2024 INSC 810 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 1031 of 2022

VIDYASAGAR PRASAD … APPELLANT(S)

VERSUS

UCO BANK & ANR. …RESPONDENT(S)

J U D G M E N T

PAMIDIGHANTAM SRI NARASIMHA, J.

1. By the present a ppeal, the suspended director of the

Corporate Debtor assails the order of the NCLAT

1 affirming the

order of the Adjudicating Authority

2 admitting the application

under Section 7 of IBC

3 for initiating CIRP

4 proceedings against

the Corporate Debtor.

2. The undisputed facts before us are that the Corporate Debtor

(respondent No. 2 herein), now represented by its Insolvency

Resolution Professional (IRP), availed loan and credit facilities from

1

National Company Law Appellate Tribunal in Company Appeal (AT) (Insolvency) No. 238 of

2020, dated 04.10.2021.

2

Adjudicating Authority/National Company Law Tribunal, Kolkata Bench, Kolkata order

dated 13.12.2019 in CP No. 254/KB/2019.

3

Insolvency and Bankruptcy Code, 2016.

4

Corporate Insolvency Resolution Process.

2

UCO Bank (respondent No. 1 herein) and other consortium of

banks under agreements dated 21.06.2010, 30.08.2012,

19.07.2012 and 31.12.2012. The said loan and other credit

facilities were availed for funding of Corporate Debtor’s Thermal

Power Plant.

2.1 Having defaulted on repayment of principal as well as interest

levied thereupon, Corporate Debtor’s account was declared as

Non-Performing Asset (NPA) on 05.11.2014. Further, proceedings

under SARFAESI

5 Act and DRT

6 for recovery of dues were also

initiated. However, we are not concerned with these proceedings

for disposal of the present appeal.

3. The root of the present controversy arose on 13.02.201 9

when UCO Bank filed an application under Section 7 of the Code

to initiate CIRP proceeding against the Corporate Debtor before the

Adjudicating Authority (NCLT, Kolkata Bench). These proceedings

were resisted by the Corporate Debtor, primarily on the grounds of

limitation. Additionally, the Section 7 application was also

challenged on the grounds that it was not signed by a competent

person and also that there is no liability to pay as per the terms of

the agreement and as such there is no debt.

5

Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest.

6

Debts Recovery Tribunal.

3

4. On the issue of competency of the Bank to file the petition

under Section 7, the Adjudicating Authority held that the General

Manager of Bank was legally authorized as attorney to do all acts

and also act on behalf of the Bank and he had the authority to sign

the application. On the issue relating to the existence of debt, the

Adjudicating Authority, examined the contract , the terms and

conditions of sanction letter as well as the relevant credit

agreements in detail and came to the conclusion that the amount

was disbursed as a loan and the Corporate Debtor had in-fact

defaulted in repayment of principal as well as interest levied

thereupon. Thus, the contention that there was no debt was also

rejected.

4.1 The main objection to the initiation of CIRP proceedings on

the ground of limitation was rejected by the Adjudicating Authority

on the ground that there is an acknowledgement of debt in the

financial statements as well as auditor’s report of the Corporate

Debtor for the year ending on 31.03.2017. On the basis of Section

238A of the Code, incorporating the L imitation Act, the

Adjudicating Authority relied on Section 18 of the Limitation Act

to reckon the period of limitation from the date of

acknowledgement of the debt and concluded that the institution of

4

CIRP on 13.02.2019 is within the period of limitation. The further

contention of the Corporate Debtor that name of UCO Bank, the

financial creditor, is not specifically mentioned in the relied upon

entry in the balance sheet was rejected by NCLT by referring to the

Explanation to Section 7(1) of the Code providing that the

proceedings thereunder get triggered even in the case of a default

by debtor in respect of any financial creditor other than the

applicant.

