Section 18. Effect of acknowledgement in writing–
(1) Where, before the expiration of the prescribed period for a suit or 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 (1 of 1872), oral evidence of its contents shall not be received,
Explanation : For the purposes of this section-
(a) an acknowledgement 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; 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.
What is Acknowledgment?
Acknowledgment means a definite, clear admission of existing liability by the defendant. It is a statement in writing that a debt is due and unpaid.
An acknowledgment must be one from which an absolute promise to pay can be inferred, or an unconditional promise to pay the specific debt, or that there must be a conditional promise to pay the debt and evidence that the condition has been performed. An acknowledgement of a conditioned liability will not give a fresh start so long as the condition remains unfulfilled. An unqualified admission and an admission qualified by a condition which is fulfilled stand precisely upon the same footing and both are within Sec. 18.
Principle of the Section
Sec. 18 is based on the principle that the bar of limitation should not be allowed to operate in cases in which the existence of a claim is acknowledged by persons who are under the liability. Every acknowledgment affords a new proof of the existence of debt. Sec. 18 do not enlarges the period of limitation but a fresh period begins to run from the date of acknowledgment.
An example—A period of three years is prescribed by the Indian Limitation Act for an ordinary oral debt. After expiry of 2 years, the debtor gives a written acknowledgment, say a letter signed by him to the creditor saying that he is sorry for the debt not being paid yet. A fresh period of 3 years will start from the date of the letter. It is important to note that the day on which the acknowledgement is made will have to be excluded in computation (vide Sec. 12, Limitation Act, and General Clauses Act).
• If an acknowledgment is made in favour of a minor, the new period of limitation is to be computed from the date when the plaintiff attains majority.
• An acknowledgment of a ‘barred debt’ (admission of past liability) cannot give fresh period of limitation in favour of creditors.
• The distinction between an “acknowledgment” under Sec.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 authorized in that behalf, and both create a fresh starting point of limitation. But while an acknowledgment 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 acknowledgment 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 recognized by Sec. 25(3) of the Contract Act.
Requisites of a Valid Acknowledgment
(1) Acknowledgment must be made before the expiration of limitation period – in other words, the acknowledgment must be made after the period of limitation has begun to run and while it is actually running. An acknowledgment may be made before the expiry of limitation period as extended by the operation of Sec. 12 or 14 of the Act.
(2) Acknowledgment of liability must be in writing – Hence an oral acknowledgment is not sufficient. Similarly, a mere payment of sum of money towards the debt is not sufficient under this section although such payment may be intended as an acknowledgment of debt.
(3) Acknowledgment must be signed by the person making the acknowledgment or by his duly authorized agent—Thus, a telegram cannot constitute a sufficient acknowledgment as telegrams are not signed by the parties sending them. Signed initials instead of full signature do not affect the legality of acknowledgment. Under the General Clauses Act, ‘sign should, with reference to a person who is unable to write his name, includes his mark’. An acknowledgment need not be in the handwriting of the maker but it must be signed by him or his agent, otherwise it will not be valid. The authorization of agent need not be in writing, it can be implied viz. a guardian is an agent duly authorized to make acknowledgment. Similarly, the acknowledgment made by the karta of a Hindu Joint Family binds the other members of the family. An acknowledgment by one partner of a partnership firm saves limitation against the other partners. An acknowledgment made by one of the active directors of the company is a sufficient acknowledgment.
(4) Acknowledgment must be made by the party against whom any party or right is claimed or by some person through whom, he derives title or liability – It is sufficient if the acknowledgment has been made by a person against whom the right is claimed in suit. It is not necessary that at the time when the acknowledgment is made, such person must have an interest in property in respect of which acknowledgment is given. An auction purchaser derives his title from the judgment debtor. Thus an acknowledgment made by the latter will be binding on the former.
(5) Acknowledgment must be in respect of the particular property or right claimed in the suit or application – Thus, unless it is shown that the right acknowledged is identical with the right claimed in suit, the section will not apply. Where the defendant owes several debts to the plaintiff and acknowledges in respect of a debt and it is not possible to identify the debt acknowledged with the one claimed in suit, the acknowledgment will be ineffective.
(6) Acknowledgment need not be express, it may be by necessary implication – Explanation (a) to the section provides that an acknowledgment may fail to specify with exactitude the nature of the property or right (e.g. exact sum due); or the man acknowledging the liability may couple his acknowledgment with a statement that the time for performance, delivery, enjoyment or payment of the property or right has not arrived; or claims that he also has claims against the plaintiff by way of set-off, or even the fact that the acknowledgment is not addressed to the creditor himself but to a third party will not detract from the value of acknowledgment for purposes of Sec. 18.
