India: Acknowledgement Of Debt

Last Updated: 4 July 2017
Article by Snehali Karkera and Sana Khan

'Acknowledgement' generally means acceptance or admission of something that exists. Section 18 of the Limitation Act, 19631 uses the term 'acknowledgement' to mean an admission of an existing liability in lieu of which the period of limitation is extended. A perusal through section 18 of the Limitation Act indicates certain conditions to be fulfilled in order to emphasize acknowledgement. They are:

  1. That the acknowledgement of liability must be in writing.
  2. That the acknowledgement of liability must be made before expiry of limitation period for filing the suit. If limitation has already expired, it would not revive under section 18 of the Limitation Act2.
  3. That the acknowledgement of liability must be unqualified3 and must be in unambiguous, clear terms4.
  4. That the acknowledgement must be signed by the person or his authorised agent admitting liability5.

It may be clarified that 'acknowledgement' under section 18 of the Limitation Act and 'promise to pay' under section 25(3) of the Contract Act, 1872 are different even though both have the effect of creating a fresh limitation period. Where section 18 grants a fresh period of limitation only in cases where acknowledgement is before expiry of limitation period; section 25(3) comes to the rescue in cases where period of limitation has already expired6. However, can we treat an acknowledgement of liability as a promise to pay? In affirmatively answering the question the Delhi High Court has held that any written acknowledgment after the confirmation of the balance amount can safely be treated as a promise to pay and not mere acknowledgement7.

It is to be noted that an acknowledgement of liability may be unilateral or bilateral8. A unilateral acknowledgment would, in most cases, be more reliable and convincing, because if the debtor makes a conditional or unconditional acknowledgment in the absence of a creditor, it cannot be urged by him as in the case of a bilateral agreement that it was obtained by any kind of fraud, coercion, threat, inducement or promise9.

Effect of acknowledgement in case of Guarantee:

An acknowledgment by a principal-debtor does not bind the surety10 but it has also been held that acknowledgements by the principal-debtor also keep the limitation saved against the surety11. In any case, where the surety has specifically empowered the principal-debtor to give consent on behalf of the surety in respect of all matters concerning the debt, the acknowledgement of liability given by the principal-debtor is binding on the surety, even though he has not signed the acknowledgements12.

Documents that constitute 'acknowledgement' vis-à-vis section 18 of the Limitation Act:

  1. E-mails acknowledging the debt constitute a valid and legal acknowledgement of debt though not signed as required under Section 18 of the Limitation Act13. If an acknowledgment is sent by an 'originator' to the 'addressee' by e-mail, without any intermediary, it amounts to electronic communication by e-mail which is an alternative to the paper based method of communication and is legally recognized by the Information Technology Act, 2000.
  2. Debentures are documents which either create debt or acknowledge it14. In modern commercial usage, a debenture denotes an instrument issued by the company, normally - but not necessarily - called on the face of it a debenture, and providing for the payment of, or acknowledging the indebtedness in, a specified sum, at a fixed date, with interest thereon. It usually--but not necessarily--gives a charge by way of security, and is often--though not invariably--expressed to be one of a series of like debentures15. Therefore, debentures are 'acknowledgment' under the purview of section 18 Limitation Act, 1963.
  3. Balance sheets are an admission of indebtedness and sufficient acknowledgment under the Indian Limitation Act16. The limitation period is calculated from the date it is signed17. In the case of a company, Section 215(i)(ii) of the Indian Companies Act, 1956 requires that every balance sheet shall be signed on behalf of the Board of Directors by the managing agent, secretaries and treasurers, manager or secretary, if any, and by not less than two directors of the company one of whom shall be a managing director where there is one. Section 133 (i) (ii) of the Indian Companies Act, 1913 also provided that the balance sheet should be signed by two directors or, when there were less than two directors, by the sole director and by the manager or managing agent (if any) of the company. Without such authentication, an admission of liability in a balance sheet will not be authorised and will not amount to an acknowledgment of liability within the meaning of Section 19 of the Limitation Act, 190818.
  4. Cheque given by a debtor to pay his dues is an acknowledgement, even though the Cheque is dishonoured19.
  5. An acknowledgement of a payment made in the written statement in an earlier suit operates as an acknowledgement within the meaning of Section 18 of the Limitation Act20.
  6. In a suit for redemption of a mortgage, acknowledgement of liability must be made by the mortgagee whereas in a suit for foreclosure of mortgage, acknowledgement muse b made by the mortgagor21. This reflects that an acknowledgement must be made by the person against whom the liability is sought.
  7. An insufficiently stamped document which contains an admission of liability can be relied upon only for the purpose of extending limitation period22.

