Supreme Court: In an appeal concerning rejection of a money recovery suit as barred by limitation, the three-Judge Bench of Vikram Nath*, Augustine George Masih and Sandeep Mehta, JJ., held that entries in the defendant-Society’s balance sheets, read in the context of the surrounding transactions and bank records, could constitute acknowledgement of liability under Section 18, Limitation Act, 1963.
The Court observed that an acknowledgement need not specifically name the creditor or follow a prescribed format, provided it indicates a subsisting jural relationship. Finding that the entries continued to be carried forward up to 2013, the Court held that they renewed the limitation period. The Court clarified that the precise amount owed required examination of evidence at trial and restored the suit to the trial court.
Background
The original plaintiff, Wazir Hussain, instituted a suit under Order 37, Civil Procedure Code, 1908 (CPC), in 2014 to recover money due under a civil works contract dated 10 February 2000 with Vigyapan Loke Delhi Advertising CGHS Ltd. The contract concerned construction work for a multi-storey building in Mayur Vihar, Delhi.
The original plaintiff relied upon running bills raised between 2000 and 2003 and sought recovery of ₹11,16,000, along with ₹11,04,840 as interest calculated at 9 per cent per annum, and pendente lite and future interest at the same rate until realisation. The defendant-Society had also issued cheques in his favour, which were dishonoured.
The defendant filed an application under Order 7 Rule 11 CPC seeking rejection of the plaint, contending that the suit was barred by limitation, did not disclose a cause of action and was not maintainable in view of alleged embezzlement.
The trial court, by order dated 6 January 2020, rejected the application. It observed that the outstanding amounts continued to be reflected in the defendant-Society’s balance sheets from 2004-2005 until 2012-2013, amounting to an acknowledgement of debt and giving rise to a fresh period of limitation. It also held that the questions concerning maintainability and the genuineness of the bills required evidence.
The defendant challenged the order before the Delhi High Court, wherein the High Court allowed the revision petition and rejected the plaint as barred by limitation. It held that the bank statements did not establish acknowledgement of liability extending beyond 2005 and that no balance sheet or other document had been produced showing acknowledgement of the amount as due and payable to the original plaintiff.
Aggrieved by the High Court’s decision, Yusuf, the legal heir of the original plaintiff, filed the present petition.
Issue
Whether, in the presence of entries in the defendant-Society’s balance sheets up to 2013, the suit could have been rejected at the threshold as barred by limitation.
Analysis and Findings
Section 18, Limitation Act, 1963: Acknowledgement of liability in balance sheets
The Court examined Section 18, Limitation Act, which provides that where an acknowledgement of liability is made in writing and signed by the party against whom the right is claimed, before expiry of the prescribed limitation period, a fresh period of limitation is computed from the date on which the acknowledgement is made. The Court explained that a written acknowledgement of a subsisting liability gives rise to a fresh period of limitation commencing from the date of acknowledgement.
In Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal, (2021) 6 SCC 366, a three-Judge Bench of the Supreme Court had held that entries in books of account, including balance sheets, may constitute acknowledgement of liability under Section 18, Limitation Act. However, such entries must be considered in the context of the balance sheet as a whole, including qualifications or explanations contained in the accompanying notes or auditor’s report. The Court also referred to Axis Bank Ltd. v. Naren Sheth, (2024) 1 SCC 679, wherein the same principle concerning acknowledgement of debt through balance sheets was reiterated.
Entries in the balance sheets and bank reconciliation statements
The original plaintiff relied upon the defendant-Society’s balance sheet for the Financial Year 2004-2005 and the bank reconciliation statements for the same year. The bank reconciliation statements specifically recorded three cheques issued in favour of “Wazir Hussain Contractor”.
The Court held that these entries directly connected the original plaintiff with the Society’s financial records and the transactions underlying the suit.
The original plaintiff further relied upon the balance sheets for subsequent financial years, in which an amount pertaining to 2004-2005 continued to be carried forward under the heading “Balances pertaining to 2004-2005”. His case was that the amount claimed in the suit formed part of the amount reflected in these balance sheets, read cumulatively with the cheques and bank reconciliation statements.
The Court considered that the entries had to be examined together with the surrounding circumstances and the underlying transactions. It observed:
“Section 18 of the Limitation Act does not require that an acknowledgement be made to the name of the creditor specifically or be drawn up using a fixed format, so long as it acknowledges a subsisting liability.”
The Court further held that the acknowledgement, when read with the surrounding circumstances, must indicate a subsisting jural relationship.
Applying this principle, the Court found that the circumstances supported the original plaintiff’s claim that a liability existed, was reflected in the defendant-Society’s own balance sheets and continued to be carried forward up to 2013. The Court held that the entries constituted acknowledgement of liability under Section 18, renewing the limitation period every year.
Scope of examination under Order 7 Rule 11 CPC
The Court clarified that its conclusion concerning acknowledgement of liability did not mean that the entries conclusively established that the entire amount claimed in the suit was owed to the original plaintiff.
The precise relationship between the cheques issued, the amounts carried forward in the balance sheets and the sum claimed required examination of evidence. These questions were matters for trial.
The Court held that, while considering an application under Order 7 Rule 11 CPC, the Court was not required to conclusively determine the existence or non-existence of liability by examining the evidence in depth. It was required only to assess whether the plaint disclosed a prima facie case on the basis of the material available.
The Court observed that the High Court had erred in going into the evidentiary aspects of the claim and rejecting the plaint as barred by limitation, despite the balance sheet entries and surrounding material relied upon by the original plaintiff.
Fresh limitation period and absence of an application for condonation
The defendant contended that a time-barred debt could not be revived indefinitely, particularly in the absence of an application seeking condonation of delay.
The Court rejected this contention in the facts of the case. Since the balance sheet entries constituted acknowledgement under Section 18, Limitation Act, a fresh period of limitation automatically commenced from each subsequent date of acknowledgement. Consequently, there was no requirement for an application seeking condonation of delay.
Decision
The Supreme Court held that the Delhi High Court erred in allowing the defendant’s revision petition and rejecting the plaint as barred by limitation.
It accordingly:
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Set aside the Delhi High Court’s judgment and final order dated 4 November 2024.
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Revived the suit on the file of the trial court.
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Left all questions concerning the merits of the recovery claim open for consideration at trial.
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Allowed the appeal.
The Court clarified that the balance sheet entries and surrounding circumstances disclosed a prima facie acknowledgement of liability for the purpose of deciding the application under Order 7 Rule 11 CPC. The precise amount recoverable and the relationship between the cheques, the amounts carried forward and the claim made by the original plaintiff remained matters for trial.
*Judgment delivered by Justice Vikram Nath.
[Yusuf v. Vigyapan Loke Delhi Advertising CGHS Ltd., 2026 SCC OnLine SC 2364, decided on 6-11-2026]
Advocates who appeared in this case :
For the appellant: AOR Malak Manish Bhatt- 2632,
For the respondent: AOR Aayushmaan Vatsyayana, G.L. Verma, Aditi Warrier, Vansh Pandey, Manas Pandey and Gourav, Advocates
