Acknowledgment Of Debt In Balance Sheets Extends Limitation: NCLT Admits ₹283.95 Cr CIRP Despite Arbitration & Substitution Plea [Read Order]

The National Company Law Tribunal (NCLT), Chandigarh Bench, admitted an application under Section 7 of the Insolvency and Bankruptcy Code, 2016,and held that acknowledgement in the balance sheets and revival letters extends the limitation period.

The Canara Bank as part of a consortium of lenders had sanctioned credit facilities to the Supreme Ahmednagar Karmala Tembhurni Tollways Private Limited to the extent of ₹405 crore for executing a road project on a BOT basis.

However, the Corporate Debtor had not made repayment from December 31, 2015. Its account was classified as NPA with effect from March 31, 2016. As on October 31, 2024, its dues amount to ₹283.95 crore.

The Financial Creditor relied upon the revival letter dated April 12, 2021 and its continuous disclosures in the balance sheets to assert that the debt had remained acknowledged and extended the period of limitation.

The Corporate Debtor took the stance that the application was filed out of time and that entries in the balance sheet cannot amount to valid acknowledgment. Moreover, it was asserted that due to disruptions in the project caused by unilateral actions of authorities, arbitration was initiated with substantial claims.

Furthermore, it was asserted that substitution of the concessionaire with another party had resulted in novation of the contract, thus extinguishing any liability. Additionally, interest cannot be levied after classification as an NPA.

The Financial Creditor took the stand that debt default was already established based on loan documents and account statements in NeSL records. Moreover, it was asserted that acknowledgment in balance sheets and revival letters was valid to extend the period under Section 18 of the Limitation Act.

The Bench, which consisted of Khetrabasi Biswal (Judicial Member) and Kaushalendra Kumar Singh (Technical Member) observed that entries in the balance sheets that are read with the auditors reports would amount to valid acknowledgement of debt.

Hence,the Tribunal while relying on judicial precedents noted that "Each acknowledgement would give rise to a fresh period of limitation.”

Therefore,the Tribunal that there was no concluded substitution agreement to extinguish the debt due to the Corporate Debtor. The fact that the arbitration proceedings were pending did not have any impact on the case since no award had been issued to freez any debt.

Thus, the bench observed the existence of financial debt and default beyond the threshold, the Tribunal allowed the application and initiated CIRP against the Corporate Debtor, while declaring moratorium and appointing an IRP.

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