Acknowledgement of Debt by Inclusion in Balance Sheet – Part 2

Rishi Batta

Background

In the case of V. Padmakumar vs. Stressed Assets Stabilization Fund (SASF) & Anr.[1] (“Padmakumar”), four out of five members held, inter alia, that entries reflected in the balance sheet of a company do not amount to acknowledgement of debt under the Limitation Act, 1963 (“Limitation Act”). Subsequently, in September 2020, a three-member bench of the National Company Law Tribunal (“NCLAT”) had the occasion to consider the applicability of Padmakumar in the case of Bishal Jaiswal vs. Asset Reconstruction Company (India) Limited. & Anr[2]. (“Referral Order”). The bench made a reference to a larger bench to reconsider the majority opinion in Padmakumar.

In December 2020, a five-member bench of the NCLAT rejected the Referral Order and held[3] (“Rejection Order”) that (a) in disagreeing with the ratio in Padmakumar, the three-member bench did not follow judicial discipline, and (b) The decision in Padmakumar was passed after consideration of precedents with respect to acknowledgement of debt, therefore, reflecting debt in a balance sheet does not amount to acknowledgement of debt for the purpose of the Insolvency and Bankruptcy Code, 2016 (“IBC”). This article attempts to analyse the reasons given by the NCLAT while rejecting the Referral Order.

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Rishi Batta

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