# IL & FS Financial Services Limited v. Adhunik Meghalaya Steels Private Limited

- **Citation:** 2025 INSC 911
- **Court:** Supreme Court of India
- **Decided:** 2025-07-30
- **Case number:** Civil Appeal No. 5787 of 2025
- **Bench:** Manoj Misra, K.V. Viswanathan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/il-fs-financial-services-limited-v-adhunik-meghalaya-steels-private-limited-38461
- **Pages:** 28

## Headnote

Whether the Tribunals below were justified in holding that the s.7
application under the IBC filed by the appellant on 15.01.2024 was
barred by time; does the entry in the Balance Sheet of F.Y. 2019-20
constitute a valid acknowledgement of debt by the respondent
u/s.18, Limitation Act, 1963; will Para 5(I) or 5(III) of the order
dated 10.01.2022 passed by the Supreme Court in Suo Moto Writ
Petition No. 3 of 2020 govern the situation.
Headnotes†
Insolvency and Bankruptcy Code, 2016 - ss.7, 238A - Limitation
Act, 1963 - s.18 - Effect of acknowledgment in writing -
Loan Agreement entered into between the appellant and
respondent - Respondent's account was declared as a nonperforming asset on 01.03.2018 - Application u/s.7, IBC filed
by the appellant on 15.01.2024 setting out a default amount of
Rs. 55 crores - Appellant relied on the entries in the Balance
Sheet of F.Y. 2019-20 signed by the Directors on 12.08.2020
to aver that it constituted an acknowledgment of debt - NCLT
held that there was no acknowledgement of liability in the
Balance Sheet of F.Y. 2019-20 since the name of the financial
creditor-appellant did not appear in the Balance Sheet; s.7
application was held to be barred by limitation - Appeal filed
by appellant, dismissed by NCLAT - Challenge to:
Held: Judgments of NCLAT and NCLT set aside - Whether a certain
document in a given case constitutes a valid acknowledgement
would depend on the facts and circumstances of each case - In
the present case, it is not disputed that entries in Balance Sheets
could constitute a valid acknowledgement - Further, the company's
Balance Sheet is prepared in the statutory format as per schedule
* Author
1824
[2025] 7 S.C.R.
Supreme Court Reports
3 of the Companies Act which did not provide for giving the specific
name of every secured or unsecured creditor - On facts, balance
Sheet of F.Y. 2019- 20, and other admitted documents, including
the financial statements of the previous years, clearly constitutes
a valid acknowledgment of a subsisting liability and indicated
the existence of a jural relationship and an admission as to the
existence of such relationship - The Balance Sheet of F.Y. 2019-20
was admittedly signed by the board of directors on 12.08.2020 -
This date was within the subsisting period of limitation for the
reason that taking 01.03.2018 as the commencement of limitation,
limitation ordinarily would have continued till 28.02.2021 - Since
an acknowledgment came into effect on 12.08.2020, limitation
would have stood extended till 11.08.2023 - However, Covid-19
intervened resulting in Supreme Court passing a series of orders
extending the period of limitation - The relevant order applicable
in the instant case is the order of 10.01.2022 - Sub-Para 1 of
Para 5 thereof would apply and the entire period from 15.03.2020
to 28.02.2022 would stand excluded thus, the limitation would,
reckoning the acknowledgment of 12.08.2020, commence on
01.03.2022 and continue till 28.02.2025 - Since the application was
filed on 15.01.2024 the same is within time - Limitation, in view of
the acknowledgment, having commenced only on 12.08.2020, the
question of limitation expiring between 15.03.2020 and 28.02.2022
cannot arise - Hence, Para 5(III) of the order of the Supreme Court
dated 10.01.2022, has no application to the facts of the instant
case - Matter is remitted to the adjudicating authority to proceed
with and decide in accordance with law, treating the application
u/s.7 of the IBC, filed by the appellant, as one filed within limitation.
[Paras 33, 38, 39, 41, 44, 46, 47]
Limitation Act, 1963 - s.18 - Effect of acknowledgment in
writing - 'A valid acknowledgment' - What constitutes -
Discussed. [Paras 26, 27]

## Text

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[2025] 7 S.C.R. 1823 : 2025 INSC 911
IL & FS Financial Services Limited
v.
Adhunik Meghalaya Steels Private Limited
(Civil Appeal No. 5787 of 2025)
30 July 2025
[Manoj Misra and K.V. Viswanathan,* JJ.]
Issue for Consideration
Whether the Tribunals below were justified in holding that the s.7
application under the IBC filed by the appellant on 15.01.2024 was
barred by time; does the entry in the Balance Sheet of F.Y. 2019-20
constitute a valid acknowledgement of debt by the respondent
u/s.18, Limitation Act, 1963; will Para 5(I) or 5(III) of the order
dated 10.01.2022 passed by the Supreme Court in Suo Moto Writ
Petition No. 3 of 2020 govern the situation.
