Acknowledgment and Revival of Time-Barred Debts

A debt does not disappear when limitation expires; only the remedy by suit is lost. Two bodies of law then decide what can be done. Before expiry, the Limitation Act lets an acknowledgment or part payment start a fresh period. After expiry, the Limitation Act offers nothing, but section 25(3) of the Contract Act allows the debtor to bind himself afresh by a written promise to pay. This note draws the two together, explains the legal life of a time-barred debt, and covers cheques for barred debts and insolvency.

1. Before and After Expiry

Figure 1: The Limitation Act and section 25(3) of the Contract Act

• Before expiry. A written acknowledgment (s.18) or a part payment proved in writing (s.19) gives a fresh period on the original liability. No promise to pay is needed (Topics 15, 16)
• After expiry. Sections 18 and 19 cannot revive a barred claim. The creditor needs a written, signed promise to pay under s.25(3) of the Contract Act.
• Remedy, not right. The basis of both is that limitation bars the remedy and leaves the debt in existence (Bombay Dyeing, 1958; Topic 1)

2. Section 25(3), Contract Act

Figure 2: Reviving a time-barred debt

• Text. An agreement without consideration is valid if it is a promise, made in writing and signed by the person to be charged or his agent generally or specially authorised, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law of limitation.
• Illustration (e). A owes B Rs 1,000, but the debt is barred by limitation. A signs a written promise to pay B Rs 500 on account of the debt. This is a contract.
• New contract. The suit is on the promise, not on the original debt, and only to the extent of the promise. If the debtor promises part, only that part is recoverable.
• Promise required. A bare admission that a time-barred debt exists is not enough. The writing, read as a whole, must contain a promise to pay; it may be conditional, in which case it is enforceable when the condition is met.
• Limitation on the promise. A fresh period runs on the new contract from when payment under the promise falls due.

3. The Life of a Time-Barred Debt

Figure 3: What a creditor can still do

• Voluntary payment. A debtor who pays a time-barred debt cannot recover the payment as money not due.
• Appropriation. Under s.60 of the Contract Act, where the debtor gives no direction, the creditor may apply a payment to any lawful debt due to him, whether or not its recovery is barred.
• PNB v Surendra Prasad Sinha (1992). The bank adjusted a time-barred debt against the guarantor's deposit. The Supreme Court held that the debt survived and quashed a criminal complaint against the bank's officers.

4. Cheques and Insolvency

• A.V. Murthy v B.S. Nagabasavanna (2002). A cheque issued for a time-barred debt amounts to a written promise to pay under s.25(3), so a complaint under s.138 of the NI Act should not be quashed at the outset merely because the debt was barred.
• K. Hymavathi v State of Andhra Pradesh (2023). Whether the debt was time-barred is a mixed question of fact and law to be decided on evidence at trial; a s.138 complaint can be quashed at the threshold only where the amount is plainly not recoverable.
• B.K. Educational Services v Parag Gupta (2018). The Limitation Act applies to IBC applications from the start, and a time-barred debt cannot be the basis of an insolvency application (Topic 25)

5. Frequently Asked Questions

Can a time-barred debt be revived by acknowledgment?

Not by a mere acknowledgment. Section 18 of the Limitation Act works only before the period expires. After expiry, the debtor must make a written and signed promise to pay the debt, wholly or in part, under s.25(3) of the Contract Act, which creates a new contract.

Is a cheque given for a time-barred debt enforceable?

It can be. In A.V. Murthy v B.S. Nagabasavanna (2002) the Supreme Court treated such a cheque as a promise under s.25(3) of the Contract Act. In K. Hymavathi (2023) it held that whether the debt was time-barred must ordinarily be decided at trial, not on a petition to quash.

6. Related Topics

• Topic 1: Nature, Object and Scheme of the Act. Remedy barred, right not extinguished.
• Topic 15: Acknowledgment of Liability, Sections 18 and 20. The position before expiry.