The Doctrine of Acknowledgment under Section 18 of the Limitation Act, 1963: A Comprehensive Analysis
Introduction
The Limitation Act, 1963 (hereinafter "the Act") is a crucial piece of legislation in India that prescribes time limits for instituting legal proceedings. The underlying principle is that legal remedies should be sought diligently and within a reasonable timeframe, ensuring that disputes are resolved when evidence is fresh and preventing the indefinite threat of litigation. However, the Act also recognizes certain circumstances that can extend or renew these limitation periods. Section 18 of the Act, dealing with the "Effect of acknowledgment in writing," is one such pivotal provision. It allows for a fresh period of limitation to be computed from the time an acknowledgment of liability is made in writing and signed by the party against whom a right is claimed. This article aims to provide a comprehensive analysis of Section 18, delving into its statutory framework, judicial interpretations of what constitutes a valid acknowledgment, its scope and limitations, and its application in contemporary legal contexts, particularly under the Insolvency and Bankruptcy Code, 2016. The analysis will draw heavily upon established case law and statutory provisions relevant to Indian jurisprudence, primarily using the provided reference materials.
Statutory Framework: Section 18 of the Limitation Act, 1963
Text and Core Components
Section 18 of the Limitation Act, 1963, provides for the effect of an acknowledgment in writing. The substantive part of the provision, as reproduced in several judicial pronouncements (ASSET RECONSTUCTION COMPANY (INDIA) LIMITED v. TULIP STAR HOTELS LIMITED, Supreme Court Of India, 2022; AXIS BANK LIMITED v. NAREN SHETH, Supreme Court Of India, 2023; NEW MANGALORE PORT TRUST v. CLIFFORD D SOUZA ETC. ETC., Supreme Court Of India, 2025), reads as follows:
18. Effect of acknowledgment in writing.—
(1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgment 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 acknowledgment was so signed.
(2) Where the writing containing the acknowledgment 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 (1 of 1872), oral evidence of its contents shall not be received.
Explanation.—For the purposes of this section,—
(a) an acknowledgment may be sufficient though 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 a 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;
(b) the word “signed” means signed either personally or by an agent duly authorised in this behalf;
(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.
Based on the statutory language and judicial interpretations, the essential requirements for a valid acknowledgment under Section 18 are (Michael Hart v. Ninestars Information Technologies Ltd., Madras High Court, 2013, citing Tilak Ram v. Nathu, AIR 1967 SC 935; Bank Of Baroda v. S.K Aggarwal, Delhi High Court, 1995):
- The acknowledgment must be an admission of liability in respect of the property or right in question.
- It must be in writing.
- It must be signed by the party against whom such property or right is claimed, or by a person duly authorized by them.
- It must be made before the expiration of the prescribed period of limitation for the suit or application.
Nature and Effect of Acknowledgment
The Supreme Court has clarified that an acknowledgment under Section 18 merely renews the debt; it does not create a new right of action (RAM JI DASS v. MAHALAKSHMI RICE MILLS AND ORS., Punjab & Haryana High Court, 2025, citing Shapoor Freedom Mazda v. Durga Prosad Chamaria). It is a mere acknowledgment of the existing liability in respect of the right in question (Bank Of Baroda v. S.K Aggarwal, Delhi High Court, 1995). The primary effect is that a fresh period of limitation is computed from the time when the acknowledgment was so signed.
Judicial Interpretation of "Acknowledgment of Liability"
What Constitutes a Valid Acknowledgment?
The judiciary has extensively interpreted what constitutes a "liability" and an "acknowledgment" for the purposes of Section 18.
A fundamental requirement is that the writing must contain an admission of a subsisting liability (Mohammad Zahid Khan v. LAKSHYA REALTIES PRIVATE LIMITED, National Company Law Tribunal, 2024, citing Valliamma Champaka Pillai v. Sivathanu Pillai, (1979) 4 SCC 429). The acknowledgment need not be accompanied by a promise to pay, either expressly or by implication (Food Corporation Of India v. Assam State Cooperative Marketing & Consumer Federation Ltd. And Others, 2004 SCC 12 360, Supreme Court Of India, 2004; Bank Of Baroda v. S.K Aggarwal, Delhi High Court, 1995). The acknowledgment of a jural relationship should be positive, though not necessarily express, and made with the intention of admitting such a relationship (Bank Of Baroda v. S.K Aggarwal, Delhi High Court, 1995).