5. Aggrieved by the admission of Section 7 a pplication, initiation

of CIRP and appointment of IRP, the a ppellant preferred an appeal

to the NCLAT, Principal Bench. The same arguments were

advanced before the NCLAT and having considered the same in

detail, the NCLAT dismissed the appeal with the following

reasoning:

“11.5 Therefore, in the instant case, the balance sheet that

has been brought on record in the instant case before the

Adjudicating Authority shall be taken into consideration

while deciding the question of limitation and default on the

part of the Corporate Debtor. The said documents cannot be

ignored simply on the premise that it is not pleaded in the

Application filed in Form-1 for initiation of the Corporate

Insolvency Process.

11.6 We find that the balance sheet for the financial year

ending on March 31 2017, was part of the record before the

learned Adjudicating Authority and was annexed with

Section 7 Application, which was also duly admitted by the

Appellant during the hearing. Subsequently, the balance

sheet for the financial year ending will March 31 2019, was

annexed with the reply filed by Respondent No. 1 before this

5

Hon'ble Tribunal on March 02, 2020. However, as the

practice and procedure of this Hon'ble Tribunal, the same

was not accepted at the filing counter without the specific

mention of this Hon'ble Tribunal. Accordingly, a copy of the

Application for the additional document is also annexed as

Annexure A. Subsequently; this Hon'ble Tribunal permitted

such additional documents to be taken on record vide its

Order dated July 15 2020.

11.7 The Company's balance sheet is prepared in the

statutory format as per Schedule 3rd of the Companies Act

2013, which does not provide for giving the specific name of

every secured or unsecured creditor.

11.8 It is further observed that the Corporate Debtor has

not denied that there are no outstanding dues to the UCO

Bank. A perusal of extract of register of charges submitted

with ROC, at Sr. No. 3, shows that a charge of rupees one

hundred and seventy-five crores created by the Corporate

Debtor has not been satisfied and remains outstanding.

11.9 After the judgement of Hon'ble Supreme Court in case

Asset Reconstruction Company (India) Limited v. Bishal

Jaiswal (supra), it is settled that entries in books of accounts

and/or balance sheets of a Corporate Debtor would amount

to an acknowledgement under Section 18.

11.10 In the instant case, we also find that the Corporate

Debtor issued a letter dated June 07 2016 (Annexure A

Page 11 of their reply affidavit of R-1) wherein it has given

OTS proposal. Based on the ratio of the judgement of

Hon'ble Supreme Court in the case of Lakshmirattan Cotton

Mills Co Ltd and further reiterated in Dena Bank's case

(supra) that there is an acknowledgement of subsisting

liability of the Corporate Debtor. However, it may not

necessarily specify the exact nature of the liability. But it

indicates the jural relation between the parties, and in any

event, the same can also be derived by implication. Further,

the said Letter is not "without prejudice" basis and,

therefore, amounts to an unequivocal acknowledgement of

liability of the Corporate Debtor. A reading of the documents

above reveals that the Corporate Debtor has

acknowledged/subsisting liability to attract the provisions

of Section 18 of the Limitation Act, 1963.

11.11 Based on the discussion as above, we think that the

present Appeal is liable to be dismissed, and the interim

Order dated April 07, 2020, is exposed to vacated.”

6

6. Mr. Balbir Singh, s enior counsel appearing on behalf of the

appellant has emphatically argued only one point before us. It is

that there is no clear and unequivocal acknowledgement of debt of

the Corporate Debtor in the entries of the balance sheets. If this is

true, it is submitted, then the financial creditor cannot have the

benefit of Section 18 of the Limitation Act to extend the period of

limitation which commenced on 05.11.2014.

7. The commencement of a fresh period of limitation from the

time of acknowledgement of the debt is part of the statutory

scheme. Section 238A of the Code extends the applicability of the

provisions of the Limitation Act to the proceedings under the Code.

With the extension of Limitation Act to the provisions of the Code,

the benefit of Section 18 of the Limitation Act dealing with the

effect of acknowledgement of a debt in writing applies. Considering

the same issue in Laxmi Pat Surana v. Union Bank of India

7, the

Court observed:

“42. Notably, the provisions of the Limitation Act have been

made applicable to the proceedings under the Code, as far

as may be applicable. For, Section 238-A predicates that the

provisions of the Limitation Act shall, as far as may be,

apply to the proceedings or appeals before the adjudicating

authority, NCLAT, the DRT or the Debt Recovery Appellate

Tribunal, as the case may be. After enactment of Section

238-A IBC on 6-6-2018, validity whereof has been upheld

by this Court, it is not open to contend that the limitation for

filing application under Section 7 IBC would be limited to

7

(2021) 8 SCC 481.

7

Article 137 of the Limitation Act and extension of prescribed

period in certain cases could be only under Section 5 of the

Limitation Act. There is no reason to exclude the effect of

Section 18 of the Limitation Act to the proceedings initiated

under the Code.

43. Ordinarily, upon declaration of the loan account/debt

as NPA that date can be reckoned as the date of default to

enable the financial creditor to initiate action under Section

7 IBC. However, Section 7 comes into play when the

corporate debtor commits “default”. Section 7, consciously

uses the expression “default” — not the date of notifying the

loan account of the corporate person as NPA. Further, the

expression “default” has been defined in Section 3(12) to

mean non-payment of “debt” when whole or any part or

instalment of the amount of debt has become due and

payable and is not paid by the debtor or the corporate

debtor, as the case may be. In cases where the corporate

person had offered guarantee in respect of loan transaction,

the right of the financial creditor to initiate action against

such entity being a corporate debtor (corporate guarantor),

would get triggered the moment the principal borrower

commits default due to non-payment of debt . Thus, when

the principal borrower and/or the (corporate) guarantor

admit and acknowledge their liability after declaration of

NPA but before the expiration of three years therefrom

including the fresh period of limitation due to (successive)

acknowledgments, it is not possible to extricate them from

the renewed limitation accruing due to the effect of Section

18 of the Limitation Act. Section 18 of the Limitation Act gets

attracted the moment acknowledgment in writing signed by

the party against whom such right to initiate resolution

process under Section 7 IBC enures. Section 18 of the

Limitation Act would come into play every time when the

principal borrower and/or the corporate guarantor

(corporate debtor), as the case may be, acknowledge their

liability to pay the debt. Such acknowledgment, however,

must be before the expiration of the prescribed period of

limitation including the fresh period of limitation due to

acknowledgment of the debt, from time to time, for

institution of the proceedings under Section 7 IBC. Further,

the acknowledgment must be of a liability in respect of

which the financial creditor can initiate action under Section

7 IBC.”

(emphasis supplied)

8

7.1 In Dena Bank v. C. Shivakumar Reddy

8 after reviewing the

case law on the subject, this Court held;

“

138. While it is true that default in payment of a debt

triggers the right to initiate the corporate resolution process,

and a petition under Section 7 or 9 IBC is required to be filed

within the period of limitation prescribed by law, which in

this case would be three years from the date of default by

virtue of Section 238-A IBC read with Article 137 of the

Schedule to the Limitation Act, the delay in filing a petition

in the NCLT is condonable under Section 5 of the Limitation

Act unlike delay in filing a suit. Furthermore, as observed

above Sections 14 and 18 of the Limitation Act are also

applicable to proceedings under the IBC.

…………

140. To sum up, in our considered opinion an application

under Section 7 IBC would not be barred by limitation, on

the ground that it had been filed beyond a period of three

years from the date of declaration of the loan account of the

corporate debtor as NPA, if there were an acknowledgment

of the debt by the corporate debtor before expiry of the

period of limitation of three years, in which case the period

of limitation would get extended by a further period of three

years.”

(emphasis supplied)

7.2 A reference must also be made to a three Judge Bench

decision in Rajendra Narottamdas Sheth v. Chandra Prakash Jain

9

which succinctly observed;

“27. It is no more res integra that Section 18 of the

Limitation Act is applicable to applications filed under

Section 7 of the Code. In case the application under Section

7 is filed beyond the period of three years from the date of

default and the financial creditor furnishes the required

information relating to the acknowledgment of debt, in

writing by the corporate debtor, before the adjudicating

authority, with such acknowledgment having taken place

within the initial period of three years from the date of

default, a fresh period of limitation commences and the

8

(2021) 10 SCC 330

9

(2022) 5 SCC 600

9

application can be entertained, if filed within this extended

period.”

