1. Loan default — Section 7 application under Insolvency and Bankruptcy Code — Dispute over limitation period and acknowledgment of debt via Balance Sheet entries. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 14 )
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2025 Supreme(SC) 1131
SUPREME COURT OF INDIA
MANOJ MISRA, K.V. VISWANATHAN, JJ.
IL & FS Financial Services Limited – Appellant
Versus
Adhunik Meghalaya Steels Private Limited – Respondent
Civil Appeal No. 5787 of 2025
Decided on : 29-07-2025
Important Points
The balance sheet can constitute a valid acknowledgment of debt under Section 18 of the Limitation Act, even without explicitly mentioning the creditor's name, provided it reveals a jural relationship and acknowledges subsisting liability.
Subject
Corporate Law - Insolvency
Act Referred
Headnote
(A) Insolvency and Bankruptcy Code, 2016 - Section 7 - Limitation Act, 1963 - Applicability of limitation to insolvency proceedings - The NCLT and NCLAT dismissed the appellant's application as time-barred; however, it was contended that the balance sheet signified an acknowledgment of debt. The court ruled that the balance sheet of F.Y. 2019-20 constituted a valid acknowledgment under Section 18 of the Limitation Act, thereby rendering the application timely due to recognized exclusions of limitation period due to COVID-19 extensions. (Paras 4, 14, 18, 32, 46)
(B) The significance of acknowledgment - The existence of jural relationship between debtor and creditor must be specified in writings for acknowledgment under Section 18 of the Limitation Act, and such acknowledgment may exist even if the creditor's name is omitted from relevant financial documents. (Paras 18, 24, 37)
(C) The role of balance sheets - The court identified that entries in financial statements can constitute valid acknowledgments but must be examined in their specific factual context. (Paras 18, 39)
(D)
Result: Application under Section 7 of IBC treated as filed within limitation, and earlier findings of NCLT/NCLAT set aside.
(B) The significance of acknowledgment - The existence of jural relationship between debtor and creditor must be specified in writings for acknowledgment under Section 18 of the Limitation Act, and such acknowledgment may exist even if the creditor's name is omitted from relevant financial documents. (Paras 18, 24, 37)
(C) The role of balance sheets - The court identified that entries in financial statements can constitute valid acknowledgments but must be examined in their specific factual context. (Paras 18, 39)
(D)
Result: Application under Section 7 of IBC treated as filed within limitation, and earlier findings of NCLT/NCLAT set aside.
Legal Category Hierarchy
Advocates Appeared:
For the Appellant(s) : M/S. Cyril Amarchand Mangaldas, AOR Mr. Raunak Dhillon, Adv. Ms. Aishwarya Gupta, Adv. Ms. Niharika Shukla, Adv. Mr. Jeezan Pakhliwal, Adv. Mr. Vikash Kumar Jha, Adv.
For the Respondent(s): Mr. Ramji Srinivasan, Sr. Adv. Mr. Pranav Sachdeva, AOR Mr. D N Sharma, Adv. Mr. Nilay Sengupta, Adv. Ms. Shefali Munde, Adv.
For the Appellant(s) : M/S. Cyril Amarchand Mangaldas, AOR Mr. Raunak Dhillon, Adv. Ms. Aishwarya Gupta, Adv. Ms. Niharika Shukla, Adv. Mr. Jeezan Pakhliwal, Adv. Mr. Vikash Kumar Jha, Adv.
For the Respondent(s): Mr. Ramji Srinivasan, Sr. Adv. Mr. Pranav Sachdeva, AOR Mr. D N Sharma, Adv. Mr. Nilay Sengupta, Adv. Ms. Shefali Munde, Adv.
Table of Contents
2. Whether Balance Sheet entries without creditor names constitute acknowledgment of debt under Section 18, Limitation Act, and the applicability of COVID-19 limitation extension orders. (Para 13 , 18 , 19 , 20 )
3. Balance Sheet entries, read with previous financials and cash flow statements, indicate a subsisting jural relationship and acknowledgment of debt, regardless of the creditor's name. (Para 23 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36 , 38 , 39 , 40 , 41 , 42 , 43 )
4. Acknowledgment of debt under Section 18, Limitation Act, can be inferred from Balance Sheet entries and surrounding circumstances to establish a jural relationship. (Para 26 , 27 , 33 , 39 , 41 )
5. Appeal allowed — Orders of NCLT and NCLAT set aside — Application held within limitation and remitted to the adjudicating authority for decision. (Para 47 )
6. Can entries in a company's Balance Sheet constitute a valid acknowledgment of debt under Section 18 of the Limitation Act?
