Acknowledgement of a Debt or Part Payment towards Debt and how does it Effect Limitation

Section 18 further lays down that where the writing containing the acknow­ledgement is undated, oral evidence may be given of the time when it was signed; however, subject to the provisions of the Indian Evidence Act, 1872, oral evidence of its contents cannot be received.

It is also clarified that for the purposes of Section 18:

(a) An acknowledgement may be sufficient although 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 the 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;

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(b) The word “signed” means signed either personally or by an agent duly authorised in his 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.

Acknowledgement:

Acknowledgement means a definite, clear admission of existing liability, it is NOT NECESSARY that there should be a promise to pay; the simple admission of a debt is sufficient. (Binode Behari vs. Raj Narain, 30, Cal. 699).

An Acknowledgement does not create any new right of action, but only enlarges the time and has the effect of making a new period run from the date of the acknowledgement.

An acknowledgement of a barred debt cannot give fresh period of limitation in favour of creditors. Under this section, an acknowledgement is not limited in respect of a debt only; it may be in respect of “any property or right” which is the subject-matter of the suit e.g., the taking of account of a dissolved partnership. An acknowledgement of a conditioned liability will not give a fresh start so long as the condition remains unfulfilled.

There must be an unqualified, or an admission qualified by a condition which is fulfilled. An unqualified admission and an admission qualified by a condition which is fulfilled stand precisely upon the same footing, and both within Section 18.

Ingredients of Section 18 and essentials of a valid acknowledgement-

To constitute a valid acknowledgement and thus to give a fresh period of limitation under this section, the following conditions must be satisfied-

1. The acknowledgement must have been made before the expiration of the period prescribed.

2. The acknowledgement must have been made by the party against whom the right is then claimed or by any person through whom he derives his title or liability.

3. The acknowledgement must be in writing; however, if the acknowledgement is undated, oral evidence may be given of the time when it was signed.

4. Such acknowledgement must have been signed by the party, his agent or the party against whom the right is then claimed or by any person through whom he derives his title or liability.

5. The acknowledgement must be an acknowledgement of liability. It is not necessary that the acknowledgement must also contain a promise to pay; a simple admission that debt is due, is quite sufficient under the Indian law. It is otherwise under the English Law, under which an acknowledgement to be effective must also contain import of a promise to pay. Under the Indian Law, it is not necessary that the writing containing the acknowledgement of some right or property should specify exactly what the right is or the exact nature of the property (e.g., exact sum due). Again and this is really extraordinary an acknowledgment will be sufficient for the purposes of the section, even though it is coupled with a refusal to pay, or with a claim to set-off, or with a statement that time for payment has not yet arrived. But all the same it must be an admission of liability; a statement by the debtor implying that there is no liability does not amount to an acknowledgement.

6. The acknowledgement is not required to be made to the creditor or the person entitled to the right or the property; it may be made to any person, even to one who has no connection with the creditor.

An acknowledgement or liability need not be express; it may be by implication (Bhagwan vs. Madhov, 46 Borm. 1000). The acknowledgement must distinctly and definitely relate to the liability in respect of the right claimed (Gopal Rao vs. Harilal, 9 Bom. L.R. 715).

Acknowledgement to whom:

According to Section 18 “an acknowledge­ment may be sufficient though it is addressed to a person other than the person entitled to the property or right”. An acknowledgement to whom so ever made is a valid acknowledgement, if it be an acknowledgment pointing out with reasonable certainty to the liability in dispute or the rights out of which that liability arises as a legal consequence.

An acknowledgement is not required to be addressed to any person, much less to the creditor or some person through whom he claims.

Illustrations of sufficient acknowledgement of liability:

1. “I am ashamed that the account has stood so long”.

2. “Please send in the account made up to Christmas last”.

3. “The promissory note which I gave is unstamped and I will not pay it”.

4. “I cannot afford to pay my new debts much less the old debt I owe you”.

5. “I admit the existence of a running account. My representatives will compare accounts and pay what may be found to be due…”

6. “I am willing to pay you the sum due by installments”.

7. “As we have informed your client, we are quite willing to pay him the rent due under our mourat pattah if he can show a title to give us a good receipt for it that will satisfy our lawyers. If he is unable to produce a perfect title, we are still willing to pay him the rent on his giving substantial indemnity”.

Illustrations of insufficient acknowledgement:

1. A letter “enclosing a remittance of Rs. 100/- to old account” does not show that a further sum is due.

2. “I wish to look to your accounts; in my own account I do not see any amount due to you. Please, therefore, send the account”.

3. A letter written by a railway company to the plaintiff informing the latter that the goods have been delivered to a third party under an indemnity bond, and that the plaintiff cannot be entertained is not an acknowledgement of liability.

4. “I admit the loan, but I have since repaid the amount”.

5. The plaintiff consigned some bags to be delivered to the consignee but they were not delivered, and the railway company wrote a letter to the plaintiff informing that the bags were lying at a certain place and that the plaintiff might take delivery if he liked. The letter did not amount to an acknowledgement.

Agent duly authorised:

This is explained in Section 20. An acknowledgement by the guardian, committee or manager or a person under disability, by an agent duly authorised by such guardian, etc., is within this section.

The manager of a joint Hindu Family has the same authority to acknowledgement as he has to create debts on behalf of family.

An acknowledgement by a legal practitioner will be valid acknowledgement to bind his clients. An attorney is a duly authorised agent and an admission made by him in a letter to the attorney of the opposite party is a sufficient acknowledgement.

Official Assignee and Official Receiver:

The official assignee is not the agent of the insolvent. Therefore, an acknowledgement made by him does not save limitation under this section (Currimbhai vs. Ahmed Ali, A.I.R. 1933, Bom. 91).

An official receiver is an officer appointed to administer the estate of an insolvent, under the Provincial Insolvency Act. He is not technically an agent of the insolvent. However, wider Section 28, of the Provincial Insolvency Act, the properties of the insolvent vest in the official receiver.

Therefore, in respect of liabilities connected with insolvency, an acknowledgement by the official receiver saves time under Section 11 of this Act. (State of Uttar Pradesh vs. Moot Chand, A.I.R. 1972, All. 413).

Section 18. Limitation of and Section 25 of Indian Contract Act:

The distinction between an “Acknowledgement” under Section 18 of the Limitation Act and a “Promise” under Sec. 25 of the Contract Act is of great importance. Both must be in writing signed by the party or his agent authorised in that behalf and both creates a fresh starting point of limitation. But while, an acknowledgement under the Limitation Act is required to be made before the expiration of the period of Limitation, a promise under Sec. 25 of the Contract Act may be made after the limitation period.

If a debt is time-barred, there can be no acknowledgement of the debt, there can only be a promise to pay that sum. Such a promise would amount to a new contract.

It is open to the borrower to make a promise in writing, signed by himself, to pay a debt of which his creditor might have enforced payment but for the law for the limitation of the suit. This is recognised by Sec. 25(3) of the Contract Act.

New period, how computed:

A new period of Limitation is to be computed from time to time of the acknowledgement, i.e., from the time when it was signed. It is the true date of acknowledgement from which a new period starts.

Oral evidence is permissible to show that the writing bears a wrong date by mistake. The date of delivery of the acknowledgement is not the starting point. The date of acknowledgement is to be excluded in computing the new period (vide Sec. 12 of General Clauses Act).