(emphasis supplied)

8. In view of the above referred principles, we will now consider

the nuanced arguments advanced by Mr. Balbir Singh that there

is no unequivocal, unambiguous and specific acknowledgement of

debt owed to UCO Bank in the balance sheet entries of Corporate

Debtor for the years 2017 and 2019. In the absence of clear

demarcation as to what the Corporate Debtor owes to the UCO

Bank, the said entries cannot be relied on for the purpose of

extending the period of limitation in terms of Section 18 of the

Limitation Act. Mr. Balbir Singh further argues that even if said

entry is taken to be an acknowledgment of debt, the same cannot

aid respondent No.1’s case since it fails to mention the name of

financial creditor.

8.1 Mr. Partha Sil, c ounsel on behalf of respondent No. 1-Bank

submitted that the Balance Sheets of a company are prepared in

the prescribed statutory format as per Section 129, read with

Schedule III of the Companies Act 2013, which does not provide

for giving specific names of each and every Secured and Unsecured

creditor. In support of his submission, Mr. Partha Sil referred to

the judgment in Asset Reconstruction Company (India) Ltd. v.

10

Bishal Jaiswal

10 where it was observed that there was no

compulsion for Companies to make any particular admissions in

the balance sheet, except for what is prescribed.

9. A three Judge Bench of this Court in Bishal Jaiswal (Supra)

has addressed and clarified this issue by holding that;

“35. A perusal of the aforesaid sections would show that

there is no doubt that the filing of a balance sheet in

accordance with the provisions of the Companies Act is

mandatory, any transgression of the same being

punishable by law. However, what is of importance is that

notes that are annexed to or forming part of such financial

statements are expressly recognised by Section 134(7).

Equally, the auditor's report may also enter caveats with

regard to acknowledgments made in the books of accounts

including the balance sheet. A perusal of the aforesaid

would show that the statement of law contained in Bengal

Silk Mills Co. v. Ismail Golam Hossain Ariff , that there is a

compulsion in law to prepare a balance sheet but no

compulsion to make any particular admission, is correct in

law as it would depend on the facts of each case as to

whether an entry made in a balance sheet qua any

particular creditor is unequivocal or has been entered into

with caveats, which then has to be examined on a case by

case basis to establish whether an acknowledgment of

liability has, in fact, been made, thereby extending

limitation under Section 18 of the Limitation Act.”

(emphasis supplied)

10. Having considered the specific facts and circumstances of

this case, the Adjudicating Authority as well as the NCLAT have

concurrently held that the entries in the balance sheets amount to

clear acknowledgment of debt. We agree with the findings. Further,

Note 3.4 appended to said balance sheet entry dated 31.03.2017

10

(2021) 6 SCC 366.

11

mentions that “company has made certain defaults in the

repayment of term loans and interest.” It further mentions of a

continuing default. The entry also mentions long-term borrowings.

The conclusions of NCLT and NCLAT that there is acknowledgment

of debt are unimpeachable.

10.1 Following the principles as expounded in the case of Bishal

Jaiswal (Supra), the Adjudicating Authority as well as the NCLAT

have examined the case in detail and have come to the conclusion

that the entry made in the balance sheet coupled with the note of

the auditor of the appellant clearly amounts to acknowledgement

of the liability. We see no reason whatsoever to take a different view

of the matter. Their findings are fortified when we examine the

matter from another perspective.