Headnotes†
Insolvency and Bankruptcy Code, 2016 - ss.7, 238A - Limitation
Act, 1963 - s.18 - Effect of acknowledgment in writing -
Loan Agreement entered into between the appellant and
respondent - Respondent's account was declared as a nonperforming asset on 01.03.2018 - Application u/s.7, IBC filed
by the appellant on 15.01.2024 setting out a default amount of
Rs. 55 crores - Appellant relied on the entries in the Balance
Sheet of F.Y. 2019-20 signed by the Directors on 12.08.2020
to aver that it constituted an acknowledgment of debt - NCLT
held that there was no acknowledgement of liability in the
Balance Sheet of F.Y. 2019-20 since the name of the financial
creditor-appellant did not appear in the Balance Sheet; s.7
application was held to be barred by limitation - Appeal filed
by appellant, dismissed by NCLAT - Challenge to:
Held: Judgments of NCLAT and NCLT set aside - Whether a certain
document in a given case constitutes a valid acknowledgement
would depend on the facts and circumstances of each case - In
the present case, it is not disputed that entries in Balance Sheets
could constitute a valid acknowledgement - Further, the company's
Balance Sheet is prepared in the statutory format as per schedule
* Author
1824
[2025] 7 S.C.R.
Supreme Court Reports
3 of the Companies Act which did not provide for giving the specific
name of every secured or unsecured creditor - On facts, balance
Sheet of F.Y. 2019- 20, and other admitted documents, including
the financial statements of the previous years, clearly constitutes
a valid acknowledgment of a subsisting liability and indicated
the existence of a jural relationship and an admission as to the
existence of such relationship - The Balance Sheet of F.Y. 2019-20
was admittedly signed by the board of directors on 12.08.2020 -
This date was within the subsisting period of limitation for the
reason that taking 01.03.2018 as the commencement of limitation,
limitation ordinarily would have continued till 28.02.2021 - Since
an acknowledgment came into effect on 12.08.2020, limitation
would have stood extended till 11.08.2023 - However, Covid-19
intervened resulting in Supreme Court passing a series of orders
extending the period of limitation - The relevant order applicable
in the instant case is the order of 10.01.2022 - Sub-Para 1 of
Para 5 thereof would apply and the entire period from 15.03.2020
to 28.02.2022 would stand excluded thus, the limitation would,
reckoning the acknowledgment of 12.08.2020, commence on
01.03.2022 and continue till 28.02.2025 - Since the application was
filed on 15.01.2024 the same is within time - Limitation, in view of
the acknowledgment, having commenced only on 12.08.2020, the
question of limitation expiring between 15.03.2020 and 28.02.2022
cannot arise - Hence, Para 5(III) of the order of the Supreme Court
dated 10.01.2022, has no application to the facts of the instant
case - Matter is remitted to the adjudicating authority to proceed
with and decide in accordance with law, treating the application
u/s.7 of the IBC, filed by the appellant, as one filed within limitation.
[Paras 33, 38, 39, 41, 44, 46, 47]
Limitation Act, 1963 - s.18 - Effect of acknowledgment in
writing - 'A valid acknowledgment' - What constitutes -
Discussed. [Paras 26, 27]
Case Law Cited
Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal and Another
[2021] 3 SCR 524 : (2021) 6 SCC 366; Khan Bahadur Shapoor
Fredoom Mazda v. Durga Prasad Chamaria and Others, 1961
SCC OnLine SC 147; Lakshmirattan Cotton Mills Co. Ltd. and
M/s Behari Lal Ram Charan v. Aluminium Corporation of India
Ltd. [1971] 3 SCR 840 : (1971) 1 SCC 67; Vidyasagar Prasad v.
[2025] 7 S.C.R.
1825
IL & FS Financial Services Limited v.
Adhunik Meghalaya Steels Private Limited
UCO Bank and Anr., 2024 SCC OnLine SC 2993; OPG Power
Generation Private Ltd. v. Enexio Power Cooling Solutions
(India) Private Ltd. And Anr. [2024] 9 SCR 490 : (2025) 2 SCC
417 - relied on.
Gaurav Hargovindbhai Dave v. Asset Reconstruction Co. (India)
Ltd. and Anr. [2019] 13 SCR 224 : (2019) 10 SCC 572; B.K.
Educational Services (P) Ltd. v. Parag Gupta & Associates [2018]
12 SCR 794 : (2019) 11 SCC 633; Jignesh Shah and Anr. v. Union
of India and Anr. [2019] 12 SCR 678 : (2019) 10 SCC 750; Laxmi
Pat Surana v. Union Bank of India [2021] 2 SCR 924 : (2021) 8
SCC 48; Rajendra Narottamdas Sheth and Anr. v. Chandra Prakash
Jain and Anr. [2021] 7 SCR 838 : (2022) 5 SCC 600; Dena Bank
(Now Bank of Baroda) v. C. Shivakumar Reddy and Anr. [2021]
8 SCR 1061 : (2021) 10 SCC 330 - referred to.
List of Acts
Insolvency and Bankruptcy Code, 2016; Limitation Act, 1963;
Companies Act.
