NCLAT rules, Fresh Period Of Limitation U/S 18 Of Limitation Act Begins From Date When Balance Sheet Is Signed By Corporate Debtor
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT) Principal Bench, New Delhi, comprising Justice Ashok Bhushan (Judicial Member) and Mr. Barun Mitra (Technical Member), has held that for the purpose of filing an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC"), the fresh period of limitation under Section 18 of the Limitation Act, 1963 begins from the date when the balance sheet is signed by the authorized signatories of the corporate debtor and not from the date of its upload on the Ministry of Corporate Affairs (MCA) portal.
Background of the Case
The case arose from a loan agreement executed between IL&FS Financial Services Ltd. ("Financial Creditor") and Adhunik Meghalaya Steels Pvt. Ltd. ("Corporate Debtor") on February 27, 2015, for a loan of Rs. 30 Crores. An amount of Rs. 24.44 Crores was disbursed on March 17, 2015. Due to non-repayment of the loan, the Financial Creditor declared the Corporate Debtor's account as a Non-Performing Asset (NPA) on March 1, 2018.
Despite repeated demands, the Corporate Debtor failed to discharge its liability, leading the Financial Creditor to file a Section 7 application under the IBC on January 15, 2024, claiming Rs. 55.45 Crores. The Adjudicating Authority (NCLT, Guwahati Bench) rejected the application on the ground that it was barred by limitation. Aggrieved by this decision, the Financial Creditor appealed before the NCLAT.
Arguments by the Appellant (Financial Creditor)
The Financial Creditor argued that the Corporate Debtor continued to acknowledge the debt in its balance sheets after the date of default, extending the limitation period under Section 18 of the Limitation Act. They relied on the balance sheet for FY 2019-20, which recorded an amount of Rs. 24.41 Crores under "secured borrowings."
The appellant placed reliance on the Supreme Court's ruling in Vidya Sagar v. UCO Bank [2024 SCC OnLine SC 2993], where it was held that "an acknowledgment of debt in a balance sheet constitutes an acknowledgment of liability even if it does not specify the exact nature of the liability or a name of a particular creditor."
Additionally, it was argued that the limitation period should commence from the date the balance sheet is uploaded on the MCA portal rather than the date it is signed. The appellant claimed that the Corporate Debtor's delay in filing the balance sheet should not deprive the creditor of its right to recover the debt.
The appellant also contended that the NCLT misapplied the Supreme Court's Suo Moto orders regarding the COVID-19 period, arguing that the entire period between March 15, 2020, and February 28, 2022, should be excluded under paragraph 5.I of the Suo Moto order.
Arguments by the Respondent (Corporate Debtor)
The Respondent argued that the Section 7 application was time-barred, as the date of default was March 1, 2018, and the three-year limitation period under Article 137 of the Limitation Act expired on February 28, 2021. Even accounting for the Suo Moto extension by the Supreme Court, the limitation period would have lapsed by May 30, 2022.
The Respondent also relied on the Supreme Court's judgment in Asset Reconstruction Company (India) Ltd. v. Tulip Star Hotels Ltd. & Ors in Civil Appeal Nos. 84-85 of 2020, which held that a fresh limitation period begins from the date the balance sheet is signed, not from its upload on the MCA portal. Furthermore, it was asserted that a mere entry in a balance sheet cannot constitute an acknowledgment unless it specifically mentions the creditor's identity.
NCLAT Observations
The NCLAT, while dismissing the appeal, made the following key observations:
Applicability of Section 18 of the Limitation Act: The Tribunal reiterated that under Section 18 of the Limitation Act, a written acknowledgment of debt made before the expiry of the original limitation period extends the limitation by another three years. Referring to the Supreme Court's judgment in Tulip Star Hotels Ltd., the Tribunal emphasized: "As per Section 18 of Limitation Act, an acknowledgment of present subsisting liability, made in writing in respect of any right claimed by the opposite party and signed by the party against whom the right is claimed, has the effect of commencing a fresh period of limitation from the date on which the acknowledgment is signed."
Date of Signing vs. Date of Upload: The Tribunal relied on its previous ruling in G.S. Buildtech Pvt. Ltd. v. Ardree Infrastructure Venture Pvt. Ltd. [CA(AT) (Ins) No. 388 of 2021] , where it was held that the fresh limitation period starts from the date the balance sheet is signed by an authorized signatory. Citing the Andhra Pradesh High Court judgment in Vijaya Kumar Machinery & Electrical Stores v. Alaparthi Lakshmikanthamma [1968 SCC OnLine AP 219], the NCLAT held that the date of signing and presenting the balance sheet is crucial in determining acknowledgment.
Impact of the Supreme Court's Suo Moto Orders: The Tribunal clarified that the correct provision under the Suo Moto order applicable in this case was paragraph 5.III, which provides an additional 90-day extension. Since the three-year period from the balance sheet's signing date (August 12, 2020) expired on September 1, 2021, and the extended period ended on May 30, 2022, the Section 7 application filed on January 15, 2024, was held to be time-barred.
Rejection of the Date of Upload Argument: The Tribunal unequivocally rejected the appellant's contention that the limitation period should be calculated from the date the balance sheet was uploaded on the MCA portal. It held: "There is no mandatory requirement for factoring the date of uploading of the balance sheet on the MCA portal for computing the period of limitation."
Verdict
The NCLAT dismissed the appeal, affirming the NCLT's decision that the Section 7 application was time-barred. It conclusively held that for the purpose of extending the limitation period under Section 18 of the Limitation Act, the fresh period of limitation begins from the date when the balance sheet is signed by the corporate debtor and not from the date it is uploaded on the MCA portal.
Appearance
For Appellant: Mr. Krishnendu Dutta, Sr. Advocate with Ms. Niharika Sharma and Ms. Kiran Sharma, Advocates.
For Respondent: Mr. Ramji Srinivasan, Sr. Advocate with Mr. Swarnendu Chatterjee (AOR), Mr. Nilay Sengupta, Mr. D.N. Sharma, Mr. Sujit Banerjee, Ms. Deepakshi Garg and Ms. Harshita Rawat, Advocates.
Cause Title: IL&FS Financial Services Limited V. Adhunik Meghalaya Steels Private Limited
Case No: Company Appeal (AT) (Insolvency) No. 1379 of 2024
Coram: Justice Ashok Bhushan [Memeber (Judicial)], Barun Mitra [Memeber (Technical)]
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