# ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v. BISHAL JAISWAL & ANR

- **Citation:** [2021] 3 S.C.R. 524
- **Court:** Supreme Court of India
- **Decided:** 2021-04-15
- **Case number:** Civil Appeal No. 323 of 2021
- **Bench:** Rohinton Fali Nariman, B. R. Gavai, Hrishikesh Roy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/asset-reconstruction-company-india-limited-v-bishal-jaiswal-anr-35011
- **Pages:** 52

## Headnote

Insolvency and Bankruptcy Code, 2016 - s.7 - Some original
lenders of the corporate debtor, assigned the debts owed to them by
the corporate debtor to the appellant - Appellant took actual
physical possession of project assets of the corporate debtor under
the SARFAESI Act and filed application u/s.7 of IBC before the
National Company Law Tribunal (NCLT) for default from the
corporate debtor - As the relevant form indicating the date of default
did not indicate any such date, this was subsequently made up by
the appellant by filing a supplementary affidavit before the NCLT,
specifically mentioning the date of default and annexing copies of
balance sheets of the corporate debtor, which, according to the
appellant, acknowledged periodically the debt that was due - NCLT
admitted the s.7 application, observing that balance sheets of the
corporate debtor, wherein it acknowledged its liability, were signed
before expiry of three years from the date of default, and entries in
such balance sheets being acknowledgements of the debt due for
purposes of s.18 of the Limitation Act, the s.7 application was not
barred by limitation - Whether entries in balance sheets of a
corporate debtor would amount to acknowledgement of debt for
purpose of extending limitation u/s.18 of the Limitation Act - Held:
An entry made in the books of accounts, including the balance sheet,
can amount to an acknowledgement of liability within the meaning
of s.18 of the Limitation Act - Though the filing of a balance sheet
is by compulsion of law, the acknowledgement of a debt is not
necessarily so - Provisions of the Companies Act show that filing
of a balance sheet in accordance with the provisions of the
Companies Act is mandatory, any transgression of the same being
punishable by law - However, what is of importance is that notes
that are annexed to or forming part of such financial statements
are expressly recognised by s.134(7) - Equally, the auditor's report
[2021] 3 S.C.R. 524
524
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may also enter caveats with regard to acknowledgements made in
the books of accounts including the balance sheet - Thus, there is
a compulsion in law to prepare a balance sheet but no compulsion
to make any particular admission, as it would depend on the facts
of each case as to whether an entry made in a balance sheet qua
any particular creditor is unequivocal or has been entered into with
caveats, which then has to be examined on a case by case basis to
establish whether an acknowledgement of liability has, in fact, been
made, thereby extending limitation u/s.18 of the Limitation Act -
Limitation Act, 1963 - s.18 - Companies Act, 2013 - ss.2(40), 90,
128, 129, 134 and 137 - Securitisation and Reconstruction of
Financial Assets and Enforcement of Securities Interest Act, 2002.
Insolvency and Bankruptcy Code, 2016 - s.238A - Whether
s.18 of the Limitation Act, which extends the period of limitation
depending upon an acknowledgement of debt made in writing and
signed by the corporate debtor, is also applicable under s.238A,
given the expression "as far as may be" governing the applicability
of the Limitation Act to the IBC - Held: The aforesaid question is no
longer res integra as two recent judgments of this Court have applied
the provisions of s.14 and s.18 of the Limitation Act to the IBC -
Limitation Act, 1963 - s.18.
Limitation Act, 1963 - s.9 - Principle of s.9 of the Limitation
Act is to be strictly adhered to, namely, that when time begins to
run, it cannot be halted, except by a process known to law.
Precedents - Binding precedent - Rule of stare decisis - Every
argumentative novelty does not undo a settled position of law -
Constitution of India - Art. 141.
Disposing of the matters, the Court
HELD: 1. Several judgments of this Court have indicated
that an entry made in the books of accounts, including the balance
sheet, can amount to an acknowledgement of liability within the
meaning of Section 18 of the Limitation Act, 1963. [Para 14][541F-G]
2. An e

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ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED
v.
BISHAL JAISWAL & ANR.
(Civil Appeal No. 323 of 2021)
APRIL 15, 2021
[ROHINTON FALI NARIMAN, B. R. GAVAI AND
HRISHIKESH ROY, JJ.]
