Karnataka High Court
Case BriefsHigh Courts

   

Karnataka High Court: A Division Bench of PS Dinesh and Anant Pamana Hegde, JJ. rejected the appeal filed by Commissioner of Central Tax and considered that Customs, Excise & Service Tax Appellate Tribunal (‘CESTAT') was right in dropping the demand for extended period mainly on the ground that the details of trading were available in the balance sheet of the respondent during the relevant period and that there was much confusion during the relevant period as to whether credit could be availed in respect of trading activities.

ABB Limited (‘respondent') was engaged in the business of manufacture and clearance of turbo chargers, electric motor, transformer etc. falling under Chapter 85 of Central Excise Tariff Act, 1985 (‘CETA, 1985') and provides taxable output services such as management, maintenance, repairs etc. and for the purpose of payment of service tax they have obtained service tax registration.

Based on the intelligence report, a show cause notice was issued stating that apart from manufacturing, respondent was also engaged in trading of electrical goods under the trade name ‘ABB' and it had wrongly utilized the CENVAT credit in relation to the trading activity and was further called upon to show cause as to why Rs.5,68,00,000/- should not be treated as wrongful availment of CENVAT credit and recovered from it under Rule 14 of the CENVAT Credit Rules, 2004 read with proviso to Section 73 of the Finance Act, 1994 and proviso to Section 11-A of the Central Excise Act, 1944.

A reply was filed by the respondent holding that the CENVAT credit was inadmissible for trading activities, and it was disallowed. Further directions were issued for appropriation of the said sum in the CENVAT account, and it was paid under protest. On appeal, the Customs, Excise & Service Tax Appellate Tribunal (‘CESTAT') held that there was no suppression of facts on the part of the assessee with an intent to evade payment of tax and it confirmed the demand only for normal period i.e., disallowed appropriation of the payment made under protest and interest at applicable rate and penalty of equal sum holding that there was no evasion of payment of tax and set-aside the demand for the extended period of limitation and confirmed the demand only for the normal period. The penalty relating to the normal period was also set aside during the relevant period on the grounds that there was much confusion on the availment of credit for trading activities. Aggrieved by the same, the revenue ‘appellant' has filed the instant appeal.

Counsel for appellant Adv. Jeevan J Neeralgi, submitted that the assessee did not declare its trading activities in the returns and based on the intelligence report, the department learnt about the trading activities of the assessee. The findings recorded by the CESTAT in its order that the department was well aware of the trading activity of the respondent are factually incorrect. Though the said finding is a matter of fact, since it is perverse on the face of it, it amounts to a question of law.

Counsel for respondent Adv. Ravi Raghavan submitted that the show cause notice issued was on the basis of the balance sheet wherein all activities of the assessee were truly declared. Therefore, there was no suppression of material facts. Further, it is trite law that when an assessee has acted in good faith, invoking an extended period of limitation is not tenable.

Reliance was placed on Asst. Commissioner of GST v. Shriram Value Services Pvt. Ltd., (2019) 368 ELT 928 Mad. wherein it was observed

“it is clear that the position was clarified by the Government by insertion of Explanation only with effect from 1-4-2011 that the trading activity will be Exempted Services. The Explanation is clarificatory in nature and can be held to be applicable even for the past period. Thus, at the relevant period of time. Viz., from April 2009 to March 2011, the Assessee was, obviously, under bona fide belief in view of the conflicting decisions of the Tribunals during that period and taking the trading activity as Exempted Services, availed the CENVAT Credit which is sought to be reversed and recovered by the Department invoking the extended period of limitation. Such a bona fide belief cannot be held to be done with ulterior purpose for evading the Duty and therefore, the extended period of limitation would not be available to the Revenue Authority in view of the aforesaid decision rendered by the Hon'ble Supreme Court”.

The Court held that the substantial questions raised by the Revenue are answered in favour of the assessee. Hence, the appeal was dismissed with no costs. dismissed. No costs.”

