The court’s decision highlights that persistent inclusion of debt in audited balance sheets from FY 2015-16 to FY 2022-23 serves as a valid acknowledgment under Section 18, resetting the limitation clock as established in previous Supreme Court rulings.
Key principles from the Supreme Court’s Bishal Jaiswal case underscore that a clear and conscious admission of liability in the balance sheet constitutes an acknowledgment of debt. The filing requirement does not diminish the acknowledgment’s validity, and qualified or conditional entries do not reset the limitation period.
In applying these principles, the NCLAT found repeated entries acknowledging dues to Bank of Baroda over several financial years to be valid under Section 18, even in the presence of a previously issued “No Dues Certificate.” The absence of notes and qualifications in the balance sheets further solidified the acknowledgment, leading to the restart of the limitation period with each acknowledgment.
Practical implications arising from this ruling affect both creditors and corporate debtors. Balance sheets serve as crucial evidence for resetting limitations, and the absence of express acknowledgment letters is acceptable if financial statements clearly indicate liabilities. However, careful use of qualified notes is advised to prevent unintended acknowledgments. Additionally, old defaults may remain actionable under the IBC, and reliance on “No Dues Certificates” may not suffice if financial records indicate ongoing debt.
The NCLAT’s decision reinforces the significance of audited financial statements as legally binding acknowledgments of debt, necessitating a thorough review of how liabilities are documented and disclosed in financial reporting by both creditors and debtors.
