Case: STATE BANK OF INDIA Vs. KRISHIDHAN SEEDS PRIVATE LIMITED

18 of the Limitation Act. Section 18 of the Limitation Act gets attracted the moment acknowledgment in writing signed by the party against whom such right to initiate resolution process under Section 7 IBC enures. Section 18 of the Limitation Act would come into play every time when the principal borrower and/or the corporate guarantor (corporate debtor), as the case may be, acknowledge their liability to pay the debt. Such acknowledgment, however, must be before the expiration of the prescribed period of limitation including the fresh period of limitation due to acknowledgment of the debt, from time to time, for institution of the proceedings under Section 7 IBC. Further, the acknowledgment must be of a liability in respect of which the financial creditor can initiate action under Section 7 IBC. (emphasis supplied) 11. An acknowledgement in a balance sheet without a qualification can be relied upon for the purpose of the proceedings under the IBC. This principle also emerges from the decision in Asset Reconstruction Company (supra), which noted the decisions in Sesh Nath Singh (supra) and Laxmi Pat Surana (supra). This Court held: 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 auditors 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, that there is a compulsion in law to prepare a balance sheet but no compulsion to make any particular admission, is correct in law as it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgment of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act. 12. The decisions in Sesh Nath Singh (supra), Laxmi Pat Surana (supra) and Asset Reconstruction Company (supra) have subsequently been followed in numerous decisions of this Court delivered by two-Judge Benches, namely: (i) Dena Bank v C. Shivakumar Reddy (2021) 10 SCC 330 ; (ii) State Bank of India v Vibha Agro Tech Limited 2021 SCC OnLine SC 1297 ; (iii) Devas Multimedia Private Ltd. v Antrix Corporation Ltd. and Another 2022 SCC OnLine SC 46 ; and (iv) SVG Fashions Pvt. Ltd. (Earlier Known As SVG Fashions Ltd.) v Ritu Murli Manohar Goyal and Another 2022 SCC OnLine SC 373 . Besides the above decisions, there is a more recent decision of a three-Judge Bench of this Court in Rajendra Narottamdas Sheth and Another v Chandra Prakash Jain and Another 2021 SCC OnLine SC 843, where, speaking for the Bench, Justice L Nageswara Rao held: 25. We have already held that the burden of prima facie proving occurrence of the default and that the application filed under Section 7 of the Code is within the period of limitation, is entirely on the financial creditor. While the decision to admit an application under Section 7 is typically made on the basis of material furnished by the financial creditor, the Adjudicating Authority is not barred from examining the material that is placed on record by the corporate debtor to determine that such application is not beyond the period of limitation. Undoubtedly, there is sufficient material in the present case to justify enlargement of the extension period in accordance with Section 18 of the Limitation Act and such material has also been considered by the Adjudicating Authority before admitting the application under Section 7 of the Code. The plea of Section 18 of the Limitation Act not having been raised by the Financial Creditor in the application filed under Section 7 cannot come to the rescue of the Appellants in the facts of this case. It is clarified that the onus on the financial creditor, at the time of filing an application under Section 7, to prima facie demonstrate default with respect to a debt, which is not time-barred, is not sought to be diluted herein. In the present case, if the documents constituting acknowledgement of the debt beyond April, 2016 had not been brought on record by the Corporate Debtor, the application would have been fit for dismissal on the ground of lack of any plea by the Financial Creditor before the Adjudicating Authority with respect to extension of the limitation period and application of Section 18 of the Limitation Act. 13. In view of the above decisions, the position of law has been set at rest. Neither the NCLT nor the NCLAT had the benefit of adjudicating upon the factual controversy in the context of the decisions of this Court. The principles which emerge are that: (i) The provisions of Section 18 of the Limitation Act are not alien to and are applicable to proceedings under the IBC; and (ii) An acknowledgement in a balance sheet without a qualification can furnish a legitimate basis for determining as to whether the period of limitation would stand extended, so long as the acknowledgement was within a period of three years from the original date of default. 14. At this stage, we may also note that Mr Niranjan Reddy has relied upon documentary material to indicate that the acknowledgements of liability were within a period of three years from the date of default and, hence, the applicant filed by the appellant under Section 7 of the IBC was within limitation. Reliance has also been placed on the letter of revival dated 26 April 2015 and the offer of OTS on 6 November 2015.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]8. The NCLT placed reliance on the judgment in V Padmakumar (supra). The decision in the above case has been specifically overruled in a judgment of a three-Judge Bench of this Court in Asset Reconstruction Company (India) Limited v Bishal Jaiswal and Another (2021) 6 SCC 366  (Asset Reconstruction Company) , where Justice R F Nariman, speaking for the Bench, held:46. It is, therefore, clear that the majority decision of the Full Bench in V. Padmakumar is contrary to the aforesaid catena of judgments. The minority judgment of Justice (Retd.) A.I.S. Cheema, Member (Judicial), after considering most of these judgments, has reached the correct conclusion. We, therefore, set aside the majority judgment of the Full Bench of NCLAT dated 12-3-2020.9. Apart from the above decision, it is also necessary to note that the provisions of Section 18 of the Limitation Act were held applicable to IBC proceedings by a twoJudge Bench of this Court in Sesh Nath Singh v Baidyabati Sheoraphuli Coop. Bank Ltd. (2021) 7 SCC 313  (Sesh Nath Singh) .10. While the observation in Sesh Nath Singh (supra) was obiter dicta, the matter has been set at rest in a decision of a three-Judge Bench of this Court in Laxmi Pat Surana v Union Bank of India and Another (2021) 8 SCC 481  (Laxmi Pat Surana) , where, speaking for the Bench, Justice A M Khanwilkar has held:42. Notably, the provisions of the Limitationhave