Status as on- 17/04/2021
Introduction
The Supreme Court ruled on 15.4.2021 that, under Section 18 of the Limitation Act, balance sheets can be considered as acknowledgment of debt in landmark judgment in [Asset Reconstruction Company (India Limited v. Bishal Jaiswal]. The decision came in response to a petition questioning the validity of an earlier judgement in V Padmakumar v. Stressed Assets Stabilization Fund by a five-member bench of the National Company Law Appellate Tribunal (NCLAT).
Background
The question in V Padmakumar was whether reflecting debt in the books of accounts equates to acknowledgment of debt under Section 18 of the Limitation Act, 1963, and thus extends the limitation period. A five-member bench of the NCLAT had ruled with a 4:1 majority that reflection of debt in the balance sheet could not be considered an admission of debt under Section 18 of the Limitation Act. The majority came to the conclusion that since the filing of a balance sheet is required under Section 92(4) of the Companies Act, 2013, it cannot be considered an acknowledgment under Section 18.
In September 2020, a three-member Bench of Hon’ble NCLAT questioned the correctness of V Padmakumar’s decision in another case and referred the case to a five-member Bench to re-examine V Padmakumar’s correctness. The five-member bench, however, dismissed the case, resulting in the current Supreme Court appeal.
Supreme Court
The Supreme Court ruled that, under Section 18 of the Limitation Act, balance sheets can be considered as acknowledgment of debt, the judgment was delivered by a three-Judge Bench of Justice Rohinton Nariman, BR Gavai and Hrishikseh Roy, the decision came in response to a petition questioning the validity of an earlier judgement in V Padmakumar v. Stressed Assets Stabilization Fund by a five-member bench of the National Company Law Appellate Tribunal (NCLAT).
Conclusion
Finally, Hon’ble Supreme Court ruled that, any amount which is being reflected as debt balance sheet of corporate debtor, can be considered as acknowledgment of debt as held in [Asset Reconstruction Company (India Limited v. Bishal Jaiswal]
Disclaimer – The above article is based on the personal interpretation of the related orders and laws. The readers are expected to take expert opinion before relying upon the article. For more information, please contact us at rera@centrik.in
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