Il And Fs Financial Services Limited vs. Adhunik Meghalaya Steels Private Limited

REPORTABLE
2025 INSC 911
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5787 OF 2025
IL & FS FINANCIAL SERVICES
LIMITED APPELLANT (s)
VERSUS
ADHUNIK MEGHALAYA
STEELS PRIVATE LIMITED RESPONDENT(s)
J U D G M E N T
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
Signature Not Verified
short ‘IBC’), on the ground that the same was being barred by
Digitally signed by
BORRA LM VALLI
Date: 2025.07.31
13:29:57 IST
Reason:
limitation.
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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.
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
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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.
3

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: -

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
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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]

The above table under the column - Secured borrowings for both
2016-17 and 2017-18 shows that the amount of borrowings secured
5

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:-

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
6

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

7

(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 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
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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.
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24. Further, I state that the limitation for filing of the present
application must be considered from the date of default, i.e,
st
1 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
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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 on or before 30.05.2022.
11

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
12

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,
13

in support of his contentions, while defending the orders of the
Tribunals below.
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
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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].
15

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
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
16

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.
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
17

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 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
18

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: -
19

“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 26-11-1931,
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. 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 27-11-1931, 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 11-3-
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,
sd-
J.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
20

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 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
21

put up for sale by the 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
22

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.”
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. 1) were to be
looked at in the background of the controversy between the
parties, which controversy was as aforesaid, limited to the
question as to the correctness of the amount claimed by the
23

appellant-company, as also the correspondence which ensued
in regard to it, it would be impossible to say that the letter
(Ex. 1) and the statement of account enclosed therewith were
merely explanatory and did not amount to an admission of
the jural relationship of debtor and creditor and of the
liability to pay the amount found due at the foot of the
account on finalisation.”
(Emphasis supplied)
31. Thereafter, the other objections with regard to the conditional
nature of the offer and the authority of Mr. Subramanyam to make the
acknowledgements were examined and it was ruled in favor of the
appellant. The letter of 16.04.1946 was held to be an
acknowledgement. The appeals of the appellants were allowed and the
matter remitted to the High Court to examine the other questions.
32. The facts of the above two precedents are relevant only to repel
an express argument raised by the respondent herein that the Balance
Sheet of F.Y. 2019-20 has to be read as a standalone document and the
other documents cannot be looked at to construe the said document.
33. It was not disputed before us that entries in Balance Sheets
could constitute a valid acknowledgement and in fact it could not
have been disputed, in view of the categoric pronouncement of this
Court in Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal and
24

