IL&FS Financial Services Ltd. vs. Adhunik Meghalaya Steels Pvt. Ltd.
Civil Appeal No. 5787 of 2025 | Decided on 29.07.2025
Introduction
The Supreme Court of India has, once again, clarified a significant aspect of insolvency jurisprudence — the interpretation of acknowledgment of debt under Section 18 of the Limitation Act, 1963, within the framework of the Insolvency and Bankruptcy Code, 2016 (IBC). In the case of IL&FS Financial Services Ltd. vs. Adhunik Meghalaya Steels Pvt. Ltd., the Court overturned the concurrent findings of the NCLT and NCLAT, thereby reinforcing the legal sanctity of entries in a corporate debtor’s balance sheet as valid acknowledgment of liability, even without naming the creditor explicitly.
Factual Matrix
- In 2015, IL&FS sanctioned a ₹30 crore term loan to Adhunik Meghalaya Steels Pvt. Ltd. (AMSL), secured by a pledge of 8,10,804 shares of Adhunik Metaliks Ltd.
- The account of AMSL was declared a Non-Performing Asset (NPA) on 01.03.2018.
- Financial statements of AMSL for FYs 2015-16, 2016-17, 2017-18 reflected secured borrowings, consistently identifying the pledged shares.
- The balance sheet for FY 2019-20, signed on 12.08.2020, disclosed a similar borrowing of ₹24.41 crore under “secured borrowings,” but without naming IL&FS.
- IL&FS filed a Section 7 IBC application on 15.01.2024 for recovery of ₹55.45 crore.
Procedural History
- NCLT Guwahati Bench rejected the application, holding it barred by limitation.
- NCLAT upheld the NCLT’s view, reasoning that the absence of the creditor’s name in the 2019-20 balance sheet invalidated acknowledgment.
- The Supreme Court reversed both decisions.
Key Legal Issues
- Does an entry in the balance sheet (without naming the creditor) qualify as an acknowledgment under Section 18 of the Limitation Act?
- Which portion of the Supreme Court’s suo motu COVID-19 limitation extension order (dated 10.01.2022) applies — Para 5(I) or 5(III)?
Supreme Court’s Ruling
On Acknowledgment of Debt
- The Court held that the balance sheet of FY 2019-20, viewed in light of earlier years’ financials and the cash flow statement, constitutes a valid acknowledgment of debt under Section 18 of the Limitation Act.
- Even without explicitly naming IL&FS, the entry reflected a substantive and continuing liability.
- The Court emphasized a liberal construction of financial entries, citing Khan Bahadur Shapoor Freedom Mazda (1961 AIR 1236), and rejected pedantic or overly technical objections.
On Limitation Computation
- Citing the Supreme Court’s COVID-19 orders (In Re: Cognizance for Extension of Limitation, 10.01.2022), the Court applied Para 5(I) — thereby excluding the period from 15.03.2020 to 28.02.2022.
- This effectively extended the limitation period to 28.02.2025, making the Section 7 application filed on 15.01.2024 well within time.
Key Takeaways
- Balance Sheets Can Acknowledge Debt: Even without naming the creditor, balance sheets reflecting “secured borrowings” — especially when consistent across years — can extend the limitation period under Section 18 of the Limitation Act.
- Surrounding Documents Matter: Courts may consider cash flow statements, prior balance sheets, and the absence of repayment to ascertain acknowledgment.
- COVID Extension Orders: The correct interpretation of the Supreme Court’s COVID-19 limitation orders can determine the admissibility of claims filed in the post-pandemic phase.
- Fact-Specific Inquiry: The ruling reaffirms that acknowledgment of debt must be assessed on a case-by-case basis, emphasizing substance over form.
Legal Significance
This judgment aligns with prior rulings such as:
- Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal (2021)
- Dena Bank v. C. Shivakumar Reddy (2021)
- Vidyasagar Prasad v. UCO Bank (2024)
It provides much-needed clarity on how financial statements, prepared in accordance with the Companies Act and Indian Accounting Standards, may impact limitation under the IBC.
Conclusion
The Supreme Court has definitively reaffirmed that acknowledgments under Section 18 must be construed with commercial realism, especially in insolvency matters. The insistence on a creditor’s name in the balance sheet is not an absolute requirement. What matters is whether a jural relationship and subsisting liability are discernible from the document when read in context.
This decision is expected to influence pending and future IBC proceedings where limitation is contested on technical grounds.
Disclaimer
This blog is intended solely for informational and academic purposes and does not constitute legal advice or create any attorney-client relationship. Readers are encouraged to consult qualified professionals for advice specific to their individual situations or legal matters.