List of Keywords
Valid acknowledgement of debt; Entry in the Balance Sheet
constituted a valid acknowledgement of debt; Section 7,
Insolvency and Bankruptcy Code, 2016 (IBC) application;
Section 7, IBC application not barred by time/limitation; Section
18, Limitation Act, 1963; Effect of acknowledgment in writing;
Name of the financial creditor not in the Balance Sheet;
Specific name of every secured or unsecured creditor not to be
given in Balance Sheet; Financial statements of the previous
years; Valid acknowledgment of a subsisting liability; Jural
relationship; Admission as to the existence of a jural relationship;
Acknowledgment; Acknowledgement of liability; Barred by time;
Barred by limitation; Benefit of the extension orders; Period of
limitation; Commencement of limitation; Extending the period of
limitation; Expiration of limitation; Acknowledged the liability and
its default; Balance Sheet; Term loan; Pledge; Non-Performing
Asset; Unable to meet debt obligations; Default; Loan facility;
Proceeds from borrowings; Cash flow statement; Repayment of
existing borrowings; Date of signing the Balance Sheet; Date of
uploading the Balance Sheet.
1826
[2025] 7 S.C.R.
Supreme Court Reports
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5787
of 2025
From the Judgment and Order dated 25.03.2025 of the National
Company Law Appellate Tribunal in CAAT(I) No. 1379 of 2024
Appearances for Parties
Advs. for the Appellant:
Ritin Rai, Sr. Adv., Raunak Dhillon, Ms. Aishwarya Gupta, Ms.
Niharika Shukla, Jeezan Pakhliwal, M/S. Cyril Amarchand
Mangaldas Aor.
Advs. for the Respondent:
Ramji Srinivasan, Sr. Adv., Pranav Sachdeva, D.N. Sharma, Nilay
Sengupta, Arjun Bhatia, Ms. Shefali Munde.
Judgment / Order of the Supreme Court
Judgment
K.V. Viswanathan, J.
1.
The short question that arises for consideration is whether the
National Company Law Appellate Tribunal (for short 'NCLAT') and
the National Company Law Tribunal (for short 'NCLT') were justified
in dismissing the Section 7 application filed by the appellant against
the respondent under the Insolvency and Bankruptcy Code, 2016
(for short 'IBC'), on the ground that the same was being barred by
limitation.
BRIEF FACTS: -
2.
According to the appellant, on 27.02.2015, a Loan Agreement was
entered into between the appellant and the respondent for a term
loan facility of Rs. 30 crores. The loan was secured, inter alia, by
way of a pledge of 8,10,804 shares of Adhunik Metaliks Ltd. in favour
of the appellant by virtue of a Pledge Agreement dated 27.02.2015.
3.
On 01.03.2018, the account of the respondent was admittedly
declared as a Non-Performing Asset (NPA) as the respondent was
unable to meet its debt obligations.
[2025] 7 S.C.R.
1827
IL & FS Financial Services Limited v.
Adhunik Meghalaya Steels Private Limited
4.
In the Section 7 IBC application filed by the appellant on 15.01.2024,
a default amount of Rs. 55,45,97,395/- was set out and it was
mentioned therein that the date of default was 01.03.2018; that it
was duly recorded in the information utility as annexed; that a recall
facility notice was issued on 10.08.2018 for which there was no
response; that ever since the loan facility was extended in February
2015, the respondent acknowledged the liability and its default in
all its year to year audited financial statements from 2015 till the
latest available Balance Sheet for the financial year 2019-20; that
the financials were duly filed by the respondent with the Registrar
of Companies; that the Balance Sheet of F.Y. 2019-20 was duly
approved by the Board of Directors and the date of signing of the said
financial statement was 12.08.2020; the Balance Sheet of 2019-20
was made available to the public on 14.02.2021 and it was averred
that the Section 7 application in view of the acknowledgement was
filed on time. Reliance was also placed on the order dated 10.01.2022
of this Court in Suo Moto Writ Petition (C) No. 3 of 2020 in In Re :
Cognizance for Extension of Limitation (read with earlier orders dated
23.03.2020, 08.03.2021 and 27.04.2021). It was contended that the
period between 15.03.2020 till 28.02.2022 ought to be excluded.
5.
In short, the stand of the appellant was that if 12.08.2020, the date
on which the Balance Sheet of 2019-20 was signed, is taken as
the date of acknowledgment (which was within the 3 years from
01.03.2018) limitation would expire only on 11.08.2023. However, in
view of the benefit of the extension orders passed by this Court on
10.01.2022, the entire period up to 28.02.2022 ought to be excluded
and if that were so limitation was available till 27.02.2025. Hence,
the Section 7 application filed on 15.01.2024 was well within time.
6.
It will be necessary to advert to the Balance Sheet as annexed for
the years 2015-16, 2016-17, 2017-18 and 2019-20. The entire case
revolves around the question as to whether at all there was a valid
acknowledgment of the debt under Section 18 of the Limitation Act
1963, in view of the entries in the Balance Sheet of F.Y. 2019-20.
7.
In the Balance Sheet of 2015-16 under the head "Textual Information
(14) - Disclosure of sub classification and notes on liabilities and
assets explanatory (Text Block)", it was shown as follows: -
From IL & FS Financial Services Ltd.
24,57,40,400
24,57,40,400
1828
[2025] 7 S.C.R.
Supreme Court Reports
Under borrowings for 2015-16, the amount was shown as Rs.