[Commissioner of Central Tax v. ABB Limited, Central Excise Appeal No. 16 of 2021, decided on 01-06-2022]

*Arunima Bose, Editorial Assistant has reported this brief.

Central Government Notification
Legislation UpdatesRules & Regulations

The Central Government has notified the New Delhi International Arbitration Centre (Form of Annual Statement of Accounts) Rules, 2022 relating to the annual statement of accounts, including the balance sheet of the Centre.

 

Key points:

  • The Centre must maintain its accounts and prepare its annual statement of accounts, balance sheet, receipt and payment account and income and expenditure statement in the Forms of financial statements.
  • The General Financial Rules, 2017 must be followed by Centre while incurring or authorising any expenditure.
  • Annual statement of accounts balance sheet, receipt and payment account and income and expenditure statement of the Centre along with the Schedules I to XXIII shall be authenticated by the Chief Executive Officer of the Centre or the Chairperson of an Audit Committee constituted with the approval of Chairperson of the Centre.
Case BriefsTribunals/Commissions/Regulatory Bodies

Securities Appellate Tribunal, Mumbai: The Coram of Justice Tarun Agarwala (Presiding Officer) and Justice M.T. Joshi (Judicial Member) while addressing a matter whether a Chartered Accountant could be held guilty by SEBI for lack of due diligence, held that,

Lack of due diligence can only lead to professional negligence which would amount to a misconduct which could be taken up only by ICAI.

Background

An appeal was filed against the order passed by the Whole Time Member of Securities and Exchange Board of India whereby the appellant who was a statutory auditor/chartered accountant had been prohibited from issuing any certificate of audit and had been restrained from rendering any other auditing services to any listed companies and intermediaries for a period of one year.

Factual Matrix

Deccan Chronicle Holdings Limited, its promoters, directors, and Chartered Accountant (appellant) were issued show cause notice after investigation, wherein it was alleged that the company had understated its outstanding loans to the tune of Rs 1339.17 crores in the year 2008-9 and had also wrongly disclosed the difference between the actual and reported outstanding loans for the FYs 2009-10 and 2010-11.

Misleading Financial Information

Further, it was alleged that the company had manipulated its financials and failed to make necessary disclosure and that the promoters of the company wrongly transferred loans on the last day of the FY and reverted it on the first day of the financial year, thus misleading financial information.

In view of the above, show cause notice alleged that the appellant had violated Section 12A(a), (b) and (c) of the Securities and Exchange Board of India Act, 1992 read with Regulation 3(a), (b), (c) and (d) and Regulation 4(1), 4(2)(f), (k) and (r) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.

WTM’s Conclusion

WTM concluded stating that the company had made wrong misleading or inadequate disclosures to the stock exchange and had understated the outstanding loans and interest and financial changes in the annual returns.

Further, it held that the appellant under Sections 224 and 227 of the Companies Act, 1956 owes an obligation towards the shareholders to report true and correct facts about the financials of the company and audit is caused to report correctly and faithfully under Section 227 of the Companies Act.

Additionally, the WTM held that the appellant overlooked the reporting of the outstanding loans and that he was not diligent and cautious and that it was his obligation to check the details of the outstanding loan from the bank and through other independent sources which he failed to do so and thereby did not adhere to the Auditing Assurance Standard (AAS)  and consequently allowed the fudging of the books of accounts by the company which suggested that the appellant colluded with the other notices.

Analysis, Law and Decision

Tribunal held that the impugned order could not be sustained for the following reasons:

In the Bombay High Court decision of Price Waterhouse Co. v. SEBI, WP No. 5249 of 2010, it was held that while exercising the powers under the SEBI Act, it is not open to SEBI to encroach upon the powers vested with the Institute under Chartered Accountant Act, 1949.

