While hearing an appeal petition in the case of Bishal Jaiswal Vs Asset Reconstruction Company (India) Ltd & Anr (Company Appeal (AT) (Insolvency) No. 385 of 2020) the three- judge bench referred the case of V. Padamakumar Vs. Stressed Assets Stabilization Fund (SASF) & Anr. (Company Appeal (AT) (Ins) No. 57 of 2020) for reconsideration. The latter’s verdict was decided by a five-judge bench in the appellate court without giving due consideration for the precedent laid down by Supreme Court as well as various High Courts.
In the present matter the appellant had advanced a loan from a consortium of lenders which the corporate debtor could not pay back and the accounts were declared as Non-Performing Asset in 2014 but the application in NCLT was filed in 2018. The adjudicating authority had accepted the application and held that it was not time-barred. Aggrieved by this decision the corporate debtor had filed an appeal.
The Corporate Debtor contended that the balance sheet cannot be considered as an acknowledgement under Section 18 of the Limitation Act, 1963. And that the application was filed with a delay of 5 years thus being time-barred. This issue was considered explicitly by the Five Hon’ble Members of this Appellate Tribunal in the case of V. Padamakumar (Supra) and held that the Books of Accounts are required to be prepared under the obligation casted Section 92 of the Companies Act, 2013. Therefore, it cannot amount to an acknowledgement for Section 18 of the Limitation Act, 1963.
The Respondents contested that the appellant has acknowledged the debt in its balance sheet and thus right to sue stood extended in terms of Section 18 of the Limitation Act, 1963. It was noted by the Adjudicating Authority that in the Balance Sheet the Corporate Debtor, admitted its liability, which was signed before the expiry of three years from the date of default. The Respondents relied on various precedents of Supreme Court and High Court where it was submitted that it is settled law that the entries made in the Balance Sheet of the Company amounts to an acknowledgement of debt under Section 18 of the Limitation Act, 1963.
NCLAT listed the reasons for reconsideration of V. Padmakumar’s Judgment (Supra) as follows:
- There is consistent view of the Hon’ble Supreme Court and High Courts that the entries in the Balance Sheet of the Company be treated as an acknowledgement of debt for the purpose of Section 18 of Limitation Act, 1963.
- In V. Padamakumar’s Case minority view is in the line of settled law as above stated with no reason assigned for disagreement with this view.
- No precedent has been cited consistent with the view held in V Padmakumar’s case.
- In our humble opinion Balance Sheet is not Annual Return but is a Financial Statement. Financial Statement is defined under Section 2(40) of the Companies Act, 2013.
- In V. Padamakumar’s Case it is held that the Balance Sheet is required to be prepared under the obligation casted under Section 92 of the Companies Act, 2013. Therefore, it cannot amount to an acknowledgement for Section 18 of the Limitation Act, 1963. Hon’ble Calcutta High Court in the case of Bengal Silk Mills Co. (Supra) and Hon’ble High Court of Delhi in the case of South Asia Industries Pvt. Ltd. (Supra) held that merely on the ground that the Balance Sheet of the Company is prepared under the compulsion of law or in discharge of statutory duty, it cannot be held that the Balance Sheet of the Company cannot amount to an acknowledgement of liability.
- Section 130 and 131 of the Companies Act, provides that a Company cannot reopen its Books of Account and Financial Statement without the Order made by the Court of Competent Jurisdiction or the Tribunal. Directors of the Company after making Judgments and estimates that are reasonable and prudent cannot resile without permission of Tribunal.
- Section 397 of the Companies Act, provides that the documents filed for the purpose of Companies Act, and Rules made thereunder by a Company with the Registrar shall be admissible in any proceedings thereunder. Without proof or production of original as evidence of any contents of the original or of any fact stated therein of which direct evidence is admissible.
For all the above reasons NCLAT has referred the matter to a Bench of Five Hon’ble Members of this Appellate Tribunal.