Insolvency and Bankruptcy Code, 2016 - s.7 - Some original
lenders of the corporate debtor, assigned the debts owed to them by
the corporate debtor to the appellant - Appellant took actual
physical possession of project assets of the corporate debtor under
the SARFAESI Act and filed application u/s.7 of IBC before the
National Company Law Tribunal (NCLT) for default from the
corporate debtor - As the relevant form indicating the date of default
did not indicate any such date, this was subsequently made up by
the appellant by filing a supplementary affidavit before the NCLT,
specifically mentioning the date of default and annexing copies of
balance sheets of the corporate debtor, which, according to the
appellant, acknowledged periodically the debt that was due - NCLT
admitted the s.7 application, observing that balance sheets of the
corporate debtor, wherein it acknowledged its liability, were signed
before expiry of three years from the date of default, and entries in
such balance sheets being acknowledgements of the debt due for
purposes of s.18 of the Limitation Act, the s.7 application was not
barred by limitation - Whether entries in balance sheets of a
corporate debtor would amount to acknowledgement of debt for
purpose of extending limitation u/s.18 of the Limitation Act - Held:
An entry made in the books of accounts, including the balance sheet,
can amount to an acknowledgement of liability within the meaning
of s.18 of the Limitation Act - Though the filing of a balance sheet
is by compulsion of law, the acknowledgement of a debt is not
necessarily so - Provisions of the Companies Act show that filing
of a balance sheet in accordance with the provisions of the
Companies Act is mandatory, any transgression of the same being
punishable by law - However, what is of importance is that notes
that are annexed to or forming part of such financial statements
are expressly recognised by s.134(7) - Equally, the auditor's report
[2021] 3 S.C.R. 524
524
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may also enter caveats with regard to acknowledgements made in
the books of accounts including the balance sheet - Thus, there is
a compulsion in law to prepare a balance sheet but no compulsion
to make any particular admission, as it would depend on the facts
of each case as to whether an entry made in a balance sheet qua
any particular creditor is unequivocal or has been entered into with
caveats, which then has to be examined on a case by case basis to
establish whether an acknowledgement of liability has, in fact, been
made, thereby extending limitation u/s.18 of the Limitation Act -
Limitation Act, 1963 - s.18 - Companies Act, 2013 - ss.2(40), 90,
128, 129, 134 and 137 - Securitisation and Reconstruction of
Financial Assets and Enforcement of Securities Interest Act, 2002.
Insolvency and Bankruptcy Code, 2016 - s.238A - Whether
s.18 of the Limitation Act, which extends the period of limitation
depending upon an acknowledgement of debt made in writing and
signed by the corporate debtor, is also applicable under s.238A,
given the expression "as far as may be" governing the applicability
of the Limitation Act to the IBC - Held: The aforesaid question is no
longer res integra as two recent judgments of this Court have applied
the provisions of s.14 and s.18 of the Limitation Act to the IBC -
Limitation Act, 1963 - s.18.
Limitation Act, 1963 - s.9 - Principle of s.9 of the Limitation
Act is to be strictly adhered to, namely, that when time begins to
run, it cannot be halted, except by a process known to law.
Precedents - Binding precedent - Rule of stare decisis - Every
argumentative novelty does not undo a settled position of law -
Constitution of India - Art. 141.
Disposing of the matters, the Court
HELD: 1. Several judgments of this Court have indicated
that an entry made in the books of accounts, including the balance
sheet, can amount to an acknowledgement of liability within the
meaning of Section 18 of the Limitation Act, 1963. [Para 14][541F-G]
2. An exhaustive judgment of the Calcutta High Court in
Bengal Silk Mills Co. case held that an acknowledgement of
liability that is made in a balance sheet can amount to an
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acknowledgement of debt. Importantly, this judgment holds that
though the filing of a balance sheet is by compulsion of law, the
acknowledgement of a debt is not necessarily so. In fact, it is not
uncommon to have an entry in a balance sheet with notes annexed
to or forming part of such balance sheet, or in the auditor's report,
which must be read along with the balance sheet, indicating that
such entry would not amount to an acknowledgement of debt for
reasons given in the said note. [Para 16][543-E-F; 547-B-C]
3. The position under the Companies Act, 2013 qua any
compulsion of law for filing of balance sheets and
acknowledgements made therein needs to be examined. Section
2(40) of the Companies Act, 2013 defines financial statement.
Under Section 92, every company is to prepare an annual return
containing certain particulars. Vide Section 128, every company
shall prepare and keep at its registered office, books of accounts
and financial statements for every financial year. Section 129 refers
directly to financial statements. Likewise, under Section 134,
financial statements are to be approved by the Board of Directors
before they are signed, and the auditor's report, as well as a report
by the Board of Directors, is to be attached to each financial
statement. Under Section 137, copies of financial statements are
then to be filed with the Registrar of Companies. A perusal of the
aforesaid Sections would show that there is no doubt that the
filing of a balance sheet in accordance with the provisions of the
Companies Act is mandatory, any transgression of the same being
punishable by law. However, what is of importance is that notes
that are annexed to or forming part of such financial statements
are expressly recognised by Section 134(7). Equally, the auditor's
report may also enter caveats with regard to acknowledgements
made in the books of accounts including the balance sheet. A
perusal of the aforesaid would show that the statement of law
contained in Bengal Silk Mills, that there is a compulsion in law
to prepare a balance sheet but no compulsion to make any
particular admission, is correct in law as it would depend on the
facts of each case as to whether an entry made in a balance sheet
qua any particular creditor is unequivocal or has been entered
into with caveats, which then has to be examined on a case by
case basis to establish whether an acknowledgement of liability
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has, in fact, been made, thereby extending limitation under Section
18 of the Limitation Act. [Paras 21, 22][550-F-G; 551-C-D; 553B-C, G; 555-D-G; 557-A-B; 558-G-H; 559-A-C]
V. Padmakumar v. Stressed Assets Stabilisation Fund,
Company Appeal (AT) (Insolvency) No. 57 of 2020
(Majority judgment of Full Bench of NCLAT decided
on 12.03.2020) - overruled.
