Balance Sheet Acknowledgment Of Debt Extends Limitation; NCLAT Upholds IDBI's Insolvency Plea Against HIL

Reiterating that acknowledgment of liability in balance sheets extends limitation under Section 18 of the Limitation Act, the National Company Law Appellate Tribunal has upheld the admission of IDBI Bank's Section 7 insolvency application against Hindustan Insecticides Limited.

A bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra held that the insolvency application was not barred by limitation, as the corporate debtor had acknowledged the subsisting liability in its audited financial statements within the limitation period.

The tribunal observed, “Thus, the acknowledgment made in the balance sheet for the F.Y. 2019-2020 and 2020-2021 shall clearly extend the limitation under Section 18 of the Limitation Act. Hence, the application which was filed by the Financial Creditor was well within time.”

It further held, “Thus, the letters dated 18.04.2022 and 02.06.2022 were well within the period of limitation and shall also the basis for extending the limitation period of three years from the said acknowledgment.”

The appeal arose from the NCLT Delhi's order dated July 30, 2025, admitting IDBI Bank's Section 7 petition against Hindustan Insecticides Limited, a Government of India enterprise with 100 percent shareholding of the President of India under the Department of Chemicals and Petrochemicals.

Southern Pesticides Corporation Limited was a subsidiary of HIL. IDBI had advanced loans to SPCL. HIL executed a deed of guarantee on November 21, 1988, undertaking repayment in the event of default. The guarantee was invoked on July 1, 1994.

IDBI filed an application before the Debt Recovery Tribunal. The DRT allowed the claim and issued a Recovery Certificate dated July 26, 2018. IDBI thereafter filed a Section 7 application on June 13, 2024.

The suspended director, D.N.V. Srinivasa Raju, argued that even if limitation were computed from July 26, 2018, the three-year period expired on July 25, 2021. He argued that the balance sheets did not amount to a valid acknowledgment under Section 18. He also said the 2022 letters could not bring a time-barred claim back to life.

Rejecting these submissions, the NCLAT held that a fresh period of limitation commenced from July 26, 2018. It noted the benefit of the Supreme Court's suo motu orders excluding the period from March 15, 2020, to February 28, 2022. The tribunal calculated that the balance limitation extended till July 2023 even without considering acknowledgment.

The appellate tribunal examined the financial statements for 2019-2020 and 2020-2021. It noted that the corporate guarantee furnished by HIL was specifically reflected in the balance sheets. Applying the Supreme Court's rulings in Dena Bank v. C. Shivakumar Reddy, Asset Reconstruction Co. v. Bishal Jaiswal, and IL and FS Financial Services Ltd. v. Adhunik Meghalaya Steels, it held that such entries constitute acknowledgment under Section 18 and extend the limitation.

The tribunal also relied on letters dated April 18, 2022, and June 2, 2022, in which HIL referred to settlement and the amounts payable. It held that these were issued within the limitation period and extended it further.

During the appeal, IDBI Bank accepted a one-time settlement of Rs 1.78 crore. The appellant then sought to withdraw the appeal and close the insolvency proceedings.

The NCLAT said that since it was upholding the admission order, the insolvency process could not be closed merely because the parties had settled. It allowed withdrawal of the appeal and directed IDBI Bank to move a Section 12A application through the Interim Resolution Professional within four weeks.

The tribunal upheld the NCLT's order dated July 30, 2025, and disposed of the appeal, leaving the settlement to be considered under Section 12A.