The Supreme Court allowed the appeal filed by IL&FS Financial Services Ltd. (“IFIN”) and set aside the judgment of the National Company Law Appellate Tribunal (NCLAT) dated March 25, 2025. The NCLAT had earlier upheld the NCLT’s dismissal of IFIN’s Section 7 application as being time-barred.
The core issue in dispute was whether the balance sheet of the corporate debtor, Adhunik Meghalaya Steels Pvt. Ltd. (“Corporate Debtor”), for the financial year 2019–20 could be considered a valid acknowledgment of debt under Section 18 of the Limitation Act, 1963, thereby extending the period of limitation for initiating corporate insolvency resolution proceedings under the IBC.
The Supreme Court held that the entries in the FY 2019–20 balance sheet did constitute a valid acknowledgment of liability, even though IFIN’s name was not expressly mentioned. Reading the balance sheet in light of prior financial statements and the surrounding factual context, the Court found a clear indication of a subsisting jural relationship and concluded that the debt remained unpaid. The Court emphasized that acknowledgment of liability need not be express or name the creditor directly, as long as it reflects the existence of the underlying debt.
Importantly, the Court also clarified the application of its COVID-era orders issued in In Re: Cognizance for Extension of Limitation (Suo Motu W.P. No. 3/2020). Rejecting the application of Para 5(III) relied upon by the NCLT and NCLAT, the Supreme Court held that Para 5(I) was applicable. Consequently, the entire period between March 15, 2020 and February 28, 2022 stood excluded from the limitation calculation. Based on this, the Court ruled that IFIN’s application filed on January 15, 2024, was well within the extended limitation period, which would have otherwise expired on February 27, 2025.
The Court reaffirmed legal principles established in Asset Reconstruction v. Bishal Jaiswal, (2021) 6 SCC 366, Vidyasagar Prasad v. UCO Bank 2024 SCC Online SC 2993, and Khan Bahadur Shapoor Fredoom Mazda v. Durga Prasad Chamaria 1961 SCC OnLine SC 147, reiterating that balance sheet entries must be interpreted liberally, and that context and the overall tenor of the documents must guide the determination of acknowledgment under Section 18.
Setting aside the concurrent findings of both the NCLT and the NCLAT, the Supreme Court remitted the matter back to the NCLT for adjudication on merits.
Appearances:
Appellant: Senior Advocate Mr. Ritin Rai, assisted by a team from Cyril Amarchand Mangaldas, including Mr. Raunak Dhillon (Partner), Ms. Aishwarya Gupta (Principal Associate), Ms. Niharika Shukla (Senior Associate), and Mr. Jeezan Riyaz (Associate).
