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Legal Case Shots

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Legal Case Shots is a searchable database of Supreme Court of India judgments, each broken down into the case type, the court's key holding, and a practical lesson learnt, with the full judgment available as a PDF for citation or deeper reading.

Company & Insolvency LawSupreme Court of India

Asset Reconstruction Company (India) Limited v. Bishal Jaiswal & Anr.

Civil Appeal · 2021 INSC 254Decided 15 Apr 2021
Civil Appeal No. 323 of 2021
Justice Rohinton Fali Nariman · Justice B.R. Gavai · Justice Hrishikesh Roy

Background

A financial creditor (Asset Reconstruction Company) sought to recover dues from a defaulting corporate debtor under Section 7 of the Insolvency and Bankruptcy Code, relying partly on entries in the corporate debtor's own balance sheets as proof that the debt had been periodically "acknowledged," which would extend the three-year limitation period under Section 18 of the Limitation Act. A four-member majority of the National Company Law Appellate Tribunal (NCLAT), in an earlier case called V. Padmakumar, had ruled that balance sheet entries could never count as such an acknowledgment, and this ruling was being applied to dismiss several creditors' insolvency applications as time-barred, including this one and three other connected appeals.

Decision Breakdown

The Supreme Court held that the NCLAT's majority view in V. Padmakumar was wrong and contrary to a long, consistent line of High Court authority: an entry in a company's balance sheet, duly approved and signed by its directors, does amount to a valid acknowledgment of liability under Section 18 of the Limitation Act, even though the directors may only have been discharging a statutory duty to prepare accounts rather than consciously intending to acknowledge the debt. The Court set aside the NCLAT's Full Bench judgment and the impugned orders built on it, and separately disposed of each connected appeal: in one it gave the creditor a final chance to amend inadequate pleadings on payment of costs, in others it remanded the matter for a fresh hearing in light of this ruling, applying the same legal principle across all the tagged appeals but leaving the factual determination of limitation in each specific case to be redone by the NCLAT/NCLT.

Lesson Learnt

A company's own audited balance sheet, which records what it owes, can legally count as the company admitting its debt and can restart the clock on how long a creditor has to sue or file insolvency proceedings, so businesses cannot assume old debts are time-barred just because years have passed, if their own accounts kept acknowledging them.

Asset Reconstruction Company (India) Limited v. Bishal Jaiswal & Anr. – Legal Case Shots | LegalAware