However, in a given case, if there is material against the C.A. to the effect that he was instrumental in preparing false and fabricated accounts in connivance, then SEBI is entitled to pass appropriate orders under Section 11(4) of the SEBI Act in the interest of the investors or securities market and is entitled to take measures as prescribed in the said section.

Further, SAT in its decision of Price Waterhouse Co. v. SEBI, Appeal No. 6 of 2018, found that the scope of the enquiry was only restricted to the charge of professional negligence since the C.A/C.A Firm were not dealing directly in the securities. This Tribunal held that in absence of inducement, fraud was not proved nor there was connivance or collusion by the C.A.s and therefore, the provision of section 12 (A) of SEBI Act and Regulation 3 & 4 of PFUTP Regulations are not applicable.

In the present matter, A.O. found that due diligence was not carried out by the appellant and there was no finding that the appellants were instrumental in preparing false and fabricated accounts or have connived in preparation or falsification of the books of account. Additionally, the Coram found that the appellants had manipulated the books of accounts with knowledge and intention, in the absence of which, there was no deceit or inducement by the appellants.

In the absence of any inducement, the question of fraud committed by the appellants does not arise.

Tribunal found that the appellant as a statutory auditor was not responsible for the preparation and falsification of the books of accounts, the financials of the company and the balance sheet of the company.

Concluding the matter, Coram held that once CA was not found responsible for the preparation of financials of company, merely because he was not cautious will not suggest that he colluded with the promoters and directors of the company.

In view of the above discussion, Tribunal allowed the appeal, and the impugned order did not sustain so far as it concerned the appellant (CA). [Mani Oommen v. SEBI, 2022 SCC OnLine SAT 60, decided on 18-2-2022]


Advocates before the Tribunal:

Mr. Chetan Kapadia, Advocate with Mr. Rahul Sarda, Mr. KRCV Seshachalam, Ms. Sabeena Mahadik, Mr. Aayush Kothari, Mr. Sagar Hate, Advocates i/b. Visesha Law Services for the Appellant.

Mr. Pradeep Sancheti, Senior Advocate with Mr. Abhiraj Arora, Mr. Karthik Narayan, Mr. Harshvardhan Nankani, Mr. Shourya Tanay, Advocates i/b. ELP for the Respondent.

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of RF Nariman, BR Gavai and Hrishikesh Roy, JJ has held that an entry made in the books of accounts, including the balance sheet, can amount to an acknowledgement of liability within the meaning of Section 18 of the Limitation Act, 1963.

The Court referred to a number of authorities and in particular the decision in Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, 1961 SCC OnLine Cal 128, wherein it was held that though the filing of a balance sheet is by compulsion of law, the acknowledgement of a debt is not necessarily so. In fact, it is not uncommon to have an entry in a balance sheet with notes annexed to or forming part of such balance sheet, or in the auditor’s report, which must be read along with the balance sheet, indicating that such entry would not amount to an acknowledgement of debt for reasons given in the said note.

The bench explained that the filing of a balance sheet in accordance with the provisions of the Companies Act, 2013 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) of the Companies Act, 2013. Under Section 134, financial statements are to be approved by the Board of Directors before they are signed, and the auditor’s report, as well as a report by the Board of Directors, is to be attached to each financial statement. Equally, the auditor’s report may also enter caveats with regard to acknowledgements made in the books of accounts including the balance sheet.

The Court, hence, held that,

“… it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgement of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act.”

[Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal, 2021 SCC OnLine SC 321, decided on 15.04.2021]


*Judgment by: Justice RF Nariman

Know Thy Judge| Justice Rohinton F. Nariman

Appearances before the Court by

For appellant: Senior Advocate Ramji Srinivasan, learned Senior Advocate appearing on behalf of the appellant,

For respondent: Advocate Abhijeet Sinha

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT), New Delhi: The Bench of Justice Bansi Lal Bhat (Acting Chairperson) and Justice Venugopal M. (Judicial Member), Justice Anant Bijay Singh (Judicial Member), Kanthi Narahari (Technical Member) and Shreesha Merla (Technical member), while addressing the present matter observed that:

“…for purpose of computing the period of limitation under Section 7 of I&B Code, the date of default is NPA.”