Jignesh Shah v. Union of India, (2019) 10 SCC 750
: [2019] 12 SCR 678; Sesh Nath Singh v. Baidyabati
Sheoraphuli Co-operative Bank Ltd., 2021 (4)
 SCALE 499; Laxmi Pat Surana v. Union Bank of India,
 2021 (5) SCALE 20; Babulal Vardharji Gurjar v. Veer
Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC
1; Ambika Prasad Mishra v. State of U.P., (1980) 3 SCC
719 : [1980] 3 SCR 1159; Khan Bahadur Shapoor
Fredoom Mazda v. Durga Prasad, [1962] 1 SCR 140;
Mahabir Cold Storage v. CIT, (1991) 1 Suppl. SCC 402
: [1990] 3 Suppl. SCR 469; A.V. Murthy v. B.S.
Nagabasavanna, (2002) 2 SCC 642 : [2002] 1 SCR
906; and S. Natarajan v. Sama Dharman, 2014 (9)
SCALE 3 - relied on.
Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff,
(1961) SCC OnLine Cal 128 : AIR 1962 Cal 115;
South Asia Industries (P) Ltd. v. General Krishna
Shamsher Jung Bahadur Rana, (1972) SCC OnLine
Del 185 : ILR (1972) 2 Del 712; Pandam Tea Co. Ltd.,
In re, 1973 SCC OnLine Cal 93 : AIR 1974 Cal 170;
Hegde & Golay Limited v. State Bank of India, (1985)
SCC OnLine Kar 428 : ILR 1987 Kar 2673; Bhajan
Singh Samra v. M/s. Wimpy International Ltd., (2011)
SCC OnLine Del 4888 : (2011) 185 DLT 428; CIT-III
v. Shri Vardhman Overseas Ltd., (2011) SCC OnLine
Del 5599 : (2012) 343 ITR 408; Shahi Exports Pvt.
Ltd. v. CMD Buildtech Pvt. Ltd., (2013) SCC OnLine
Del 2535 : (2013) 202 DLT 735; N.S. Atwal v. Jindal
Steel and Power Ltd., (2013) SCC OnLine Del 3902;
M/s. Al-Ameen Limited v. K. P. Sethumadhavan, (2017)
SCC 50 OnLine Ker 11337: (2017) 4 KLJ 80; Zest
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR.
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Systems Pvt. Ltd. v. Center for Vocational and
Entrepreneurship Studies, (2018) SCC OnLine Del
12116; and Agni Aviation Consultants v. State of
Telangana, (2020) SCC OnLine TS 1462 : (2020) 5
ALD 561- approved.
Kashinath Sankarappa v. New Akot Cotton Ginning &
Pressing Co. Ltd., (1949) SCC OnLine MP 123;
Kashinath Sankarappa Wani v. New Akot Cotton
Ginning and Pressing Co. Ltd., [1958] SCR 1331;
Vijayalakshmi v. Hari Hara Ginning and Pressing,
Nandigaon, OS A No.40 of 1998 (decided by Andhra
Pradesh High Court on 03.03.1999); Ajit Chandra
Bagchi v. Harishpur Tea Company (P.) Ltd., (1990) SCC
OnLine Gau 24 : AIR 1991 Gau 92; Vashdeo R.
Bhojwani v. Abhyudaya Coop. Bank Ltd., (2019) 9 SCC
158 : [2019] 12 SCR 75; B. K. Educational Services
(P) Ltd. v. Parag Gupta & Associates, (2019) 11 SCC
633 : [2018] 12 SCR 794; Sagar Sharma v. Phoenix
Arc (P) Ltd., (2019) 10 SCC 353; and Kamlesh Babu v.
Lajpat Rai Sharma, (2008) 12 SCC 577 - referred to.
Case Law Reference
[2019] 12 SCR 678
relied on
Para 6
2021 (4) SCALE 499
relied on
Para 8
2021 (5) SCALE 20
relied on
Para 9
(2020) 15 SCC 1
relied on
Para 9
[1980] 3 SCR 1159
relied on
Para 10
[1962] 1 SCR 140
relied on
Para 12
[1990] 3 Suppl. SCR 469
relied on
Para 14
[2002] 1 SCR 906
relied on
Para 15
2014 (9) SCALE 3
relied on
Para 15
[1958] SCR 1331
referred to
Para 18
[2019] 12 SCR 75
referred to
Page 55, Para 1
[2018] 12 SCR 794
referred to
Page 57, Para 1
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(2019) 10 SCC 353
referred to
Page 57, Para 1
(2008) 12 SCC 577
referred to
Page 62, Para 3
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 323 of
2021.
From the Judgment and Order dated 22.12.2020 of the National
Company Law Appellate Tribunal in Company Appeal (AT) Insolvency
No. 385 of 2020.