Another , (2021) 6 SCC 366. The only dispute was whether the entry
in F.Y. 2019-20 did or did not constitute a valid acknowledgement.
Among the grounds canvassed was the aspect that the name of the
appellant was not mentioned in the Balance Sheet of F.Y. 2019-20. It
is worthwhile to notice certain observations from the judgement in
Bishal Jaiswal (supra) as it does have a bearing for the disposal of
the present matter. This Court in Bishal Jaiswal (supra) held that
entries in Balance Sheet had to be examined on a case-by-case basis
to examine whether an acknowledgment of liability exists. Para 35 of
Bishal Jaiswal (supra) reads as under: -
“35. 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 acknowledgments 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 [ Bengal Silk Mills Co. v. Ismail Golam
Hossain Ariff , 1961 SCC OnLine Cal 128 : AIR 1962 Cal
115] , 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
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establish whether an acknowledgment of liability has, in
fact, been made, thereby extending limitation under Section
18 of the Limitation Act. ”
(Emphasis supplied)
34. The other aspect which remains to be examined is the contention
of the respondent that the name of the appellant is nowhere mentioned
in the Balance Sheet of F.Y. 2019-20 and as such the Balance Sheet of
F.Y. 2019-20 cannot be construed as an acknowledgement of any jural
relationship between the parties. To Counter this aspect, appellant has
drawn attention to the judgment of this Court in Vidyasagar Prasad
(supra) . In Vidyasagar Prasad (supra), this Court, at the outset, dealt
with the earlier judgments in Laxmi Pat Surana v. Union Bank of
India , (2021) 8 SCC 481, Dena Bank (now Bank of Baroda) v. C.
Shivakumar Reddy and Anr. , (2021) 10 SCC 330, and Rajendra
Narottamdas Sheth and Anr. v. Chandra Prakash Jain and Anr. ,
(2022) 5 SCC 600 to reiterate that Section 18 of the Limitation Act
dealing with acknowledgment of debt applies to proceedings under
the IBC in view of Section 238A.
35. Thereafter, this Court, on facts, recorded the following
findings: -
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“10. Having considered the specific facts and circumstances
of this case, the Adjudicating Authority as well as the
National Company Law Appellate Tribunal have
concurrently held that the entries in the balance-sheets
amount to clear acknowledgment of debt. We agree with
the findings. Further, note 3.4 appended to said balance-sheet
entry dated March 31, 2017 mentions that “company has made
certain defaults in the repayment of term loans and interest.” It
further mentions of a continuing default. The entry also
mentions long-term borrowings. The conclusions of the
National Company Law Tribunal and National Company
Law Appellate Tribunal that there is acknowledgment of
debt are unimpeachable.
10.1. Following the principles as expounded in the case
of Bishal Jaiswal, (2021) 6 SCC 366, the Adjudicating
Authority as well as the National Company Law Appellate
Tribunal have examined the case in detail and have come to the
conclusion that the entry made in the balance-sheet coupled
with the note of the auditor of the appellant clearly amounts to
acknowledgment of the liability. We see no reason
whatsoever to take a different view of the matter. Their
findings are fortified when we examine the matter from
another perspective.
11. The Adjudicating Authority and National Company Law
Appellate Tribunal have also considered the corporate debtor's
proposal of one-time settlement (OTS) to UCO Bank. The
proposal made by letter dated June 7, 2016 acknowledges that
there were prior debts owed to UCO Bank. To substantiate the
argument that such one-time settlement constituted
acknowledgment of debt since it relates to present and
subsisting liability and indicates existence of a jural
relationship between the parties, UCO Bank relied on judgment
of this court in Lakshmirattan Cotton Mills Co.
Ltd. v. Aluminium Corporation of India Ltd. [(1971) 1 SCC
67……”
(Emphasis supplied)
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36. It will be noticed that even in Vidyasagar Prasad (supra) a
similar argument about the name of creditor not being mentioned was
repelled and additionally the aspect of the proposal given by the
corporate debtor therein for a one-time settlement was taken into
account as an additional aspect in favour of acknowledgment of debt.
37. The respondent herein contends that Vidyasagar Prasad (supra)
could not be said to have laid a law for general application with
regard to entries in Balance Sheet wherein the names of the creditor
are mentioned and additionally contended that in that case an OTS
proposal was also available to buttress the point of acknowledgment.
38. We have independently examined the facts of the present matter
to construe whether the entries in the Balance Sheet of F.Y. 2019-20
constitute a valid acknowledgement. As to whether a certain
document in a given case constitutes a valid acknowledgement would
depend on the facts and circumstances of each case. We do no better
than recall the observations of this Court in Khan Bahadur Shapoor
(supra) wherein it was observed as under: -
“7. It is often said that in deciding the question as to
whether any particular writing amounts to an
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acknowledgment as in construing wills, for instance, it is
not very useful to refer to judicial decisions on the point.
The effect of the words used in a particular document must
inevitably depend upon the context in which the words are
used and would always be conditioned by the tenor of the
said document, and so unless words used in a given
document are identical with words used in a document
judicially considered it would not serve any useful purpose
to refer to judicial precedents in the matter…….”
(Emphasis supplied)
39. Having said that, the legal principles as to what constitutes a
valid acknowledgment as laid down in the precedents, have to be
rigorously applied. It should also not be forgotten that this Court in
Khan Bahadur Shapoor (supra) has held that surrounding
circumstances could be considered and that a liberal construction
should be favoured, though the process of reasoning should not be
involved or far-fetched. This Court in Khan Bahadur Shapoor
(supra) had considered the general tenor and context of the document.
Further, as noticed in Lakshmirattan Cotton Mills (supra), the
previous correspondence and the surrounding circumstances were also
taken into consideration. In Bishal Jaiswal (supra), this Court held
that a case-to-case examination will be made with regard to entries
made in Balance sheets to decide the question of acknowledgment. In
Dena Bank (supra), this Court held that in relation to proceedings
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under the IBC, Section 18 of the Limitation Act cannot be construed
with pedantic rigidity. In Vidyasagar Prasad (supra), this Court
affirmed the finding of the NCLAT in that case wherein the NCLAT
had held that the company’s Balance Sheet is prepared in the statutory
format as per schedule 3 of the Companies Act which did not provide
for giving the specific name of every secured or unsecured creditor.
40. In OPG Power Generation Private Ltd. v. Enexio Power
Cooling Solutions (India) Private Ltd. And Anr. , (2025) 2 SCC 417,
this Court speaking through one of us (Manoj Misra J.,) while
reiterating the holding in Khan Bahadur Shapoor (supra)
summarised the essence of Section 18 of the 1963 Act as under: -
“ 132. Section 18 of the 1963 Act deals with the effect of
acknowledgment in writing. Sub-section (1) thereof provides
that where, before the expiration of the prescribed period for a
suit or application in respect of any right, an acknowledgment
of liability in respect of such right has been made in writing
signed by the party against whom such right is claimed, a fresh
period of limitation shall be computed from the time when the
acknowledgment was so signed. The Explanation to this
section provides that an acknowledgment may be sufficient
though it omits to specify the exact nature of the right or avers
that the time for payment has not yet come or is accompanied
by a refusal to pay, or is coupled with a claim to set-off, or is
addressed to a person other than a person entitled to the right. ”
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41. Keeping all these principles in mind, if we examine the facts of
the present case, it will be clear that the Balance Sheet of F.Y. 2019-
20, viewed in the background of the 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. We say so for the following
reasons:-
i) The general tenor and context of the balance sheet of F.Y. 2019-
20 considered in the background of surrounding circumstances
arising from the balance sheets of F.Y. 2015-16, 2016-17 &
2017-18 clearly points to the fact that the entry in the balance
sheet of F.Y. 2019-20 constitutes a valid acknowledgement and
pertains to the same borrowing as was reflected in the balance
sheet of F.Y. 2015-16, 2016-17 & 2017-18.
ii) Under the Indian Accounting Standards (Ind AS) 7, a cash flow
statement is appended to the financial statement. The cash flow
statement indicates that in F.Y. 2018-19 there was proceeds from
31

