Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has reiterated that the continued reflection of a financial liability in the balance sheet of a corporate debtor constitutes a valid acknowledgment of debt under Section 18 of the Limitation Act, 1963. This acknowledgment, even in the absence of an express mention of the financial creditor’s name, extends the period of limitation for filing an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).

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The bench comprising Justice Ashok Bhushan (Chairperson), Mr. Arun Baroka (Technical Member), and Mr. Barun Mitra (Technical Member) dismissed two connected appeals—Company Appeal Nos. 615 & 616 of 2025—challenging the admission of Section 7 applications by the Adjudicating Authority (NCLT, Indore Bench) against Extol Industries Ltd. and Xyron Technologies Ltd., respectively.

Background

Bank of Baroda sanctioned term loans amounting to ₹12.72 crore and a cash credit facility of ₹15 crore to Extol Industries Ltd., which were subsequently restructured and renewed in June 2013. The Corporate Debtor had also availed a term loan of ₹4.97 crore on 29.09.2015, which was later modified on 04.01.2016, for Xyron Technologies Ltd. According to the appellant, loan repayments were made regularly, and a “No Due Certificate” (NDC) was issued by the bank on 16.01.2016, confirming no outstanding dues.

Despite this, the bank classified Extol Industries’ account as a Non-Performing Asset (NPA) on 31.03.2016 and Xyron Technologies’ account on 31.03.2017. Section 7 applications were filed in 2024 and admitted by the Adjudicating Authority, prompting the suspended management to file these appeals alleging the claims were time-barred and based on wrongful NPA classification.

Contentions

The appellants contended that the NPA classification was arbitrary and in violation of RBI guidelines, particularly since the NDC was issued only 75 days prior to the NPA date. They argued that the default could not have occurred by 31.12.2015, as required under the 90-day rule, and hence the default date of 31.03.2016 was invalid. It was also asserted that the Section 7 petitions were barred by limitation, having been filed after more than eight years from the alleged date of default. Additionally, the appellants alleged violation of natural justice, claiming the petitions were admitted without affording them a proper opportunity to reply.

The Financial Creditor responded that the existence of debt and default is all that needs to be established for admission under Section 7, and both were undisputed. It submitted that entries in the corporate debtors’ audited balance sheets from FY 2015–16 to FY 2022–23 consistently acknowledged the outstanding liabilities. The bank also placed reliance on statements of account prepared under the Bankers’ Books Evidence Act, a communication dated 28.04.2016 detailing overdue amounts, and the balance sheets of the corporate debtors.

Tribunal’s Observations

The NCLAT examined the NDC dated 16.01.2016 and found it vague and lacking crucial information such as account numbers and repayment details. The Tribunal held that it had limited evidentiary value. In contrast, the communication issued by the bank on 28.04.2016 provided specific details of overdue accounts, confirming that the accounts had already been classified as NPA by the Central Statutory Auditors.

The Tribunal also observed that the appellants had not taken any steps to repay the amounts mentioned in the 28.04.2016 notice and had instead pursued multiple litigations challenging the NPA classification. Notably, even the balance sheet for FY 2022–23 explicitly mentioned Bank of Baroda under the head “Long Term Borrowings,” listing three separate liabilities totaling over ₹24 crore. This amount corresponded to similar borrowings reflected in earlier years’ financial statements.

The Tribunal relied on the Supreme Court’s rulings in Dena Bank v. C. Shivkumar Reddy [(2021) 10 SCC 330] and Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal [Civil Appeal No. 323 of 2021], which held that entries in balance sheets constitute a valid acknowledgment of debt under Section 18 of the Limitation Act. It observed that “the debt having been acknowledged year over year from 2015–16 onwards until 2022–23, it was not barred by limitation.”

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Verdict

The NCLAT upheld the Adjudicating Authority’s view that consistent mention of the liabilities in the corporate debtors’ balance sheets constituted acknowledgment of debt under Section 18 of the Limitation Act, thereby extending the period of limitation. It rejected the appellants’ claims regarding the invalidity of the default date and the alleged breach of natural justice. The Tribunal found no fault with the impugned orders admitting both companies into CIRP under Section 7 of the IBC. Accordingly, the appeals were dismissed and both impugned orders were affirmed. All pending interlocutory applications stood closed, with no order as to costs.

Appearance

For Appellant: Mr. Gaurav Mitra, Mr. Arjun Gaur, Mr. Vineet Gupta, Ms. Lavanya, Mr. Shaurya, Advocates. 

For Respondent: Mr. Abhindra Maheshwari, Mr. Mohan Singh, Advocates for R-1. Mr. Abhishek Naik, Ms. Gulafsha Kureshi, Ms. Deepsikha Mishra, Mr. Falak Zaidi, Advocates for R2 (IRP).

Cause Title: Mr. Abhinav Bhatnagar V. Bank of Baroda And Ors.

Case No: Company Appeal (AT) (Insolvency) No. 615 & 616 of 2025

Coram: Justice Ashok Bhushan [Judicial Member], Mr. Arun Baroka [Technical Member], Mr. Barun Mitra [Technical Member]