With
Civil Appeal Nos. 3228, 3765 of 2020, Civil Appeal No. 3 of 2021,
SLP (C) No.1168 of 2021.
Mukul Rohtagi, Shyam Divan, Ramji Srinivasan, Saurabh Kirpal,
C.A. Sundaram, Sr. Advs., Sidhartha Barua, Ms. Adity Gupta,
Ms. Jasmine Damkewala, Praful Jindal, Ms. Ritika, Ms. Vaishali Sharma,
Dinesh Chander Trehan, Sanjay Kapur, V M Kannan, Ms. Megha
Karnwal, Arjun Bhatia, Sanjay Bhatt, Sumit Nagpal, Ms. Akansha
Srivastava, Rabin Majumder, Abhirup Dasgupta, Ishaan Duggal,
Ms. Bhavna Sharma, Ms. Rajshree Chaudhary, Mohit D. Ram, Mayank
Jain, Parmatma Singh, Madhur Jain, Abhijeet Sinha, Ms. Rohini Musa,
Zafar Inayat, Aditya Shukla, Ms. Pallavi Pratap, Sriram P, Jayesh B.
Dolia, R.V. Prabhat, Abhijeet Sinha, Sandeep Bajaj, Soayib Qureshi,
Devansh Jain, Aditya Shukla, Ajay Sharma, Sanjeev Kumar, Anshul
Sehgal, Faisal Sherwani, Advs. for the appearing Parties.
The Judgment of the Court was delivered by
R. F. NARIMAN, J.
Civil Appeal No.323 of 2021
1. In 2009, Corporate Power Ltd. ["the corporate debtor"] set
up a thermal power project in Jharkhand, and for so doing, availed of
loan facilities from various lenders, including the State Bank of India
["SBI"]. The account of the corporate debtor was declared as a nonperforming asset by SBI on 31.07.2013. On 27.03.2015, SBI issued a
loan-recall notice to the corporate debtor in its capacity as the lenders'
agent. On 31.03.2015, some of the original lenders of the corporate debtor,
namely, India Infrastructure Finance Company Limited, SBI, State Bank
of Hyderabad, State Bank of Bikaner and Jaipur, State Bank of Patiala,
and State Bank of Travancore assigned the debts owed to them by the
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
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corporate debtor to the appellant, the Asset Reconstruction Company
(India) Limited. On 20.06.2015, the appellant issued a notice under
Section 13(2) of the Securitisation and Reconstruction of Financial Assets
and Enforcement of Securities Interest Act, 2002 ["SARFAESI Act"]
on behalf of itself and other consortium lenders to the corporate debtor.
On 01.06.2016, the appellant took actual physical possession of the project
assets of the corporate debtor under the SARFAESI Act. On 26.12.2018,
the appellant filed an application under Section 7 of the Insolvency and
Bankruptcy Code, 2016 ["IBC"] before the National Company Law
Tribunal, Calcutta ["NCLT"] for a default amounting to
Rs.5997,80,02,973/- from the corporate debtor. As the relevant form
indicating the date of default did not indicate any such date, this was
made up by the appellant on 08.11.2019 by filing a supplementary affidavit
before the NCLT, specifically mentioning the date of default and annexing
copies of balance sheets of the corporate debtor, which, according to
the appellant, acknowledged periodically the debt that was due. On
19.02.2020, the Section 7 application was admitted by the NCLT,
observing that the balance sheets of the corporate debtor, wherein it
acknowledged its liability, were signed before the expiry of three years
from the date of default, and entries in such balance sheets being
acknowledgements of the debt due for the purposes of Section 18 of the
Limitation Act, 1963 ["LimitationAct"], the Section 7 application is not
barred by limitation. In an appeal filed to the National Company Law
Appellate Tribunal ["NCLAT"], the corporate debtor relied upon the
Full Bench judgment of the NCLAT in V. Padmakumar v. Stressed
Assets Stabilisation Fund, Company Appeal (AT) (Insolvency) No.
57 of 2020 (decided on 12.03.2020) ["V. Padmakumar"], in which a
majority of four members [Justice (Retd.) A.I.S. Cheema, Member
(Judicial), dissenting] held that entries in balance sheets would not amount
to acknowledgement of debt for the purpose of extending limitation under
Section 18 of the Limitation Act. After a preliminary hearing, a threeMember Bench passed an order on 25.09.2020 doubting the correctness
of the majority judgment of the Full Bench and referred the matter to the
Acting Chairman of the NCLAT to constitute a Bench of coordinate
strength to reconsider the judgment in V. Padmakumar (supra).
2. A five-Member Bench of the NCLAT, vide the impugned
judgment dated 22.12.2020, refused to adjudicate the question referred,
stating that the reference to the Bench was itself incompetent.
