The right continues to exist notwithstanding that the remedy is barred by limitation. A debtor may pay the time barred debt to the creditor. He cannot claim it back on the plea that it was time barred.
A debtor who owes several debts to a creditor may pay a sum of money to the Creditor. If there is no specific mention, then the creditor can adjust the payment towards any of the debts, including the one whose recovery is barred by limitation. A barred debt can constitute a valid consideration for a fresh contract.
Under Sec. 25(3) of the Contract Act, 1872, an agreement in writing undertaking to pay a time barred debt is valid and binding. But there are special cases in which, on the remedy becoming barred by limitation, the right itself is extinguished like the one contemplated in Sec. 27 of the Limitation Act, 1963 (Jawaharlal Law Motumal Mamtani vs. Bhagohanchand Motamal Mamtani, AIR 1981, Delhi 338 at P. 343).
Extinguishment of right:
The Limitation Act lays down a rule of substantive law in Sec. 27. It declares that after the lapse of the period provided by this enactment, the right itself is gone and the title ceases to exist, and not merely the remedy.
If an owner, whose property is encroached upon, suffers his right to be barred by the law of limitation the practical effect is the extinction of his title in favour of the party in possession. It is of the utmost consequence in India that the security which long possession affords should not be weakened.
As between private owners contesting inter so the title to lands, the law has established a limitation of twelve years: after that time it declares not simply that the remedy is barred, but that the title is extinct in favour of the possessor.
When a person’s suit for possession of any property is barred by limitation under the Act, his right to such property stands extinguished: Section 27, under this section, not only the ownership of one person is extinguished, but an absolute ownership is also acquired by the other person in adverse possession (Radhabai vs. Anantrao, 9, Bom. 198).
It is well established proposition that payment of a time barred debt is a valid consideration for transfer of property. Similarly, an agreement in writing undertaking to pay a time barred debt is lawful and binding. Again, a creditor can adjust a payment made by a debtor who owes several debts, towards debt with had become time-barred.
Shadi La, Chief Justice held in Nuruddin vs. Allah Ditta (I.L.R. 13, Lah. 817 AIR 1932, Lah. 419).
“The rule of law is firmly established that debt does not cease to be a debt because its recovery is barred by the Statue of Limitation”. (First National Bank Ltd. Vs. Seth Sant Lai, AIR 1959, Punj 328 at P. 330).
In considering whether a particular remedy is barred, one looks not at the relief given but at the cause of action, that is, at the necessary allegations which have to made and found before the relief sought can be given. (Asaram vs. Budeshwar, AIR 1938, Nag. 335 at P. 339 F.8).