24,57,40,400/- and the following endorsement occurred in the table: -
"Secured by Pledge of 8,10,804 shares of Adhunik Metaliks
Limited".
8.
Similarly, in the Balance Sheet of F.Y. 2016-17, under Textual
Information (16), the above information and the identical amount is
reflected. Here again, in the table under borrowings, the identical
amount is shown with the following endorsement under nature of
security. "Secured by Pledge of 8,10,804 shares of Adhunik Metaliks
Limited."
9.
The following table occurs in the financial statement, for the F.Y.
2017-18.
Classification of borrowings [Table]
Classification based on
time period (Axis)
Long Term (Member)
Classification of
Borrowings(Axis)
Term Loans from others
[Member]
Rupee term loans from
others [Member]
Subclassification of
borrowings[Axis]
Secured Borrowings
[Member]
Secured Borrowings
[Member]
01/04/2017
to
31/03/2018
01/04/2016
to
31/03/2017
01/04/2017
to
31/03/2018
01/04/2016
to
31/03/2017
Borrowings notes [Abstract]
Details of borrowings
[Abstract]
Details of borrowings
[LineItems]
Borrowings
23,68,91,933
24,57,40,400
23,68,91,933
24,57,40,400
Nature of Security
[Abstract]
Nature of Security
Secured
by Pledge
of 8,10,804
shares of
Adhunik
Metaliks
Ltd.
Secured
by Pledge
of 8,10,804
shares of
Adhunik
Metaliks
Ltd.
Secured
by Pledge
of 8,10,804
shares of
Adhunik
Metaliks
Ltd.
Secured
by Pledge
of 8,10,804
shares of
Adhunik
Metaliks
Ltd.
[2025] 7 S.C.R.
1829
IL & FS Financial Services Limited v.
Adhunik Meghalaya Steels Private Limited
Details on Loans
guaranteed [Abstract]
Aggregate amount of loans
guaranteed by directors
0
0
0
0
Aggregate amount of loans
guaranteed by others
23,68,91,933
24,57,40,400
23,68,91,933
24,57,40,400
Details on defaults on
borrowings [Abstract]
Outstanding amount of
continuing default principal
0
0
0
0
Outstanding amount of
continuing default interest
0
0
0
0
The above table under the column - Secured borrowings for both
2016-17 and 2017-18 shows that the amount of borrowings secured
by the same pledge of shares has marginally come down for the
year 2017-18.
10. The Balance Sheet of 2018-19 is not on record. However, from the
Balance Sheet of F.Y. 2019-20, the figure under the head borrowings
for the F.Y. 2018-19 is also discernible. The table appended to the
Balance Sheet of F.Y. 2019-20 is as follows:-
Classification of borrowings (Table)
Unless specified otherwise, all monetary
values are in INR
Classification based on time
Period [Axis]
Long Term [Member]
Classification of borrowings
[Axis]
Borrowings [Member]
Sub Classification of borrowings
[Axis]
Secured Borrowings
[Member]
Unsecured Borrowings
[Member]
01/04/2019
to
31/03/2020
01/04/2018
to
31/03/2019
31/03/2020
31/03/2019
Borrowings notes [Abstract]
Details of borrowings [Abstract]
Details of borrowings [Line
Items]
1830
[2025] 7 S.C.R.
Supreme Court Reports
Borrowings
24,41,22,835
24,41,22,835
2,95,84,659
3,24,84,659
Nature of Security [Abstracts]
Nature of Security
Details on defaults on
borrowings [Abstract]
Outstanding amount of
continuing default principal
0
0
0
0
Outstanding amount of
continuing default Interest
0
0
0
0
It will be clear that under the heading "Secured Borrowings" the
amount shown for 2018-19 and 2019-20 is the same.
11. It is, no doubt, true that there was no mention of the name of the
appellant or any reference to the pledge of shares. Along with the
Balance Sheet, as required under the Indian Accounting Standards
(Ind AS) 7, a cash flow statement, (indirect) is also appended. The
cash flow statement, (indirect) is set out hereunder: -
Cash flow Statement, indirect
01/04/2019
to
31/03/2020
01/04/2018
to
31/03/2019
31/03/2018
Statement of cash flows [Abstract]
Whether cash flow statement is applicable
on company
Yes
Yes
Cash flows from used in operating activities
[Abstract]
Profit before extraordinary items and tax
-9,52,02,961 -29,34,997
Adjustments for reconcile profit (loss)
[Abstract]
Adjustments to profit (loss) [Abstract]
Adjustments for depreciation and
amortisation expense
6,45,289
6,80,044
Total adjustments to profit (loss)
6,45,289
6,80,044
Adjustments for working capital [Abstract]
Adjustments for decrease (increase) in
trade receivables
 0
20,77,089
[2025] 7 S.C.R.
1831
IL & FS Financial Services Limited v.
Adhunik Meghalaya Steels Private Limited
Adjustments for increase (decrease) in
other current liabilities
-38,02,634
(A)
-11,60,73,898
Total adjustments for working capital
-38,02,634
-11,39,96,809
Total adjustments for reconcile profit (loss)
-31,57,345
-11,33,16,765
Net cash flows from (used in) operations
-9,83,60,306 -11,62,51,762
Net cash flows from (used in) operating
activities before extraordinary items
-9,83,60,306 -11,62,51,762
Net cash flows from (used in) operating
activities
-9,83,60,306 -11,62,51,762
Cash flows from used in investing activities
[Abstract]
Cash payment for investment in partnership
firm or association of persons or limited
liability partnerships
0
-50,57,854
Cash advances and loans made to other
parties
8,23,30,679
11,34,73,820
Other inflows (outflows) of cash
-1,97,29,900 0
Net cash flows from (used in) investing
activities before extraordinary items
-10,20,60,579 -10,84,15,966
Net cash flows from (used in) investing
activities
-10,20,60,579 -10,84,15,966
Cash flows from used in financing
activities [Abstract]
Proceeds from borrowings
0
72,30,902
Net Cash flows from (used in) financing
activities before extraordinary items
0
72,30,902
Net Cash flows from (used in) financing
activities
0
72,30,902
Net increase (decrease) in cash and cash
equivalents before effect of exchange rate
changes
-20,04,20,885 -21,74,36,826
Net increase (decrease) in cash and cash
equivalents
-20,04,20,885 -21,74,36,826
Cash and cash equivalents cash flow
statement at end of period
40,63,021
3,62,748
11,62,151
(Emphasis supplied)
12. The appellant has a case that the amount shown as secured
borrowing is Rs 24,41,22,835/- since to the original amount of
1832
[2025] 7 S.C.R.
Supreme Court Reports
Rs. 23,68,91,933/- as reflected in the 2017-18 Balance Sheet, a sum
of Rs. 72,30,902/- has been added as proceeds from borrowings
raised by the respondent in F.Y. 2018-19. According to the appellant,
if Rs. 72,30,902/- is added to Rs. 23,68,91,933/- a figure of
Rs. 24,41,22,835/- would be arrived at. The appellant further argues
that, as is clear from the cash flow statement, no part of cash flow
proceeds was utilized in repayment of existing borrowings under the
financial activities, since the amount under the head "Cash flows from
(used in) financial activities" is Nil. According to the appellant, this
lends support to the fact that the debt owed by the respondent to the
appellant in the previous years remained unpaid even in 2019-20.
It is by this process of reasoning that the appellant contended that
there was clear acknowledgement of debt and the jural relationship
in the Balance Sheet of F.Y. 2019-20.
13. The respondent filed a reply affidavit to the Section 7 application. It
was contended that the Section 7 application was barred by limitation.
Para 10, 23 and 24 of the reply are reproduced hereunder: -
"10. Admittedly date of default, as per the own averment
in the said application is 1st March 2018. Admittedly the
Financial Creditor had declared the account of the CD as
non performing asset on 1st March 2018 and had also
issued Recall facilities Notice to the CD on 10th August
2018. Hence, the Limitation period of 3 (three) years under
the Limitation Act 1963 to initiate any action against the
CD from 10th August 2018 has already been expired on
9th August 2021. Further, in terms of the order dated 10th
January 2022, passed by the Hon'ble Supreme Court in
Suo Moto Writ Petition (C) No: 3 of 2020, the limitation
period of 90 days after 28.02.2022 also expired on 29th
May 2022. Therefore, filing of the present Application at
this belated stage for claiming a debt which is time barred
is non est in law and is only arm twisting tactic to extort
money.
23. Thus I deny each and every allegations made, in the
said Application and not accepting any of the allegations
made in contradiction of the aforesaid averments and
documents submitted herein. There is no live claim of the
Financial Creditor, as on date. I am denying any debts in
favour of the Financial Creditor.
[2025] 7 S.C.R.
1833
IL & FS Financial Services Limited v.
Adhunik Meghalaya Steels Private Limited
24. Further, I state that the limitation for filing of the present
application must be considered from the date of default,
i.e, 1st March 2018, which clearly makes the claim of FC
hopelessly time barred and the same cannot be revived
at this later stage. (Sic) deny that Balance Sheet of CD
can be treated as acknowledgment of debt, as wrongfully
alleged or at all."
14. For the sake of completion of facts, it may also be mentioned
that further in the record of financial information with the national
e-governance service, submitted by the appellant, as on 04.10.2023,
against the sanctioned limit of Rs.30 crores to the respondent the
amount due is reflected as Rs.54,03,08,748.54. On 15.01.2024
when the Section 7 application was filed, the outstanding amount
was quantified as Rs.55,45,97,395/-.
15. The NCLT, Guwahati Bench held that there was no acknowledgement
of liability in the Balance Sheet of F.Y. 2019-20, since the name of
the financial creditor did not appear in the Balance Sheet. It also
held that the application under Section 7 filed by the appellant was
barred by limitation, since, according to the NCLT, the application
ought to have been filed on or before 30.05.2022 applying Para 5(III)
of the order of this Court dated 10.01.2022 extending the period of
limitation.