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3. Shri Ramji Srinivasan, learned Senior Advocate appearing on
behalf of the appellant, has assailed the impugned judgment, arguing that
the majority judgment of the Full Bench of the NCLAT in
V. Padmakumar (supra) was clearly per incuriam as it has not
considered various binding judgments of this Court and that the said
judgment was wholly incorrect in rejecting the reference out of hand at
a preliminary stage. For this purpose, he referred to a number of judgments
of this Court in which it has been made clear that vide Section 238A of
the IBC, Section 18 of the Limitation Act is applicable to a proceeding
under Section 7 of the IBC. Also, according to the learned Senior
Advocate, the judgments of the High Courts and the judgments of this
Court have expressly held that entries made in signed balance sheets of
the corporate debtor would amount to acknowledgements of liability and
have, therefore, correctly been relied upon by the NCLT on the facts of
this case. He argued, relying upon certain judgments, that the reference
made to the five-Member Bench by the three-Member Bench was
perfectly in order and ought to have been answered on merits. He also
argued that the constitution of the five-Member Bench which passed
the impugned judgment was not in order as three out of the five members
of the said Bench were members who assented with the majority opinion
in V. Padmakumar (supra), the dissentient member not being made
part of the Bench so formed. This, according to him, was contrary to the
principles of natural justice. He also argued that the fact that a balance
sheet has to be filed under compulsion of law does not mean that an
acknowledgement of debt has also to be made under compulsion of law,
and for this purpose, he referred to two High Court judgments.
4. Refuting the aforesaid submissions, Shri Abhijeet Sinha, learned
Advocate appearing on behalf of the Respondents, argued that the
Explanation to Section 7, read with the definition of "default" contained
in Section 3(12) of the IBC, would preclude the application of Section 18
of the Limitation Act inasmuch as a default in respect of a financial debt
would include a financial debt owed not only to the applicant-financial
creditor, but to all other financial creditors of the corporate debtor. He
then referred to the rationale for enacting Section 238A by referring to
the Insolvency Committee Report which introduced the aforesaid Section
and strongly relied upon the fact that in all these cases, recovery
proceedings were ongoing before the Debt Recovery Tribunal and/or
the appellate authority under the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 ["Recovery of Debts Act"] and that,
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by not applying Section 18 of the Limitation Act to the IBC, recoveries
will not be thwarted. He also added that the main plank of the submission
of the appellant was that a huge sum of Rs.12,000 crore would otherwise
go down the drain if acknowledgements in balance sheets were not to
be looked at, and stressed the fact that this would be relevant only in
recovery proceedings and not in proceedings before the IBC, which are
not meant to be recovery proceedings at all, as has been held in several
judgments of this Court. He then relied upon two High Court judgments,
from the Andhra Pradesh High Court and Gauhati High Court, to buttress
his submission that via Section 18 of the Limitation Act, entries made in
balance sheets do not amount to acknowledgement of debt. He also
stressed the fact that no date of default has been mentioned in the original
form that was submitted with the Section 7 application, and that this
would, therefore, be a non-curable defect, on account of which the
Section 7 application should have been dismissed at the threshold. He
then took us to various judgments of this Court which made it clear that
if a period of three years had elapsed from the date of declaration of the
account of a corporate debtor as a non-performing asset, the claim filed
by a creditor is a dead claim which cannot be resurrected having recourse
to Section 18 of the Limitation Act. Finally, he argued that the balance
sheets in the present case did not amount to acknowledgement of liability
inasmuch as the auditor's report, which must be read along with the
balance sheets, would make it clear that there was no unequivocal
acknowledgement of debt, but that caveats had been entered by way of
notes in the auditor's report.
5. After hearing counsel for both sides, it is important to first advert
to the rationale for the enactment of Section 238A of the IBC, which
was enacted by way of the Insolvency and Bankruptcy Code (Second
Amendment) Act, 2018 w.e.f. 06.06.2018. Section 238A of IBC reads
as follows:
"238A. Limitation.-The provisions of the Limitation Act, 1963
(36 of 1963) shall, as far as may be, apply to the proceedings or
appeals before the Adjudicating Authority, the National Company
Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt
Recovery Appellate Tribunal, as the case may be."
6. In Jignesh Shah v. Union of India, (2019) 10 SCC 750, this
Court referred to the Report of the Insolvency Law Committee of March,
2018, which led to the introduction of Section 238A, as follows:
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"8. In para 7 of the said judgment [B.K. Educational Services
(P) Ltd. v. Parag Gupta and Associates, (2019) 11 SCC 633],
the Report of the Insolvency Law Committee of March 2018 was
referred to as follows: ([B.K. Educational Services (P)
Ltd. v. Parag Gupta and Associates, (2019) 11 SCC 633], SCC
pp. 644-45, para 11)
"11. Having heard the learned counsel for both sides, it is
important to first set out the reason for the introduction of
Section 238-A into the Code. This is to be found in the Report
of the Insolvency Law Committee of March 2018, as follows:
'28. Application of Limitation Act, 1963
28.1. The question of applicability of the Limitation
Act, 1963 ("the Limitation Act") to the Code has been
deliberated upon in several judgments of NCLT and NCLAT.
The existing jurisprudence on this subject indicates that if a
law is a complete code, then an express or necessary
exclusion of the Limitation Act should be respected. [Ravula
Subba Rao v. CIT, AIR 1956 SC 604] In light of the
confusion in this regard, the Committee deliberated on
the issue and unanimously agreed that the intent of the
Code could not have been to give a new lease of life to
debts which are time-barred. It is settled law that when a
debt is barred by time, the right to a remedy is time-barred.
