How to appreciate evidence if there is an acknowledgement of liability in the Company's balance sheet for extension of limitation as per S 18 of the Limitation Act?

 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 acknowledgements 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 (supra), 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 acknowledgement of liability has, in fact, been made, thereby extending limitation Under Section 18 of the Limitation Act.{Para 22}

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 323 of 2021, 3228, 3765 of 2020, 

Decided On: 15.04.2021

 Asset Reconstruction Company (India) Limited

Vs. Bishal Jaiswal and Ors.

Hon'ble Judges/Coram:

Rohinton Fali Nariman, B.R. Gavai and Hrishikesh Roy, JJ.

Author: Rohinton Fali Nariman, J.

Citation: MANU/SC/0279/2021

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Whether the appellate court can remand a case if trial court has not correctly applied principles of acknowledgment of liability as per S 18 of limitation Act?

 Unfortunately NCLAT completely overlooked the pleadings revolving around the letter dated 28.09.2015 and the six cheques. The failure of the NCLAT as the first appellate authority to look into a very vital aspect such as this, vitiates its order, especially when NCLT has recorded a specific finding of fact on this.

{Para 8}

9. It is needless to point out that the law relating to the applicability of Section 18 of the Limitation Act, 1963 is fairly well settled. In Jignesh Shah and Anr. v. Union of India and Anr. MANU/SC/1319/2019 : (2019) 10 SCC 750, this Court pointed out that when time begins to run, it can only be extended in the manner provided in the Limitation Act. For holding so this Court made a reference to Section 18 of the Limitation Act. Though in Babu Lal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Private Limited and Anr. MANU/SC/0589/2020 : (2020) 15 SCC 1, a two member Bench of this Court held that the reference in Jignesh Shah (supra) to Section 18 of the Limitation Act was only illustrative and that the ratio in B.K. Educational Services Private Limited v. Parag Gupta and Associates MANU/SC/1160/2018 : (2019) 11 SCC 633 did not stand altered by Jignesh Shah, no discordant note was struck. But the cloud of doubt created by Babu Lal (supra) was cleared subsequently in Laxmi Pat Surana v. Union Bank of India and Anr. MANU/SC/0221/2021 : (2021) 8 SCC 481. In Asset Reconstruction Co. (India) Limited v. Bishal Jaiswal and Anr. MANU/SC/0279/2021 : (2021) 6 SCC 366, this Court, while applying Section 18 of the Limitation Act, even went to the extent of holding that an entry in the balance sheet of the company could also be treated as an acknowledgment in writing, subject however to any caveat found in the accompanying reports.

10. The law as it has developed on the applicability of Section 18 of the Limitation Act and the circumstances in which it would apply, have also not been examined by NCLAT. Therefore, the order of NCLAT is liable to be set aside and the matter liable to be remanded back for a fresh consideration. 

 IN THE SUPREME COURT OF INDIA

Civil Appeal No. 4228 of 2020

Decided On: 29.03.2022

SVG Fashions Pvt. Ltd. (Earlier Known as SVG Fashions Ltd.)

Vs. Ritu Murli Manohar Goyal and Ors.

Hon'ble Judges/Coram:

Hemant Gupta and V. Ramasubramanian, JJ.

Author: V. Ramasubramanian, J.

Citation: MANU/SC/0370/2022

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Whether acknowledgement of liability in the balance sheet by a Company extends the period of limitation U/S 18 of limitation Act?

 In Zest Systems Pvt. Ltd. v. Center for Vocational and

Entrepreneurship Studies, 2018 SCC OnLine Del 12116, the Delhi High Court held:

“5. In Shahi Exports Pvt. Ltd. v. CMD Buildtech Pvt. Ltd. (supra)

this court held as follows:—

“7. It is hardly necessary to cite authorities in support

of the well-established position that an entry made in

the company's balance sheet amounts to an

acknowledgement of the debt and has the effect of

extending the period of limitation under section 18 of

the Limitation Act, 1963. However, I may refer to only

one decision of the learned single judge of this Court

(Manmohan, J.) in Bhajan Singh Samra v. Wimpy

International Ltd., 185 (2011) DLT 428 for the simple

reason that it collects all the relevant authorities on the

issue, including some of the judgments cited before me

on behalf of the petitioners. This judgment entirely

supports the petitioners on this point.”{Para 31}

6. In view of the legal position spelt out in judgments noted

above, the acknowledgement of the debt in the balance sheet

extends the period of limitation. The acknowledgement is as on

31.3.2015. This suit is filed in 2017. The suit is clearly within

limitation. The present application is allowed.”

32. In Agni Aviation Consultants v. State of Telangana, 2020 SCC

OnLine TS 1462 : (2020) 5 ALD 561, the High Court of Telangana held:

“107. In several cases, various High Courts have held that an

acknowledgement of liability in the balance sheet by a

Company registered under the Companies Act, 1956 extends

the period of limitation though it is not addressed to the creditor

specifically. (Zest Systems Pvt. Ltd. v. Center for Vocational

and Entrepreneurship Studies, 2018 SCC OnLine Del 12116,

Bhajan Singh Samra v. Wimpy International Ltd., 2012 SCC

OnLine Del 2939, Vijay Kumar Machinery and Electrical Stores

v. Alaparthi Lakshmi Kanthamma, (1969) 74 ITR 224 (AP), and

Bengal Silk Mills Company, Raja of Vizianagram v. Official

Liquidator, Vizianagram Mining Company Limited, AIR 1952

Mad 1361).

108. Therefore it is not necessary that the acknowledgement of

liability must be contained in a document addressed to the

creditor i.e. the petitioners in the instant case.”

33. It is, therefore, clear that the majority decision of the Full Bench in V. Padmakumar (supra) 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 the NCLAT dated 12.03.2020.

 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.323 OF 2021

ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED 

Vs BISHAL JAISWAL 

Author: R.F. Nariman, J.

Dated:April 15, 2021.

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