“Unnamed but Acknowledged” – Supreme Court Clarifies that Generic Balance-Sheet Entries Can Extend Limitation under IBC & COVID-19 Suspension Orders
IL & FS Financial Services Ltd. v. Adhunik Meghalaya Steels Pvt. Ltd., (2025) INSC 911

1. Introduction

In a landmark pronouncement, the Supreme Court has ruled that even when a creditor’s name is not expressly mentioned, a company’s balance-sheet entry—read with surrounding financial statements—may still constitute a valid “acknowledgment of debt” under Section 18 of the Limitation Act, 1963. The decision demolishes the prevailing notion that a specific creditor identification is indispensable, and clarifies the interplay between such acknowledgments, the Limitation Act, and the Court’s special COVID-19 suspension orders of 10 January 2022.

The appellant, IL & FS Financial Services Ltd., sought initiation of corporate insolvency resolution proceedings (CIRP) against Adhunik Meghalaya Steels Pvt. Ltd. (AMSPL) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). Both the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) dismissed the application as time-barred, holding that the three-year limitation starting from the Non-Performing Asset (NPA) declaration (1 March 2018) had expired. The Supreme Court reversed these findings.

2. Summary of the Judgment

• Balance-Sheet Acknowledgment: The FY 2019-20 balance-sheet of AMSPL, though not naming IL&FS, recorded a “secured borrowing” identical to earlier years and thus constituted a valid acknowledgment of a subsisting liability.
• Liberal & Contextual Reading: Surrounding documents (earlier balance-sheets, cash-flow statement, Ind-AS disclosures) and the absence of repayment were considered to infer an acknowledgment.
• Effect on Limitation: The acknowledgment (signed 12 Aug 2020) restarted limitation, giving IL&FS three more years till 11 Aug 2023.
• COVID-19 Orders: Because the limitation period was alive on 15 Mar 2020, Para 5(I) of the Supreme Court’s order dated 10 Jan 2022 applied, excluding 15 Mar 2020 – 28 Feb 2022 entirely; hence, limitation now expires only on 28 Feb 2025.
• Outcome: Section 7 application filed on 15 Jan 2024 is within time; orders of NCLT/NCLAT set aside and matter remitted.

3. Analytical Commentary

3.1 Precedents Cited & Their Influence

1. Khan Bahadur Shapoor Fredoom Mazda v. Durga Prasad (1961): Classic exposition that acknowledgment need not specify exact liability; surrounding circumstances matter. The Court adopted this liberal interpretative lens.
2. Lakshmirattan Cotton Mills v. Aluminium Corp. (1971): Demonstrated reliance on prior correspondence and context. Used to justify reading multiple fiscal documents together.
3. Asset Reconstruction Co. v. Bishal Jaiswal (2021): Confirmed that balance-sheet entries can constitute acknowledgments; Supreme Court cited its caution that each case requires factual scrutiny.
4. Dena Bank v. C. Shivakumar Reddy (2021): Stressed non-pedantic application of limitation in IBC; supported the Court’s expansive approach.
5. Vidyasagar Prasad v. UCO Bank (2024): Held absence of creditor’s name in balance-sheet not fatal; relied upon as persuasive authority to defeat respondent’s “no-name, no-acknowledgment” argument.
6. OPG Power Generation v. Enexio Power Cooling (2025): (Recent) summarised principles of Section 18 – acknowledgement + signature + subsisting liability; referenced for statutory interpretation.

3.2 Court’s Legal Reasoning

1. Existence of Acknowledgment
   • FY 2019-20 balance-sheet showed secured borrowing of ₹24.41 cr—mathematically traceable to earlier debts (₹23.68 cr + fresh ₹0.72 cr borrowing) secured by the same pledged shares.
   • Cash-flow statement revealed nil repayments, signalling continuity of debt.
   • Application of Shapoor & Lakshmirattan: acknowledgment may omit creditor’s identity yet exhibit debtor–creditor jural relationship.
   • Thus, Section 18 conditions satisfied: (i) in writing, (ii) signed (12 Aug 2020), (iii) before limitation expired.
2. Re-Computation of Limitation
   • Base date (NPA): 1 Mar 2018 → ordinary expiry 28 Feb 2021.
   • Acknowledgment: 12 Aug 2020 → fresh 3-year period till 11 Aug 2023.
   • COVID suspension order (23 Mar 2020 and extensions culminating in order of 10 Jan 2022): Para 5(I) entirely excludes 15 Mar 2020 – 28 Feb 2022 when limitation was subsisting; hence, new terminal date 28 Feb 2025.
3. Choice between Para 5(I) & 5(III)
   • Para 5(III) applies only if limitation would have expired within the suspended window.
   • Because acknowledgement restarted limitation and fresh period would expire only on 11 Aug 2023 (i.e., after 28 Feb 2022), the Court held Para 5(I) – not 5(III) – governs.
4. Role of Section 238A IBC
   • Makes Limitation Act applicable “as far as may be”.
   • Court reiterates Section 18’s compatibility with CIRP applications.

3.3 Potential Impact

• Balance-Sheet Strategy: Creditors can rely on generic balance-sheet entries supported by contextual documents—critical for cases where borrower omits creditor names.
• Auditing Practice: Directors and auditors must be mindful that all secured-borrowings disclosures can extend limitation.
• IBC Litigation: Increases admissibility of older debts; likely to spur more Section 7 filings grounded on financial-statement acknowledgments.
• COVID-19 Orders Clarity: Distinction between Para 5(I) & 5(III) is now authoritatively settled: if limitation alive on 15 Mar 2020, entire period excluded.
• Corporate Governance: Companies may be more cautious in signing/filing financials; potential rise in qualifiers or explanatory notes.

4. Complex Concepts Simplified

Section 18 Acknowledgment

A written, signed statement by a debtor that indicates a present liability; restarts the limitation clock from the date of signing.

Non-Performing Asset (NPA)

A loan where repayment is overdue (typically 90 days); banks treat it as defaulted.

Ind AS-7 Cash-Flow Statement

Part of annual accounts showing cash inflows/outflows from operations, investing and financing; here, the “financing” column proved no repayments were made.

Para 5(I) vs 5(III) – SC COVID Order (10-Jan-2022)

• 5(I): Suspends limitation entirely for 15-Mar-2020 – 28-Feb-2022 where limitation was still running.
• 5(III): Grants blanket 90-day window (from 1-Mar-2022) only if the limitation would have otherwise expired during the suspension.

CIRP – Corporate Insolvency Resolution Process

IBCs mechanism where a financial or operational creditor triggers insolvency; NCLT admits if debt, default and timeliness proven.

5. Conclusion

The Supreme Court’s decision in IL & FS v. AMSPL establishes two crucial precedents:

1. Substantive Principle: A balance-sheet entry, even without expressly naming the creditor, can amount to an acknowledgment under Section 18 if contextual evidence links the entry to the debt.
2. Procedural Clarification: When limitation is alive on 15 March 2020, practitioners must apply Para 5(I) of the Court’s 10 Jan 2022 COVID order—thereby excluding the entire 24-month period—before resorting to Para 5(III).

By overturning the NCLT/NCLAT, the Court reinforces a liberal, business-reality-oriented approach to limitation in insolvency matters, ensuring that technicalities do not eclipse genuine claims. The ruling will guide tribunals, auditors and litigants alike, shaping litigation strategies and corporate disclosures in the post-COVID legal landscape.