Entry In Balance Sheet Amounts To Acknowledgment Of Liability 

Posted On - 30 March, 2022 • By - Deepak Panwar

In M/s Phoenix ARC Private limited v. Kerala Chamber of Commerce and Industries[1], it came up for consideration before the Hon’ble National Company Law Tribunal, Kochi Bench, as to: 

  1. Whether the application filed under Section 7(4) of the Insolvency and Bankruptcy Code, 2016 

(hereinafter referred to as “Code”) is maintainable. 

  • Whether there is a Creditor-Debtor relationship between the Financial Creditor and Corporate Debtor herein and whether this tribunal can initiate CIRP against the Corporate Debtor. 

Entry In Balance Sheet Means Acknowledgement of Liability

In the present case, the Corporate Debtor, namely Kerala Chamber of Commerce and Industries, is a voluntary organization that promotes and develops trade and industry in Kerala and functions as a central forum for businesspersons, having its headquarters in Cochin (the economic capital of Kerala) and is registered under the Indian Companies Act, 1956. The Financial Creditor i.e. M/s Phoenix ARC Private Ltd. made an application for initiation of CIRP under provisions of Section 7 (4) of Code against recovery of dues. 

Meanwhile, an interim application was filed by the Financial Creditor for amending Part IV of the application stating that the total outstanding amount to be INR 860 lakhs, as dues from the Corporate Debtor, which was duly allowed. 

In the instant matter, Corporate Debtor had availed multiple finance facilities from the Financial Creditor by hypothecating items purchased and land. Towards the said finance facilities availed, the Corporate Debtor had acknowledged the debts in favour of the Financial Creditor by not disputing the liability and by admitting the credit in books of accounts in favour of the Financial Creditor. 

*While deciding the matter, the Bench placed their reliance on the judgment passed by the Hon’ble National Company Law Appellate Tribunal (NCLAT) in G.S. Buildtech Pvt. Ltd. Vs. Ardee Infrastructure Venture Pvt. Ltd.[1], wherein the Hon’ble NCLAT held that: 

The Balance Sheet for the Financial Year 2016-17 having been signed on 01.09.2017 and the above Application having been filed on 20.03.2020, it is well within three years period from an acknowledgement of debt as claimed by the Appellant. It is now well settled that acknowledgement in the balance Sheet is sufficient acknowledgement under Section 18 of the 

Limitation Act, 1963. 

Reliance was also placed on the judgment passed by the 

Hon’ble Supreme Court of India in Dena Bank Vs. Shivakumar Reddy and Ors., wherein it was reiterated that Section 18 of the Limitation Act, 1963 is fully applicable to proceedings under THE I&B Code and entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgement under Section 18 of the Limitation Act.

Therefore, it was observed by the bench that, as there was a default in the payment of the financial debt which was duly confirmed in the counter affidavit filed by the Corporate Debtor that the application filed by the Financial Creditor satisfied all the definitions of “Financial Creditor”, “Default” and “Financial Debt” and thus, the Financial Creditor is qualified for filing an application under the IBC.

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[1] Company Appeal (AT) (Insolvency) No. 388 of 2021. 

[1] CP (IB)/KOB/2021