16. The appellant aggrieved filed an appeal before the NCLAT. The NCLAT
held that as far as the Balance Sheet of F.Y. 2017-18 was concerned,
it was signed on 02.09.2018 and the three-year period would have
ended on 01.09.2021. According to the NCLAT, limitation would have
extended in view of the order of this Court dated 10.01.2022. According
to the NCLAT, limitation would stand extended under Para 5(III) up
to 30.05.2022. The NCLAT further held that even if the entry in the
Balance Sheet of F.Y. 2019-20 is taken, since the said Balance Sheet
was signed on 12.08.2020, limitation would have extended only up to
30.05.2022. Thereafter, the NCLAT examined the argument whether
the date of signing the Balance Sheet would be the relevant date
or whether the date of uploading the Balance Sheet on the website
of the Ministry of Corporate Affairs would be the relevant date for
commencement of time. On this issue, it was held that the date of
signing the Balance Sheet would be the relevant date and, on that
basis, concluded that the Section 7 petition ought to have been filed
1834
[2025] 7 S.C.R.
Supreme Court Reports
on or before 30.05.2022. Holding so, it dismissed the appeal of the
appellant. Aggrieved, the appellant is before us in appeal.
CONTENTIONS OF LEARNED COUNSEL: -
17. We have heard Mr. Ritin Rai, learned Senior Counsel for the appellant
and Mr. Ramji Srinivasan, learned Senior Counsel, for the respondent.
We have also perused the records of the case.
18. Mr. Ritin Rai, learned Senior Advocate, after adverting to the facts
and the documents submitted that there was a clear acknowledgment
of the debt within the meaning of Section 18 of the Limitation Act in
the Balance Sheet of F.Y. 2019-20. According to the learned Senior
Counsel, even taking 12.08.2020, the date of signing of the financial
statements of F.Y. 2019-20 as the commencement date, limitation
was available in the ordinary course till 11.08.2023. According to the
learned Senior Counsel, under the extension of limitation orders of
this Court dated 10.01.2022, Para 5(1) would apply and the whole
of the period from 15.03.2020 to 28.02.2022 would stand excluded.
According to the learned Senior Counsel, in which case, time was
available till 27.02.2025 to file the Section 7 application and the
Section 7 application has been filed on 15.01.2024, well within time.
The learned Senior Counsel relied on certain judgments of this Court
in support of his propositions.
19. Mr. Ramji Srinivasan, learned Senior Counsel, submitted that in the
Balance Sheet of F.Y. 2019-20 the name of the appellant is nowhere
mentioned and thus it cannot be construed as an acknowledgment
of any jural relationship between the appellant and the respondent.
It is also argued that the scope of enquiry under Section 7 of IBC is
extremely limited and the adjudicating authority has to only see the
existence of financial debt, acknowledgement, if any, and existence
of default and also whether the procedural requirements have been
fulfilled. It is argued that there is mismatch between the debt claimed
in the Section 7 application and in the Balance Sheet of F.Y. 2019-20
which was relied upon. Learned Senior Counsel contends that there
was no clear acknowledgment as neither the specific loan amount nor
the loan agreement has been mentioned. Learned Senior Counsel
contends that the name of the appellant has not been referred to.
Learned Senior Counsel cited certain judgments, in support of his
contentions, while defending the orders of the Tribunals below.
[2025] 7 S.C.R.
1835
IL & FS Financial Services Limited v.
Adhunik Meghalaya Steels Private Limited
20. Distinguishing the judgment in Vidyasagar Prasad v. UCO Bank
and Anr., 2024 SCC OnLine SC 2993 cited by the appellant, learned
Senior Counsel contended that the said judgment was passed in the
facts of that case and does not lay down any law of general application.
Further, it was argued that in Vidyasagar Prasad (supra) there was
an OTS proposal given which was construed as an acknowledgement
in that case. Learned Senior Counsel contended that the Tribunals
below have correctly applied Para 5(III) of the order of this Court
dated 10.01.2022 in Suo Moto Writ Petition (C) No. 3 of 2020 and,
as such, the limitation for filing the application expired on 30.05.2022,
and the application having been filed on 05.01.2024, it has rightly
been held to be barred by limitation.
QUESTION FOR CONSIDERATION: -
21. The principal question, as highlighted earlier, that arises for
consideration is whether the Tribunals below were justified in holding
that the Section 7 application under the IBC filed by the appellant on
15.01.2024 was barred by time? In answering the above question,
two incidental questions do arise; (i) Does the entry in the Balance
Sheet of F.Y. 2019-20 constitute a valid acknowledgement of debt by
the respondent under Section 18 of the Limitation Act, 1963 ? (ii) If
the answer to the above question is in the affirmative, will Para 5(I)
or 5(III) of the order dated 10.01.2022 passed by this Court in Suo
Moto Writ Petition No. 3 of 2020 govern the situation?
22. It is now well settled in view of Section 238A of the IBC that the
Limitation Act, 1963 shall, as far as may be, apply to the proceedings
under the Code. It is also well settled that Article 137 of the first
schedule to the Limitation Act providing a period of three years from
the date when the right to apply accrues will govern the situation.
