Asset Reconstruction Company (India) Limited Vs. BishalJaiswal [LL 2021 SC 215] - Synopsis
Team SoOLEGAL 23 Apr 2021

SUPREME COURT SET ASIDE NCLAT JUDGMENT AND CONSIDERED BALANCE SHEET ENTRIES AS PART OF ACKNOWLEGMENT U/s 18 LIMITATION ACT 1963

In the recent NCLAT appeal of Asset Reconstruction Company (India) Limited Vs. BishalJaiswal [LL 2021 SC 215], a bench comprising Justices RF Nariman, BR Gavai, and Hrishikesh Roy observed that balance sheets can also be considered as acknowledgment for debts u/s 18 of Limitation Act, 1963. In this judgment, the Hon’ble Supreme Court, sets aside the judgment of V Padmakumar v Stressed Assets Stabilization Fund [Company Appeal (AT) (Insolvency) No. 57 of 2020] delivered by NCALT. In this case, the majority of the members observed that “entries in balance sheets would not amount to acknowledgment of debt for the purpose of extending limitation under Section 18 of the Limitation Act.”

The judgment was criticized by the three-member bench and asked the Full bench for a review, to which the Bench repudiate to hear the matter and stated that the judgment was appropriate with many Supreme Court precedents. Aggrieved by the remarks, the three-judge Bench approached the Apex Court with the case. The major issues this appeal had are, Firstly, whether an entry made in a balance sheet of a corporate debtor would amount to an acknowledgment of debts under Section 18 of Limitation Act, 1963 and Secondly, whether Section 18 of the Limitation Act, 1963, which extends the period of acknowledgment is also applicable under Section 238A, given the expression “as far as may be” governing the applicability of the Limitation Act to the IBC.

While reviewing the case, the Hon’ble Supreme Court looked into few precedents such as Mahabir Cold Storage v. CIT [1991 Supp (1) SCC 402], A.V. Murthy v. B.S. Nagabasavanna [(2002) 2 SCC 642], S. Natarajan vs. Sama Dharman, Crl. A. No. 1524 of 2014] and most importantly the case of Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff [1961 SCC OnLine Cal 128]. Calcutta High Court in the case of Bengal Silk Mills observed that “Importantly, this judgment holds 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 for reasons given in the said note.”

After careful analysis of all the precedents as well as the judgment of V. Padmakumar v Stressed Assets Stabilization Fund [Company Appeal (AT) (Insolvency) No. 57 of 2020], the Apex Court decided to upheld the decision observed by the dissenting Justice (Retd.) A.I.S. Cheema and stated that “The minority judgment of Justice (Retd.) A.I.S. Cheema, Member (Judicial), after considering most of these judgments, has reached the correct conclusion. We, therefore, set aside the majority judgment of the Full Bench of the NCLAT dated 12.03.2020.”

The court also added that 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 acknowledgment of debt for reasons given in the said note.

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