INTRODUCTION
The main purpose of the Limitation Act is to provide a definite time period, within which one will be able to file a suit to sue another to seek justice. In case, the suit is filed after the termination of the time period as provided in this act, then it will be barred by the limitation. The Limitation Act is in existence as to protect the unnecessary lengthy processes and also to reduce the chaos of never-ending litigations, in those situations where the person could file a suit for that cause of action, which took place many years ago. The Hon’ble Supreme Court held that the Limitation Act is grounded on Public Policy, which is used for fixing the life span of a particular legal remedy in the interest of general welfare.[1]
As Limitation Act, is considered as a regulator, which observes and control the acts of the party. Because the legal recourse method should not be use negligently as a weapon to harass the other party. So Limitation Act provides a time limit, and within that time. The aggrieved person can approach the court to seek justice. But there are some provisions in the Limitation Act; where the limitation or specify time period prescribe can be extend due to the certain acts of the opposite party; and time period gets extend to reach the court. Section 18 of the Limitation Act, is that provision.
Where before the expiration of the prescribed time period of limitation. If the ‘Acknowledgement of Liability’ is in writing by the opposite party. Then a fresh and new period of limitation will be figure from the date when the Acknowledgement was by the opposite party. But a prolonged issue is present in terms of scope of Acknowledgement of Liability. As in Whether the entry in Balance Sheet of the company will be regard as Acknowledgement. As per to provisions of Section 18 of the Limitation Act.
SECTION 18 LIMITATION ACT
Essentials for the valid acknowledgement:
1. Admission of Acknowledgement
2. That particular acknowledgement should be in respect of a liability, as in eg- where the sui institute is in respect of property right
3. Acknowledgement must be before the expiry of the period of limitation
4. Acknowledgement must be in writing and should be sign by the party against whom the respective property or right is claimed.[2]
DIFFERENCE ON THE QUESTION OF LAW
The issue of acknowledgement is significant because of the two recent judgements which were pass on March 12. 2020 by 5 member bench of National Company Law Appellate Tribunal (NCLAT)- V Padmakumar v. Stressed Assets Stabilization Fund (SASF) and Anr. & Ishrat Ali v. Cosmos Cooperative Bank Ltd.
As in Padmakumar case, the main issue was whether the entry of debt in the balance sheet of the Corporate Debtor can be take into consideration as for Acknowledgement. NCLAT with the majority decision of 4:1; held that reflection of debt in the balance sheet will not be consider. As an acknowledgement of debt because as per to Section 92(4) of Companies Act, 2013; filing of balance sheet or annual return is compulsory. Therefore the Balance Sheet/ Annual Return of the Corporate Debtor cannot be consider as an acknowledgement. Because of the said compulsory provision, every year entry of debt will be made. There will be no relevance of the Limitation Act as per to section 18 of Limitation Act,1963
ANALYSIS
Judicial Reasoning in terms of Acknowledgement of Balance Sheet
In Kashinath Shankarappa v. The New Akot Cotton Ginning and Pressing Co. Ltd[3], it was held that mere signing of the balance sheet by the director will not attract the provision of Section 18 Limitation Act, because by drawing up the balance sheet, the director, does not perform the act with the sole intention of acknowledging the liability, but under an obligation, he is required to set out.
N.M. Shanmughasundaram Mudaliar v. Chidambaram Pillai[4], the Madras High Court held that even an ordinary entry in the books of accounts, would not constitute as Acknowledgement, as for increasing the period of limitation
As per to the essential ingredients of Section 18 Limitation Act, the Supreme Court in the case of S.F Mazda v. Durgaprasad[5], stated that the Statement used in acknowledgement must be based on the present- existing liability. Words which are use in the acknowledgement must indicate the Jural Relationship between the parties. As Debtor and Creditor and it should appear and be crystal clear that the statement is with full intention to admit the jural relationship and the admission made in the statement; need not be explicitly in words. But it should be indicate in the statement in such manner that court a reasonably infer. That the reference is to existing liability.
In Dainik Finance and Chit Fund Co. P. Ltd. v. Agricultural Industries[6], the court held that, if the statement is Clear and intention to admit the jural relationship can be determined, and the balance sheet containing assets and liabilities of the firm, and the said liabilities, therefore will amount to Acknowledgement as per to the Section 18 provisions. Also in Vijaya Kumar Machinery & Electrical Stores[7] case, it was held that exhibition of balance sheets before Income Tax Authorities also constitutes Acknowledgement of a subsisting liability, as on the date of signing of the balance sheet.
In Lahore Enamelling and Stamping v. A.K. Bhalla[8], it was held that Debts which are due to the creditor, if they are not mentioned by name in the balance sheet but the debt is included in Loans(Unsecured) or as Sundry Creditors, then this will amount to Acknowledgement.
In Krishnan Assari v. Akilakerala Viswakarma Maha Sabha[9], it was held that as a company is a corporate body, which acts through its representatives ( Managing Director & BoD). As per Section 210 of Companies Act, it is the statutory duty of BoD to present the balance sheet and profit and loss account for the preceding financial year before the company at every Annual General Meeting. The person who authenticate the documents, perform as to the capacity of agents of the company, and therefore the inclusion of debt in the balance sheet, would be considered as an admission of liability and satisfy the provisions of Section 18, even if the directors by authenticating the balance-sheet are discharging their required statutory duty
CONCLUSION
NCLAT has only focused on the provisions of Section 92 of Companies Act and did not refer to the various precedents, which comprise of various High Courts and Supreme Courts. NCLAT has ignore the other aspect, for reference as per to Income Tax Act, 1961 and various accounting standards, the balance sheet is consider s a document which forms the primary basis for indicating the income tax returns and if the liability appears in the balance sheet, it indicates that it has been admit by the corporate debtor.
References:
[1] In Balakrishnan v. M.A. Krishnamurthy, 3rd September,1998
[2] R.Madesh vs M.Rathinam, decided on 11th feburary, 2015
[3] AIR 1951 Nag 255
[4]See, AIR 1953 Mad 433 (Madras).
[5] AIR 1961 SC 1236
[6] [1986] 60 Comp Cas 180 (Punjab & Haryana).
[7] [1969]74ITR224(AP)
[8] AIR 1958 P&H 341
[9] 1980 KLT 515 (Kerala)
0 Comments