Chitambaresh, J.It is often said that an acknowledgment merely extends the period of limitation and does not create a new right of action. How far the balance sheet and the profit and loss account will operate as an acknowledgment of liability is the pivotal question in this appeal suit.

2. The plaintiff contended that he had advanced money to the defendant on various occasions totalling to Rs. 2,65,000/- for the construction of a building and the suit is one for realization of the same. The receipt of the amount by the defendant is not disputed and the same is reflected in Ext.A1 balance sheet and the profit and loss account for the period ending 31.3.1995. The suit is filed in the capacity of a creditor even though the plaintiff is also a director of the defendant which is a company registered under the Companies Act, 1956.

3. The defendant contended that the amount was paid back to the plaintiff during the year 1995-96 and the same is reflected in Ext.B11 balance sheet and the profit and loss account for the period ending 31.3.1996. The defendant added that the suit filed on 3.1.2000 for realization of the amount allegedly due on 31.3.1995 is hopelessly barred by the law of limitation. The defendant pointed out that Ext.A1 balance sheet and the profit and loss account does not operate as an acknowledgment and that the same can at best relate to the period ending 31.3.1995.

4. The court below decreed the suit awarding interest at the rate of 12% per annum on the principal sum of Rs. 2,65,000/- against which the defendant has come up in appeal urging several grounds. The defendant reiterated that directors cannot acknowledge the liability to themselves and the period of limitation is not extended by signing Ext.A1 balance sheet and the profit and loss account. The defendant also contended that there is no reason as to why the same sanctity should not be attached to Ext.B11 balance sheet and the profit and loss account.

5. We heard Mr. T. Sethumadhavan, Senior Advocate on behalf of the appellant/defendant and Mr. S. Ramesh Babu, Senior Advocate on behalf of the respondent/plaintiff.

6. Section 18 of the Limitation Act, 1963 (hereinafter referred to as the only) speaks of the effect of acknowledgment in writing and is as follows:

"18. Effect of acknowledgment in writing.-(1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.

(2) Where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received.

Explanation.-For the purposes of this section,-

(a) an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set-off, or is addressed to a person other than a person entitled to the property or right;

(b) the word "signed" means signed either personally or by an agent duly authorised in this behalf; and

(c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right."

(emphasis supplied)

The inclusion of a debt in a balance sheet duly prepared and authenticated would amount to admission of a liability and therefore satisfies the requirement of law for a valid acknowledgment under Section 18 of the. We may recapitulate the words of Mr. Justice P. Subramonian Poti in Krishnan Assari v. Akilakerala Viswakarma Maha Sabha [1980 KLT 515 (DB)] and the following is the extract:

"10. How far the balance sheets could be acted upon in deciding the claim of the appellant is the next question. The appellant relies on the balance sheets as acknowledgment of liability contemplated in Section 18 of the Limitation Act, 1963. Under Section 18 an acknowledgment of liability signed by the party against whom the right is claimed gives rise to a fresh period of limitation. Under Explanation (b) to the Section the word signed means signed either personally or by an agent duly authorised. A company being a corporate body acts through its representatives, the Managing Director and the Board of Directors. Under Section 210 of the Companies Act it is the statutory duty of the Board of Directors to lay before the Company at every annual general body meeting a balance sheet and a profit and loss account for the preceding financial year. Section 211 directs that the form and contents of the balance sheet should be as set out in Part I of Schedule VI. The said form stipulates for the details of the loans and advances and also of sundry creditors. The balance sheet should be approved by the Board of Directors, and thereafter authenticated by the Manager or the Secretary if any and not less than two directors one of whom should be the Managing Director. (See Section 215). The Act also provides for supply of copies of the balance sheet to the members before the company in general meeting. Going by the above provisions, a balance sheet is the statement of assets and liabilities of the company as at the end of the financial year, approved by the Board of Directors and authenticated in the manner provided by law. The persons who authenticate the document do so in their capacity as agents of the company. The inclusion of a debt in a balance sheet duly prepared and authenticated would amount to admission of a liability and therefore satisfies the requirements of law for a valid acknowledgment under Section 18 of the Limitation Act, even though the directors by authenticating the balance sheet merely discharge a statutory duty and may not have intended to make an acknowledgment."

