Acknowledgment of Liability: Sections 18 and 20

A debtor who admits his debt in writing cannot complain that the creditor waited too long. Section 18 of the Limitation Act gives effect to that idea: a written, signed acknowledgment of liability made before the period expires starts a fresh period of limitation. The section is one of the most practical in the Act, especially in banking, commercial and insolvency disputes. Section 20 decides who may acknowledge on behalf of others. This note covers the essentials, the Explanation, the leading cases, section 20 and a worked example.

1. The Provision

Figure 1: Essentials of a valid acknowledgment

• Text, s.18(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 it has been made in writing signed by the party against whom it is claimed, or by any person through whom he derives his title or liability, a fresh period is computed from the time the acknowledgment was signed.
• s.18(2), undated writing. Oral evidence may be given of when it was signed, but, subject to the Evidence Act, oral evidence of its contents is not admissible.
• Property or right. The section covers debts and other liabilities, and also rights in property: an acknowledgment of the owner's title by a person in possession gives the owner a fresh period.

2. The Explanation

Figure 2: Acknowledgments that remain valid, and the execution exception

• Explanation (a). An acknowledgment may suffice though it omits the exact nature of the property or right, says the time for payment or performance has not come, is accompanied by a refusal to pay, is coupled with a claim to set-off, or is addressed to a person other than the one entitled.
• Explanation (b). 'Signed' means signed personally or by an agent duly authorised in that behalf.
• Explanation (c). An application for execution of a decree or order is not an application in respect of any property or right, so an acknowledgment by a judgment-debtor does not extend the period under Article 136.

3. Leading Cases

Figure 3: How courts read acknowledgments

• Shapoor Fredoom Mazda (1961). The statement must relate to a subsisting liability and show a jural relationship, such as debtor and creditor, with an intention to admit it. It need not promise to pay, and intention may be inferred from the words and the surrounding circumstances. Courts construe such statements liberally but will not stretch them to admit what was not admitted.
• Bishal Jaiswal (2021). A three-judge bench held that entries in a company's balance sheet can amount to an acknowledgment under s.18, though qualifying notes or the auditor's remarks may show otherwise; each case turns on its facts.
• Laxmi Pat Surana (2021). Section 18 applies to applications under the IBC through s.238A, so an acknowledgment made within the period gives the creditor a fresh period for initiating insolvency.

4. Section 20: Who May Acknowledge

Figure 4: Acknowledgment and payment by or on behalf of others

• Common to ss.18 and 19. Section 20 governs both acknowledgment (s.18) and part payment (s.19, Topic 16)
• Joint liability. Under s.20(2), a written acknowledgment or payment by one joint contractor, partner, executor or mortgagee does not, by that fact alone, make the others liable for a fresh period.
• Hindu law. An acknowledgment by a Hindu limited owner binds the reversioner, and one by the manager of a Hindu undivided family is deemed made on behalf of the whole family.

5. Worked Example

• Loan. A loan is made on 1 January 2020. Under Article 19, the period is three years from the date of the loan, ending on 1 January 2023.
• First acknowledgment. The borrower signs a letter on 1 December 2022 admitting the balance. A fresh three years runs to 1 December 2025.
• Second acknowledgment. Another signed admission on 1 November 2025, within the fresh period, gives a further three years to 1 November 2028.
• Too late. An admission signed on 1 February 2023, after the original period expired, gives nothing under s.18. Only a written promise to pay under s.25(3) of the Contract Act could then create a new enforceable claim (Topic 17)

6. Frequently Asked Questions

Can an acknowledgment that refuses payment still extend limitation?

Yes. Under Explanation (a) to s.18, an acknowledgment may be sufficient even if it is accompanied by a refusal to pay, deliver or perform, or is coupled with a claim to set-off, so long as it admits the existence of the liability.

Does an acknowledgment made after limitation expired revive the debt?

Not under s.18, which requires the acknowledgment to be made before the period expires. A time-barred debt can be made enforceable only by a written and signed promise to pay under s.25(3) of the Contract Act, which creates a new contract rather than extending the old period.

7. Related Topics

• Topic 16: Part Payment, Sections 19 and 20. The other route to a fresh period.
• Topic 17: Acknowledgment and Revival of Time-Barred Debts. Section 25(3) of the Contract Act.