[Dena Bank (Now Bank of Baroda) v. C. Shivakumar Reddy
and Anr., (2021) 10 SCC 330 following Gaurav Hargovindbhai
Dave v. Asset Reconstruction Co. (India) Ltd. and Anr., (2019)
10 SCC 572, B.K. Educational Services (P) Ltd. v. Parag Gupta
& Associates, (2019) 11 SCC 633, and Jignesh Shah and Anr. v.
Union of India and Anr., (2019) 10 SCC 750].
23. In this case, it is not disputed that the account of the respondent
was declared as a non-performing asset on 01.03.2018. However,
the appellant is relying on the entries adverted to hereinabove in the
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[2025] 7 S.C.R.
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Balance Sheet of F.Y. 2019-20 signed by the Directors on 12.08.2020.
Does the entry adverted to hereinabove in the Balance Sheet of F.Y.
2019-20 constitute an acknowledgment of debt, as contemplated
under Section 18 of the Limitation Act, is the primary question that
arises for consideration?
24. Section 18 of the Limitation Act reads as under: -
"18. Effect of acknowledgment in writing.-(1) Where,
before the expiration of the prescribed period for a suit
or application in respect of any property or right, an
acknowledgment 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
acknowledgment was so signed.
(2) Where the writing containing the acknowledgment 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 acknowledgment 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."
25. The question as to what constitutes a valid acknowledgment has
come up for consideration before this Court both under the Limitation
Act, 1908 and the Limitation Act, 1963.
[2025] 7 S.C.R.
1837
IL & FS Financial Services Limited v.
Adhunik Meghalaya Steels Private Limited
26. The earliest pronouncement of this Court was in Khan Bahadur
Shapoor Fredoom Mazda v. Durga Prasad Chamaria and Others,
1961 SCC OnLine SC 147. Justice P. B. Gajendragadkar (as His
Lordship then was) while construing Section 19 of the Limitation
Act, 1908 which is similar to Section 18 of the Limitation Act, 1963
held as under: -
"6. It is thus clear that acknowledgment as prescribed
by Section 19 merely renews debt; it does not create
a new right of action. It is a mere acknowledgment
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 acknowledgment 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 acknowledgment 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 acknowledgment rests oral evidence has been
expressly excluded but surrounding circumstances
can always be considered. Stated generally courts
lean in favour of a liberal construction of such
statements though it does not mean that where no
admission is made one should be inferred, or where
a statement was made clearly without intending to
admit the existence of jural relationship such intention
1838
[2025] 7 S.C.R.
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could be fastened on the maker of the statement
by an involved or far-fetched process of reasoning.
Broadly stated that is the effect of the relevant
provisions contained in Section 19, and there is really
no substantial difference between the parties as to
the true legal position in this matter."
(Emphasis supplied)
27. It will be clear from the above passage that an acknowledgment
of debt merely renews the debt and does not create a new right of
action. It is further essential that the acknowledgment must relate to
a subsisting liability and must indicate the 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. It was also held that such intention can be inferred
by implication from the nature of the admission and need not be
expressed in words. It has also been held that in construing the words
used in the statements, surrounding circumstances can always be
considered and that Courts lean in favour of a liberal construction of
such statements, though intention cannot be fastened by an involved
or far-fetched process of reasoning.
28. After setting out the law, the Court in Khan Bahadur Shapoor
(supra) took up for consideration the question whether the letter of
05.03.1932 written by respondent no. 2 mortgagor in that case, to
the respondent no. 1 mortgagee construed an acknowledgement.
While construing the said letter of 05.03.1932, the Court found it
appropriate to read it in the context of an earlier letter of 26.11.1931
written by R-2 mortgagor to R-1 Mortgagee and used the earlier
letter to construe the letter of 05.03.1932 and particularly the phrase
"interested" mentioned in the letter of 05.03.1932. This Court, while
construing the letter of 05.03.1932 as an acknowledgment in favor
of the Mortgagee respondent no. 1, held as under: -
"12. It is now necessary to consider the document on which
the plea of acknowledgment is based. This document was
written on 5-3-1932. It, however, appears that on 26-111931, another letter had been written by Respondent 2
to Respondent 1; and it would be relevant to consider
this letter before construing the principal document.
[2025] 7 S.C.R.
1839
IL & FS Financial Services Limited v.
Adhunik Meghalaya Steels Private Limited
In this letter Respondent 2 had told Respondent 1 that the
Chandni Bazar property was being sold the next morning
at the Registrar's sale on behalf of the first mortgagee and
that the matter was urgent, otherwise the property would
be sacrificed. It appears that the said property was subject
to the first prior mortgage and Respondent 2 appealed
to Respondent 1 to save the said threatened sale at the
instance of the prior mortgagee. It is common ground that
Respondent 1 paid to Respondent 2 Rs 2500 on 27-111931, and the threatened sale was avoided. This fact is
relevant in construing the subsequent letter.
13. The said property was again advertised for sale on 113-1932, and it was about this sale that the letter in question
came to be written by Respondent 2 to Respondent 1 on
March 1932. This is how the letter reads:
"My dear Durga prosad,
Chandni Bazar is again advertised for sale on Friday the
11th instant. I am afraid it will go very cheap. I had a private
offer of Rs 2,75,000 a few days ago but as soon as they
heard it was advertised by the Registrar they withdrew.
