Effect of Acknowledgment and Part Payment

In one line

An acknowledgment of liability in writing, or a part payment, made before the period expires, starts the whole period running again from that date.

The words to hold on to are fresh period. These sections do not extend the old period; they replace it with a new one of the same length.

Why the Act allows it

Limitation rests on the idea that a claim not pursued has been abandoned. That reasoning collapses if the debtor himself has recently admitted the debt or paid part of it. A creditor who holds a letter written last month saying "I owe you and will pay soon" has not slept on his rights; he has been given a reason to wait.

So the Act treats a fresh admission as a fresh starting point. The conditions are strict, and every one of them exists to make sure the admission is genuine and provable.

Acknowledgment: section 18

Section 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 that 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.

The four conditions

Take them one at a time, because a question on this section is a question about these four.

One, the acknowledgment must be made BEFORE the expiration of the prescribed period. This is the condition candidates most often miss. An acknowledgment made after the period has expired is worthless under section 18: a dead claim cannot be revived by it. A time-barred debt can be revived only by a fresh promise in writing under section 25(3) of the Indian Contract Act 1872, which is a different provision with different requirements, and section 29(1) of this Act expressly preserves it.

Two, it must be in WRITING and SIGNED. An oral admission, however clear, does not work. Explanation (b) provides that "signed" means signed either personally or by an agent duly authorised in this behalf.

Three, it must be an acknowledgment of LIABILITY in respect of the property or right. It must admit a subsisting jural relationship, not merely refer to a past transaction.

Four, it must be made by the party against whom the right is claimed, or by a person through whom he derives his title or liability.

What still counts as an acknowledgment: Explanation (a)

This is the generous part of the section and it is worth reproducing, because it defeats most of the arguments a debtor makes.