Background

The three-member Bench of this Appellate Tribunal had opined that the decision rendered by the 5-member Bench of this Appellate Tribunal in V. Padmakumar v. Stressed Assets Stabilization Fund (SASF),2020 SCC OnLine NCLAT 417required reconsideration.

Issue formulated by the three-member Referral Bench, as noticed in the reference order was as follows:

“Hon’ble Supreme Court and various Hon’ble High Courts have consistently held that an entry made in the Company’s Balance Sheet amounts to an acknowledgement of debt under Section 18 of the Limitation Act, 1963, in view of the settled law, V. Padmakumar’s Case requires reconsideration.”

Facts and Contentions

Corporate Debtor had defaulted in repaying the dues availed as a loan from the Consortium Lenders leading to recalling of the loan facility by the Financial Creditor — State Bank of India and the Consortium Lenders issuing notices under Section 13(2) of the SARFAESI Act, 2002 demanding total amount of Rs 59,97,80,02,973. 
Corporate Debtor failed to discharge its liability.
When the Financial Creditor initiated CIRP under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the Corporate Debtor, Lenders had assigned the debt in favour of ‘Asset Reconstruction Company (India) Ltd. NCLT, Kolkata Bench on being satisfied that debt and default were established, admitted the application. Further on being aggrieved with the same, Ex-Director of Corporate Debtor filed an appeal against the admission order in light of Corporate Debtor’s account being declared as NPA in 2014 and application under Section 7 was filed in 2018 after a delay of around 5 years, hence the same was barred by limitation.
Financial Creditor contended that the right to sue for the first time accrued to it upon the classification of the accounts as NPA in 2013 but thereafter, Corporate Debtor had admitted time and again and unequivocally acknowledged its debt in the Balance Sheets for the years ending 31st March, 2015, 31st March, 2016 and 31st March, 2017.
Hence, the right to sue stood extended in terms of Section 18 of the Limitation Act, 1963.
Referral Bench had declined to accept the argument that Section 18 of the Limitation Act, 1963 is not applicable Insolvency Cases and proceeded to record the reasons for reconsideration of V. Padmakumar’s Judgment.

Analysis, Law and Decision

Bench noted that in ‘V. Padmakumar’s Case’, IDBI had advanced financial assistance of Rs 600 Lakhs by way of Term Loan Agreement dated 02-03-2000 to the Corporate Debtor and the loan was duly secured.
Further, the Corporate Debtor’s account was classified as NPA in 2002, later IDBI initiated recovery proceedings in 2007. Recovery Certification was issued in 2009 which was reflected in the Balance Sheet dated 31-03-2012.
Limitation Period
This Appellate Tribunal noted the decisions delivered by Supreme Court in Jignesh Shah v. Union of India(2019) 10 SCC 750, Gaurav Hargovindbhai Dave v. Asset Reconstructions Company (India) Ltd.  – (2019) 10 SCC 572, Vashdeo R. Bhojwani v. Abhyudaya Co-operative Bank Ltd.(2019) 9 SCC 158, and the decision of this Appellate Tribunal in V. Hotels Ltd. v. Asset Reconstruction Company (India) Ltd.– Company Appeal (AT) (Insolvency) No. 525 of 2019, decided on 11-12-2019, was of the view that for the purpose of computing the limitation period for application under Section 7 the date of default was NPA and hence a crucial date.
5-Member Bench further dealt with the acknowledgement of claim in audited Balance Sheet of Corporate Debtor to arrive at a finding as to whether such acknowledgement would fall within the ambit of Section 18 of Limitation Act, 1963.
Bench expressed that the Referral bench failed to take note of the fact that the 5-Member Bench Judgment rendered in ‘V. Padmakumar’s Case’ with a majority of 4:1 was delivered to remove uncertainty arising out of the conflicting verdicts of Benches of co-equal strength in ‘V. Hotel’s Case’ and ‘ Ugro Capital Ltd.’s Case’.

