The Bishal Jaiswal test for balance sheet acknowledgments under Section 18.

The balance sheet that saved a CIRP

Asset Reconstruction Company (India) Ltd. — ARCIL — bought a debt. The debt was owed by Tulip Star Hotels Ltd. The question was whether that debt had died of old age before ARCIL ever filed its Section 7 application under the Insolvency and Bankruptcy Code.

At stake: a corporate insolvency resolution process against a hotel company that had borrowed from a consortium of banks, defaulted, and then spent years negotiating settlements it never honoured. If the Supreme Court agreed with the National Company Law Appellate Tribunal, the debt would be time-barred. ARCIL would lose its right to initiate CIRP. The Corporate Debtor would walk away.

The Supreme Court did not agree. On 1 August 2022, a Bench of Justice Indira Banerjee and Justice J.K. Maheshwari reversed the NCLAT and restored the NCLT's admission order. The key? A balance sheet entry for the financial year 2014-15, signed on 14 May 2015, that acknowledged the debt.

What actually happened

V. Hotels Ltd. — the Corporate Debtor — borrowed from a consortium led by Bank of India. Later, it borrowed from Abu Dhabi Commercial Bank to repay the consortium. When ADCB invoked its guarantee, Bank of India paid a sum. On 1 December 2008, Bank of India classified the account as a Non-Performing Asset.

On 31 December 2008, Bank of India assigned its receivables to ARCIL. ARCIL stepped into the shoes of the lender.

Between 2011 and 2013, the parties entered into multiple settlement agreements. The Corporate Debtor acknowledged the growing debt but kept seeking extensions. ARCIL revoked the settlement in June 2013.

On 3 April 2018 — nearly nine years after the NPA date — ARCIL filed a Section 7 application before the NCLT, Mumbai. The NCLT dismissed the Corporate Debtor's limitation objection on 1 May 2019 and admitted the application on 31 May 2019.

The Corporate Debtor appealed. The NCLAT reversed. It held that the application was barred by limitation. Crucially, the NCLAT ruled that entries in books of account or balance sheets cannot be treated as acknowledgment under Section 18 of the Limitation Act, 1963.

ARCIL came to the Supreme Court.

What each side argued

ARCIL's case was straightforward. The Corporate Debtor had acknowledged the debt in its balance sheet for FY 2014-15, signed on 14 May 2015. That acknowledgment extended the limitation period by three years under Section 18 of the Limitation Act. The Section 7 application filed on 3 April 2018 was within time.

The Corporate Debtor countered with Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal, (2021) 6 SCC 366. In that case, the Supreme Court had held that balance sheet entries may or may not constitute acknowledgment — it depends on whether the entry is unequivocal or entered with caveats. The Corporate Debtor argued that its balance sheets contained caveats and disclaimers. Therefore, no acknowledgment.

The Corporate Debtor also argued that the principal amount had been fully repaid. The dispute, it said, was only about interest. And a dispute on quantum, it argued, meant there was no "debt" for the purposes of Section 7.

Why the NCLAT got it wrong

The Supreme Court identified the NCLAT's fundamental error: treating a balance sheet entry as incapable of being an acknowledgment as a matter of law.

The Bench observed that the NCLAT had relied on Bishal Jaiswal to hold that books of account cannot constitute acknowledgment. But Bishal Jaiswal did not lay down any such absolute rule. It only said that each case must be examined on its facts — whether the entry is unequivocal or qualified.

The Court quoted Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, AIR 1962 Cal 115, which held that while filing a balance sheet is compulsory, the acknowledgment of a debt in it is not necessarily compulsory. But if the company does include an entry acknowledging a debt, that entry can constitute acknowledgment under Section 18.

The Supreme Court examined the balance sheet for FY 2014-15. It found that the Corporate Debtor had shown the debt to ARCIL as a liability. There was no caveat or disclaimer that negated the acknowledgment. The entry was unequivocal.

The witness rule the Supreme Court applied

The Court applied the well-settled principle from Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407: under Section 7, the Adjudicating Authority need only see the existence of a debt and a default. A dispute regarding the quantum of the debt — such as the rate of interest — does not prevent admission.

The Court also applied Industrial Credit & Development Syndicate v. Smithaben H. Patel, (1999) 3 SCC 80, which held that unappropriated payments by a debtor are first applied to discharge interest, then principal. The Corporate Debtor's argument that the principal was fully repaid failed because the payments had to be applied first to the outstanding interest.

On the pleading standards for a Section 7 application, the Court held that such an application cannot be compared with a plaint in a suit. Documents filed along with the application, subsequent affidavits, and applications must be construed as part of the pleadings.

The doctrine that mattered

The core legal question was whether a balance sheet entry constitutes an acknowledgment under Section 18 of the Limitation Act, thereby extending the limitation period.

The Supreme Court held unequivocally: yes, it can. The Court laid down the following principles:

• Entries in books of account or balance sheets of a company can be treated as acknowledgment of liability under Section 18 of the Limitation Act.
• Whether a particular entry constitutes acknowledgment depends on a case-by-case examination — whether the entry is unequivocal or entered with caveats.
• The IBC does not exclude the application of Section 14 or Section 18 or any other provision of the Limitation Act.
• An acknowledgment under Section 18 extends the limitation period by a fresh three years from the date of acknowledgment.
• Even if the acknowledgment is accompanied by a refusal to pay or coupled with a set-off claim, it may still constitute a valid acknowledgment.

THE PLAY: If you are a financial creditor and the Corporate Debtor has filed a balance sheet showing your debt as a liability — even with a dispute on quantum — that entry can save your Section 7 application from being time-barred. File within three years of the date that balance sheet was signed.

Why this matters in practice

For advocates: this judgment is your go-to authority when opposing a limitation defence in an IBC matter. The NCLAT's view that balance sheets cannot be acknowledgments is now dead. You can cite Asset Reconstruction Company (India) Ltd. v. Tulip Star Hotels Ltd. to argue that any unequivocal entry in a balance sheet acknowledging a debt extends limitation.

For CFOs and founders: if your company has defaulted on a loan and you are still showing that debt as a liability in your balance sheet, you are effectively giving the lender a fresh three-year window to initiate CIRP every time you sign that balance sheet. The acknowledgment does not require a separate written admission. The balance sheet itself is the admission.

The Court also clarified that the IBC is not just a recovery statute. It works towards revival of corporate bodies unable to pay debts, through the appointment of a Resolution Professional. This obiter observation — though not strictly necessary for the decision — signals that the Court views the IBC's purpose broadly, not as a narrow debt enforcement mechanism.

The bottom line

If you are a financial creditor holding a debt that is nearing the three-year limitation period, check the Corporate Debtor's most recent balance sheet. If the debt appears as a liability, you have a fresh three-year window from the date that balance sheet was signed. File your Section 7 application within that window. The debt is not dead until the balance sheet says it is.