The National Company Law Appellate Tribunal, Chennai Bench ("NCLAT") in its recent judgement 'Lakshmi Narayan Sharma v. Punjab National Bank'1, held that 'balance and security confirmation letters' would amount to sufficient 'acknowledgment of debt' to extend limitation under Section 18 of the Limitation Act, 1963 ("Limitation Act") for initiating insolvency proceedings.


M/s Saptarishi Hotels Pvt. Ltd. ("Corporate Debtor") along with Maha Hotels Projects Pvt. Ltd. was awarded a public private partnership project to develop and operate a four-star hotel on build operate transfer basis with the National Institute of Tourism and Hospitality Management. To facilitate the project, the Corporate Debtor was sanctioned a 'consortium loan' by Punjab National Bank ("Respondent No. 1") along with Punjab & Sindh Bank as per a 'consortium loan agreement' and 'sanction letters'.

Due to several delays and complications in the completion of the project, the Corporate Debtor defaulted in its interest payments. Against such default, Respondent No. 1 preferred an application under Section 7 (Section 7 Application) of the Insolvency and Bankruptcy Code, 2016 ("IBC") on 18 July 2019 before the National Company Law Tribunal, Hyderabad Bench, ("Adjudicating Authority").

The Adjudicating Authority vide its order dated 18 January 2021 ("Impugned Order") admitted the Section 7 Application filed by Respondent No. 1, holding that the financial creditor had established the 'debt and default' through various documents filed, and thus declared the moratorium under Section 14 of the IBC.

The Impugned Order came to be challenged before the NCLAT by a Promoter/Suspended Director of the Corporate Debtor ("Appellant") as an aggrieved person.

Contentions of the parties

The Appellant sought to challenge the correctness of the Impugned Order on the ground of limitation. The Appellant contended that the Section 7 Application was preferred beyond the prescribed limitation period and the Adjudicating Authority committed grave error in admitting the same. As per the Appellant, the date of default for all facilities given by Respondent No. 1, as per the Section 7 Application was 30 March 2016, whereas the Section 7 Application was filed only on 18 July 2019 which is beyond the three (3) year period of limitation. The Appellant drew support from the judgement of the Supreme Court in 'Babulal Varsharji Gurjar v. Veer Gurjar Aluminum Industries Pvt. Ltd. & Anr.'2 to strengthen its case.

Respondent No. 1 on the other hand attempted to dispel the challenge on limitation, contending that the period of limitation stood extended by virtue of Sections 18 & 19 of the Limitation Act. Respondent No. 1 pointed out that the express acknowledgments of liability had been made in the 'balance and security confirmation letters' executed by the guarantors on 20 February 2018. Further, certain part payments were also made by the Corporate Debtor on 15 October 2018. Therefore, the Impugned Order was free of any infirmities. Reliance was placed on the judgement in 'Yogeshkumar Jashwantlal Thakkar v. Indian Overseas Bank & Anr.'3 by Respondent No. 1 to strengthen its case.


The NCLAT observed that the default in repayment of loan by the Corporate Debtor was an admitted fact between the parties before it. In fact, Respondent No. 1 had even issued a notice to the Corporate Debtor on 2 June 2016 under Section 13 (2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Corporate Debtor had failed to pay the debt despite lapse of the sixty (60) day time period given to it.

The NCLAT then took note of the fact that the Supreme Court in its judgment titled 'Asset Reconstruction Company India Ltd. v Bishal Jaiswal and Anr.' had settled a live issue on the interplay between the IBC and the Limitation Act. The Supreme Court held in definite terms that the entries in the balance sheets of a corporate debtor would amount to an acknowledgement of liability under Section 18 of the Limitation Act, thereby extending the period of limitation. In doing so, the Supreme Court expressly set aside the judgement of the NCLAT in 'V. Padmakumar v. Stressed Assets Stabilization Fund'4, terming it as bad law which had held to the contrary on the same proposition of law.

The NCLAT elucidated the law as under Section 18 of the Limitation Act to state, that the provision does not enjoin that an 'acknowledgement' has to be in any specific form or to be express. The acknowledgment in each case has to be examined resting upon the attendant circumstances to conclude an admission that the writer owes a 'debt'. Further, to be treated as an acknowledgement, the writer must be conscious of his liability and the commitment ought to be made in respect of such liability.

The NCLAT observed that in the instant case, the guarantors of the Corporate Debtor had executed 'balance and security confirmation letters' dated 20 February 2018 in respect of the accounts of the Corporate Debtor, thereby acknowledging the 'debt' in unequivocal terms. The NCLAT noted that under the 'balance and security confirmation letters', the guarantors had expressly confirmed the correctness of the debit balance. It further noted that on 15 October 2018 a sum of INR 15,262.75/- was also paid by the Corporate Debtor against the loan account.

The NCLAT was of the view that there was in fact an acknowledgment of debt as understood under Section 18 of the Limitation Act, terming it as an irresistible, inevitable and inescapable conclusion in light of the 'balance and security confirmation letters'. The period of limitation thus stood extended by virtue of the acknowledgement.

The NCLAT concluded that the Section 7 Application preferred by Respondent No. 1 in July 2019 was maintainable in law and well within the period of limitation. The NCLAT stated that Respondent No. 1 had not only proved the existence of debt but had also proved the default through documents filed along with its application and there was no error committed by the Adjudicating Authority in admitting said application. The appeal was accordingly dismissed.


1. (2021) SCC OnLine NCLAT 155

2. (2020) SCC OnLine SC 647

3. (2020) SCC OnLine NCLAT 636

4. Company Appeal (AT) (Insolvency) No. 57 of 2020 (decided on 12 March 2020)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.