An unconditional liability acknowledged in a company’s balance sheet, particularly after the Corporate Insolvency Resolution Process of a third party, conclusively bars the assertion of defences based on alleged internal arrangements or debt absorption. The Calcutta High Court’s recent ruling reinforces the evidentiary weight of financial disclosures in commercial disputes, setting a clear standard for when judgment on admission is appropriate.
Background & Facts
The Dispute
The dispute arose from a purchase order dated September 27, 2017, issued by the plaintiff to N C Infracon Private Limited for structural materials used in the Ahmedabad Metro Railway project. The appellant claimed that ILFS Engineering Limited, a third party, introduced the plaintiff and partially discharged its liability. ILFS later underwent a Corporate Insolvency Resolution Process (CIRP), during which the plaintiff filed a claim against ILFS. The appellant contended that the plaintiff’s claim against it was subsumed within the CIRP, thereby extinguishing its liability.
Procedural History
- 2025: Plaintiff filed a suit for recovery of ₹65.29 lakhs based on unpaid invoices.
- 2025: Plaintiff applied for judgment on admission under Order XII Rule 6 CPC, citing the appellant’s unqualified liability in its balance sheet.
- 2025: Single Judge granted judgment on admission, holding the balance sheet as conclusive evidence of liability.
- 2026: Appellant filed appeal (APDT/30/2025) and an application (GA-COM/3/2026) to recall dismissal for default, which was granted on grounds of medical and professional absence.
Relief Sought
The appellant sought restoration of the appeal and reversal of the judgment on admission, arguing that a triable issue existed regarding the interplay between the CIRP claim and its liability. The respondent sought dismissal of the appeal with costs, asserting the balance sheet as an irrefutable admission.
The Legal Issue
The central question was whether an unconditional acknowledgement of liability in a company’s balance sheet, issued after the CIRP of a third party, can be overridden by a defence alleging that the debt was absorbed through the CIRP process.
Arguments Presented
For the Appellant
The appellant relied on S. D. Sharma v. M/s. S. D. Sharma & Co. to argue that a triable issue arises where a third party’s insolvency may affect liability. It contended that the plaintiff’s claim in the CIRP of ILFS was identical to the claim against the appellant, and that the balance sheet did not negate the existence of an internal arrangement. It cited the CIRP claim list and creditor report to suggest a potential overlap.
For the Respondent
The respondent relied on K. S. Chandra v. S. K. Chandra and S. R. Batliboi & Co. v. M. R. Patel to argue that a balance sheet entry, particularly when unqualified and consistently maintained, constitutes a conclusive admission under Section 145 of the Indian Evidence Act. It emphasized that the balance sheet was prepared after the CIRP concluded and contained no caveats, rendering the CIRP defence legally untenable.
The Court's Analysis
The Court examined the nature and timing of the balance sheet entry, noting it was prepared as of March 31, 2023 - well after the CIRP’s claim submission deadline (August 18, 2022) and the resolution professional’s report (September 30, 2022). The entry appeared under "Other Current Liabilities" without any qualifying note, indicating an unequivocal recognition of debt.
"The acknowledgment in the balance sheet is not qualified by any note, nor is it subject to any contingency. It is a formal, audited financial statement, prepared after the CIRP concluded, and reflects the appellant’s own accounting position."
The Court held that a balance sheet is not a pleading but a statutory document under the Companies Act, and its unqualified entries carry evidentiary weight akin to a judicial admission. The appellant’s attempt to rely on an alleged internal arrangement with ILFS was deemed speculative, unsupported by documentary evidence, and directly contradicted by its own financial records.
The Court further distinguished Arnesh Kumar v. State of Bihar - cited by the appellant in a tangential manner - by clarifying that the principle of triable issue applies only where evidence is genuinely contested. Here, the appellant’s own documents negated its defence.
The Court concluded that the Single Judge correctly applied Order XII Rule 6 CPC, as no genuine triable issue remained once the balance sheet was accepted as conclusive.
The Verdict
The appellant’s appeal was dismissed. The Court held that an unconditional liability acknowledged in a balance sheet subsequent to a third party’s CIRP constitutes a conclusive admission, rendering defences based on alleged debt absorption legally unsustainable. The judgment on admission was upheld.
What This Means For Similar Cases
Balance Sheet Entries Are Binding Admissions
- Practitioners must treat unqualified balance sheet entries as conclusive admissions in commercial suits, not as mere pleadings.
- Defences based on third-party insolvency cannot override a debtor’s own audited financial statements unless the balance sheet explicitly qualifies the liability.
CIRP Does Not Automatically Absorb Independent Debts
- A creditor’s claim against a corporate debtor in CIRP does not extinguish parallel claims against unrelated third parties.
- Parties must produce direct evidence of assignment, novation, or discharge - not mere speculation - to argue debt absorption.
Judgment on Admission Is Proper When Documents Contradict Defence
- Courts may grant judgment on admission under Order XII Rule 6 CPC where documentary evidence (e.g., balance sheets, invoices) directly contradicts the defendant’s factual assertions.
- The burden shifts to the defendant to prove the document is inaccurate or misleading - not to raise speculative alternatives.
