Balance Sheets Acknowledging Debt Give Rise To Fresh Period Of Limitation: Supreme Court Reiterates
The Supreme Court was considering an appeal against the Delhi High Court's judgment rejecting the plaintiff-appellant's plaint as barred by limitation.
Justice Vikram Nath, Justice Augustine George Masih, Justice Sandeep Mehta, Supreme Court
While ordering the revival of a civil suit, the Supreme Court has held that a written acknowledgement of a subsisting liability, such as a balance sheets acknowledging a debt, gives rise to a fresh period of limitation, commencing from the date on which the acknowledgement is made.
The Apex Court was considering an appeal against the Delhi High Court's judgment allowing the defendant-respondent's revision petition and rejecting the plaintiff-appellant's plaint as barred by limitation.
The 3-Judge Bench of Justice Vikram Nath, Justice Augustine George Masih and Justice Sandeep Mehta held, “Simply stated, a written acknowledgment of a subsisting liability gives rise to a fresh period of limitation, commencing C.A. from the date on which the acknowledgment is made. In effect, the period of limitation is renewed, or extended.”
“The same principle was reiterated in Axis Bank Ltd. v. Naren Sheth wherein this Court recognized that Section 18 of Limitation Act would apply in case of balance sheets acknowledging a debt”, it added.
AOR Malak Manish Bhatt represented the Appellant, while AOR Aayushmaan Vatsyayana represented the Respondent.
Factual Background
The original plaintiff, Wazir Hussain, instituted a suit under Order XXXVII of the Code of Civil Procedure, 1908 (CPC) in 2014 to recover money due under a civil works contract. The contract was entered into by the defendant-society (defendant) for construction work to be carried out by the original plaintiff in connection with a multi-storey building in Mayur Vihar, Delhi. He relied on running bills raised between 2000 and 2003 to seek recovery of Rs. 11,16,000 along with interest.
The defendant filed an application under Order VII Rule 11 CPC seeking rejection of the plaint. It contended that the suit was barred by limitation, did not disclose a cause of action and was not maintainable in view of alleged embezzlement. The Trial Court rejected the application. The Court observed that the outstanding amounts were being reflected in the balance sheets of the defendant-Society for the years 2004, 2005 to 2013, which amounts to an acknowledgement of debt, consequently giving rise to a fresh period of limitation.
The defendant’s revision petition before the High Court was allowed and the plaint was rejected as being barred by limitation. Aggrieved, the legal heir of the original plaintiff approached the Apex Court.
Reasoning
The Bench noted that the original plaintiff relied on the defendant-Society’s balance sheet for the year 2004-05 and the bank reconciliation statements for the same financial year. “The latter explicitly records three cheques issued in favour of ‘Wazir Hussain Contractor’. These entries directly connect the original plaintiff with the Society’s financial records and transactions underlying the suit”, it added.
The Bench explained that Section 18 of the Limitation Act does not require that an acknowledgment be made to the name of the creditor specifically or be drawn up using a fixed format, so long as it acknowledges a subsisting liability. According to the Bench, the only requirement is that the acknowledgement, when read in conjunction with the other circumstances surrounding the transaction, must indicate a subsisting jural relationship. “In the present set of facts, the surrounding circumstances amply support the claim of the original plaintiff that a liability existed, that it was reflected in defendant’s own balance sheets and that the same continued to be carried forward to the year 2013, renewing the limitation period every year”, it stated.
The Bench clarified that the relationship between the cheques issued, amounts carried forward and the sum claimed would require examination of evidence as these were matters for trial. “At the stage of considering an application under Order VII Rule 11 CPC, the Court ought not to have gone into the depths of evidence and conclusively determined the non-existence of liability. It was required only to assess whether the plaint disclosed a prima facie case on the basis of the material available”, it stated.
The Bench also discarded the contention of the defendant that a time-barred debt cannot be revived indefinitely, more particularly so in the absence of an application seeking condonation of delay. Considering that the entries constituted an acknowledgement under Section 18 of the Limitation Act, the Bench held that a fresh period of limitation would automatically run from each subsequent date of acknowledgement. “In that event, there was no requirement for an application seeking condonation of delay”, it held while allowing the appeal.
The Bench thus concluded the matter by directing, “The suit shall stand revived on the file of the Trial Court. All questions on the merits of the claim shall remain open.”
Cause Title: Yusuf v. Vigyapan Loke Delhi Advertising Cghs Ltd. (Neutral Citation: 2026 INSC 1207)
Appearance
Appellant: AOR Malak Manish Bhatt
Respondent: AOR Aayushmaan Vatsyayana, Advocates G.L Verma, Aditi Warrier, Vansh Pandey, Manas Pandey, Gourav