The Supreme Court held that entries in a company’s balance sheet, when read in the context of surrounding circumstances and previous financial statements, can constitute a valid acknowledgment of debt under Section 18 of the Limitation Act, 1963, thereby extending the limitation period for filing an application under Section 7 of the IBC. The Court clarified that the exclusion period under its COVID-19 limitation order applied from 15.03.2020 to 28.02.2022, making the application timely.
Facts Of The Case:
The appellant, IL & FS Financial Services Ltd., extended a term loan of ₹30 crores to the respondent, Adhunik Meghalaya Steels Pvt. Ltd., on 27.02.2015, secured by a pledge of shares. The respondent’s account was declared a Non-Performing Asset (NPA) on 01.03.2018. The appellant filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) on 15.01.2024, claiming a default amount of over ₹55 crores. The appellant contended that the respondent had acknowledged the debt in its audited financial statements, specifically in the Balance Sheet for the financial year 2019-20 signed on 12.08.2020, which constituted a valid acknowledgment under Section 18 of the Limitation Act, 1963. Both the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) dismissed the application as time-barred, holding that the balance sheet did not acknowledge the debt as the appellant’s name was not mentioned and that the limitation period had expired on 30.05.2022 as per the Supreme Court’s COVID-19 limitation order. The appellant appealed to the Supreme Court against these orders.
Procedural History:
The procedural history began with the appellant, IL & FS Financial Services Ltd., filing an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) before the National Company Law Tribunal (NCLT), Guwahati Bench, which was dismissed on 16.05.2024. The NCLT held the application was barred by limitation, finding no valid acknowledgment of debt in the respondent’s balance sheet. The appellant then appealed to the National Company Law Appellate Tribunal (NCLAT), which upheld the NCLT’s decision in its order dated 25.03.2025, concurring that the application was time-barred. Subsequently, the appellant filed a civil appeal before the Supreme Court of India, which, in its judgment dated 30.07.2025, allowed the appeal, set aside the orders of the NCLAT and NCLT, and remanded the matter to the NCLT for fresh consideration on merits.
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Court Observation:
The Supreme Court made several key observations. It held that an entry in a balance sheet, even without specifically naming the creditor, can constitute a valid acknowledgment of debt under Section 18 of the Limitation Act, 1963, if the surrounding circumstances and the general tenor of the document indicate a clear intention to admit a jural relationship of debtor and creditor. The Court emphasized that such documents must be construed liberally and in context, considering previous financial statements and the lack of repayment as evidenced in cash flow statements. Furthermore, it ruled that for the purpose of computing limitation, the date of signing the balance sheet is the relevant date for acknowledgment. Applying its COVID-19 limitation order, the Court clarified that the entire period from 15.03.2020 to 28.02.2022 stood excluded, making the Section 7 application filed in 2024 within the newly computed limitation period.
Final Decision & Judgement:
The Supreme Court allowed the appeal, setting aside the orders of the NCLAT and NCLT. It held that the entries in the respondent’s Balance Sheet for FY 2019-20, read in context with previous financial statements and the cash flow statement, constituted a valid acknowledgment of debt under Section 18 of the Limitation Act, 1963. Consequently, a fresh limitation period commenced from the date of its signing on 12.08.2020. Applying its COVID-19 limitation order, the Court excluded the period from 15.03.2020 to 28.02.2022, ruling that the Section 7 application filed on 15.01.2024 was within time. The matter was remanded to the NCLT to be decided on merits.
Case Details:
Case Title: IL & FS Financial Services Limited vs. Adhunik Meghalaya Steels Private Limited Citation: 2025 INSC 911 Civil Appeal No: Civil Appeal No. 5787 of 2025 Date of Judgement: 30th July 2025 Judges/Justice Name: Justice Manoj Misra and Justice K.V. Viswanathan
Download The Judgement Here