11. Adjudicating Authority and NCLAT have also considered the

Corporate Debtor’s proposal of One Time Settlement (OTS) to UCO

Bank. The proposal made by letter dated 07.06.2016

acknowledges that there were prior debts owed to UCO Bank. To

substantiate the argument that such OTS constituted

acknowledgment of debt since it relates to present and subsisting

liability and indicates existence of a jural relationship between the

parties, UCO Bank relied on judgment of this Court in

12

Lakshmirattan Cotton Mills Co. Ltd. and Messrs Behari Lal Ram

Charan v. Aluminium Corporation of India Limited

11. The

implication of a statement about a present and subsisting debt of

a Corporate Debtor is articulated by this Court in the following

manner;

“9. It is clear that the statement on which the plea of

acknowledgment is founded must relate to a subsisting

liability as the section requires that it must be made before

the expiration of the period prescribed under the Act. It need

not, however, amount to a promise to pay, for, an

acknowledgment does not create a new right of action but

merely extends the period of limitation. The statement need

not indicate the exact nature or the specific character of the

liability. The words used in the statement in question,

however, must relate to a present subsisting liability and

indicate the existence of jural relationship between the

parties, such as, for instance, that of a debtor and a creditor

and the intention to admit such jural relationship. Such an

intention need not be in express terms and can be inferred

by implication from the nature of the admission and the

surrounding circumstances. Generally speaking, a liberal

construction of the statement in question should be given.

That of course does not mean that where a statement is

made without intending to admit the existence of jural

relationship, such intention should be fastened on the

person making the statement by an involved and far-

fetched reasoning…”

(emphasis supplied)

11.1 It is also relevant to refer to judgment in Dena Bank (Supra)

which held as follows:

“139. Section 18 of the Limitation Act cannot also be

construed with pedantic rigidity in relation to proceedings

under the IBC. This Court sees no reason why an offer of one -

time settlement of a live claim, made within the period of

limitation, should not also be construed as an

acknowledgment to attract Section 18 of the Limitation Act…”

(emphasis supplied)

11

(1971) 1 SCC 67.

13

12. Both these factors, acknowledgment of debt in the balance

sheet as well as in the OTS proposal, have been considered by

NCLAT while dismissing the appeal. The relevant portion of the

NCLAT findings, after considering balance sheet entries and OTS

letter are as follows:

“11.7 The Company's balance sheet is prepared in the

statutory format as per Schedule 3rd of the Companies Act

2013, which does not provide for giving the specific name of

every secured or unsecured creditor.

11.8 It is further observed that the Corporate Debtor has

not denied that there are no outstanding dues to the UCO

Bank. A perusal of extract of register of charges submitted

with ROC, at Sr. No. 3, shows that a charge of rupees one

hundred and seventy-five crores created by the Corporate

Debtor has not been satisfied and remains outstanding.

11.10 In the instant case, we also find that the Corporate

Debtor issued a letter dated June 07 2016 (Annexure A

Page 11 of their reply affidavit of R-1) wherein it has given

OTS proposal. Based on the ratio of the judgement of

Hon'ble Supreme Court in the case of Lakshmirattan Cotton

Mills Co Ltd and further reiterated in Dena Bank's case

(supra) that there is an acknowledgement of subsisting

liability of the Corporate Debtor. However, it may not

necessarily specify the exact nature of the liability. But it

indicates the jural relation between the parties, and in any

event, the same can also be derived by implication. Further,

the said Letter is not "without prejudice" basis and,

therefore, amounts to an unequivocal acknowledgement of

liability of the Corporate Debtor. A reading of the documents

above reveals that the Corporate Debtor has

acknowledged/subsisting liability to attract the provisions

of Section 18 of the Limitation Act, 1963.”

13. Having examined the matter in detail, we are of the opinion

that the findings arrived at by the Adjudicating Authority and

NCLAT are correct in law and fact. We find no merit in the appeal.

14

The Civil Appeal No. 1031 of 2022 arising out of the NCLAT order

dated 04.10.2021 (Company Appeal (AT) (Insolvency) No. 238 of

2020) is dismissed accordingly.

14. No order as to costs.

………………………………....J.

[PAMIDIGHANTAM SRI NARASIMHA]

………………………………....J.

[SANDEEP MEHTA]

NEW DELHI;

October 22, 2024.