Summary
The Supreme Court dismissed a suspended director's appeal against admission of UCO Bank's Section 7 IBC application, filed in 2019 although the account was declared NPA in 2014. Entries in the corporate debtor's balance sheet for the year ending 31.03.2017, read with a note recording continuing defaults on term loans, and its 2016 one-time settlement proposal were valid acknowledgments under Section 18 of the Limitation Act, which applies through Section 238A of the IBC. The balance sheet need not name the particular creditor.
Issues
- Whether balance sheet entries that do not name the financial creditor amount to an acknowledgment of debt under Section 18 of the Limitation Act, extending limitation for a Section 7 application.
- Whether a one-time settlement proposal constitutes such an acknowledgment.
Provisions considered
- Section 238A, Insolvency and Bankruptcy Code, 2016Applies the Limitation Act, as far as may be, to IBC proceedings, so the benefit of Section 18 of the Limitation Act is available to applications under Section 7. (¶¶ 7, 7.1, 7.2)
- Section 18, Limitation Act, 1963A written, signed acknowledgment of liability made within limitation starts a fresh period. The balance sheet entries with the note on continuing default, and the OTS proposal not made without prejudice, were held to be such acknowledgments, making the application of 13.02.2019 timely. (¶¶ 7, 7.1, 7.2, 10, 10.1, 11, 11.1)
- Section 7, Insolvency and Bankruptcy Code, 2016The application was filed beyond three years from the NPA date but was within limitation as extended by the acknowledgments; admission was upheld. (¶¶ 6, 7, 13)
- Section 129 read with Schedule III, Companies Act, 2013The statutory balance sheet format does not require each secured or unsecured creditor to be named, so the omission of the bank's name did not defeat the acknowledgment; whether an entry is unequivocal is examined case by case under Bishal Jaiswal. (¶¶ 8.1, 9, 12)
Held
- Section 18 of the Limitation Act applies to Section 7 applications by virtue of Section 238A of the IBC; an acknowledgment of debt by the corporate debtor before limitation expires gives a fresh three-year period. (¶¶ 7, 7.1, 7.2)
- Entries in a balance sheet can amount to acknowledgment of liability; whether a particular entry is unequivocal or qualified by caveats depends on the facts. Since the statutory format does not require each creditor to be named, absence of the financial creditor's name does not prevent the entry from operating as an acknowledgment. (¶¶ 8.1, 9, 10, 12)
- The balance sheet for the year ending 31.03.2017, with Note 3.4 recording defaults in repayment of term loans and interest and a continuing default, and the auditor's note, amounted to a clear acknowledgment; the concurrent findings of the NCLT and NCLAT were upheld. (¶¶ 10, 10.1)
- An acknowledgment need not be a promise to pay or specify the exact liability, but must relate to a present subsisting liability and show a debtor-creditor relationship, which may be inferred. A one-time settlement offer on a live claim made within limitation, and not without prejudice, is such an acknowledgment. (¶¶ 11, 11.1, 12)
Result
Appeal dismissed; admission of the Section 7 application and initiation of CIRP upheld. No costs.