporate Debtor itself had acknowledged the said liabilities. Consequently, the argument advanced by the Appellant regarding the absence of modalities for determination of such charges cannot be sustained.
We have already considered the implications of the alleged reschedulement of the loan as reflected in the correspondence dated 29.12.2014. However, by way of reiteration, it may be observed that the benefit sought to be derived by the Appellant from the said reschedulement namely that the repayment obligation in respect of the funded interest and the main loans stood extended until 30.06.2033 & 31.03.2040 respectively cannot be accepted, for the reason being that where a document confers certain rights upon a party, its applicability is necessarily subject to compliance with all the conditions stipulated therein. The Appellant has not placed any material on record to demonstrate that it had taken steps to comply with the other terms and conditions contained in the reschedulement letter. In such circumstances, where the Appellant has failed to comply with the stipulated conditions, he cannot selectively rely upon a particular clause of the reschedulement letter to claim postponement of the repayment of the Loan to 30.06.2033 and to claim that the debt was not due and not in default. Accordingly, the reschedulement letter dated 29.12.2014 cannot be regarded as having binding force governing the relationship between the Financial Creditor and the Corporate Debtor.
Another important condition contained in the reschedulement letter dated 29.12.2014 was that the arrangement would become effective only upon acceptance by the parties. However, there is nothing on record to indicate that the Corporate Debtor had formally accepted the terms and conditions of the reschedulement by issuing any written communication endorsing the same. In the absence of such acceptance, either expressly or through conduct, the Corporate Debtor cannot contend that the reschedulement arrangement continued to bind the parties.
It may again be noted that Clause 6 of the letter dated 31.12.2020 clearly provided that it was within the prerogative of the Financial Creditor to classify the account as a “Non-Performing Asset (NPA)” in the event of non-fulfilment of the stipulated conditions. Thus, the reclassification of the account as an NPA was well within the contractual rights of the Financial Creditor.
Learned Counsel for the Appellant has also relied upon the judgment rendered by the Principal Bench in Royal Construction v. Gannon Dunkerley & Company Limited, in CA (AT) (CH) (INS) No. 393/2025. Particular reference was made to paragraph 14 of the said judgment, which is extracted hereunder:
``14. The contention of the Appellant that the Adjudicating Authority should have modified the date of default after examining the records is an absurd proposition. If the date of default required any change or modification, the onus was on the Appellant to have sought leave of the Adjudicating Authority to file an amendment application. To expect the Adjudicating Authority to have amended the date of default without any amendment application or specific pleading made for such a modification would tantamount to the Adjudicating exceeding its jurisdiction which cannot be countenanced.’’
The submission advanced by the Learned Counsel for the Appellant is that, in the present case, the determination of the amount payable or the date of default could not have been accepted by the Learned Tribunal in the manner in which it has been done. According to the Appellant, if any alteration were required to be made with respect to the date of default as reflected in Part IV of the application filed under Section 7 of the Code, the same could have been effected only by way of a formal amendment. This, according to the Appellant, would apply even if the alteration was sought to be inferred from the Amortization Schedule of original Loan Agreements and the Balance Sheets of the Corporate Debtor for the financial years 2016– 2017 up to 2019–2020.
We are of the considered view that the principle laid down by the Principal Bench of this Appellate Tribunal in paragraph 14 of the judgment referred to by the Appellant namely that the date of default in an application under Section 7 of the Code can be altered only through a formal amendment undoubtedly lays down correct law. However, the applicability of the said principle arises only when the contents of Part IV of the Section 7 application itself are sought to be altered or substituted, and where such alterations have substantial impact on the case at hand, primarily in the area of limitation. In many cases, a marginal change in date of default can bring the application within limitation period as limitation period is computed from date of default. Therefore, Courts have been extremely wary of permitting change in date of default is rightly so.
However, in the present case, the Financial Creditor never intended to alter the date of default as stated in the application filed under Section 7 of the Code. There was no manual alteration or modification sought to be made in the date of default already mentioned in the application. Ld. NCLT on examination of Amortization Schedule found that, 31.12.2014 is date of default. Consequently, the principle laid down in paragraph 14 of the judgment in Royal Construction (supra) would not be attracted in the facts and circumstances of the present case.
