ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v. BISHAL JAISWAL & ANR.

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A Similar findings have also been recorded by the Calcutta High Court in Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, AIR 1962 Cal 115, paragraph 12, and Raja of Vizianagram v. The Official Liquidator, Vizianagram Mining Company Limited, Vizagapatam, AIR 1952 Mad 136. Indeed, the entry admits such liability towards JSPL for the amount claimed, and no explanation B that may be provided, or circumstance surrounding the entry, can alter the fact of that liability. Thus, while this admission establishes liability, the fact is traced to the exchange of letters mentioned above, thus bringing the case within Order XXXVII CPC.”

30Copy pinpoint30. In M/s. Al-Ameen Limited v. K.P. Sethumadhavan, 2017 C SCC OnLine Ker 11337 : (2017) 4 KLJ 80, the Kerala High Court held: “7. The inclusion of a debt in a balance sheet duly prepared and authenticated would amount to admission of a liability and therefore satisfies the requirement of law for a valid acknowledgement under Section 18 of the Act. We may recapitulate the words of Mr. D Justice P. Subramonian Poti in Krishnan Assari v. Akilakerala Viswakarma Maha Sabha [1980 KLT 515 (DB)] and the following is the extract: “10. How far the balance sheets could be acted upon in deciding the claim of the appellant is the next question. The appellant E relies on the balance sheets as acknowledgement of liability contemplated in S. 18 of the Limitation Act, 1963. Under S. 18 an acknowledgement of liability signed by the party against whom the right is claimed gives rise to a fresh period of limitation. Under Explanation (b) to the Section the word F ‘signed’ means signed either personally or by an agent duly authorised. A company being a corporate body acts through its representatives, the Managing Director and the Board of Directors. Under S. 210 of the Companies Act it is the statutory duty of the Board of Directors to lay before the Company at every annual general body meeting a balance sheet and a profit G and loss account for the preceding financial year. S. 211 directs that the form and contents of the balance sheet should be as set out in Part I of Schedule VI. The said form stipulates for the details of the loans and advances and also of sundry creditors. The balance sheet should be approved by the Board H of Directors, and thereafter authenticated by the Manager or

ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v. 569 BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]

the Secretary if any and not less than two directors one of whom should be the Managing Director. (See S. 215). The Act also provides for supply of copies of the balance sheet to the members before the company in general meeting. 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.”

31Copy pinpoint31. In Zest Systems Pvt. Ltd. v. Center for Vocational and D 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 E 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 F (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.” G

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.” H

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32Copy pinpoint32. 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 B 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. C 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 D liability must be contained in a document addressed to the creditor i.e. the petitioners in the instant case.”

33Copy pinpoint33. 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, E 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.

34Copy pinpoint34. The NCLAT, in the impugned judgment dated 22.12.2020, has, without reconsidering the majority decision of the Full Bench in F V. Padmakumar (supra), rubber-stamped the same. We, therefore, set aside the aforesaid impugned judgment also.

35Copy pinpoint35. On the facts of this case, the NCLT, by its judgment dated 19.02.2020, recorded that the default in this case had been admitted by the corporate debtor, and that the signed balance sheet of the corporate G debtor for the year 2016-2017 was not disputed by the corporate debtor. As a result, the NCLT held that the Section 7 application was not barred by limitation, and therefore, admitted the same. We have already set aside the majority judgment of the Full Bench of the NCLAT dated 12.03.2020, and the impugned judgment of the NCLAT dated 22.12.2020 in paragraphs 33 and 34. This appeal is, therefore, allowed, and the matter H

ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v. 571 BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]

is remanded to the NCLAT to be decided in accordance with the law laid down in our judgment. Civil Appeal No.3 of 2021

1. This appeal raises a direct challenge to the majority judgment of the Full Bench of the NCLAT dated 12.03.2020. Suffice it to say that Shri Shyam Divan, learned Senior Advocate appearing on behalf of the appellant-financial creditor, relied upon this Court’s judgment in Vashdeo R. Bhojwani v. Abhyudaya Coop. Bank Ltd., (2019) 9 SCC 158, to argue that limitation starts running from the date a recovery certificate has been obtained pursuant to proceedings before the Debts Recovery Tribunal under the Recovery of Debts Act. On facts, he argued that such a certificate was issued on 31.08.2009 after which, there were several letters written by the corporate debtor, M/s Uttara Fashion Knitwear Ltd., acknowledging liability to pay loans that had been availed by it. He pointed out that whereas the NCLT had, by an order dated 21.11.2019, admitted the appellant’s application under Section 7 of the IBC; the NCLAT had, vide the impugned judgment, set aside the NCLT D order on the ground that an entry in a balance sheet cannot amount to an acknowledgement of liability for the purpose of Section 18 of the Limitation Act. As a matter of fact, he argued, in the alternative, that even if dues were stated to be recoverable on and from the loan-recall notice dated 31.10.2002, there were balance sheets right from 2002 up E till 2010, followed by various letters from the corporate debtor, which would show a consistent course of acknowledgement of liability, thereby extending limitation until the Section 7 application was filed by the appellant on 24.06.2019. He, therefore, argued that the present appeal be remanded to the NCLAT for decision on the point of limitation. F