borrowings of Rs.72,30,902/- and added to Rs.23,68,91,933/-, a
figure of Rs.24,41,22,835/- is arrived at.
iii) More importantly, in the cash flow statement it was indicated
that no part of cash flow proceeds was utilised in the repayment
of existing borrowings under the financial activities since the
amount under the head “cash flows from (used in) financial
activities” is nil. This clearly indicates that the debt remained
unpaid even in 2019-20.
42. In addition to the above, it is significant to note that in this case
in the reply filed to the Section 7 application, apart from a general
objection as to the application being barred by limitation only a bare
denial was made in the following terms:-
“(sic) deny that Balance Sheet of CD can be treated as
acknowledgment of debt as wrongfully alleged or at all.”
43. In the application under Section 7 detailed averments were made
referring to a series of audited financial statements and Balance Sheet
from F.Y. 2015-16 to F.Y. 2019-20 to make out a case that the entry in
F.Y. 2019-20 constituted an acknowledgment under Section 18 of the
Limitation Act by the respondent. In any event, we have not
32

based our finding on the mere factum of non-denial but have
construed the entry in the Balance Sheet of F.Y. 2019-20 to conclude
that the entry in the F.Y. 2019-20 constitutes a valid acknowledgment.
44. 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 this Court passing a series
of orders extending the period of limitation. The relevant order
applicable in this case is the order of 10.01.2022.
45. Parties were at daggers drawn on the aspect whether sub Para (I)
of Para 5 of the order of 10.01.2022 would apply or sub Para (III)
would apply. Para 5 of the order dated 10.01.2022 reads as under: -
"5. Taking into consideration the arguments advanced by
learned counsel and the impact of the surge of the virus on
public health and adversities faced by litigants in the prevailing
conditions, we deem it appropriate to dispose of the M. A No.
21 of 2022 with the following directions:
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I. The order dated 23.03.2020 is restored and in continuation
of the subsequent orders dated 08.03.2021, 27.04.2021 and
23.09.2021, it is directed that the period from 15.03.2020 till
28.02.2022 shall stand excluded for the purposes of
limitation as may be prescribed under any general or special
laws in respect of all judicial or quasi-judicial proceedings.
II. Consequently, the balance period of limitation remaining
as on 03.10.2021, if any, shall become available with effect
from 01.03.2022.
III. In cases where the limitation would have expired during
the period between 15.03.2020 till 28.02.2022,
notwithstanding the actual balance period of limitation
remaining, all persons shall have a limitation period of 90
days from 01.03.2022. In the event the actual balance period
of limitation remaining, with effect from 01.03.2022 is
greater than 90 days, that longer period shall apply.
IV. It is further clarified that the period from 15.03.2020 till
28.02.2022 shall also stand excluded in computing the
periods prescribed under Section 23(4) and 29A of the
Arbitration and Conciliation Act, 1996, Section 12A of the
Commercial Courts Act, 2015 and provisos (b) and (c) of
Section 138 of the Negotiable Instruments Act, 1881 and any
other laws, which prescribe period(s) of limitation for
instituting proceedings, outer limits (within which the court
or tribunal can condone delay) and termination of
proceedings"
46. We have no manner of doubt that sub-Para 1 of Para 5 of the
order of this Court dated 10.01.2022 would apply and the entire
period from 15.03.2020 to 28.02.2022 would stand excluded, which
would mean that the limitation would, reckoning the acknowledgment
of 12.08.2020, commence on 01.03.2022 and continue till 28.02.2025.
Since the application has been filed on 15.01.2024 the same is within
34

time. Limitation, in view of the acknowledgment as found above,
having commenced only on 12.08.2020, the question of limitation
expiring between 15.03.2022 and 28.02.2022 cannot arise. Hence,
Para 5(III) of the order of this Court dated 10.01.2022, has no
application to the facts of this case.
47. In view of the observations made hereinabove, the judgments of
the NCLAT dated 25.03.2025 and NCLT dated 16.05.2024 are set
aside. The appeal is allowed. The matter is remitted to the
adjudicating authority to proceed with and decide in accordance with
law, treating the application under Section 7 of the IBC, filed by the
appellant, as one filed within limitation. No order as to costs.
……….........................J.
[ MANOJ MISRA ]
.……….........................J.

[ K. V. VISWANATHAN ]
New Delhi;
th
30 July, 2025
35