As you are interested why do not you take up the whole.
There is only about 70,000 due to the mortgagee - a
payment of 10,000 will stop the sale.
Yours sincerely,
sdJ.C. Galstaun
14. Does this letter amount to an acknowledgment of
Respondent 1's right as a mortgagee? That is the question
which calls for our decision. The argument in favour of
Respondent 1's case is that when the document refers to
Respondent 1 as being interested it refers to his interest
as a puisne mortgagee and when it asks Respondent 1
to take up the whole it invites him to acquire the whole
of the mortgage interest including the interest of the prior
mortgagee at whose instance the property was put up
for sale. On the other hand, the appellant's contention is
1840
[2025] 7 S.C.R.
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that the word "interest" is vague and indefinite and that
Respondent 1 may have been interested in the property
in more ways than one......"
Thereafter, this Court concluded as under: -
15. In construing this letter it would be necessary
to bear in mind the general tenor of the letter
considered as a whole. It is obvious that Respondent 2
was requesting Respondent 1 to avoid the sale as he did
on an earlier occasion in November, 1931. The previous
incident shows that when the property was put to sale by
the first mortgagee the mortgagor rushed to the second
mortgagee to stop the sale, and this obviously was with
a view to persuade the second mortgagee to prevent the
sale which would otherwise affect his own interest as such
mortgagee. The theory that the letter refers to the interest
of Respondent 1 as an intending lessee or purchaser is
far-fetched, if not absolutely fantastic. Negotiations in
that behalf had been unsuccessful in 1926 and for nearly
five years thereafter nothing was heard about the said
proposal. In the context it seems to us impossible to
escape the conclusion that the interest mentioned in
the letter is the interest of Respondent 1 as a puisne
mortgagee and when the said letter appeals to him
to take up the whole it can mean nothing other than
the whole of the mortgagee's interest including
the interest of the prior mortgagee. An appeal to
Respondent 1 to stop the sale on payment of Rs 10,000
as he in fact had stopped a similar sale in November 1931
is an appeal to ensure his own interest in the security
which should be kept intact and that can be achieved
only if the threatened sale is averted. We have carefully
considered the arguments urged before us by the learned
Attorney-General but we see no reason to differ from the
conclusion reached by the court of appeal below that this
letter amounts to an acknowledgment. The tenor of the
letter shows that it is addressed by Respondent 2
as mortgagor to Respondent 1 as puisne mortgagee,
it reminds him of his interest as such mortgagee in
the property which would be put up for sale by the
[2025] 7 S.C.R.
1841
IL & FS Financial Services Limited v.
Adhunik Meghalaya Steels Private Limited
first mortgagee, and appeals to him to assist the
avoidance of sale, and thus acquire the whole of the
mortgagee's interest. It is common ground that no other
relationship existed between the parties at the date of
this letter, and the only subsisting relationship was that
of mortgagee and mortgagor. This letter acknowledges
the existence of the said jural relationship and amounts
to a clear acknowledgment under Section 19 of the
Limitation Act. It is conceded that if this letter is held to
be an acknowledgment there can be no other challenge
against the decree under appeal.
(Emphasis supplied)
29. What is significant about this judgment is that this Court construed
the primary document of 05.03.1932 in the context of an earlier letter
of 26.11.1931 and thereby considered the surrounding circumstances
and considered the general tenor of the letter keeping in mind the
context.
30. In Lakshmirattan Cotton Mills Co. Ltd. and M/s Behari Lal Ram
Charan v. Aluminium Corporation of India Ltd., (1971) 1 SCC 67,
this Court followed the judgment in Khan Bahadur Shapoor (supra)
and reiterated the ratio laid down in the said judgment. In the said
case, the appellant claimed that the letter dated 16.04.1946 claimed
to be addressed on behalf of the respondent therein constituted
an acknowledgment of liability which ensured that the suit was
within time. The Trial Court found for the appellants but the High
Court held that the letter of 16.04.1946 was "merely explanatory"
and did not amount to an acknowledgement. On appeal to this
Court, the question whether the letter of 16.04.1946 constituted a
valid acknowledgement was examined including the question as to
whether the signatories had the authority to bind the respondent.
In examining this question, this Court as a preface to the enquiry
set out as follows: -
"12. Before we proceed to inquire into the correctness
or otherwise of the High Court's view in regard to the
letter (Exh. 1), it would be necessary to examine the
correspondence which previously ensued between
the parties and the surrounding circumstances which
led to that letter."
1842
[2025] 7 S.C.R.
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Thereafter, after examining the correspondence, this Court concluded
as under in Para 18:-
"18. It must follow from these facts that there was a
subsisting account in the name of the appellant-company
in the books of the corporation in which interest on the
balance shown therein from time to time was being
credited and in which amounts in respect of items
passed during the course of reconciliation were also
being credited. The statement in the letter (Exh. 1) that
"after all the above adjustments the position will be
as per statement attached", that is to say, that there
was a balance of Rs 1,07,447-13-11 due and payable
to the appellant-company, must clearly amount to an
acknowledgment within the meaning of Section 19(1).
In our view if the letter (Exh.