However, a mere reference to a past jural relationship without an intention to admit a subsisting liability may not suffice. In Tilak Ram And Others v. Nathu And Others (1967 AIR SC 935, Supreme Court Of India, 1966), concerning Section 19 of the Limitation Act, 1908 (analogous to Section 18 of the 1963 Act), the Supreme Court held that statements merely describing the existence of a mortgagor-mortgagee relationship without expressly or implicitly admitting a subsisting liability or the right to redemption did not constitute valid acknowledgments. Similarly, a mere acknowledgment of a payment is not in itself an acknowledgment of liability (Shyam Ballav Nandi v. Dologobind Sahu, Patna High Court, 1941, distinguishing between acknowledgment of payment and acknowledgment of liability under the old Act).
The Explanation to Section 18 significantly broadens the scope of what can be considered a sufficient acknowledgment. It clarifies that an acknowledgment may be sufficient even if it:
- omits to specify the exact nature of the property or right;
- avers that the time for payment, delivery, performance or enjoyment has not yet come;
- is accompanied by a refusal to pay, deliver, perform or permit to enjoy;
- is coupled with a claim to set-off; or
- is addressed to a person other than the person entitled to the property or right.
Acknowledgment in Specific Contexts
Balance Sheets and Corporate Disclosures
A significant area of litigation has been whether entries in a company's balance sheet can constitute an acknowledgment of liability. The Supreme Court, in Asset Reconstruction Company (India) Limited v. Bishal Jaiswal And Another (2021 SCC ONLINE SC 321, Supreme Court Of India, 2021), conclusively held that entries in a corporate debtor's balance sheet can indeed be construed as acknowledgments of liability under Section 18 of the Limitation Act, thereby extending the limitation period for insolvency applications under Section 7 of the IBC. The Court relied on earlier precedents such as Mahabir Cold Storage v. CIT (1991), A.V. Murthy v. B.S. Nagabasavanna (2002), and Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff (1961), which established that entries in books of account or balance sheets, even if prepared under statutory compulsion, can amount to voluntary acknowledgment of debt.
The Court in Bishal Jaiswal (2021) clarified that a balance sheet, duly prepared, approved by the Board of Directors, and signed by authorized officers, establishes a jural relationship. However, it also cautioned that if the balance sheet is accompanied by auditor's notes or director's reports that qualify or deny the liability, the document must be assessed on a case-by-case basis to determine if the acknowledgment is unequivocal. This nuanced approach addresses situations like those in Gautam Sinha v. Uv Asset Reconstruction Company Limited And Others (National Company Law Appellate Tribunal, 2020), where an auditor's note stating the company claimed no default and that the matter was sub-judice was held not to be an acknowledgment. The Supreme Court's guidance in Bishal Jaiswal (2021) provides the prevailing framework for such assessments.
Correspondence
Letters exchanged between parties can serve as valid acknowledgments. In Food Corporation Of India v. Assam State Cooperative Marketing & Consumer Federation Ltd. And Others (2004 SCC 12 360, Supreme Court Of India, 2004), the Supreme Court held that two letters exchanged between FCI and the Federation, which acknowledged the receipt of an excess amount, constituted an acknowledgment of liability under Section 18, thereby resetting the limitation period. The Court emphasized the admissibility of official correspondence as evidence of material facts.
Mutual Accounts
In cases of mutual dealings, an "account stated," where parties agree on the balance of their accounts after mutual adjustments, can form the basis of a legal claim and act as an acknowledgment. The Supreme Court in Hiralal And Others v. Badkulal And Others (1953 AIR 225, Supreme Court Of India, 1953) held that an unconditional acknowledgment of debt in the plaintiff's ledger by the defendants was sufficient to establish a cause of action, and such mutual account statements endorsed by both parties could amount to "accounts stated" under the Limitation Act.
Distinction from Promise to Pay Time-Barred Debt (Section 25(3), Indian Contract Act, 1872)
It is crucial to distinguish an acknowledgment under Section 18 of the Limitation Act from a promise to pay a time-barred debt under Section 25(3) of the Indian Contract Act, 1872. As elucidated in Sama Dharman Proprietor M/S. Sri Sai Tex v. Sama Dharman Petitioners/Accused (2012 SCC ONLINE MAD 2776, Madras High Court, 2012), an acknowledgment under Section 18 must be made *before* the expiration of the prescribed period of limitation. In contrast, a promise under Section 25(3) of the Contract Act to pay a debt can be made *after* the limitation period for the original debt has expired, thereby creating a new contract and a fresh cause of action. Section 18 only renews an existing, unextinguished liability.