(emphasis supplied)

It is a fact well conceded that Ext.A1 balance sheet and the profit and loss account of the defendant for the period ending 31.3.1995 reflects the monetary liability due to the plaintiff at Rs. 2,65,000/-. Nobody has a case that Ext.A1 balance sheet and the profit and loss account though signed belatedly by the directors on 26.3.1997 was not maintained as per the Companies Act, 1956. The very entry in Ext.A1 balance sheet and the profit and loss account of the defendant absolves the plaintiff of the necessity to prove the existence of debt of Rs. 2,65,000/-.

7. The complex question is as to whether Ext.A1 balance sheet and the profit and loss account is an acknowledgment of liability for the period ending 31.3.1995 to which it relates or on 26.3.1997 when it was signed. This assumes significance since the suit for money was filed on 3.1.2000 which is well beyond three years from 31.3.1995 though within three years from 26.3.1997. The period of limitation for filing a suit of the nature is three years from the acknowledgment and there is a cleavage in judicial opinion as to from which date the period will run. It is apposite to quote from Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff [AIR 1962 Cal. 115 [LQ/CalHC/1961/85] ] following Rajah of Vizianagaram v. The Official Liquidator [AIR 1952 Mad. 136 [LQ/MadHC/1951/56] ]:

"In each balance sheet there is thus an admission of a subsisting liability to continue the relation of debtor and creditor, and a definite representation of a present intention to keep the liability alive until it is lawfully determined by payment or otherwise. There is necessarily a time lag between the date of the signing of the balance sheet and the end of the previous year. The balance sheet contain no admission of the amount due on the date of the signature. That amount may be and often is different from the amount shown as due at the end of the previous year, but that fact alone does not take the amount out of the purview of Section 19."

(emphasis supplied)

To the same effect are the decisions in Vijaya Kumar Machinery v. Alaparthi Lakshmikanthamma [(1969) 74 ITR 224] [LQ/APHC/1968/2] and State Bank of India v. Hegde and Golay Ltd. [(1987) 62 Company Cases 239].

8. The basic decision followed by the Indian Courts as above is Jones v. Bellgrove Properties Ltd [(1949) 2 All.E.R.198] which however was distinguished in Consolidated Agencies Ltd. v. Bertram Ltd. [(1964) 3 All.E.R. 282]. Later the current of the English authority was clarified in Re Gee & Co (Woolwich) Ltd [(1974) 1 All.E.R.1149] wherein it was inter alia observed as follows:

"I shall accordingly decide this case on the footing that a balance sheet, if duly signed by the directors, is capable of being an effective acknowledgment of the state of indebtedness as at the date of the balance sheet, and that, in an appropriate case, the cause of action will be deemed to have accrued at the date of the balance sheet, being the date to which signatures of the directors relate."

The principle that follows is that the balance sheet and the profit and loss account will constitute an acknowledgment of liability as on the date of the signature it bears for the purpose of Section 18 of the. It however contains no admission of the amount due on the date of signature and does not preclude the parties from proving the discharge subsequent to the period to which the same relates.

9. Will not the signing of the balance sheet and the profit and loss account at best be an acknowledgment made by a director of a debt due to himself is the further question posed by the defendant. Reliance is placed on P.S.Thirumalai Iyengar v. Official Liquidator [AIR 1962 Madras 253 (DB)] and A.C.K. Krishnaswami v. M/s.Stressed Concrete Constructions Pvt. Ltd. [AIR 1964 Madras 191]. But the precise question has been answered in Re Gee & Cos case (supra) as follows:

"It seems to me plain that an acknowledgment signed by the directors in relation to their own debt would be fully effective if sanctioned by every member of the company............The general meeting of the company at which the accounts were adopted and the state of the Eccles account confirmed was in fact a meeting attended by, or by the representative of, every member of the company............In these circumstances, it seems to me plain that all the corporators must be taken to have agreed to the directors written acknowledgment of the debt."

