Supreme Court Dismisses Appeal, Upholds NCLAT’s Decision: Balance Sheet Entries and OTS Proposal Constitute Acknowledgment of Debt, Extending Limitation Period under Section 18 of the Limitation Act

Court’s Decision: The Supreme Court dismissed the appeal filed by the suspended director of the Corporate Debtor, upholding the decisions of the Adjudicating Authority (NCLT) and NCLAT, which admitted the application under Section 7 of the Insolvency and Bankruptcy Code (IBC) for initiating Corporate Insolvency Resolution Process (CIRP). The Court affirmed that the balance sheet entries and the One Time Settlement (OTS) proposal amounted to an acknowledgment of debt under Section 18 of the Limitation Act, 1963, thereby extending the period of limitation.

Facts: The Corporate Debtor had availed loan and credit facilities from UCO Bank and a consortium of banks for funding a Thermal Power Plant. Due to default in repayment, the account was declared as a Non-Performing Asset (NPA) on November 5, 2014. Subsequently, proceedings under SARFAESI and before the Debts Recovery Tribunal (DRT) were initiated. UCO Bank filed an application under Section 7 of the IBC on February 13, 2019, to initiate CIRP, which was resisted by the Corporate Debtor on the grounds of limitation, competency of the application, and non-existence of liability.

Issues:

1. Whether the balance sheet entries and the OTS proposal amounted to an acknowledgment of debt under Section 18 of the Limitation Act.
2. Whether the application under Section 7 was time-barred, considering the default occurred on November 5, 2014.
3. Whether UCO Bank was competent to file the application under Section 7 of IBC.

Petitioner’s Arguments: The appellant argued that there was no unequivocal acknowledgment of debt in the balance sheet entries for the financial years 2017 and 2019. It was contended that the absence of the creditor’s name in these entries rendered them insufficient to extend the period of limitation. The appellant also challenged the competency of the person signing the Section 7 application.

Respondent’s Arguments: UCO Bank, represented by counsel, contended that the balance sheets were prepared in compliance with the statutory format under the Companies Act, 2013, and that there was no requirement to list specific creditors’ names. The bank further submitted that the OTS proposal issued by the Corporate Debtor constituted a clear acknowledgment of debt, which extended the period of limitation under Section 18 of the Limitation Act.

Analysis of the Law: The Court noted that under Section 238A of the IBC, the provisions of the Limitation Act are applicable, including Section 18, which deals with the acknowledgment of debt. The Court referred to multiple precedents, including Laxmi Pat Surana v. Union Bank of India, Dena Bank v. C. Shivakumar Reddy, and Rajendra Narottamdas Sheth v. Chandra Prakash Jain, which establish that acknowledgment of debt in balance sheets and OTS proposals can extend the period of limitation.

Precedent Analysis: The Court relied on Bishal Jaiswal and Lakshmirattan Cotton Mills Co. Ltd. v. Aluminium Corporation of India Ltd., where it was held that entries in the balance sheet, even without specific creditor names, can serve as an acknowledgment of debt if they reflect a subsisting liability.

Court’s Reasoning: The Court agreed with the findings of the NCLT and NCLAT that the balance sheet entries, along with the OTS proposal, constituted an acknowledgment of debt, extending the period of limitation. It further held that there was no requirement for the balance sheet to specifically name UCO Bank for the acknowledgment to be valid. The Court also rejected the appellant’s challenge to the competency of the application, affirming that the General Manager of UCO Bank had the necessary authority.

Conclusion: The Supreme Court found no merit in the appeal and upheld the decisions of the Adjudicating Authority and NCLAT. The appeal was dismissed with no order as to costs.

Implications: This judgment reinforces the applicability of Section 18 of the Limitation Act in insolvency proceedings and clarifies that balance sheet entries, even without specifying creditors, can serve as an acknowledgment of debt. It underscores the importance of such entries in determining the limitation period in insolvency cases.

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