Status as on- 22/11/2021
An acceptance of liability in writing before the expiration of the limitation period restarts the limitation period to the date of the acknowledgment, as per Section 18 of the Limitation Act 1963. The Court Decided that entries in a company’s books of account, such as a balance sheet, might be interpreted as an acceptance of a debt, and therefore reset the limitation period under Section 18 of Limitation Act, 1963.
Section 18 of Limitation Act, 1963 states that the initial date for the expiry of the period of limitation stands extended where a written and signed acknowledgement of liability has been issued by a party against whom a right or property is claimed i.e., a borrower or guarantor or security provider.
Whereas, Section 238A of IBC deals with the provisions of the Limitation Act, 1963 which 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.
The Supreme court in the matter of Asset Reconstruction Limited v. Bishal Jaiswal &Anr, recently held that the entry made in the books of accounts, including the balance sheet, can amount to an acknowledgement of liability within the meaning of Section 18 of the Limitation Act, 1963.
- Whether Sec. 18 of the Limitation Act is applicable to the Code?
- Whether entry made in a balance sheet of the corporate debtor would amount to an acknowledgment of liability under Sec 18 of the Limitation Act?
OBERVATIONS BY THE SUPREME COURT-
- The Limitation Act’s provisions apply to proceedings before the NCLT and the NCLAT under section 238A of the IBC. As a result, Section 18 of the Limitation Act is applicable.
- Earlier in many of the judgements, as per the opinion of High Court and Supreme Court it was found that entries in books of account, including a balance sheet, might be construed as an acknowledgement of liability for the purposes of section 18.
- While filling a balance sheet, certain provisions need to be complied as per the Companies Act, 2013 which includes “the acknowledgment of a debt is not necessarily so. In fact, it is not uncommon to have an entry in balance sheet with notes annexed to or forming part of such balance sheet, or in the auditor’s report, which must be read along with the balance sheet, indicating that such entry would not amount to an acknowledgment of debt for reasons given in the said note.“
- The provisions of section 18 are fulfilled depends on the nature of entries while making the accounting entries.
- The court referred to the decision held in Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, 1961 wherein, it was held that though the filing of a balance sheet is by compulsion of law, the acknowledgement of a debt is not necessarily so. In fact, it is not uncommon to have an entry in a balance sheet with notes annexed to or forming part of such balance sheet, or in the auditor’s report, which must be read along with the balance sheet, indicating that such entry would not amount to an acknowledgement of debt.
The present case was concluded considering both Section 238A IBC and Section 18 Limitation Act, 1963. As a result, the Supreme Court decision overturns a 5-Judge Bench order of the National Company Law Appellate Tribunal (NCLAT) in V Padmakumar v Stressed Assets Stabilisation Fund2, where the NCLAT held, by a 4:1 majority, that balance sheet entries do not amount to the acknowledgment of a debt and thus do not extend limitation under Section 18.
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