The Supreme Court recently set aside NCLAT’s Ruling in the case of V Padmakumar v. Stressed Assets Stabilization Fund and held that balance sheets can amount to an acknowledgment of debts under Section 18 of the Limitation Act.
The issue raised before the Apex Court bench in appeal was whether an entry made in a balance sheet of a corporate debtor would amount to an acknowledgement of liability under Section 18 of the Limitation Act.?
Yet another issue was 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.
The National Company Law Appellate Tribunal (NCLAT) in V Padmakumar v. Stressed Assets Stabilization Fund which had by a 4:1 majority ruled that balance sheet could not be considered as an acknowledgment of debt under Section 18.
A 3-member bench NCLAT had doubted the correctness of the decision rendered by a 5-member bench in the case V. Padamakumar Vs. Stressed Assets Stabilization Fund (SASF) & Anr which had held that entries in books of accounts will not amount to an acknowledgment of debt under Section 18 of the Limitation Act, 1963.
Later, a 5-member bench turned down the reference observing that the same was unwarranted as V Padmakumar decision was in accordance with Supreme Court precedents. The 5-judge bench had also made certain adverse remarks against the 3-member bench for doubting the correctness of V Padmakumar.
Aggrieved with the adverse remarks, the 3 members approach the Supreme Court. A bench headed by Justice Nariman expunged those remarks, allowing the petition filed by the NCLAT members.
A three judge bench headed by Justice RF Nariman observed that several judgments of this Court have indicated that an entry made in the books of accounts, including the balance sheet, can amount to an acknowledgment of liability within the meaning of Section 18 of the Limitation Act.
The judgment said, 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 acknowledgment of debt for reasons given in the said note.
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