Insolvency-Disclosure Of Debt On Balance Sheet Is Not Acknowledgement Under Section 18 Of The Limitation Act, 1963.

IN THE MATTER OF Invent Assets Securitization and Reconstruction Pvt. Ltd. vs Xylon Electrotechnic Pvt. Ltd.,  the Appellant – Financial Creditor’s application filed under Section 7 of the I&B Code against ‘Xylon Electrotechnic Pvt. Ltd.’ (Corporate Debtor) for having committed default came to be dismissed in terms of the impugned order dated 28th May, 2020 passed by the Adjudicating Authority (National Company Law Tribunal) on the ground that the claim in respect of the ‘financial debt’ was barred by limitation and the Applicant/Appellant had not submitted any proof of continuous acknowledgement of debts by the Corporate Debtor. Aggrieved thereof the Appellant (Financial Creditor) filed the instant appeal assailing the impugned order on the ground that the debt was payable in law as the same had been acknowledged by the ‘Corporate Debtor’ in its balance-sheet of financial years commencing from 2010 to 2016 which for purpose of Section 18 of the Limitation Act amounted to acknowledgement of liability on the part of the Respondent (Corporate Debtor).

The NCLAT however disagreeing with the Appellant referred to the majority judgment of the four Member Bench of NCLAT in V. Padmakumar v. Stressed Assets Stabilitation  Fund (SASF) & Anr. – Company Appeal (AT) (Insolvency) No. 57 of 2020’ decided on 12th March, 2020. In the said judgment the NCLAT had held that 

“In view of the aforesaid findings, agreeing with the decisions aforesaid, at the cost of repetition, we hold:

(i) As the filing of Balance Sheet/ Annual Return being mandatory under Section 92(4) of the Companies Act, 2013, failing of which attracts penal action under Section 92(5) & (6), the Balance Sheet / Annual Return of the ‘Corporate Debtor’ cannot be treated to be an acknowledgement under Section 18 of the Limitation Act, 1963.

(ii) If the argument is accepted that the Balance Sheet / Annual Return of the ‘Corporate Debtor’ amounts to acknowledgement under Section 18 of  the Limitation Act, 1963 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/ Annual Return, which is not the law.”

The NCLAT observed that the law as interpreted in the aforesaid judgment holds the field till date. Therefore, the argument advanced on behalf of the Appellant to find fault with the impugned order on the ground of limitation being extended on account of the financial debt being reflected in the balance-sheet/annual return of the Corporate Debtor for the relevant period has to be repelled.