The Supreme Court of India ("SC"), in its decision in the matter of IL&FS Financial Services Limited v. Adhunik Meghalaya Steels Private Limited, Civil Appeal No. 5787 of 2025 dated July 29, 2025 ("Adhunik Judgment"), held that balance sheets, when read in conjunction with corporate debtor's financial statements (especially cash flow statements) from previous years, constituted as a valid acknowledgment of debt under Section 18 of the Limitation Act, 1963 ("Limitation Act"), even where the name of the relevant financial creditor is not specifically mentioned in the balance sheet of the corporate debtor.
Factual Background
1. Adhunik Meghalaya Services Limited, the corporate debtor ("CD"), availed a term loan facility from IL&FS Financial Services Limited, the financial creditor ("FC"), pursuant to a loan agreement dated February 27, 2015.
2. The CD's account was classified as a non-performing asset on March 1, 2018.
3. A recall notice dated August 10, 2018 was issued by the FC. The loan was acknowledged by the CD in certain audited financial statements from 2014-2015 to 2019-2020. Furthermore, the balance sheet for the financial year 2019-20 was duly approved by the board of directors of the CD on August 12, 2020 and filed with the Ministry of Corporate Affairs ("MCA") on February 14, 2021 ("Relevant Balance Sheet").
4. During the COVID-19 pandemic, the SC took suo motu cognizance of the difficulties faced by litigants due to delays in filing cases. Through a series of orders, it extended the limitation period for all proceedings from March 15, 2020 to February 28, 2022 ("SC Suo Motu Orders").
5. The FC relied on the Relevant Balance Sheet and the SC Suo Motu Orders to file its application under Section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC") on January 15, 2024 against the CD, citing a default amount of Rs. 55,45,97,395 (Rupees fifty-five crore forty-five lac ninety-seven thousand three hundred ninety-five).
Proceedings in NCLT and NCLAT
The National Company Law Tribunal, Guwahati Bench ("NCLT") rejected the FC's claim, holding that there was no acknowledgment of liability in the Relevant Balance Sheet, as the FC's name was not mentioned therein. The FC appealed the order before the National Company Law Appellate Tribunal, New Delhi ("NCLAT"), which upheld the NCLT's decision. The NCLAT further clarified that, in such cases, the limitation period must be computed from the date of signing the Relevant Balance Sheet and not from the date of its filing with the MCA. Aggrieved by this order, the FC filed an appeal before the SC.
Contentions before the SC
Contentions of the CD
The CD contended that since the name of the FC was not mentioned in the Relevant Balance Sheet, the same cannot be construed as a valid acknowledgment of any jural relationship between the FC and the CD as required under the Limitation Act. Furthermore, the CD argued that the scope of enquiry of the adjudicating authority under Section 7 of the IBC is limited to determining if there was a debt and default of such debt.
Contentions of the FC
The FC contended that there was a valid acknowledgment of debt under Section 18 of the Limitation Act in the Relevant Balance Sheet. The FC further argued that even taking the date of signing the Relevant Balance Sheet (August 12, 2020) as the starting point, the limitation period would ordinarily run until August 11, 2023. However, the SC Suo Motu Orders provides that the entire period from March 15, 2020 to February 28, 2022 stands excluded for the purpose of computing limitation. Accordingly, when this excluded period is factored in, the limitation would extend to February 27, 2025. As the Section 7 application was filed on January 15, 2024, it falls well within the extended limitation period.
Decision of the SC
The SC relied on its decision in Khan Bahadur Shapoor Fredoom Mazda v. Durga Prasad Chamaria, 1961 SCC OnLine SC 147, to conclude that the acknowledgment under Section 18 of the Limitation Act must indicate the jural relationship between the parties such as that of debtor and creditor in respect of a subsisting liability. The SC further observed that it could not be disputed that the entries in balance sheets would constitute as a valid acknowledgement of debt in light of its categoric pronouncement in the case of Asset Reconstruction Company (India) Limited v. Bishal Jaiswal, (2021) 6 SCC 366 ("Asset Reconstruction Case"). Furthermore, the SC observed that vide its judgment in Vidyasagar Prasad v. UCO Bank, 2024 SCC OnLine SC 2993, the SC had affirmed the finding of the relevant national company law appellate tribunal wherein the tribunal had held that the company's balance sheet was prepared in the statutory format as per Schedule 3 of the Companies Act, 2013, which did not provide for giving the specific name of every creditor.
Considering the above judgements, the SC ruled that the entries in the Relevant Balance Sheet, when considered along with the balance sheets for financial years 2015–16 to 2017–18, and corresponding cash flow statements constituted a valid acknowledgment of debt under Section 18 of the Limitation Act. Furthermore, the SC held that Para 5(I) of the SC's order dated January 10, 2022 was applicable to the present fact scenario and excluded the period from March 15, 2020 to February 28, 2022, thereby extending the limitation period. The Section 7 application, having been filed on January 15, 2024, was thus held to be within time. Consequently, the SC set aside the orders of the NCLT and NCLAT and remitted the matter to the NCLT for adjudication on merits.
Conclusion
It has been a well-established principle that entries in balance sheet constitute an acknowledgment of debt and the SC had affirmed the same in the Asset reconstruction Case. However, the Adhunik Judgment clarifies that the principle would still be applicable if the entries in the balance sheets of the corporate debtor constituted a valid acknowledgment of debt even where the name of the financial creditor was not specifically mentioned, especially when read in conjunction with previous financial statements of the corporate debtor. This clarification is particularly significant, as it ensures that lenders are not deprived of a critical legal remedy due to the absence of express mention in a single financial document, thereby preventing the loss of rights on the basis of a mere technicality.
Please find attached a copy of the Judgement, here.
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