Entries in the Balance Sheet constitute valid acknowledgment under Section 18 of the Limitation Act, 1963 even without creditor name

General
1

Case note for the Supreme Court judgment in IL & FS Financial Services Ltd. v. Adhunik Meghalaya Steels Pvt. Ltd., Civil Appeal No. 5787 of 2025, decided on 30 July 2025:

Case Note

Case Title:

IL & FS Financial Services Ltd. v. Adhunik Meghalaya Steels Pvt. Ltd.

Citation:

2025 INSC 911
Civil Appeal No. 5787 of 2025
Decided on: 30 July 2025
Coram: Justice Manoj Misra & Justice K.V. Viswanathan

Facts:

  • A loan agreement dated 27.02.2015 for ₹30 crores was executed between the appellant (IL&FS Financial Services Ltd.) and the respondent (Adhunik Meghalaya Steels Pvt. Ltd.).
  • The loan was secured by pledge of 8,10,804 shares of Adhunik Metaliks Ltd.
  • The respondent’s account was declared a Non-Performing Asset (NPA) on 01.03.2018.
  • A recall notice was issued on 10.08.2018, but no repayment was made.
  • The appellant filed a Section 7 IBC application on 15.01.2024, claiming default of ₹55.45 crore.
  • The application was dismissed by NCLT Guwahati and upheld by NCLAT, both holding it was barred by limitation.

Issues:

  1. Whether the entries in the Balance Sheet of FY 2019–20 constituted a valid acknowledgment under Section 18 of the Limitation Act, 1963?
  2. Whether the Section 7 IBC application filed on 15.01.2024 was within limitation, particularly in light of the Supreme Court’s COVID-19 extension orders?

Appellant’s Contentions:

  • The Balance Sheet for FY 2019–20, signed on 12.08.2020, showed the continuing liability and thus extended limitation.
  • Invoked Section 18 of the Limitation Act, claiming fresh limitation till 11.08.2023.
  • Cited Supreme Court’s suo moto COVID-19 order dated 10.01.2022, arguing that the period from 15.03.2020 to 28.02.2022 should be excluded.
  • Hence, limitation extended till 27.02.2025, making the filing on 15.01.2024 timely.

Respondent’s Contentions:

  • The Balance Sheet did not name the creditor (IL&FS) or refer to any specific debt, hence not a valid acknowledgment.
  • Limitation expired on 30.05.2022 even with COVID relaxation, thus the petition was time-barred.
  • Denied that a balance sheet alone could revive a time-barred claim.

Supreme Court’s Observations:

  • Reaffirmed that acknowledgment of debt in a balance sheet, even without explicitly naming the creditor, can extend limitation if it reflects a jural relationship and subsisting liability.

  • Cited Khan Bahadur Shapoor, Lakshmirattan Cotton Mills, and Bishal Jaiswal to emphasize:

    • Intention to acknowledge liability can be inferred from the nature and context of entries.
    • Courts may consider surrounding circumstances to interpret such acknowledgment.

  • Found that the Balance Sheet of FY 2019–20:

    • Showed consistent borrowing across previous years.
    • No repayments were made.
    • Reflected the same liability under “secured borrowings”.

  • Held that the acknowledgment on 12.08.2020 extended the limitation to 11.08.2023, and after excluding COVID period, the effective limitation ran till 28.02.2025.

  • Section 7 application filed on 15.01.2024 was within limitation.

Held:

  • Allowed the appeal.
  • Set aside the orders of NCLT Guwahati (16.05.2024) and NCLAT (25.03.2025).
  • Remitted the matter to NCLT for reconsideration on merits.
  • Clarified that Para 5(I) (and not Para 5(III)) of the Supreme Court’s COVID order of 10.01.2022 applied in this case.

Significance:

  • Reiterates that balance sheet entries even without creditor name can serve as acknowledgment under Section 18 of the Limitation Act.
  • Clarifies the applicability of COVID-19 limitation extension orders in the context of IBC applications.
  • Reinforces a liberal and contextual approach in interpreting acknowledgments of liability.