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Are Balance Sheet Entries an Acknowledgement of Debt: NCLAT

The entries in books of accounts would not amount to an acknowledgment of debt under section 18 of the Limitation Act, 1963 for proceedings under the Insolvency and Bankruptcy Code (“IBC”). . The judgment passed by the NCLAT New Delhi, in its decision in  V. Padmakumar v. Stressed Assets Stabilization Fund (SASF). (Company Appeal (AT) (Insolvency) No. 57 of 2020) by Hon’ble shri Justice A.I.S. Cheema.

The facts and the background of the case were such that – The matter was initially before a three-part seat of the NCLAT. In any case, the Respondent depended upon the judgment M/s Ugro Capital Limited v M/s Bangalore Dehydration and Drying Equipment Co Pvt Ltd (BDDE) (22 January 2020, Company Appeal (AT) Insolvency) NO. 984 of 2019) (Ugro Capital). In Ugro Capital, it was held that the announcing of a suit would add up to “committing default” as far as Section 3(12) of the IBC for figuring the limitation time frame as far as Article 137 of the timetable to the Limitation Act. The three-part seat questioned the view communicated in Ugro Capital. Accordingly, the matter has alluded to a bigger four-part seat.

The debt being referred to was brought about in March 2000, when Uthara Fashion Knitwear Limited (Corporate Debtor) profited a credit of INR 600 lacs from the Industrial Development Bank of India (IDBI), the first moneylender. The credit was delegated to a Non-Performing Asset (NPA) on 29 May 2002. In 2003, IDBI documented an application for recovery under Section 19 of the Recovery of Debts and Bankruptcy, Insolvency Resolution and Bankruptcy of Individuals and Partnership Firms Act, 1993 (RDB Act), which was proclaimed on 19 June 2009, and a recovery authentication was given on 31 August 2009. The debt was reflected in the Corporate Debtor’s asset report for the year finishing 31 March 2012. The inquiry before the seat was whether the application documented under Section 7 of the IBC (by the Respondent to whom the debt was allotted by IDBI) recorded in 2019 was banned by limitation.

It was held that the settled law showing up from the Judgements of the High Court of Delhi and other High Courts that Balance Sheets can be investigated to check whether there is an affirmation of obligation. Scrutinizing Judgements of Hon’ble Supreme Court I track down that even Hon’ble Supreme Court has investigated Balance Sheets and Books of Account to check whether there is Acknowledgment of Liability. On the off chance that the sum acquired is appeared yet to be determined Sheet, it might add up to Acknowledgment. I discover the Judgements of the Hon’ble Supreme Court of India are restricting and Balance Sheets can’t be inside and out overlooked.

The NCLAT was in the opinion that Annual Returns/Audited Balance Sheets, one time settlement proposals, proposals to restructure loans, by whatever names called, cannot be simply ignored as debarred from consideration and in every given matter, it would be a question of applying the facts to the law and vice versa, to see whether or not the specific contents, spell out an acknowledgment under the Limitation Act.

The present Company Appeal (AT) (Insolvency) No.57 of 2020 should be placed before the regular Bench to consider whether or not the audited Balance Sheets and OTS proposals referred would on facts read with the law, amount to acknowledgments, so as to save limitation.

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