There are documents which do not constitute an acknowledgement of liability under the Limitation Act. Issuance of TDS certificate does not amount to the acknowledgment of liability23 as TDS certificate is primarily to acknowledge the deduction of tax at source. Also, C – Forms are not due acknowledgement of debt24 as there is no acknowledgement of a present and subsisting liability. This is because no intention to acknowledge a liability can be inferred from the contents of the C form. Also, one cannot establish a jural relation of debtor and creditor from the contents of the C form. Similarly, a letter in reply to a demand notice cannot be held as acknowledgment as long as it does not admit the liability.

Date from which limitation period is calculated

S. 18(1) of Limitation Act, 1963 provides that the fresh period of limitation shall be computed from the time when the acknowledgment was so signed. In view of Section 12(1) of the Limitation Act and Section 9(1) of General Clauses Act, 1897 it was held that the day on which acknowledgment is made will have to be excluded in computing the period of limitation25. In case of a minor, where an acknowledgement is made in favor of a minor, then the fresh period of limitation is to be computed from the date when the plaintiff attains majority26.

Conclusion:

Limitation bars the remedy; it does not extinguish the right. Therefore, provisions under section 18 of the Limitation Act aid in restoring such rights.

Footnotes

1. Section 18: Effect of acknowledgement in writing:

(1) Where, before the expiration of the prescribed period for a suit of application in respect of any property or right, an acknowledgement 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 acknowledgement was so signed.

(2) Where the writing containing the acknowledgement 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, oral evidence of its contents shall not be received.

2. Sampuran Singh & Ors. Vs. Niranjan Kaur & Ors. AIR 1999 SC 1047

3. Syndicate Bank vs. R. Veeramma (2003) 2 SCC 15

4. Ghulam Murtaza vs Mt. Fasiunnissa Bibi AIR 1935 All 129, 152 Ind Cas 370

5. Ibid

6. Sama Dharman vs. S. Natarajan 2013 ALLMR(Cri) 225

7. State Bank Of India vs Kanahiya Lal & Anr RSA No. 248 / 2015 decided on 2nd May, 2016

8. Jeevraj And Anr. vs Lalchand And Ors. AIR 1969 Raj 192

9. Ibid

10. Hazara Singh Gujjur Singh vs. Bakhish Singh Mula Singh AIR 1962 Punj 495

11. Pollock & Mulla 'The Indian Contract Act, 1872' 14th Edition Pg. 1398-1399

12. Ibid and R. Lilavati vs. Bank of Baroda AIR 1987 Kant 2

13. Sudarshan Cargo Pvt. Ltd vs. M/S Techvac Engineering Pvt Ltd. [C.O.P. No.11/2013 Decided: 25.06.2013]

14. Commissioner Of Income-Tax vs Cochin Refineries Ltd. 1983 142 ITR 441 Ker

15. Palmer's Company Law, 20th Edn., pp. 367-368

16. Bengal Silk Mills Co. vs Ismail Golam Hossain Arif AIR 1962 Cal 115, 65 CWN 856

17. Vijaya Kumar machinery & Electrical Stores vs. Alaparthi LakshmiKanthamma [1969] 74 ITR 224

18. Babulal Rukmanand vs. Official Liquidator, Bharatpur Oil Mills Pvt. Ltd. AIR 1968 Raj 214

19. Hindusthan Apparel Industries vs. Fair Deal Corporation AIR 2000 Guj 261 (FB)

20. C. K. Xavier vs. S. Kasi AIR 1990 Ker 271

21. Kanakamma vs. B.Banerjee Babu AIR 2010 Ker 136

22. Kempegowda vs. Mahalingaiah AIR 1972 Mys 152

23. Actal vs. India Infoline Ltd. [Decided on 9.10.2012 Bombay High Court]

24. Taipack Limited and Ors. vs. Ram Kishore Nagar Mal 2007 (3) ARBLR 402 Delhi

25. Someshwar Nilakhe v/s. Nivrutti Gholave AIR 1973 BOM 147

26. Venkataramayyar v. Kothandaramayyar, [13 Mad. 135]

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions