Limitation in Money Claims: Counting the Period and Preserving the Claim

Limitation is the first question in any recovery matter and the one most often answered too late. A claim that is sound on the documents can still be barred, and a barred claim cannot be saved by good evidence. This note explains how the period is counted for a money claim, what stops it or starts it afresh, and how the rules apply when the claim is brought under the Insolvency and Bankruptcy Code, 2016. It is general information, not advice on a particular claim.

The period and where it starts

The Limitation Act, 1963 prescribes periods in its Schedule according to the cause of action. For most commercial money claims the period is three years. Which article applies, and from what date time runs, depends on the nature of the claim:

• Price of goods sold and delivered where no fixed period of credit was agreed: three years from the date of delivery (Article 14).
• Money lent: three years from the date the loan is made (Article 19).
• Breach of contract: three years from the date the contract is broken, or from the date the breach is continuing (Article 55).
• Claims not provided for elsewhere: three years from the date the right to sue accrues (Article 113).

Where goods are supplied on a stated credit period, or a loan is repayable on a stated date, the cause of action ordinarily arises when payment falls due and is not made. The contract and the invoices should therefore be read together, because the due date, and not the date of the invoice, is usually the starting point.

The bar operates whether or not it is pleaded

Section 3 of the Act requires a court to dismiss a suit instituted after the prescribed period, even if limitation has not been set up as a defence. A plaint should therefore state the facts on which it relies to show that the claim is in time. Section 5, which allows a court to excuse delay, applies to appeals and applications and does not apply to suits.

What stops the clock, and what restarts it

Exclusion of time

Section 12 excludes the day from which the period is reckoned and, in an appeal or application for review, the time spent obtaining a copy of the judgment. Section 14 excludes time spent prosecuting another civil proceeding in good faith in a court that had no jurisdiction or could not entertain it. The party relying on Section 14 must show the earlier proceeding was about the same matter and was pursued with due diligence.

Acknowledgment in writing: Section 18

If, before the period expires, the debtor acknowledges liability in writing signed by the debtor or an authorised agent, a fresh period begins from the date of the acknowledgment. The acknowledgment must be made before the original period has run out. It need not promise to pay, but it must admit the liability, and a statement that merely refers to the account without admitting it is generally not enough. Courts have in several cases treated entries in a debtor's signed balance sheet as acknowledgments; whether a given entry does so depends on its wording and on the facts.

Part-payment: Section 19

A payment on account of a debt or of interest, made before the period expires, gives a fresh period from the date of payment, provided the payment is acknowledged in the handwriting of, or in a writing signed by, the person making it. A bank credit with no accompanying writing from the payer is a weaker foundation than the creditor expects. Where part-payments are being received, a short signed note from the debtor recording each payment and the balance outstanding is worth obtaining every time.

Fraud and mistake: Section 17

Where the debtor's fraud has concealed the right of action, or a mistake is the ground of the claim, time runs from the date the creditor discovered it or could with reasonable diligence have done so.

Limitation under the Insolvency and Bankruptcy Code

Section 238A applies the Limitation Act, as far as may be, to proceedings before the adjudicating authority and the appellate tribunal. In B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates (2018), the Supreme Court held that the Limitation Act applies to applications under Sections 7 and 9 of the Code, and that the three-year period under Article 137 runs from the date of default. Acknowledgments and part-payments under Sections 18 and 19 can extend the period for an insolvency application as they do for a suit.

Two special periods should be noted. The Supreme Court, in its order In Re: Cognizance for Extension of Limitation, excluded the period from 15 March 2020 to 28 February 2022 for the purposes of limitation. Separately, Section 10A of the Code suspended the filing of insolvency applications for defaults arising on or after 25 March 2020 for a year, ending on 24 March 2021. Neither rule changes the three-year starting point, but both affect the arithmetic for claims that fell due in those years.

A practical routine for creditors

• Calendar the date. Record the due date of every invoice or instalment and the date three years on, and review the file well before it arrives.
• Obtain written confirmation. A signed balance confirmation, issued before the period expires, is the simplest way to start a fresh period under Section 18.
• Record each part-payment. Ask the debtor to sign a note acknowledging the payment, as Section 19 requires.
• Do not rely on talks. Negotiation, or an oral promise to pay, does not stop time from running.
• Treat each claim separately. The claim against a guarantor, against a co-obligor and against a company may carry different dates and different periods.

Limitation is a question of dates and documents. It is best settled at the start of a matter, before the choice of forum and before any notice is sent.