Illustrations of sufficient acknowledgment 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. An admission of liability contained in a deed of gift executed by the debtor or in a will of a deceased.
6. An insolvent writes down a debt in his schedule as owing the debt ot a named person and signs the schedule.
Illustration of insufficient acknowledgment –
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 amount.”
3. “ I admit the loan, but I have since repaid the amount”.
4. 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 acknowledgment of liability.
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 acknowledgment.
Case Law : Sec. 18 –
Acknowledgment means a definite admission of liability; it is not necessary that there should be promise to pay; the simple admission of a debt is sufficient. What is necessary is that there should be an admission of the subsisting liability (it does not matter that such admission is accompanied by a refusal to pay).
• A statement in the balance-sheet of a company that the company owed a specific sum to a shareholder to whom that balance sheet was sent in the ordinary way, would amount to an acknowledgment. It is settled law that an admission contained in the pleadings of another proceeding made in the circumstances of the case may constitute acknowledgment against the maker thereof [Beni Madhav v. Chameli Devi AIR 1985 All. 89]
• Though a lawyer in the ordinary course of his duties as pleader has authority to bind his client by admission of fact, yet that should not relate to matters outside the scope of the case in which he is engaged. The court has to see whether at the time the lawyer makes the admission it was necessary for the purpose of the matter dispute to make such an admission, for it is such an admission that can bind his client.
A special power of attorney acknowledging the debt is not necessary in order to attract the provision of Sec. 18, Explanation (b). A general authorization which includes signing of bills or documents or to state, settle, adjust, compound, comprise or submit to arbitration all actions or claims is sufficient.
TILAK RAM V. NATHU (AIR 1967 SC 935)
The statement contained an admission by the party in a court that he holds a property as a mortgagee or what he is disposing off are his mortgage rights therein (sub-mortgage). A sale deed, besides deed of sub-mortgage, by which the party sold his mortgage rights were also produced as evidence of acknowledgment.
The court observed: It is clear from Sec. 18 that in considering whether a statement amounts to an acknowledgment of liability it has to be seen whether at the time of writing them the writer had in his mind the question as to his liability or whether he was thinking of and referring to some other matter.
The words used in the acknowledgment must indicate the existence of jural relationship between the parties (e.g. a creditor and debtor) and it must appear that such a statement is made with the intention of admitting that jural relationship. Such intention can be inferred by implication from the nature of the admission and surrounding circumstances, and need not be in express words. If the statement is fairly clear then the intention to admit jural relationship may be implied from it.
In the present case, none or the statements expressly admitted the appellant’s right or the liability of the respondent. The statements were clearly made for the purpose of describing respondent’s own rights which he sold and not to admit a jural relationship with mortgagors and, therefore, of his subsisting liability as mortgagee thereunder of being redeemed. Held that none of the statements can be regarded as acknowledgment within the meaning of Sec. 18. Thus, the suit was time barred.
M/s Lakshmiratan Cotton Mills V. The Aluminium Corpn. Of India Ltd. (AIR 1971 SC 1482) –
In this case, the appellant-company sent to the corporation a statement of account claiming Rs. 2,94,000/- as due to it. The corporation did not denied its liability to pay but challenged the correctness of amount claimed by the appellantcompany and sent a counter-statement. A letter was written by the secretary-cum-chief accountant of the corporation in the process of adjustment and reconciliation which contained the statement that “after all the above adjustments the position will be as per statement that “after all the above adjustments the position will be as per statement attached”, i.e. that there was a balance of Rs. 1,07,447/- due and payable to the appellant company. The appellant company filed a suit claiming amount –
i. The corporation contended that suit was barred by limitation.
ii. It was contended that the said letter did not amount to an acknowledgement under Sec. 18.
iii. Moreover the person who wrote it had no authority to make any such acknowledgment for and on behalf of and binding on the corporation.
The court observed: The statement on which the plea of acknowledgment is founded need not amount to promise and need not include the exact nature of the liability. The mere statement expressing jural relationship between parties does not constitute acknowledgement, it must be shown that it was made with the intention of admitting such jural relationship subsisting at the time when it was made. Such an intention need not be in express terms and can be inferred by implication from the nature of the admission and the surrounding circumstances. In the present case, if the letter were to be looked at in the background of the controversy between the parties (which was limited to the question as to the correctness of the amount claimed by the appellant-company as also the correspondence which ensued in regard to it) it would be impossible to say that the letter and the statement of account enclosed therewith was merely explanatory, and did not amount to an admission of the jural relationship of creditor and debtor and of the liability to pay the amount found due at the foot of the account on finalisation.
