The application of Section 18 of the Act in legal cases has been a contentious issue in the courts, and the outcome has been decided case-to-case basis.
"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.
Interpreting from the above-stated bare text, we understand that according to Section 18, when a party, such as a borrower, guarantor, or security provider, issues a written and signed acknowledgement of liability before the expiration of the limitation period, a new limitation period shall begin from the date of signing of the acknowledgement. If the acknowledgement is undated, the validity of the acknowledgement can be proved through oral evidence, which should fulfil the conditions mentioned under the Evidence Act, 1872.
Fresh Time Period of Limitation
The fresh time period of Limitation arises after an Acknowledgement of Liability has been signed by the debtor. We shall try to understand what amount to Acknowledgement. As indicated by the Oxford Dictionary, "Acknowledgement" is the act of showing that one has noticed the due task and has taken cognizance of the same. While interpreting the word "Acknowledgement" in the cases relating to Section 18 of the Act, the Indian Courts have derived a very broad and inclusive definition of it.
In the case of Jogeshwar v. Ram Narayan, 31 CAL 195 (2000), it was decided that if the plaintiff sends the defendant a bill requesting payment for work completed and he replies that "The bill, in my opinion, is in error. I'll review the job completed before determining whether anything else is owed ", then according to Section 18 of the Limitation Act, such a letter is not an acknowledgement. An acknowledgement under Section 18 must be unambiguous and explicit, which is not the case in this instance.
In the judgement of V Padmakumar vs Stressed Assets Stabilisation Fund (SASF) and Anr, the National Company Law Appellate Tribunal decided that entries made in the company's balance sheet or in the annual filing returns could not be said to be called an Acknowledgement of liability for the purpose of Section of the Act.
Due to technological advancements and easy communication, the Supreme Court, in the judgement of MM Ramachandran case, decided that any communication by way of letters or E-mails between the creditor and debtor, the communication so done will come under the ambit of Acknowledgement of Liability.
Acknowledgement of Debt after the Expiry of Limitation
When the acknowledgement of debt is made after the expiry of Limitation, it becomes a promise from the debtor that he shall pay the creditor the amount promised either wholly or in parts depending upon the promise made. Section 25(3) of the Indian Contract Act, 1872 talks about the consequences when the acknowledgement of debt is made after the expiry of the limitation period.
While Sections 18 and 19 of the Limitation Act require an acknowledgement to be made on or before the date the period of limitation expires, this requirement is not present for the promise made under Section 25(3) of the Indian Contract Act, even though both have the effect of giving the creditor new legal grounds to sue the debtor. Even after the period of Limitation has expired, a promise made in accordance with Section 25(3) of the Indian Contract Act would be relevant and result in the renewal of the claim.
A promise in writing to pay in full or in part for a debt that has expired its limitation period is not invalid under Section 25(3) of the Indian Contract Act. Although acknowledgement is needed under section 19 and promises can be made beyond the deadline, clause 25(3) allows promises to be made at any time. After the Limitation period has passed, a promise is made under Section 25 of the Contract Act. It can be assumed that Section 25 is an exception to the Limitation's general norm. If a promise is covered by Section 25(3), it is a genuine agreement for the purposes of suing, and the time period in which the debt was generated is irrelevant.
The Promise so made shouldn't be unambiguous. For the purposes of Section 25(3) of the Contract Act, the Andhra Pradesh High Court rejected the argument of an implied promise in M.S.N. Charities v. Pilla Ramarao and held that the promise to pay must be made in writing and must be expressly mentioned by using the words "I promise to pay" or other expressions with a similar connotation. The wording selected must make it clear that it is more than just an acknowledgement of debt.
In the case of J. Devadasan vs M. Harikrishnan, the court decided that Section 18 addresses the implications of written Acknowledgment. According to subsection (1) of that clause, a new period of limitation shall be computed from the time the acknowledgement was signed if it was made in writing and attested by the party against whom the party is claiming the right before the expiration of the period prescribed in respect of the right. According to the section's explanation, even if an acknowledgement doesn't explicitly state the nature of the right, asserts that the time for payment hasn't yet arrived, is accompanied by a refusal to pay, is paired with a claim to setoff, or is addressed to someone other than the person who is legally entitled to the right, it may still be sufficient.
In N. Ethirajulu Naidu v. K.R. Chinnikrishnan Chettiar, the Madras High Court ruled that an agreement must have an express promise made in writing and signed by the person who would be held responsible in order to be binding under Section 25(3) of the Contract Act. A fresh term of limitation will only be provided by an unambiguous commitment, and inferred promises are insufficient.
It is very clear and fairly simple to understand the real intention behind the presence of Section 18 of the Act. The creditor has full right to claim the debt owed to him by the debtor. The provisions of the Section are creditor friendly, but on the other hand, it gives another chance to the debtor to settle the debt. If the debtor can provide an Acknowledgement of Liability to the Creditor before the expiration of the prescribed time, then the debtor has more time to realise his debts against the creditor. Section 18 doesn't bound the creditor from not approaching the court. The creditor has a right to sue the debtor for non-payment of the debt and can approach a court regarding the same.
Section 25(3) of the Indian Contract Act, 1872 determines that the acknowledgement can be comfortably included under Section 25(3) even if it falls outside the scope of the limitation; the question of whether Section 25 (3) should be strictly interpreted arises. In other words, should the requirements listed in section 25(3), which treats an acknowledgement as a promise, rigorously be fulfilled. Whether or whether the guarantee made in accordance with section 25(3) should be explicit. As was already indicated, section 25(3) contains three limbs: First, it must pertain to a debt that the creditor might have recovered on if the limitation period hadn't run out. Second, there must be a specific promise to settle the amount in full or in part. Third, the promise must be in writing and signed by the person or his legal representative.
It may be concluded that the proviso of Sections 18 and of the Limitation Act is not applicable to Section 25(3) of the Contract Act. Section 25(3) of the Indian Contract Act is an exception to Section 18 of the Limitation Act. Once the limitation period has expired, it is important to realise that any admission of debt, whether express or implied, shows a promise to pay and that this promise may still be cited beyond the limitation period.