Once a Larger Bench of this Appellate Tribunal came to be constituted in the wake of two conflicting judgments rendered by Benches of co-equal strength on the issue, one of the two Benches having failed to notice the judgment of the Supreme Court on the subject, the issue raised by the Referral Bench can no more be said to be res integra, in so far as the jurisdiction exercised by this Appellate Tribunal under I&B Code is concerned.

Observations:

  • For purpose of computing, the period of limitation under Section 7, the date of default is NPA.
  • In Supreme Court’s decision of Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Ltd., Civil Appeal No. 6347 of 2019, it was observed that Section 18 of the Limitation Act, 1963 would have no application to proceedings under the I&B Code. Therefore the issue raised as regards acknowledgement of liability by reflection in the Balance Sheet/Annual Return would be irrelevant.
  • The remedy available under the I&B Code is a remedy distinct from remedy available in civil jurisdiction/ recovery mechanism and since the I&B Code is not a complete Code, provisions of Limitation Act are attracted to proceedings under it before NCLT and NCLAT as far as applicable i.e. in regard to matters not specifically provided for in I&B Code.
  • The whole mechanism of triggering of Corporate Insolvency Resolution Process revolves around the concept of ‘debt’ and ‘default’.
  • There is no room for doubt that the date of default in regard to an application under Section 7 of I&B Code is the date of classification of the account of Corporate Debtor as NPA.
  • The date of default is extendable within the ambit of Section 18 of Limitation Act on the basis of an acknowledgement in writing made by the Corporate Debtor before the expiry of the limitation period.

Whether a reflection of debt in the Balance Sheet/ Annual Return of a Corporate Debtor would amount to acknowledgement under Section 18 of the Limitation Act?

“…the finding has been recorded by the five Member Bench in the context of a judgment or a decree passed for recovery of money by Civil Court/ Debt Recovery Tribunal which cannot shift forward the date of default for purposes of computing limitation for filing of an application under Section 7 of the I&B Code and the fact that filing of Balance Sheet/ Annual Report being mandatory under Section 92(4) of Companies Act, failing of which attracts penal action under Section 92(5) & (6).”

Tribunal also added to its observations that Referral Bench failed to draw a distinction between the ‘recovery proceedings’ and the ‘insolvency resolution process’.

I&B Code provides timelines for resolution of insolvency issues and proceedings thereunder cannot be equated with the ‘recovery proceedings’.

Hence, in view fo the above discussions, Bench opined that :

the order of reference which, in letter and spirit, is more akin to a judgment of an Appellate Court appreciating the findings and judgment in ‘V. Padmakumar’s Case’ is incompetent and deserves to be rejected.

Judicial Indiscipline

Tribunal went on to express that ‘Judicial indiscipline’ creates uncertainty and impairs public faith in the Rule of Law.

Crossing the red line by disregarding the binding precedent results in making the legal proposition uncertain. Such misadventure creates uncertainty as regards the settled position of law.

Cases referred by the Tribunal for the above-stated:

  • Central Board of Dawoodi Bohra Community v. State of Maharashtra, (2005) 2 SCC 673: It was held that a decision delivered by a Bench of larger strength is binding on any subsequent Bench of lesser or coequal strength.

A Bench of co-equal strength can only express an opinion doubting the correctness of the view taken by the earlier Bench of co-equal strength.

  • Keshav Mills Co. Ltd. v. CIT, (1965) 2 SCR 908: It was held that the nature of infirmity or error would be one of the factors in making a reference. Whether patent aspects of question remained unnoticed or was the attention of Court not drawn to any relevant and material statutory provision or was any previous decision of the Supreme Court not noticed would be the relevant factors.
  • In Supreme Court Advocates on Record Association v. Union of India, (2016) 5 SCC 1, it was held that the Court should not, except when it is demonstrated beyond all reasonable doubt that its previous ruling given after due deliberation and a full hearing was erroneous, revisit earlier decision so that the law remains certain.

