SC | Balance Sheet Entry Is Valid Debt Acknowledgment Under Limitation Act

Case Details: IL & FS Financial Services Ltd. v. Adhunik Meghalaya Steels (P.) Ltd. - [2025] 176 taxmann.com 948 (SC)

Judiciary and Counsel Details

• Manoj Misra and K.V. Viswanathan, JJ.
• Cyril Amarchand Mangaldas, Aor, Raunak Dhillon, Ms. Aishwarya Gupta, Ms. Niharika Shukla, Jeezan Pakhliwal and Vikash Kumar Jha, Advs. for the Appellant.
•  Ramji Srinivasan, Sr. Adv., Pranav Sachdeva, Aor, D N Sharma, Nilay Sengupta and Ms. Shefali Munde, Advs. for the Respondent.

Fact of the Case

In the instant case, the appellant/financial creditor extended a loan to respondent. On 1-3-2018, the account of the respondent was declared as a Non-Performing Asset (NPA) as the respondent was unable to meet its debt obligations.
Consequently, the appellant filed an application under section 7 of the IBC on 15-1-2024. However, the same was rejected by the NCLT and the NCLAT on the grounds of limitation. Thereafter, an appeal was made before the Supreme Court.
It was noted that the balance sheet of the financial year 2019-20, viewed in the background of other admitted documents, including financial statements of previous years, clearly constituted a valid acknowledgement of a subsisting liability and indicated the existence of a jural relationship and an admission as to the existence of such a relationship.
Further, it was noted that since the balance sheet was admittedly signed by the board of directors on 12-8-2020, this date was within the subsisting period of limitation for the reason that taking 1-3-2018 as the commencement of limitation, the limitation ordinarily would have continued till 28-2-2021.

HC Held

The Supreme Court observed that since an acknowledgement came into effect on 12-8-2020, the limitation would have stood extended till 11-8-2023. However, Covid-19 intervened, resulting in the Court passing a series of orders extending the period of limitation. Consequently, the entire period from 15-3-2020 to 28-2-2022 would stand excluded. This means that limitation would commence on 1-3-2022, reckoning from the acknowledgement of 12-8-2020, and continue until 28-2-2025.
The Supreme Court held that since the application had been filed on 15-1-2024, the same was within time and, therefore, the application under section 7 of the IBC was to be treated as one filed within the limitation. Thus, in view of section 238A, the Limitation Act, 1963 shall, as far as may be, apply to proceedings under the IBC.

List Of Cases Reviewed

• Order of NCLAT-DELHI in IL&FS Financial Services Limited Vs. Adhunik Meghalaya Steels Private Limited, CAAT(I)-1379-2024, dated 25-3-2025 (para 47) set aside.

List Of Cases Referred To