Mere mentioning of claim in the balance sheets as liability would not amount to a clear admission of debt

Cause Title : MSTC Ltd. v/s. Standard Chartered Bank, Appeal No. 10/2023, Debts Recovery Appellate Tribunal, At Mumbai

Date of Judgment/Order : 07/08/2023

Corum : Mr Justice Ashok Menon, Chairperson

Citied: 

1. Uttam Singh Duggal vs. United Bank of India & Ors. (2000) 7 SCC 120
2. Ultramatrix Systems Pvt. Ltd. Vs. State Bank of India & Ors 2007 (4) Mh. L. J. 847
3. Inteltech Automation Pvt. Ltd. & Ors vs. IndusInd Bank Ltd. & Anr. 2011 (1) Mh. L. J. 935
4. Shantez & Anr. vs. Applause Bhansali Films Pvt. Ltd. Company, Mumbai & Ors. 2009 (4) Mh.L.J. 37
5. Pankaj Unit No. 1 Housing Development Company Pvt. Ltd. & Anr vs. Oshiwara Land Development Company Pvt. Ltd. & Anr. 2014 SCC OnLine Bom 203
6. Microcosm Metal & Energy vs. State Bank of India 2015 SCC OnLine Bom 7896
7. Bareilly Electricity Supply vs. The Workmen & Ors. 1971 (2) SCC 617
8. Assets Reconstruction Company (India) Ltd. vs. Bishal Jaiswal & Anr. (2021) 6 SCC 366

Background

The Respondent Standard Chartered Bank (SCB) had filed before the DRT for recovery of loan with interest under Rule 12 (5) of the Recovery of Debt Due to Banks Act (RDDB). Copies of the said annual reports taken from Defendant’s website were also tendered in support of the application. It was contended that in the Annual Report pertaining to the financial year 2011-2012, Defendant had admitted its liability towards the Applicant to the tune of ₹186,03,00,000/-and has further shown a sum of ₹5,05,00,000/-as contingent liability pending the outcome of the legal proceedings. It was further alleged that in the annual report of the Defendant company pertaining to the financial year 2012-2013, a sum of ₹203,70,00,000/- has been shown as its liability towards the Applicant and also mentions a contingent liability of ₹13,85,00,000/. Similarly, the annual reports of the Defendant company for the year 2013-2014 show the liability towards the Applicant as ₹245,74,00,000/-and the contingent liability is shown as ₹22,70,00,000/-. Likewise, the annual reports of the Defendant company pertaining to the financial years 2014-2015 and 2015-2016 mention a sum of ₹ 222,51,00,000/-as liability. Further, in the independent auditor’s report forming part of the above-mentioned annual reports, it has been expressly admitted that the Defendant company has defaulted in repaying the debts aggregating to ₹142,62,00,000/- due to the Applicant.

The Defendant countered that as there are pending litigations on this issue, as per the prudential norms  and conservative method of accounting followed by the Defendant company, it is mandatory that liabilities must be provided for in the accounts by making adequate disclosure by way of note to the annual accounts of the company whether by way of real or contingent liabilities which are not acknowledged as debts. It is contended that the Applicant has misconstrued the term ‘contingent liability’. It only means liabilities that may be incurred by an entity depending on the outcome of an uncertain future event. What is stated by the Defendant in the annual reports is only that certain monies may be payable by the Defendant to the Applicant in the original application which is pending adjudication before the D.R.T. The same can in no way be construed to mean that the Defendant company has admitted the liability.

Judgment

The DRAT referring to the the above-cited decisions observed that , it is evident that for the statement in the balance sheet to be accepted as admission, it has to be clear, unambiguous and unequivocal. Admission, undoubtedly is the best form of evidence but where a party relies on the admission of the opposite side as evidence, it is essential that the whole admission must be taken into consideration. Any explanation or rider to that admission cannot be ignored.

Setting aside the order of the DRT, the DRT held that in the present case, the Appellant has been disputing the claim of the Respondent Bank on various grounds. The proceedings before the D.R.T. was questioned on the ground of territorial jurisdiction, and also on the ground that the claim under the agreement between the Appellant and the Respondent could not be strictly construed as a ‘debt’ coming within the purview of the RDDB & FI Act. The Appellant had challenged the claim of the Respondent before the civil court at Alipore. 

After having raised all these contentions in challenging the claim of the Respondent, it cannot be said that the mere mentioning of the claim in the balance sheets as liability would amount to an unambiguous, unequivocal or clear admission on the part of the Appellant. The notes accompanying the statements of account has to be read together with the description of the liability highlighted in the balance sheets. When the fact regarding the pendency of litigation before the D.R.T. and the Alipore court is explained in the note attached to the balance sheets, it can definitely be not stated that the admission is unequivocal. There is no such admission in the pleadings of the Appellant. The mentioning of the liability in the balance sheet with a rider that there is litigation pending between the Appellant and the Respondent would clarify that it is not a clear admission on the part of the Appellant. An admission can always be explained by the party making it. In the present case, the explanation follows the purported admission. The explanation for the alleged admission in the balance sheets comes in the form of a notes attached to it. The intention for incorporating a provision to grant a decree on admission is to hasten the disposal of matters where there is no possibility of a contest arising in view of the admission.