Balance Sheet Can Be Considered As An Acknowledgment Of Debt Under S.18 of Limitation Act: Supreme Court
The Supreme Court ruled that reflection of debt in the books of accounts amounts to acknowledgment of debt u/s 18 of the Limitation Act, 1963.
The Larger Bench of Apex Court comprising Justice Rohinton Fali Nariman, Justice B R Gavai & Justice Hrishikesh Roy, observed that the filing of a balance sheet in accordance with the provisions of the Companies Act would be mandatory, any hence transgression of the same would be 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 recognized by Section 134(7).
Equally, the auditor’s report may also enter caveats with regard to acknowledgements made in the books of accounts including the balance sheet.
“A perusal of the same would show that the statement of law contained in Bengal Silk Mills that there is a compulsion in law to prepare a balance sheet but no compulsion to make any particular admission, is correct in law as 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” said Top Court.
An exhaustive judgment of the Calcutta High Court in Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, held that an acknowledgement of liability that is made in a balance sheet can amount to an acknowledgement of debt as follows "To come under section 19 an acknowledgement of a debt need not be made to the creditor nor need it amount to a promise to pay the debt.
Thus, the Apex Court held that the balance sheet could be considered as an acknowledgment of debt u/s 18 of Limitation Act.
Case Title: Asset Reconstruction Company India Ltd Vs Bishal Jaiswal And Anr [Civil Appeal No. 323 Of 2021]