2. Shri Jayesh Dolia, learned advocate appearing on behalf of the respondents, argued that since service was not effected on the respondents, nobody was present before the NCLT when it passed an ex parte order admitting the Section 7 application. In any event, he argued, that on the facts of this case, time began to run at least in 2002, and an application filed in 2019 obviously cannot be said to be within limitation, G as the three-year period under Article 137 of the Limitation Act has long expired.

3. We have already set aside the Full Bench judgment dated 12.03.2020 in Civil Appeal No.323 of 2021. Given the argument of Shri H

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A Dolia that service was not properly effected upon the respondents, it would be in the fitness of things to send the matter back to the NCLT for a de novo hearing. Parties are allowed to amend their pleadings, if necessary. The Civil Appeal is allowed in the aforesaid terms. Civil Appeal No.3765 of 2020

B 1. In this appeal, Shri Mukul Rohatgi, learned Senior Advocate appearing on behalf of the appellant, assails a judgment dated 14.10.2020 passed by the NCLAT. On the facts of this case, he candidly admits that despite the fact that an application under Section 7 of the IBC was filed on 23.07.2018, and amended once, no plea qua any acknowledgement of liability was made. The NCLT, by an order dated 14.12.2018, held that despite the fact that the corporate debtor’s account was declared to be a non-performing asset from 2010 onwards, since, according to the NCLT, there was a continuing cause of action in the facts of this case, the Section 7 application was admitted. In an appeal filed by the suspended Managing Director of the corporate debtor to the NCLAT, by an order dated 26.09.2019, the NCLAT held that the relevant date from which limitation must be determined is 01.12.2016, i.e. the date on which the IBC came into force, and therefore, dismissed the appeal. This Court, by its order dated 21.10.2019, set aside the order of the NCLAT and remanded the matter to the NCLAT to re-examine the question of limitation, having regard to the judgments in B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633 and Sagar Sharma v. Phoenix Arc (P) Ltd., (2019) 10 SCC 353.

2. The NCLAT, by the impugned order dated 14.10.2020, found that the appellant had classified the corporate debtor’s account as a F non-performing asset on 28.05.2014. However, the said date was changed to 31.01.2010 after an attempt to restructure the corporate debtor’s account failed. The three other banks forming part of the consortium of lenders, viz., Punjab National Bank, Corporation Bank, and UCO Bank, had also classified the account of the corporate debtor as a non-performing asset on 30.06.2014, 31.12.2014, and 31.12.2014, respectively. Even if G the date of default was taken to be the last of these dates, i.e. 31.12.2014, the NCLAT held that the three-year period under Article 137 of the Limitation Act had expired on 30.12.2017, and that since the amended application under Section 7 of the IBC had been filed only on 23.07.2018, it was barred by limitation. The NCLAT, therefore, allowed the appeal. H

ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v. 573 BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]

3. Shri Rohatgi pointed out that in the written submissions filed by the appellant on 21.09.2020, after judgment was reserved by the NCLAT on 17.09.2020, it was pointed out that the corporate debtor had acknowledged its liability in its balance sheet for the year 2014-2015, and that 31.01.2010 could not be taken to be the date of default for the reasons given in the written submissions. These written submissions were not taken into account when the NCLAT delivered the impugned judgment.

4. Shri C.A. Sundaram, learned Senior Advocate appearing on behalf of the respondents, has countered each of these submissions. According to him, written submissions can never be a substitute for pleadings, and if pleadings are deficient, there ends the matter. Admittedly, on facts, there has never been a pleading before either the NCLT or the NCLAT that an acknowledgement of liability contained in any of the balance sheets extended limitation. He also argued that, on merits, if the auditor’s report were to be seen, there is no acknowledgement of liability, as any so-called acknowledgement has, in fact, been qualified by notes made by the auditor. This being the case, no opportunity should now be given to the appellant to go back to the NCLAT, the appellant having already amended its pleadings once, and this Court having already remanded the matter to NCLAT, which, on the second round, decided the appeal in favour of the respondents. E

5. Shri Rohatgi countered this by presenting an application before us to amend the pleadings, stating that this can be allowed even at this stage, as per the judgments of this Court.

