Insolvency and Bankruptcy Code, 2016.
S. 7: Initiation of corporate insolvency resolution process-Limitation-Acknowledgement of debt-Balance sheet entries-Validity of acknowledgment under S. 18 of the Limitation Act even where name of creditor is not specifically mentioned-Liberal interpretation-Prior financial statements and cash flow disclosures may be relied on- Substantive jural relationship and continuing liability inferred- COVID-19 extension-Applicability of Para 5(I) of Supreme Court’s order dated 10.01.2022- Entire period from 15.03.2020 to 28.02.2022 to be excluded-Application filed in 2024 held to be within limitation- Appeal allowed-Matter remitted to NCLT for adjudication on merits.
[S. 238A; Limitation Act, 1963, S. 18, Companies Act, 2013, S. 134, Sch. III; Art. 137, First Schedule, Art. 141]
The Appellant, IL&FS Financial Services Ltd., extended a ₹30 crore secured loan to Adhunik acknowledgment Meghalaya Steels Pvt. Ltd. in 2015. The account became an NPA on 01.03.2018. A Section 7 IBC application was filed in January 2024. IL&FS argued that the Respondent’s Balance Sheet for F.Y. 2019–20, signed on 12.08.2020, acknowledged the debt and thus restarted limitation under Section 18 of the Limitation Act. It also claimed benefit under the Supreme Court’s COVID-19 orders excluding time between 15.03.2020 and 28.02.2022.
The NCLT and NCLAT dismissed the application, stating that the creditor’s name was not mentioned in the balance sheet and hence no valid existed. They also held that limitation expired by 30.05.2022 as per Para 5(III) of the Supreme Court COVID order.
The Supreme Court framed the following issues:
1. Whether the NCLT and NCLAT were justified in rejecting the Section 7 application as time-barred?
2. Whether the entry in the Balance Sheet for F.Y. 2019–20 constituted a valid acknowledgment of debt under Section 18 of the Limitation Act?
3. Whether the COVID-19 extension order (10.01.2022) required applying Para 5(I) (full exclusion) or 5(III) (limited extension)?
4. Whether absence of specific mention of creditor’s name in the balance sheet invalidates acknowledgment?
5. Whether entries in a balance sheet, filed under statutory obligation, can still amount to acknowledgment of debt under Section 18?
The Supreme Court held that acknowledgment of debt under Section 18 of the Limitation Act can be inferred from entries in a company’s balance sheet, even if the creditor’s name is not expressly mentioned, provided the overall tenor of the documents indicates a subsisting liability. The Court further held that the Balance Sheet for F.Y. 2019–20, when read alongside the previous years’ financial statements and cash flow disclosures, clearly demonstrated the existence of a continuing financial obligation and thus constituted a valid acknowledgment of debt. It also held that courts should adopt a liberal and contextual approach when interpreting such entries, placing emphasis on the surrounding circumstances and past conduct rather than rigid formalism. Finally, the Court held that Para 5(I) of its COVID-19 order dated 10.01.2022 was applicable to the case, and therefore, the period from 15.03.2020 to 28.02.2022 was to be excluded for the purpose of limitation, making the Section 7 application filed in January 2024 well within time.
The two-Judge Bench of Justice Manoj Misra and Justice K.V. Viswanathan enunciated, “It was not disputed before us that entries in Balance Sheets could constitute a valid acknowledgement and in fact it could not have been disputed, in view of the categoric pronouncement of this Court in Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal and Another, (2021).”

In conclusion, the Supreme Court set aside the decisions of the NCLT and NCLAT, and remitted the case to the NCLT to consider the Section 7 application on merits, treating it as filed within limitation. (CA No. 5787 of 2025 dt.30.07.2025)
IL & FS Financial Services Ltd. v. Adhunik Meghalaya Steels Pvt. Ltd. (SC) 2025 INSC 911.www.itatonline.org
(Coram : Hon’ble Shri Justice Manoj Misra and Hon’ble Shri Justice Manoj Misra)