It was contended that since the letter called for confirmation of the amount of Rs. 1,07,447/- as being the balance due to the appellant-company and as the appellant-company failed to confirm it, the admission of liability was conditional, and therefore cannot operate as an acknowledgment. The court, however, observed that the present case is one of an admission of a subsisting account and the jural relationship and the liability to pay whatever amount would be found due on finalisation of accounts. There is no condition subject to which the admission was made which remained unperformed.
The fact that a person is the secretary, chief accountant and holder of power of attorney of the debtor would not by itself or cumulatively make him a person duly authorised. Also the fact that he carries on correspondence for the debtor would not make him a person duly authorised. In order to be deemed to have an authority to acknowledge a liability, he must be one who had the authority either to take loans on behalf of the principal or to discharge the liability of the principal. In the present case, besides his function as the secretary-cumchief accountant, he was authorised to finalise the accounts between the parties, to settle differences between them, etc. Thus he had the implied authority to make the acknowledgment. The court thus held that the suit is not barred by limitation in view of the acknowledgment provided by the letter.
State of Kerala V. T.M. Chacko [(2000) 9 SCC 722]—
In this case, the respondent was the highest bidder in an auction made by the appellant, and his bid accepted on 15-01-1974. Bid amount paid by the respondent but unfortunately a fire broke out in the forest and respondent’s coupe got destroyed in it. Representations were made to the appellant for reduction in bid amount on which the appellant reduced it and extended the time to remove forest produce by 45 days. Respondent neither paid the balance nor removed the produce. On 19-9-1974, the appellant intimated to the respondent about cancellation of the contract. Respondent issued notice to the appellant u/s 80 of CPC to claim compensation amount and filed the suit as an indigent person on 28-7-1977 and got it decreed on 19-7-1980.
So, the court held that Exhibits could not be treated as an acknowledgment of liability of claim of the respondent. Therefore, Sec. 18 cannot be called in aid to compute fresh limitation from the date of Exhibits i.e. 19-9-1974. The suit is clearly barred by limitation and liable to be dismissed.
Sampuran Singh V. Niranjan Kaur (AIR 1999 SC 1047) –
In this case, the appellant purchased the suit property in the year 1959 from the original mortgagor, by registered sale deed. Whereas on 11-1-1960 the original mortgagee sold his right by a registered deed to the respondents, who acknowledged the existence of the mortgage in question (original oral mortgage was executed for a sum of Rs. 53 in 1893). In 1980, appellants filed the present suit for possession by way of redemption of the suit land as against respondents. The respondents contended that the suit was time barred. The appellants contended that since there is acknowledgment by mortgagee on 11-1-1960, a fresh limitation starts from this date, hence, the suit is within limitation.
The Supreme Court observed and held: A valid oral mortgage comes into existence on the very day of its execution. So, the suit is time barred. Under Sec. 18, if the limitation has already expired, it would not revive. It is only during subsistence of a period of limitation such document is executed that the limitation would be revived afresh from the said date of acknowledgment. In the present case, there is neither any deed nor document of mortgage. Mortgage could be redeemed at any time within 60 years from the date of mortgage.
A statement (in writing and signed) by a mortgagee can be construed as an “acknowledgment” under Section 18 of the Limitation Act, if it fulfils the following requirements:
(i) The acknowledgment of liability must relate to a subsisting mortgage,
(ii) The acknowledgment need not be in a document addressed to the mortgagor (person entitled to the property or right). But it should be made by the mortgagee (the person under liability).
(iii) The words used in the acknowledgment must indicate the existence of jural relationship between the parties and it must appear that the statement is made by the mortgagee with the intention of admitting the jural relationship with the mortgagor (such intention need not be in express terms, but can be inferred or implied from the nature of admission and the words used, though oral evidence as to the meaning and intent of such words is excluded).
(iv) Where the statement by the mortgagee in the subsequent document (say, deed of assignment) merely refers to the mortgage in his favour which is being assigned, without the intention of admitting the jural relationship with the mortgagor, it will not be considered to be an “acknowledgment”.
What is a mere reference or description of the jural relationship and what constitutes an intention to admit the jural relationship may be illustrated. If the relevant portion of the deed of assignment, sought to be relied on as an acknowledgment merely stated that “X mortgaged the scheduled property in my favour under the deed of usufructuary mortgage dated (date) and I hereby assign the said mortgage in your favour”, it will not be “acknowledgment” under Section 18. This is because it only refers to the jural relationship, but does not show any intention to admit the jural relationship with the mortgagor or admit his subsisting liability as mortgagee of being redeemed.