The Supreme Court on Thursday ruled that balance sheets can amount to acknowledgment of debt under Section 18 of the Limitation Act [Asset Reconstruction Company (India Limited v. Bishal Jaiswal].
The judgment was delivered by a three-judge Bench of Justice Rohinton Nariman, BR Gavai and Hrishikseh Roy.
The judgment was delivered in a plea challenging a judgment of a five-member Bench of National Company Law Appellate Tribunal (NCLAT) which had refused to re-examine the correctness of an earlier judgment in V Padmakumar v. Stressed Assets Stabilization Fund.
In V Padmakumar, the issue was whether reflection of debt in the books of accounts tantamounts to acknowledgment of debt under Section 18 of the Limitation Act, 1963, and thereby extends the period of limitation.
With a 4:1 majority, a five-member bench of NCLAT had held that reflection of debt in the balance sheet could not be considered as an acknowledgment of debt under Section 18 of the Limitation Act.
The majority concluded that the filing of balance sheet being mandatory under Section 92(4) of the Companies Act, 2013, it cannot be treated to be an acknowledgement under Section 18.
If the argument is accepted that the Balance Sheet of the ‘Corporate Debtor’ amounts to acknowledgement under Section 18 then in such case, it is to be held that no limitation would be applicable because every year, it is mandatory for the ‘Corporate Debtor’ to file Balance Sheet, the five-member Bench had ruled.
In September 2020, a three-member Bench doubted the correctness of the decision in V Padmakumar in another case and referred the matter to a five-member Bench to re-examine the correctness of V Padmakumar.
The five-member Bench however dismissed the same leading to the present appeal before the Supreme Court.
Interestingly, the five-member Bench while dismissing the reference also made some strong observations against members of the three-member Bench for their reference order.
It termed the reference as “inappropriate”, incompetent” and a “misadventure”.
The NCLAT further opined that “such misadventures” weaken the authority of law, dignity of institution as also shake people’s faith in rule of law and hoped that the members of the Referral Bench would “exhibit more serious attitude towards adherence of the binding judicial precedents and not venture to cross the red line“.
The three members of the reference Bench had the approached the Supreme Court to expunge the remarks made against them by the five-member Bench in its judgment.
That plea was allowed by the Supreme Court on February 19, 2021,
ARCIL was represented by Ramji Srinivasan, Senior Advocate with Abhirup Dasgupta and Ishaan Duggal (HSA Advocates) and Mohit D. Ram, AoR.
L&L Partners through Sanjeev Kumar and Anshul Sehgal appeared for the Resolution Professional.