There is another reason for not accepting the argument advanced by the Learned Counsel for the Appellant based on the judgment in Royal Construction (supra). In a case where limitation becomes an issue for consideration, the primary reference point may indeed be the date of default mentioned in the Section 7 application. However, when the question of limitation is debated before the Tribunal, the same may legitimately be examined in light of other materials available on record. The law does not prohibit the Tribunal from considering supporting materials placed on record for such purpose. In any case, in the instant case, filing of the Section 7 Application is within limitation period, irrespective of whether date of default is 31.03.2015 or 31.12.2014. Therefore, there is very little merit in the contention of Appellant.
In this context, the relevant variable factor would be the acknowledgment of liability, which may be derived from supporting documents placed on record. Where such documents reflect acknowledgment of debt by the Corporate Debtor, the Tribunal may take them into account for the purpose of determining limitation. The date of acknowledgment emerging from such supporting documents will not require the date of default mentioned in the Section 7 application to be amended. Consequently, the requirement of amendment contemplated in paragraph 14 of the judgment in Royal Construction (supra) would not arise in such circumstances.
What the Tribunal undertook was merely a comparative judicial analysis of the date of default stated in the application with the supporting documents placed on record particularly the Amortization Schedule of the original Loan Agreement and the Balance Sheets of the Corporate Debtor reflecting long-term borrowings for the financial years 2016–2017 to 2019– 2020 which indicated acknowledgment of liability. Since no factual pleading in the application required amendment, the principle relied upon by the Appellant would not apply in the present case. The judgment relied upon by the Appellant does not lay down that once an applicant mentions a particular date of default in the application. Ld. NCLT is precluded from relying upon other documentary evidence that may necessiate a change in the said date of default.
Acknowledgment of liability does not alter the date of default stated in the application; rather, it merely extends the period of limitation in accordance with law. Therefore, as no amendment to the pleadings was required, and hence, the judgment of the Principal Bench in Royal Construction (supra) would not be applicable to the facts of the present case.
Learned Counsel for the Respondent has also relied upon the judgment rendered in Vidyasagar Prasad v. UCO Bank & Anr., and has particularly invited the attention of this Tribunal to paragraph 5 of the said judgment.
Paragraph 5 of the said judgment is extracted hereunder:
``5. Aggrieved by the admission of section 7 application, initiation of the corporate insolvency resolution process and appointment of insolvency resolution professional, the appellant preferred an appeal to the National Company Law Appellate Tribunal, Principal Bench. The same arguments were advanced before the National Company Law Appellate Tribunal and having considered the same in detail, the National Company Law Appellate Tribunal dismissed the appeal with the following reasoning:
“Therefore, in the instant case, the balance-sheet that has been brought on record in the instant case before the Adjudicating Authority shall be taken into consideration while deciding the question of limitation and default on the part of the corporate debtor. The said documents cannot be ignored simply on the premise that it is not pleaded in the application filed in form 1 for initiation of the corporate insolvency resolution process.
We find that the balance-sheet for the financial year ending on March 31, 2017, was part of the record before the learned Adjudicating Authority and was annexed with section 7 application, which was also duly admitted by the appellant during the hearing. Subsequently, the balance-sheet for the financial year ending will March 31, 2019, was annexed with the reply filed by respondent No. 1 before this hon'ble Tribunal on March 2, 2020. However, as the practice and procedure of this hon'ble Tribunal, the same was not accepted at the filing counter without the specific mention of this hon'ble Tribunal. Accordingly, a copy of the application for the additional document is also annexed as annexure A. Subsequently this hon'ble Tribunal permitted such additional documents to be taken on record vide its order dated July 15, 2020.
The company's balance-sheet is prepared in the statutory format as per Schedule III to the Companies Act, 2013, which does not provide for giving the specific name of every secured or unsecured creditor.
