Whether an entry of debt made in the balance sheet can amount to an acknowledgement of liability as per S 18 of the Limitation Act?

 Going by the above provisions, a balance sheet is the statement of assets and liabilities of the company as at the end of the financial year, approved by the Board of Directors and authenticated in the manner provided by law. The persons who authenticate the document do so in their capacity as agents of the company. The inclusion of a debt in a balance sheet duly prepared and authenticated would amount to admission of a liability and therefore satisfies the requirements of law for a valid acknowledgement under S. 18 of the Limitation Act, even though the directors by authenticating the balance sheet merely discharge a statutory duty and may not have intended to make an acknowledgement.”

31. 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. 

 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.”

Supreme Court of India

Asset Reconstruction Company ... vs Bishal Jaiswal on 15 April, 2021

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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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