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

Case snapshot

Sections / provisions: IBC 7; Limitation Act 18

Questions before the Court / Tribunal

• Acknowledgment of debt in financial statements and CIRP limitation: The reported Supreme Court matter addresses whether balance-sheet and financial-statement material can constitute acknowledgment of debt for limitation in an insolvency application, even where the creditor is not always expressly named.

Material facts and background

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 Signature Not Verified

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.

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 2

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.

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. 3

Appellant / assessee submissions

The judgment copy does not separately set out this component in a distinct section; refer to the full order and the reasoning section below.

Revenue / respondent submissions

The judgment copy does not separately set out this component in a distinct section; refer to the full order and the reasoning section below.

Court / Tribunal analysis and reasoning

application. It was contended that the Section 7 application was barred by limitation. Para 10, 23 and 24 of the reply are reproduced hereunder: “10. Admittedly date of default, as per the own averment in the said application is 1st March 2018. Admittedly the Financial Creditor had declared the account of the CD as non performing asset on 1st March 2018 and had also issued Recall facilities Notice to the CD on 10th August 2018. Hence, the Limitation period of 3 (three) years under the Limitation Act 1963 to initiate any action against the CD from 10th August 2018 has already been expired on 9th August 2021. Further, in terms of the order dated 10th January 2022, passed by the Hon'ble Supreme Court in Suo Moto Writ Petition (C) No: 3 of 2020, the limitation period of 90 days after 28.02.2022 also expired on 29th May 2022. Therefore, filing of the present Application at this belated stage for claiming a debt which is time barred is non est in law and is only arm twisting tactic to extort money. 23. Thus I deny each and every allegations made, in the said Application and not accepting any of the allegations made in contradiction of the aforesaid averments and documents submitted...

Another, (2021) 6 SCC 366. The only dispute was whether the entry in F.Y. 2019-20 did or did not constitute a valid acknowledgement. Among the grounds canvassed was the aspect that the name of the appellant was not mentioned in the Balance Sheet of F.Y. 2019-20. It is worthwhile to notice certain observations from the judgement in Bishal Jaiswal (supra) as it does have a bearing for the disposal of the present matter. This Court in Bishal Jaiswal (supra) held that entries in Balance Sheet had to be examined on a case-by-case basis to examine whether an acknowledgment of liability exists. Para 35 of Bishal Jaiswal (supra) reads as under: “35. A perusal of the aforesaid sections would show that there is no doubt that the filing of a balance sheet in accordance with the provisions of the Companies Act is mandatory, any transgression of the same being punishable by law. However, what is of importance is that notes that are annexed to or forming part of such financial statements are expressly recognised by Section 134(7). Equally, the auditor's report may also enter caveats with regard to acknowledgments made in the books of accounts including the balance sheet. A perusal of the...

“10. Having considered the specific facts and circumstances of this case, the Adjudicating Authority as well as the National Company Law Appellate Tribunal have concurrently held that the entries in the balance-sheets amount to clear acknowledgment of debt. We agree with the findings. Further, note 3.4 appended to said balance-sheet entry dated March 31, 2017 mentions that “company has made certain defaults in the repayment of term loans and interest.” It further mentions of a continuing default. The entry also mentions long-term borrowings. The conclusions of the National Company Law Tribunal and National Company Law Appellate Tribunal that there is acknowledgment of debt are unimpeachable. 10.1. Following the principles as expounded in the case of Bishal Jaiswal, (2021) 6 SCC 366, the Adjudicating Authority as well as the National Company Law Appellate Tribunal have examined the case in detail and have come to the conclusion that the entry made in the balance-sheet coupled with the note of the auditor of the appellant clearly amounts to acknowledgment of the liability. We see no reason whatsoever to take a different view of the matter. Their findings are fortified when we...

Operative decision and relief

the NCLAT dated 25.03.2025 and NCLT dated 16.05.2024 are set aside. The appeal is allowed. The matter is remitted to the adjudicating authority to proceed with and decide in accordance with law, treating the application under Section 7 of the IBC, filed by the appellant, as one filed within limitation. No order as to costs. ……….........................J. [MANOJ MISRA]

Authorities and precedents appearing in the judgment

• Distinguishing the judgment in Vidyasagar Prasad v. UCO
• Dena Bank (Now Bank of Baroda) v. C. Shivakumar
• Hargovindbhai Dave v. Asset Reconstruction Co. (India) Ltd. and
• B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates
• Anr. v. Union of India and Anr
• Shapoor Fredoom Mazda v. Durga Prasad Chamaria and Others
• Ram Charan v. Aluminium Corporation of India Ltd
• Court in Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal and
• Bengal Silk Mills Co. v. Ismail Golam
• Laxmi Pat Surana v. Union Bank of
• Narottamdas Sheth and Anr. v. Chandra Prakash Jain and Anr
• Ltd. v. Aluminium Corporation of India Ltd

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Acknowledgment of debt in financial statements and CIRP limitation. The operative result is classified as Quashed Or Set Aside. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Acknowledgment of debt in financial statements and CIRP limitation. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Use the judgment as a fact-specific precedent: match the statutory version, assessment period, procedural stage and evidentiary record before relying on the result.
• Check whether a later High Court/Supreme Court order has affirmed, reversed, distinguished or rendered the decision academic.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

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