It is further observed that the corporate debtor has not denied that there are no outstanding dues to the UCO Bank. A perusal of extract of register of charges submitted with the Registrar of Companies, at serial No. 3, shows that a charge of rupees one hundred and seventy-five crores created by the corporate debtor has not been satisfied and remains outstanding.
After the judgment of the hon'ble Supreme Court in the case of Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal [(2021) 14 Comp Cas-OL 445 (SC); (2021) 6 SCC 366; (2021) 3 SCC (Cri) 23; (2021) 3 SCC (Civ) 605.], it is settled that entries in books of account and/or balance-sheets of a corporate debtor would amount to an acknowledgment under section 18.
In the instant case, we also find that the corporate debtor issued a letter dated June 7, 2016 (annexure A page 11 of their reply affidavit of respondent No. 1) wherein it has given one-time settlement proposal. Based on the ratio of the judgment of the hon'ble Supreme Court in the case of Lakshmirattan Cotton Mills Co. Ltd. [Lakshmirattan Cotton Mills Co. Ltd. v. Aluminium Corporation of India Ltd., (1971) 1 SCC 67.] and further reiterated in Dena Bank's [Dena Bank (now Bank of Baroda) v. C. Shivakumar Reddy, (2021) 15 Comp Cas-OL 558 (SC); (2021) 10 SCC 330.] case that there is an acknowledgment of subsisting liability of the corporate debtor. However, it may not necessarily specify the exact nature of the liability. But it indicates the jural relation between the parties, and in any event, the same can also be derived by implication. Further, the said letter is not ‘without prejudice’ basis and, therefore, amounts to an unequivocal acknowledgment of liability of the corporate debtor. A reading of the documents above reveals that the corporate debtor has acknowledged/subsisting liability to attract the provisions of section 18 of the Limitation Act, 1963.
Based on the discussion as above, we think that the present appeal is liable to be dismissed, and the interim order dated April 7, 2020, is exposed to vacated.”
The aforesaid principle provides a complete answer to the argument advanced by the Learned Counsel for the Appellant regarding the necessity of amending the application for altering the date of default. The governing principles in this regard have been clearly laid down in the judgment of Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal, reported in (2021) 6 SCC 366.
In the said judgment, it was settled that entries made in the books of accounts or the balance sheets of the Corporate Debtor would constitute an acknowledgment of liability within the meaning of Section 18 of the Limitation Act. While elaborating this principle, the Hon’ble Supreme Court, by referring to the judgment in Lakshmirattan Cotton Mills Co. Ltd., reported in (1971) 1 SCC 67, observed that acknowledgment of a subsisting liability need not be specific or exact with regard to the amount or nature of liability.
The said principle was reiterated in Dena Bank v. C. Shivakumar Reddy, reported in (2021) 10 SCC 330, wherein it was held that acknowledgment of liability by the Corporate Debtor indicates the continuation of the jural relationship between the parties. Such acknowledgment may also arise by implication and may be derived from documents such as balance sheets or financial statements. Any determination made on that basis would not prejudice the rights of the parties, who would still be entitled to contest the same during the course of the proceedings.
In the present case, the only exception attempted to be carved out by the Learned Counsel for the Appellant was that the acknowledgment derived from the entries in the balance sheets ought to have been incorporated by way of amendment to the application filed under Section 7 of the Code.
However, it is pertinent to note that the Appellant did not dispute the contents of the balance sheets pertaining to the financial years 2016–2017 to 2019–2020. Since the contents of these documents themselves were not denied, the contention that such acknowledgment should have been formally incorporated through an amendment to the Section 7 application cannot be accepted. Such an interpretation would be inconsistent with the principles laid down in Vidyasagar Prasad v. UCO Bank & Anr. (supra).
In view of the aforesaid circumstances and for the reasons recorded in the preceding paragraphs, we find no ground to interfere with the reasoning or conclusions arrived at by the Learned Tribunal based on the materials placed on record.
Accordingly, Company Appeal (AT) (CH) (INS) No. 226 / 2025 lacks merit and is hereby dismissed. All connected pending Interlocutory Applications, if any, will stand closed.