Interplay Between IBC & Limitation Act: Supreme Court Holds Balance Sheets can amount To Acknowledgment of Liabilities u/s 18 Limitation Act
The Supreme Court (SC) in the case titled India Limited v. Bishal Jaiswal ruled that balance sheets can amount to an acknowledgment of debt under Section 18 of the Limitation Act.
The SC bench comprising of Justices Rohinton Nariman, BR Gavai, and Hrishikesh Roy, delivered a judgment against the decision of a five-member bench of the National Company Law Appellate Tribunal (NCLAT) which had refused to analyze the correctness of the judgment passed in the case titled V Padmakumar v. Stressed Assets Stabilization Fund.
The three members of the NCLAT reference bench had approached the Top Court to examine the remarks made against them by the five-member Bench of the Tribunal in its judgment. On 19 February 2021, the Apex Court allowed the plea of the reference bench.
Whether a reflection of debt in the Balance Sheet of a Corporate Debtor would amount to an acknowledgment under Section 18 of Limitation Act?
The NCLAT with a 4:1 majority held that reflection of debt in the balance sheet could not be considered as an acknowledgment of debt under Section 18 of the Limitation Act. It concluded that the filing of a balance sheet being mandatory under Section 92(4) of the Companies Act, 2013, cannot be treated to be an acknowledgment.
A three-member bench in September 2020, doubted the correctness of the decision in V Padmakumar in another case and referred the matter to a five-member Bench to re-examine the correctness of V Padmakumar.
It stated that the SC and various High Courts have consistently held that an entry made in the Company's Balance Sheet amounts to an acknowledgment of debt under Section 18 of the Limitation Act, 1963, in view of the settled law, V. Padmakumar's Case requires reconsideration.
The five-member bench while dismissing the reference made by the three-member bench termed the reference as inappropriate, incompetent and a misadventure.
It added that "The remedy available under the Insolvency & Bankruptcy Code (IBC) is a remedy distinct from remedy available in civil jurisdiction/ recovery mechanism and since the Code is not a complete Code, provisions of Limitation Act are attracted to proceedings under it before NCLT and NCLAT as far as applicable i.e. in regard to matters not specifically provided for in the Code."
The Appellate Tribunal stated that such misadventures weaken the authority of law, dignity of the institution as also shake people's faith in the rule of law and hoped that the members of the Referral Bench would exhibit a more serious attitude towards adherence to the binding judicial precedents and not venture to cross the red line.