Nobody has a case that Ext.A1 balance sheet and the profit and loss account was not placed in the annual general body meeting of the defendant and got approved by the board of directors as mandated by the Company Law. The irresistible conclusion therefore is that Ext.A1 balance sheet and the profit and loss account operates as an acknowledgment on 26.3.1997 of the liability on 31.3.1995. The suit filed on 3.1.2000 for realization of the amount of Rs. 2,65,000/- with interest is in time and the contention of the defendant that it is statute barred is hereby repelled.

10. The last question is the plea of discharge of the sum of Rs. 2,65,000/- by the defendant to the plaintiff as reflected in Ext.B11 balance sheet and the profit and loss account for the period ending 31.3.1996. Ext.A1 balance sheet and the profit and loss account is admitted by all parties whereas Ext.B11 balance sheet and the profit and loss account is disputed by the plaintiff. The plaintiff had objected to Ext.B11 balance sheet and the profit and loss account when the same was deliberated upon as is borne out by Ext.B7 minutes of the meeting of the board of directors. There was no taboo for the plaintiff to have participated in the deliberation as money allegedly due does not fall within Section 300 of the Companies Act, 1956. The defendant has relied on Exts.B1 and B2 ledgers, Ext.B3 day book and Exts.B4 to B6 accounts books in support of the plea of discharge of the liability during 1995-96. The person who made the entries has not been examined and the discrepancies noticed by the court below have not been attempted to be explained by the defendant.

11. It is apposite in this context to notice the observations in Petlad Turkey Red Dye Works Co. Ltd. v. Dyes and Chemical Workers Union and others [AIR 1960 SC 1006 [LQ/SC/1960/21] ] as follows:

"It has to be borne in mind that in many cases the Directors of the Companies may feel inclined to make incorrect statements in these balance-sheets for ulterior purposes. While that is no reason to suspect every statement made in these balance-sheets, the position is clear that we cannot presume the statements made therein to be always correct. The burden is on the party who asserts a statement to be correct to prove the same by relevant and acceptable evidence."

(emphasis supplied)

Even otherwise mere entries in books of account shall not alone be sufficient evidence to charge any person with liability [See: Chandradhar Goswami and others v. Gauhati Bank Ltd (AIR 1967 SC 1058 [LQ/SC/1966/265] )]. There has to be further evidence to prove payment of the money which may appear in the books of account either by production of receipts and vouchers or other clinching evidence.

12. We would like to caution that the Commercial Documents Evidence Act, 1939 has not been extended to Part B States and therefore no presumption as to genuineness of documents or accuracy therein arises. The plaintiff contended that Ext.B11 balance sheet and the profit and loss account was filed two years after its due date and hence not kept in the regular course of business. The defendant contended that it could ill-afford to employ a Manager or Secretary and that the accounts were finalized by its directors themselves during the relevant time. But no explanation is forthcoming as to why the directors who made the entries were not examined or any voucher or receipt produced to prove discharge. The onus of proof is heavy on the defendant and we notice that neither parties have adduced any oral evidence in the case except marking the documents on consent. The defendant sought one more opportunity to adduce oral and documentary evidence to substantiate its contentions which we are inclined to grant in the peculiar circumstances of the case.

13. The impugned judgment and decree are set aside and the suit remanded to consider only the plea of discharge of liability put forth by the defendant and all other findings by the court below are confirmed. The parties shall appear in the court below on 13.09.2017 and every endeavour shall be made to dispose of the suit finally within a period of four months from the receipt of records.

14. The appeal suit is allowed. No costs.