Scope and Limitations of Section 18
Acknowledgment Must Be Before Expiry of Limitation
This is a cardinal principle of Section 18. An acknowledgment made after the period of limitation has already expired cannot revive a time-barred debt. Its purpose is to extend an existing limitation period, not to resurrect a dead claim (Sampuran Singh And Others v. Niranjan Kaur (Smt) And Others, 1999 SCC 2 679, Supreme Court Of India, 1999; Ayub Ali v. State Of Tripura, Tripura High Court, 2015). As stated in Michael Hart v. Ninestars Information Technologies Ltd. (Madras High Court, 2013), this is one of the fundamental requirements for Section 18 to apply.
Acknowledgment Specific to the Debt
An acknowledgment extends the period of limitation only for the specific liability that has been acknowledged. It does not encompass new, additional, or unrelated claims that were not part of the acknowledgment. The Supreme Court in J.C Budhraja v. Chairman, Orissa Mining Corporation Ltd. And Another (2008 SCC 2 444, Supreme Court Of India, 2008) held that an acknowledgment of liability by OMC extended the limitation period only for the acknowledged claims, and fresh claims introduced later were considered time-barred.
Signed by the Party or Authorized Agent
The requirement of the acknowledgment being signed by the party against whom the right is claimed, or by their duly authorized agent, is mandatory. This ensures authenticity and binds the party making the admission. The Explanation (b) to Section 18 clarifies that "signed" means signed either personally or by an agent duly authorized in this behalf.
Section 18 and the Insolvency and Bankruptcy Code, 2016
Applicability of Limitation Act to IBC
Section 238A of the Insolvency and Bankruptcy Code, 2016 (IBC) explicitly provides that the provisions of the Limitation Act, 1963 shall, as far as may be, apply to proceedings or appeals before the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). The Supreme Court has affirmed this applicability in various judgments, including Sesh Nath Singh And Another v. Baidyabati Sheoraphuli Co-operative Bank Limited And Another (2021 SCC 7 313, Supreme Court Of India, 2021) concerning Section 14 of the Limitation Act, and B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates ((2019) 11 SCC 633) which held that Article 137 of the Limitation Act applies to applications under Section 7 of the IBC.
Balance Sheets as Acknowledgment in IBC
The interpretation of Section 18 in the context of IBC proceedings, particularly regarding acknowledgments in balance sheets, has seen significant judicial evolution. While some earlier NCLAT decisions, such as in V. Padmakumar v. Stressed Assets Stabilisation Fund (Company Appeal (AT) (Ins) No. 57 of 2020) and views reflected in Hemanshu Jamnadas Domadia v. Central Bank Of India (National Company Law Appellate Tribunal, 2021), had held that entries in balance sheets do not extend the limitation period for IBC proceedings, this position was decisively overturned by the Supreme Court.
In Asset Reconstruction Company (India) Limited v. Bishal Jaiswal And Another (2021 SCC ONLINE SC 321, Supreme Court Of India, 2021), the Supreme Court categorically held that an entry made in a company's balance sheet can amount to an acknowledgment of liability within the meaning of Section 18 of the Limitation Act and would give rise to a fresh period of limitation for initiating proceedings under Section 7 of the IBC. This landmark judgment aligned the application of Section 18 in IBC matters with the general principles established in other civil proceedings, emphasizing that financial statements carry substantive legal implications. The Court reasoned that excluding such acknowledgments would undermine the IBC's objective of providing a robust insolvency resolution mechanism. The citation of Babulal Vardharji Gurjar (S) v. Veer Gurjar Aluminium Industries Pvt. Ltd. And Another (S) (2020 SCC ONLINE SC 647, Supreme Court Of India, 2020) in some contexts (e.g., Hemanshu Jamnadas Domadia) as holding that Section 18 does not apply to IBC must be read in light of the subsequent and more direct ruling in Bishal Jaiswal (2021).
Conclusion
Section 18 of the Limitation Act, 1963, serves as a vital provision that balances the need for timely legal action with the recognition of conduct that justifies a renewal of the limitation period. The judiciary, through consistent interpretation, has clarified that a valid acknowledgment must be a clear, written, and signed admission of a subsisting liability, made before the original limitation period expires. While it does not create a new right, it breathes fresh life into an existing one by restarting the limitation clock.
The liberal construction afforded by the Explanation to Section 18, coupled with landmark rulings such as Food Corporation of India and, more recently, Asset Reconstruction Company (India) Limited v. Bishal Jaiswal, demonstrates a pragmatic approach by the courts. The affirmation that entries in balance sheets can constitute acknowledgments under Section 18, particularly in the context of the IBC, has profound implications for corporate debtors and financial creditors, underscoring the legal significance of financial disclosures. The principles governing Section 18 are thus fundamental to the administration of justice in India, ensuring that while stale claims are barred, genuine rights supported by timely acknowledgments remain enforceable.