[Punjab National Bank v. Surendra Prasad Sinha, 1993
Supp (1) SCC 499 : 1993 SCC (Cri) 149] This requires
being read with the definition of "debt" and "claim" in the
Code. Further, debts in winding-up proceedings cannot be
time-barred [Interactive Media and Communication
Solution (P) Ltd. v. GO Airlines Ltd., 2013 SCC OnLine
Del 445 : (2013) 199 DLT 267] , and there appears to be no
rationale to exclude the extension of this principle of law to
the Code.
28.2. Further, non-application of the law on limitation
creates the following problems: first, it re-opens the right of
financial and operational creditors holding time-barred debts
under the Limitation Act to file for CIRP, the trigger for
which is default on a debt above INR one lakh. The purpose
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of the law of limitation is 'to prevent disturbance or
deprivation of what may have been acquired in equity
and justice by long enjoyment or what may have been
lost by a party's own inaction, negligence or laches'
[Rajender Singh v. Santa Singh, (1973) 2 SCC 705].
Though the Code is not a debt recovery law, the trigger
being "default in payment of debt" renders the exclusion of
the law of limitation counter-intuitive. Second, it re-opens
the right of claimants (pursuant to issuance of a public
notice) to file time-barred claims with the IRP/RP, which
may potentially be a part of the resolution plan. Such a
resolution plan restructuring time-barred debts and claims
may not be in compliance with the existing laws for the
time being in force as per Section 30(4) of the Code.
28.3. Given that the intent was not to package the
Code as a fresh opportunity for creditors and claimants
who did not exercise their remedy under existing laws
within the prescribed limitation period, the Committee
thought it fit to insert a specific section applying the
Limitation Act to the Code. The relevant entry under the
Limitation Act may be on a case-to-case basis. It was further
noted that the Limitation Act may not apply to applications
of corporate applicants, as these are initiated by the
applicant for its own debts for the purpose of CIRP and are
not in the form of a creditor's remedy.'"
(emphasis in original)
A perusal of the above would show that considering that the
Limitation Act applies only to courts, unless made statutorily applicable
to tribunals, the Committee was of the view that such Act should be
made to apply to the IBC as well, observing that though the IBC is not a
debt recovery law, the trigger being "default in payment of debt" would
render the exclusion of the law of limitation "counter-intuitive". Thus, it
was made clear that an application to the IBC should not amount to
resurrection of time-barred debts which, in any other forum, would have
been dismissed on the ground of limitation.
7. From the above, it is clear that the principle of Section 9 of the
Limitation Act is to be strictly adhered to, namely, that when time begins
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to run, it cannot be halted, except by a process known to law. One
question that arises before this Court is whether Section 18 of the
Limitation Act, which extends the period of limitation depending upon an
acknowledgement of debt made in writing and signed by the corporate
debtor, is also applicable under Section 238A, given the expression "as
far as may be" governing the applicability of the Limitation Act to the
IBC.
8. The aforesaid question is no longer res integra as two recent
judgments of this Court have applied the provisions of Section 14 and
Section 18 of the Limitation Act to the IBC. Thus, in Sesh Nath Singh
v. Baidyabati Sheoraphuli Co-operative Bank Ltd., Civil Appeal
No. 9198 of 2019 (decided on 22.03.2021), after setting out the issues
that arose in that case in paragraph 57, and after referring to Section
238A of IBC, held:
"66. Similarly under Section 18 of the Limitation Act, an
acknowledgement of present subsisting liability, made in writing
in respect of any right claimed by the opposite party and signed
by the party against whom the right is claimed, has the effect of
commencing of a fresh period of limitation, from the date on which
the acknowledgement is signed. However, the acknowledgement
must be made before the period of limitation expires.
67. As observed above, Section 238A of the IBC makes the
provisions of the Limitation Act, as far as may be, applicable to
proceedings before the NCLT and the NCLAT. The IBC does
not exclude the application of Section 6 or 14 or 18 or any other
provision of the Limitation Act to proceedings under the IBC in
the NCLT/NCLAT. All the provisions of the Limitation Act are
applicable to proceedings in the NCLT/NCLAT, to the extent
feasible.
68. We see no reason why Section 14 or 18 of the Limitation Act,
1963 should not apply to proceeding under Section 7 or Section 9
of the IBC. Of course, Section 18 of the Limitation Act is not
attracted in this case, since the impugned order of the NCLAT
does not proceed on the basis of any acknowledgement."
9. Nearer home, in Laxmi Pat Surana v. Union Bank of India,
Civil Appeal No. 2734 of 2020, a judgment delivered on 26.03.2021, this
Court, after referring to various judgments of this Court, including the
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
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judgment in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium
Industries (P) Ltd., (2020) 15 SCC 1 ["Babulal"], then held:
"35. The purport of such observation has been dealt with in the
case of Babulal Vardharji Gurjar (II) [Babulal Vardharji
Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020)
15 SCC 1]. Suffice it to observe that this Court had not ruled out
the application of Section 18 of the Limitation Act to the
proceedings under the Code, if the fact situation of the case so
warrants. Considering that the purport of Section 238A of the
Code, as enacted, is clarificatory in nature and being a procedural
law had been given retrospective effect; which included application
of the provisions of the Limitation Act on case-to-case basis.
