While treating Corporate Debtor’s own audited balance sheets and ledger entries as conclusive acknowledgement of liability under Section 18 of the Limitation Act, 1963, the Mumbai Bench of the National Company Law Tribunal (NCLT) has rejected the limitation defence despite three-year gap from pleaded date of default. The NCLT held that the Financial Creditor (FC) and Corporate Debtor (CD) being sister concerns with common directors and shareholders is a relevant circumstance requiring scrutiny, but cannot by itself render the transaction sham or collusive when the CD has repeatedly acknowledged the liability in its own books.
The Tribunal clarified that the IBC does not mandate a document styled as a ‘loan agreement’, rather, what matters is the substance of the dealings and the surrounding documentary record, particularly the CD’s own audited financial statements and ledger entries. Following the Supreme Court’s ruling in M/s Orator Marketing Pvt Ltd. Vs M/s Samtex Desinz Pvt Ltd. [Civil Appeal No. 2231 of 2021], the Tribunal held that the absence of contractual interest does not, by itself, take a transaction outside Section 5(8), especially where the advance was made for working capital requirements and recognised by the recipient as a borrowing.
The Division Bench comprising Nilesh Sharma (Judicial Member) and Sameer Kakar (Technical Member) observed that the absence of a formal loan agreement, repayment schedule, sanction letter, or Board resolution cannot, by itself, defeat a claim of financial debt under Section 5(8) of the IBC. What is required at the Section 7 stage is to examine whether, on the material placed on record, there exists a financial debt and a default in respect thereof, gathered from the substance of the dealings between the parties. The Bench reiterated that interest-free loans advanced to finance business operations can constitute financial debt under Section 5(8).
On the question of limitation, the Tribunal held that the order dated May 10, 2024, under Section 33(5) does not, by itself, extend the period of limitation, following the NCLAT decision in WPIL Ltd. v. Gammon India Ltd. [Appeal (AT) (Ins.) No. 12 of 2024]. However, the Tribunal found that the CD’s balance sheet entries, particularly the FY 2021-22 financial statements signed on Sep 24, 2022, and the FY 2024-25 audited financial statements signed on Sep 04, 2025, both recognising the FC under ‘Long-Term Borrowings’, constitute acknowledgements of liability within the meaning of Section 18 of the Limitation Act, 1963, following the Supreme Court’s decision in Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal [Civil Appeal No 323 of 2021].
The Tribunal further observed that the related-party relationship, while a relevant circumstance requiring scrutiny, cannot by itself lead to the conclusion that the transaction is sham or collusive, particularly when the alleged borrower has repeatedly acknowledged the liability in its own books. The NeSL record was treated as corroborative rather than as independent proof of the debt.
Briefly, the Liquidator of M/s. B.Y. Agro and Infra Limited (the Financial Creditor/FC), seeking initiation of Corporate Insolvency Resolution Process (CIRP) against M/s. Wardha Mega Food Park Private Limited (the Corporate Debtor/CD). The petition was filed claiming a default of Rs. 1.48 crores with the date of default pleaded as May 26, 2022. The FC and the CD were sister concerns with common directors and shareholders, making the CD a related party under Section 5(24) of the IBC. In 2015-16, the FC advanced an unsecured interest-free loan of Rs. 3.90 crores to the CD for working capital, which was subsequently reduced to Rs. 1.60 crores in 2016-17. As on the CIRP commencement date of the FC i.e., May 26, 2020, an amount of Rs. 1.48 crores were due from the CD.
The CD’s own balance sheets for FY 2018-19, 2019-20, 2020-21 and 2021-22 recorded the liability under ‘Note 4 – Long-Term Borrowings’ as an unsecured loan from the FC. A legal notice dated Apr 18, 2022, was issued demanding repayment, which the CD acknowledged via email dated May 12, 2022. The FC was subsequently ordered into liquidation on July 26, 2022, and permission to file the Section 7 petition was granted under the proviso to Section 33(5) of the IBC vide order dated May 10, 2024. A Record of Default was obtained from NeSL on May 02, 2025, recording the date of default as May 26, 2022, with the status ‘Deemed to be Authenticated’. The CD’s FY 2024-25 audited financial statements, signed on Sep 04, 2025, again recognised the FC under ‘Long-Term Borrowings’.