In CCE v. Matador Foam, (2005) 2 SCC 59, the following was observed:

“….. These being judgments of coordinate benches were binding on the Tribunal. Judicial discipline required that the Tribunal follow those judgments. If the Tribunal felt that those judgments were not correct, it should have referred the case to a larger bench.”

Hence, in light of the above, Tribunal held that:

Following of the judicial precedent of a Bench of equal strength and of a Larger Bench as in the instant case, is a matter of judicial discipline.

While parting with the decision, Bench recorded that

It is not open to the Referral Bench to appreciate the judgment rendered by the earlier Bench as if sitting in appeal to hold that the view is erroneous. Escaping of attention of the earlier Bench as regards a binding judicial precedent or a patent error is of relevance but not an evaluation of earlier judgment as if sitting in appeal.

Referral Bench overlooked all legal considerations. Company Appeal (AT) (Insolvency) No. 385 of 2020 be listed for regular hearing on 11-01-2021.[Bishal Jaiswal v. Asset Reconstruction Company (India) Ltd., Reference made by Three Member Bench in Company Appeal (AT) (Insolvency) No. 385 of 2020, decided on 22-12-2020]

Case BriefsHigh Courts

Calcutta High Court: A Division Bench of Joymalya Bagchi and Suvra Ghosh, JJ. upheld the conviction of the appellants for the commission of the offence punishable under Section 21(c) read with Section 29 of the Narcotic Drugs and Psychotropic Substances Act, 1985.

The prosecution case is based on the recovery at two places. Firstly, 3.5 kgs of heroin was recovered from the first appellant and 50 kgs of heroin was recovered from the rented house in the possession of the second appellant. The first appellant was sentenced to death and the second appellant was sentenced with rigorous imprisonment for 30 years and to pay a fine of Rs 3 lakhs in default to suffer rigorous imprisonment for one year or more. Aggrieved by these orders, first appellant filed the instant death reference which was clubbed with the appeal filed by the second appellant against his conviction.

Jayanta Narayan Chatterjee, representing the appellants, prayed for the acquittal of the appellants and argued that seizure of possession of 3.5 kgs of heroin is vitiated in law as it is not as per the terms of Section 50 of the Act. Also, the primary witness did not recognise the second appellant. Furthermore, the appellants denied making statements under Section 67 of the NDPS Act during their examination under Section 313 Code of Criminal Procedure, 1973.

The prosecution relied on the Supreme Court case of Bachan Singh v. State of Punjab, (1980) 2 SCC 684 and argued that death penalty ought to be awarded in the present case as the first appellant has been convicted of the possession of narcotic substance above commercial quantity on two occasions and in spite of commutation he has been convicted for the second time. It also argued that Section 50 of the Act doesn’t apply as the seizure was under the terms of Section 43 of the Act.

The Court upheld the contentions of the prosecution and held that the possession of the 3.5 kgs and 50 kgs of heroin by appellants had been proven beyond doubt. The Court followed the Bachan Singh case and made a balance sheet of aggravating and mitigating circumstances to see if it had any alternative other than imposing the death penalty on the first appellant.

The Court held that Section 31 A of the NDPS Act provided for the death penalty in certain cases and the imposition of it may or may not deter others from committing similar crimes in the future. It modified the sentence imposed on the first appellant with the alternative sentence of rigorous punishment for 30 years and to pay a fine of Rs 3 lakh rupees in default to suffer rigorous imprisonment for three years more. The sentence imposed on the second appellant was upheld. The death sentence was discharged and the sentence appeal was allowed with the aforesaid modification.[State of West Bengal v. Ansar Rahman, 2019 SCC OnLine Cal 5189, decided on 26-11-2019]

