CIVIL PROCEDURE

CODE
PRESENTED BY –

FACULTY –
 THE CONCEPT OF
ACKNOWLEDGEMENT
OF DEBT – IBC
VIS-À-VIS LIMITATION
ACT
 INTRODUCTION

• RECENTLY IN THE CASE OF ASSET RECONSTRUCTION LIMITED V. BISHAL JAISWAL &

ANR., THE HON’BLE SUPREME COURT OF INDIA (“SCI”) HAS QUIET DOWN THE
CONTROVERSIAL AND CONTRADICTORY BUZZ CREATED BY THE ORDER PASSED BY A
FULL BENCH OF THE HON’BLE NATIONAL COMPANY LAW APPELLANT TRIBUNAL
(“NCLAT”),

• IN THE CASE OF V. PADMAKUMAR V. STRESSED ASSETS STABILISATION FUND - HELD

THAT ENTRIES MADE IN BALANCE SHEETS DO NOT AMOUNT TO ACKNOWLEDGEMENT
UNDER SECTION 18 OF THE LIMITATION ACT, 1963 (“LIMITATION ACT”), FOR THE
PURPOSE OF INSOLVENCY AND BANKRUPTCY CODE, 2016 (“IBC”). THE FINAL WORD
OF LAW IS ENUNCIATED BY A THREE-JUDGE BENCH WHICH SET ASIDE THE MAJORITY
DECISION OF THE NCLAT.
 RESEARCH OBJECTIVE

• TO BRINGS OUT THE RATIONALE BEHIND THE

APPLICABILITY OF SECTION 18 OF THE
LIMITATION ACT TO THE IBC AND DOES ENTRY
IN A BALANCE SHEET OF CORPORATE DEBTOR
WOULD AMOUNT TO ACKNOWLEDGMENT OF
LIABILITY.
 APPLICABILITY OF LIMITATION ACT THE IBC
• THROUGH THE ACT NO. 26 OF 2018 I.E., 2018 SECOND AMENDMENT ACT, SECTION 238A WAS
INSERTED INTO THE IBC, WHICH PROVIDES FOR THE APPLICABILITY OF THE LIMITATION
ACT OVER THE PROCEEDINGS OR APPEALS BEFORE THE VARIOUS AUTHORITY SUCH AS
ADJUDICATING AUTHORITY, THE NCLAT, THE DEBT RECOVERY TRIBUNAL OR THE
DEBT RECOVERY APPELLATE TRIBUNAL.

• FURTHER, IN THE CASE OF BABULAL VARDHARJI GURHAR V. VEER GURJAR ALUMINIUM

INDUSTRIES, THE COURT HELD THAT THE LIMITATION ACT WOULD BE APPLICABLE TO
THE IBC IF THE SPECIFIC PERIOD OF LIMITATION UNDER THE IBC IS NOT PRESCRIBED
WITH AN INTENTION NOT TO REOPEN THE RIGHTS OF CREDITORS AND CLAIMANTS WHO
DID NOT EXERCISED THEIR REMEDY UNDER THE IBC WITHIN THE PRESCRIBED
LIMITATION PERIOD, THEREFORE, THE APPLICABILITY OF THE LIMITATION ACT OVER IBC
 SECTION 18 OF THE LIMITATION ACT VIS-À-VIS
SECTION 238A OF THE IBC
• ‘ACKNOWLEDGEMENT’ GENERALLY MEANS ACCEPTANCE OF
SOMETHING THAT EXISTS. SECTION 18 OF THE LIMITATION ACT DEALS
ABOUT THE EFFECT OF ACKNOWLEDGEMENT IN WRITING WHEREIN IT
MEANS AN ADMISSION OF AN EXISTING LIABILITY IN LIEU OF WHICH
THE PERIOD OF LIMITATION IS EXTENDED.
1. THAT THE ACKNOWLEDGEMENT OF DEBT MUST BE IN WRITING.
2. SUCH ACKNOWLEDGEMENT MUST BE MADE BEFORE THE EXPIRY OF
LIMITATION PERIOD.
3. SUCH ACKNOWLEDGEMENT MUST BE SIGNED BY THE PERSON OR HIS
AUTHORIZED PERSON ADMITTING LIABILITY.
4. SUCH ACKNOWLEDGEMENT MUST BE UNEQUIVOCAL OR
 OTHER DOCUMENTS THAT CONSTITUTE ACKNOWLEDGEMENT

1. DEBENTURES ARE THE INSTRUMENTS WHICH ACKNOWLEDGES

DEBTS, AS THESE ARE THE DOCUMENTS CARRY INDEBTEDNESS OF A
SPECIFIC SUM UNDER THE PURVIEW OF SECTION 18 OF THE
LIMITATION ACT.

2. CHEQUE GIVEN TO PAY DUES IS AN ACKNOWLEDGEMENT OF DEBT.

3. WRITTEN STATEMENT IN AN EARLIER SUIT IS CONSIDERED AS AN

ACKNOWLEDGE OF DEBT.

4. E-MAILS ACKNOWLEDGING THE DEBT CREATING A LEGAL

 DATE FROM WHICH LIMITATION PERIOD IS CALCULATED
• S. 18(1) OF LIMITATION ACT, 1963 PROVIDES THAT THE FRESH PERIOD OF
LIMITATION SHALL BE COMPUTED FROM THE TIME WHEN THE
ACKNOWLEDGMENT WAS SO SIGNED.

• IN VIEW OF SECTION 12(1) OF THE LIMITATION ACT AND SECTION 9(1) OF

GENERAL CLAUSES ACT, 1897 IT WAS HELD THAT THE DAY ON WHICH
ACKNOWLEDGMENT IS MADE WILL HAVE TO BE EXCLUDED IN COMPUTING
THE PERIOD OF LIMITATION.

• IN CASE OF A MINOR, WHERE AN ACKNOWLEDGEMENT IS MADE IN FAVOUR

OF A MINOR, THEN THE FRESH PERIOD OF LIMITATION IS TO BE COMPUTED
FROM THE DATE WHEN THE PLAINTIFF ATTAINS MAJORITY.
 CONCLUSION
• THE NCLAT JUDGEMENT CONTRADICTORY TO WELL ESTABLISHED LAW
EFFECTIVELY PUT THE INTERESTS OF THE CREDITORS IN JEOPARDY,
• HOWEVER, THE SCI HAS REVERSED THE DECISION AND CLARIFIED THE
LAW STANDING REGARDING ENTRY MADE IN BALANCE SHEET
ACKNOWLEDGES THE DEBT.
• THIS PREPOSITION CAN’T NOT BE APPLIED STRAIGHT FORWARD TO
EVERY CASE AS THE SCI HAS ASSERTED THAT BALANCE SHEET ENTRY
HAS TO BE JUDGED ON A CASE-TO-CASE BASIS BY GIVING WEIGHTAGE
TO THE AUDITOR’S REPORT AND THEN BALANCE SHEET NOTES
THERETO.
• THEREFORE, IN THE CASES WHERE AN ENTRY IN A BALANCE SHEET
HAS BEEN ENTERED INTO WITH CAVEAT THEN SUCH ADMISSION MAY
NOT QUALIFY AS ACKNOWLEDGEMENT OF DEBT.