6. There can be no doubt whatsoever that the appellant has been completely remiss and deficient in pleading acknowledgement of liability F on the facts of this case. However, given the staggering amount allegedly due from the respondents, we afford one further opportunity to the appellant to amend its pleadings so as to incorporate what is stated in the written submissions filed by it before the NCLAT, subject to costs of Rs.1,00,000/- to be paid by the appellant to the respondents within a period of four weeks from today. G

7. We, therefore, allow the appeal, set aside the judgment of the NCLAT dated 14.10.2020, and restore the appeal to the file to be decided in light of our judgment in Civil Appeal No. 323 of 2021.

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A 8. Interim order passed by this Court on 16.12.2020 stands vacated. Civil Appeal No.3228 of 2020

1. In this appeal, the judgment of the NCLAT dated 07.02.2020 is assailed, in which the NCLAT has held that entries made in balance sheets of the corporate debtor for the years ending 2014-2015, 2015- B 2016, and 2016-2017 cannot amount to acknowledgements of liability, as a result of which the NCLT order admitting the appellant’s application under Section 7 of the IBC was set aside.

2. Suffice it to say that the basis of the Section 7 application in this case was a DRT decree dated 17.08.2018, pursuant to which a recovery certificate dated 19.06.2019 was issued. The Section 7 application averred that the date of the DRT decree furnished the cause of action and, thus, was the starting point of limitation in this case.

3. Shri Sidhartha Barua, learned counsel appearing on behalf of the appellant, has argued that this appeal deserves to be allowed and the matter sent back to the NCLAT to be decided in accordance with our judgment delivered in Civil Appeal No.323 of 2021.

4. Shri Saurabh Kirpal, learned Senior Advocate appearing on behalf of the respondents, has argued that no pleading qua acknowledgement of liability was made before either the NCLT or the E NCLAT. Instead, the only pleading that was made was that the date of default was the date on which the DRT decree was passed, which is wholly incorrect in law. The Section 7 application being hopelessly time barred, no opportunity should now be given to the appellant to renege on this pleading.

F 5. As decided by us in Civil Appeal No.323 of 2021, we give one more opportunity to the appellant in this case to amend its pleading on payment of costs of Rs.1,00,000/- to the respondents within four weeks from today. The NCLAT judgment dated 07.02.2020 is set aside and the matter is remanded to the NCLAT to decide the matter afresh in accordance with the law laid down in Civil Appeal No.323 of 2021. G Civil Appeal arising out of SLP (Civil) No.1168 of 2021

1. Leave granted.

2. This appeal is against the judgment dated 15.10.2020 of the Calcutta High Court which set aside two orders of the NCLT – (i) order H

ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED v. 575 BISHAL JAISWAL & ANR. [R. F. NARIMAN, J.]

dated 19.08.2019 whereby the NCLT admitted the appellant’s application under Section 7 of the IBC, and (ii) order dated 20.02.2020, whereby the NCLT ordered liquidation of the corporate debtor.

3. Shri Sanjay Kapur, learned counsel appearing on behalf of the appellant, assailed the judgment of the Calcutta High Court, and argued that an efficacious alternative remedy was available to the respondent before the NCLAT, as a result of which the High Court ought not to have interfered with the judgment of the NCLT. On the other hand, Shri Poddar, learned counsel appearing on behalf of the respondent, has sought to support the judgment of the High Court with reference to Kamlesh Babu v. Lajpat Rai Sharma, (2008) 12 SCC 577, and paragraph 23 in particular, stating that a jurisdictional point was raised as to limitation, as C a result of which the Calcutta High Court took up a petition filed under Article 227 of the Constitution of India and correctly set aside the orders of the NCLT.

4. There can be no doubt that the NCLT had, in its order dated 19.08.2019, stated that Article 63(a) of the Limitation Act would apply D instead of Article 137, contrary to what has been held by us in several judgments. It cannot, therefore, be said that the Calcutta High Court wrongly exercised jurisdiction in setting aside this finding. However, the High Court then went on to refer to certain balance sheets that had been produced, thereby extending limitation under Section 18 of the Limitation E Act, but held that given the judgment in Babulal (supra), such balance sheets could not extend limitation.

5. Given the judgment delivered in Civil Appeal No.323 of 2021, the impugned judgment in this appeal also deserves to be set aside. The appeal is, therefore, allowed. If the respondent wishes to file an appeal F before the NCLAT against the orders of the NCLT dated 19.08.2019 and 20.02.2020, it may do so within a period of four weeks from the date of this judgment. The appeal will thereafter be decided on its merits, keeping in view the statement of the law laid down in Civil Appeal No.323 of 2021. G

Devika Gujral Matters disposed of.