been made applicable to the proceedings under the Code, as far as may be applicable. For, Sectionpredicates that the provisions of the Limitationshall, as far as may be, apply to the proceedings or appeals before the adjudicating authority, NCLAT, the DRT or the Debt Recovery Appellate Tribunal, as the case may be. After enactment of SectionIBC on 6-6-2018, validity whereof has been upheld by this Court, it is not open to contend that the limitation for filing application under SectionC would be limited to Article 137 of the Limitationand extension of prescribed period in certain cases could be only under Section 5 of the Limitation Act. There is no reason to exclude the effect of Section 18 of the Limitation Act to the proceedings initiated under the Code.43. Ordinarily, upon declaration of the loan account/debt as NPA that date can be reckoned as the date of default to enable the financial creditor to initiate action unders into play when the corporate debtor commits default. Sectiony uses the expression default — not the date of notifying the loan account of the corporate person as NPA. Further, the expression default has been defined in Sectiono mean non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be. In cases where the corporate person had offered guarantee in respect of loan transaction, the right of the financial creditor to initiate action against such entity being a corporate debtor (corporate guarantor), would get triggered the moment the principal borrower commits default due to non-payment of debt. Thus, when the principal borrower and/or the (corporate) guarantor admit and acknowledge their liability after declaration of NPA but before the expiration of three years therefrom including the fresh period of limitation due to (successive) acknowledgments, it is not possible to extricate them from the renewed limitation accruing due to the effect of Section 18 of the Limitation Act. Section 18 of the Limitationgets attracted the moment acknowledgment in writing signed by the party against whom such right to initiate resolution process under Section 7 IBC enures. Section 18 of the Limitation Act would come into play every time when the principal borrower and/or the corporate guarantor (corporate debtor), as the case may be, acknowledge their liability to pay the debt. Such acknowledgment, however, must be before the expiration of the prescribed period of limitation including the fresh period of limitation due to acknowledgment of the debt, from time to time, for institution of the proceedings under Section. Further, the acknowledgment must be of a liability in respect of which the financial creditor can initiate action under Section(emphasis supplied)11. An acknowledgement in a balance sheet without a qualification can be relied upon for the purpose of the proceedings under the IBC. This principle also emerges from the decision in Asset Reconstruction Company (supra), which noted the decisions in Sesh Nath Singh (supra) and Laxmi Pat Surana (supra). This Court held: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 Companiesis 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 auditors 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, that there is a compulsion in law to prepare a balance sheet but no compulsion to make any particular admission, is correct in law as it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgment of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act.12. The decisions in Sesh Nath Singh (supra), Laxmi Pat Surana (supra) and Asset Reconstruction Company (supra) have subsequently been followed in numerous decisions of this Court delivered by two-Judge Benches, namely: (i) Dena Bank v C. Shivakumar Reddy (2021) 10 SCC 330  ; (ii) State Bank of India v Vibha Agro Tech Limited 2021 SCC OnLine SC 1297 ; (iii) Devas Multimedia Private Ltd. v Antrix Corporation Ltd. and Another 2022 SCC OnLine SC 46 ; and (iv) SVG Fashions Pvt. Ltd. (Earlier Known As SVG Fashions Ltd.) v Ritu Murli Manohar Goyal and Another 2022 SCC OnLine SC 373 . Besides the above decisions, there is a more recent decision of a three-Judge Bench of this Court in Rajendra Narottamdas Sheth and Another v Chandra Prakash Jain and Another 2021 SCC OnLine SC 843, where, speaking for the Bench, Justice L Nageswara Rao held:25. We have already held that the burden of prima facie proving occurrence of the default and that the application filed under Section 7 of the Code is within the period of limitation, is entirely on the financial creditor. While the decision to admit an application under Sections typically made on the basis of material furnished by the financial creditor, the Adjudicating Authority is not barred from examining the material that is placed on record by the corporate debtor to determine that such application is not beyond the period of limitation. Undoubtedly, there is sufficient material in the present case to justify enlargement of the extension period in accordance with Section 18 of the Limitation Act and such material has also been considered by the Adjudicating Authority before admitting the application under Section 7 of the Code. The plea of Section 18 of the Limitation Act not having been raised by the Financial Creditor in the application filed under Sectiont come to the rescue of the Appellants in the facts of this case. It is clarified that the onus on the financial creditor, at the time of filing an application under Sectiono prima facie demonstrate default with respect to a debt, which is not time-barred, is not sought to be diluted herein. In the present case, if the documents constituting acknowledgement of the debt beyond April, 2016 had not been brought on record by the Corporate Debtor, the application would have been fit for dismissal on the ground of lack of any plea by the Financial Creditor before the Adjudicating Authority with respect to extension of the limitation period and application of Section 18 of the Limitation Act.13. In view of the above decisions, the position of law has been set at rest. Neither the NCLT nor the NCLAT had the benefit of adjudicating upon the factual controversy in the context of the decisions of this Court. The principles which emerge are that:(i) The provisions of Section 18 of the Limitation Act are not alien to and are applicable to proceedings under the IBC; and(ii) An acknowledgement in a balance sheet without a qualification can furnish a legitimate basis for determining as to whether the period of limitation would stand extended, so long as the acknowledgement was within a period of three years from the original date of default.