Yes, but such entries must be examined on a case-by-case basis. Acknowledgment can be inferred if the entry, coupled with surrounding circumstances and other financial documents, indicates a subsisting jural relationship between the debtor and creditor. (Para 33 , 39 , 41 )
7. Is it necessary for the creditor's name to be specifically mentioned in a Balance Sheet for it to serve as an acknowledgment of debt?
No. Acknowledgment may be sufficient even if it omits specific details. The court can infer the jural relationship from the general tenor of the document and the context of previous financial statements. (Para 24 , 34 , 36 , 39 , 41 )
8. When does the exclusion of the period from 15.03.2020 to 28.02.2022 apply versus the 90-day limitation window under the Supreme Court's COVID-19 orders?
The total exclusion under Para 5(I) applies when the limitation period was still running. Para 5(III) applies only to cases where the limitation would have expired specifically during that excluded period. (Para 45 , 46 )
JUDGMENT :
K.V. Viswanathan, J.
1. The short question that arises for consideration is whether the National Company Law Appellate Tribunal (for short ‘NCLAT’) and the National Company Law Tribunal (for short ‘NCLT’) were justified in dismissing the Section 7 application filed by the appellant against the respondent under the Insolvency and Bankruptcy Code, 2016 (for short ‘IBC’), on the ground that the same was being barred by limitation.
BRIEF FACTS: -
2. According to the appellant, on 27.02.2015, a Loan Agreement was entered into between the appellant and the respondent for a term loan facility of Rs. 30 crores. The loan was secured, inter alia, by way of a pledge of 8,10,804 shares of Adhunik Metaliks Ltd. in favour of the appellant by virtue of a Pledge Agreement dated 27.02.2015.
3. On 01.03.2018, the account of the respondent was admittedly declared as a Non-Performing Asset (NPA) as the respondent was unable to meet its debt obligations.
4. In the Section 7 IBC application filed by the appellant on 15.01.2024, a default amount of Rs. 55,45,97,395/- was set out and it was mentioned therein that the date of default was 01.03.2018; that it was duly recorded in the information utility as annexed; that a recall facility notice was issued on 10.08.2018 for which there was no response; that ever since the loan facility was extended in February 2015, the respondent acknowledged the liability and its default in all its year to year audited financial statements from 2015 till the latest available Balance Sheet for the financial year 2019-20; that the financials were duly filed by the respondent with the Registrar of Companies; that the Balance Sheet of F.Y. 2019-20 was duly approved by the Board of Directors and the date of signing of the said financial statement was 12.08.2020; the Balance Sheet of 2019-20 was made available to the public on 14.02.2021 and it was averred that the Section 7 application in view of the acknowledgement was filed on time. Reliance was also placed on the order dated 10.01.2022 of this Court in Suo Moto Writ Petition (C) No. 3 of 2020 in In Re : Cognizance for Extension of Limitation (read with earlier orders dated 23.03.2020, 08.03.2021 and 27.04.2021). It was contended that the period between 15.03.2020 till 28.02.2022 ought to be excluded.
5. In short, the stand of the appellant was that if 12.08.2020, the date on which the Balance Sheet of 2019-20 was signed, is taken as the date of acknowledgment (which was within the 3 years from 01.03.2018) limitation would expire only on 11.08.2023. However, in view of the benefit of the extension orders passed by this Court on 10.01.2022, the entire period up to 28.02.2022 ought to be excluded and if that were so limitation was available till 27.02.2025. Hence, the Section 7 application filed on 15.01.2024 was well within time.
6. It will be necessary to advert to the Balance Sheet as annexed for the years 2015-16, 2016-17, 2017-18 and 2019-20. The entire case revolves around the question as to whether at all there was a valid acknowledgment of the debt under Section 18 of the LIMITATION ACT 1963, in view of the entries in the Balance Sheet of F.Y. 2019-20.
7. In the Balance Sheet of 2015-16 under the head “Textual Information (14) - Disclosure of sub classification and notes on liabilities and assets explanatory (Text Block)”, it was shown as follows: -
| From IL & FS Financial Services Ltd. | 24,57,40,400 | 24,57,40,400 |
Under borrowings for 2015-16, the amount was shown as Rs. 24,57,40,400/- and the following endorsement occurred in the table: -
“Secured by Pledge of 8,10,804 shares of Adhunik Metaliks Limited”.
8. Similarly, in the Balance Sheet of F.Y. 2016-17, under Textual Information (16), the above information and the identical amount is reflected. Here again, in the table under borrowings, the identical amount is shown with the following endorsement under nature of security. “Secured by Pledge of 8,10,804 shares of Adhunik Metaliks Limited.”
9. The followi