Indeed, the purport of amendment in the Code was not to reopen
or revive the time barred debts under the Limitation Act. At the
same time, accrual of fresh period of limitation in terms of Section
18 of the Limitation Act is on its own under that Act. It will not be
a case of giving new lease to time barred debts under the existing
law (Limitation Act) as such.
36. Notably, the provisions of Limitation Act have been made
applicable to the proceedings under the Code, as far as may be
applicable. For, Section 238A predicates that the provisions of
Limitation Act shall, as far as may be, apply to the proceedings or
appeals before the Adjudicating Authority, the NCLAT, the DRT
or the Debt Recovery Appellate Tribunal, as the case may be.
After enactment of Section 238A of the Code on 06.06.2018,
validity whereof has been upheld by this Court, it is not open to
contend that the limitation for filing application under Section 7 of
the Code would be limited to Article 137 of the Limitation Act and
extension of prescribed period in certain cases could be only under
Section 5 of the Limitation Act. There is no reason to exclude the
effect of Section 18 of the Limitation Act to the proceedings
initiated under the Code. Section 18 of the Limitation Act reads
thus:
"18. Effect of acknowledgement in writing.-(1) Where,
before the expiration of the prescribed period for a suit or
application in respect of any property or right, an
acknowledgement of liability in respect of such property or
right has been made in writing signed by the party against whom
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such property or right is claimed, or by any person through
whom he derives his title or liability, a fresh period of limitation
shall be computed from the time when the acknowledgement
was so signed.
(2) Where the writing containing the acknowledgement is
undated, oral evidence may be given of the time when it was
signed; but subject to the provisions of the Indian Evidence
Act, 1872 (1 of 1872), oral evidence of its contents shall not be
received.
Explanation.-For the purposes of this section,-
(a) an acknowledgement may be sufficient though it omits to
specify the exact nature of the property or right, or avers
that the time for payment, delivery, performance or
enjoyment has not yet come or is accompanied by a refusal
to pay, deliver, perform or permit to enjoy, or is coupled
with a claim to set off, or is addressed to a person other
than a person entitled to the property or right;
(b) the word "signed" means signed either personally or by an
agent duly authorised in this behalf; and
(c) an application for the execution of a decree or order shall
not be deemed to be an application in respect of any
property or right."
37. Ordinarily, upon declaration of the loan account/debt as NPA
that date can be reckoned as the date of default to enable the
financial creditor to initiate action under Section 7 of the Code.
However, Section 7 comes into play when the corporate debtor
commits "default". Section 7, consciously uses the expression
"default" - not the date of notifying the loan account of the
corporate person as NPA. Further, the expression "default" has
been defined in Section 3(12) to mean non-payment of "debt"
when whole or any part or instalment of the amount of debt has
become due and payable and is not paid by the debtor or the
corporate debtor, as the case may be. In cases where the corporate
person had offered guarantee in respect of loan transaction, the
right of the financial creditor to initiate action against such entity
being a corporate debtor (corporate guarantor), would get
triggered the moment the principal borrower commits default due
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
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to non-payment of debt. Thus, when the principal borrower and/
or the (corporate) guarantor admit and acknowledge their liability
after declaration of NPA but before the expiration of three years
therefrom including the fresh period of limitation due to
(successive) acknowledgements, it is not possible to extricate them
from the renewed limitation accruing due to the effect of Section
18 of the Limitation Act. Section 18 of the Limitation Act gets
attracted the moment acknowledgement in writing signed by the
party against whom such right to initiate resolution process under
Section 7 of the Code enures. Section 18 of the Limitation Act
would come into play every time when the principal borrower
and/or the corporate guarantor (corporate debtor), as the case
may be, acknowledge their liability to pay the debt. Such
acknowledgement, however, must be before the expiration of the
prescribed period of limitation including the fresh period of limitation
due to acknowledgement of the debt, from time to time, for
institution of the proceedings under Section 7 of the Code. Further,
the acknowledgement must be of a liability in respect of which
the financial creditor can initiate action under Section 7 of the
Code."
10. Given the aforesaid, it is not possible to accede to the arguments
made by Shri Sinha that Section 18 of the Limitation Act cannot be
made applicable by reason of the arguments put forth by him. As has
been held in Ambika Prasad Mishra v. State of U.P., (1980) 3 SCC
719, every argumentative novelty does not undo a settled position of
law. Krishna Iyer, J., speaking for a Bench of five learned Judges, stated
thus:
"5. ... But, after listening to the Marathon erudition from eminent
counsel, a 13-Judge Bench of this Court upheld the vires of Article
31-A in unequivocal terms. That decision binds, on the simple
score of stare decisis and the constitutional ground of Article 141.