National Company Law Tribunal
Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Tribunal, Mumbai: The Bench of Bhaskara Pantula Mohan, Member (Judicial) and V. Nallasenapathy, Member (Technical) allowed a petition filed by TJSB Sahakari Bank (“the Bankfor admission of an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

The Bank was a member of the “SVC Bank Consortium” that sanctioned credit facilities to the Unimetal Castings Ltd. (“Corporate Debtor”) on 25-2-2013. The Bank sought initiation of Insolvency Resolution Process against the Corporate Debtor under Section 7 on the ground of default in repayment of the loan to the extent of more than Rs 6.38 crores.

Aditya Pimple, Advocate instructed by MAG Legal representing the Corporate Debtor raised various contentions to oppose the application of the Bank. One of the contentions related to applicability of Limitation Act, 1963 was that the claim of the Bank was barred under Article 137. For this, he relied on a recent judgment in B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates, 2018 SCC OnLine SC 1921 wherein the Supreme Court clarified that the Limitation Act, 1963 is applicable to Insolvency and Bankruptcy Code, 2016. It was submitted that the date of alleged default was 30-06-2015 (the date on which Corporate Debtor’s account was declared a Non-Performing Asset). Furthermore, since the petition was filed on 23-8-2018, i.e., after more than 3 years of the date on which the cause of action arose (and also the right to apply accrued), therefore it was barred by limitation.

Per contra, Nausher Kohli, Advocate instructed by DSK Legal who appeared for the Bank, submitted that the Bank’s name and loan was shown in the balance sheet of the Corporate Debtor for the Financial Year ending 2017. This according to hi was an acknowledgement of liability. And therefore, it was contended that the debt was not barred by limitation even when the insolvency application was filed after 3 years from the date of default.

The tribunal noted that the Corporate Debtor did not dispute the fact the loan was shown as a liability in its balance sheet. It was observed, ” when the liability is shown in the balance sheet, that is a clear acknowledgement of debt by the Corporate debtor. There are umpteen numbers of judgments to say that the debt shown in the balance sheet is an acknowledgement of liability.” In such a view, the Tribunal held that the contention of the Corporate Debtor would not hold water. Having been satisfied that the Corporate debtor defaulted in making a payment towards its liability to the Bank, the Tribunal allowed the petition and admitted the bank’s application filed under Section 7 IBC. [TJSB Sahakari Bank Ltd. v. Unimetal Castings Ltd., CP (IB)-3622/I&BP/MB/2108 dated 25-01-2019]

Case BriefsHigh Courts

Delhi High Court: A Single Judge Bench comprising of Jayant Nath, J. allowed an application filed by the plaintiff seeking a decree on admission under Order 13-A Rule 3 of the Commercial Courts, Commercial Division and Commercial Appellate Division of the High Courts Act, 2015.

The suit was filed for recovery of certain sums along with interest. The plaintiff submitted that as per the balance sheet of the defendant, a sum of Rs 2,25,38,966 was payable to the plaintiff. The defendant challenged the suit on the ground of limitation. The petitioner, relying upon earlier judgments of the Court, contended that acknowledgment in the balance sheet by the defendant extended the period of limitation.

The High Court after considering submissions of the parties, cited the observations in Shahi Exports (P) Ltd. v. CMD Buildtech (P) Ltd., 2013 SCC OnLine Del 3739 including inter alia: “It is hardly necessary to cite authorities in support of the well-established position that an entry made in the company’s balance sheet amounts to an acknowledgment of the debt and has the effect of extending the period of limitation under Section 18 of the Limitation Act, 1963.”

Relying on the above case, the Court held that acknowledgment of debt in the balance sheet extends the period of limitation. On the basis of such position in law, the suit was held to be within the limitation period. The application was accordingly allowed. [Zest Systems (P) Ltd. v. Centre for Vocational Entrepreneurship Studies,2018 SCC OnLine Del 12116, dated 19-09-2018]