Every new discovery or argumentative novelty cannot undo or
compel reconsideration of a binding precedent. In this view, other
submissions sparkling with creative ingenuity and presented with
high pressure advocacy, cannot persuade us to reopen what was
laid down for the guidance of the nation as a solemn proposition
by the epic Fundamental Rights case [(1973) 4 SCC 225 : 1973
Supp SCR 1]. From Kameshwar Singh [AIR 1952 SC 252 : 1952
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SCR 889 : 1952 SCJ 354] (1952) and Golak Nath [I.C. Golak
Nath v. State of Punjab, AIR 1967 SC 1643 : (1967) 2 SCR 762
: (1967) 2 SCJ 486] (1967) through Kesavananda [(1973) 4 SCC
225 : 1973 Supp SCR 1] (1973) and Kanan Devan [Kanan Devan
Hills Produce Co. Ltd. v. State of Kerala, (1973) 1 SCR 356 :
(1972) 2 SCC 218 : AIR 1972 SC 2301] (1972) to Gwalior Rayons
[State of Kerala v. Gwalior Rayon Silk Mfg. (Wvg). Co.
Ltd.(1973) 2 SCC 713 : (1974) 1 SCR 671] (1976) and after Article
31-A has stood judicial scrutiny although, as stated earlier, we do
not base the conclusion on Article 31-A. Even so, it is fundamental
that the nation's Constitution is not kept in constant uncertainty by
judicial review every season because it paralyses, by perennial
suspense, all legislative and administrative action on vital issues
deterred by the brooding threat of forensic blow up. This, if
permitted, may well be a kind of judicial destabilisation of State
action too dangerous to be indulged in save where national crisis
of great moment to the life, liberty and safety of this country and
its millions are at stake, or the basic direction of the nation itself is
in peril of a shake-up. It is surely wrong to prove Justice Roberts
of the United States Supreme Court right when he said:
[Smith v. Allwright, 321 US 649, 669, 670 (1944)]
"The reason for my concern is that the instant decision,
overruling that announced about nine years ago, tends to bring
adjudications of this tribunal into the same class as a restricted
railroad ticket good for this day and train only.... It is regrettable
that in an era marked by doubt and confusion, an era whose
greatest need is steadfastness of thought and purpose, this Court
which has been looked to as exhibiting consistency in
adjudication, and a steadiness which would hold the balance
even in the face of temporary ebbs and flows of opinion, should
now itself become the breeder of fresh doubt and confusion in
the public mind as to the stability of our institutions."
(emphasis supplied)
11. Section 18 of the Limitation Act reads as follows:
"18. Effect of acknowledgement in writing.-(1) Where,
before the expiration of the prescribed period for a suit or
application in respect of any property or right, an acknowledgement
ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v.
BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]
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of liability in respect of such property or right has been made in
writing signed by the party against whom such property or right is
claimed, or by any person through whom he derives his title or
liability, a fresh period of limitation shall be computed from the
time when the acknowledgement was so signed.
(2) Where the writing containing the acknowledgement is undated,
oral evidence may be given of the time when it was signed; but
subject to the provisions of the Indian Evidence Act, 1872 (1 of
1872), oral evidence of its contents shall not be received.
Explanation.-For the purposes of this section,-
(a) an acknowledgement may be sufficient though it omits to
specify the exact nature of the property or right, or avers that
the time for payment, delivery, performance or enjoyment has
not yet come or is accompanied by refusal to pay, deliver,
perform or permit to enjoy, or is coupled with a claim to set
off, or is addressed to a person other than a person entitled to
the property or right,
(b) the word "signed" means signed either personally or by an
agent duly authorised in this behalf, and
(c) an application for the execution of a decree or order shall not
be deemed to be an application in respect of any property or
right."
12. In an illuminating discussion on the reach of Section 18 of the
Limitation Act, including the reach of the Explanation to the said Section,
this Court, in Khan Bahadur Shapoor Fredoom Mazda v. Durga
Prasad, (1962) 1 SCR 140 ["Shapoor Fredoom Mazda"], after
referring to Section 19 of the Limitation Act, 1908, which corresponds to
Section 18 of the 1963 Act, held:
"It is thus clear that acknowledgement as prescribed by Section
19 merely renews debt; it does not create a new right of action. It
is a mere acknowledgement of the liability in respect of the right
in question; it need not be accompanied by a promise to pay either
expressly or even by implication. The statement on which a plea
of acknowledgement is based must relate to a present subsisting
liability though the exact nature or the specific character of the
said liability may not be indicated in words. Words used in the
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acknowledgement must, however, indicate the existence of jural
relationship between the parties such as that of debtor and creditor,
and it must appear that the statement is made with the intention to
admit such jural relationship. Such intention can be inferred by
implication from the nature of the admission, and need not be
expressed in words. If the statement is fairly clear then the
intention to admit jural relationship may be implied from it. The
admission in question need not be express but must be made in
circumstances and in words from which the court can reasonably
infer that the person making the admission intended to refer to a
subsisting liability as at the date of the statement. In construing
words used in the statements made in writing on which a plea of
acknowledgement rests oral evidence has been expressly excluded
but surrounding circumstances can always be considered.