Q. Discuss the effects of fraud, mistake, and Acknowledgment under Limitation Act, 1963. State the conditions for a valid acknowledgment.
Effect of fraud or mistake – Period of limitation starts only after fraud or mistake is discovered by affected party. [section 17(1)]. In Vidarbha Veneer Industries Ltd. v. UOI - 1992 (58) ELT 435 (Bom HC) , it was held that limitation starts from the date of knowledge of mistake of law. It may be even 100 years from date of payment.

The cardinal principal enshrined in section 17 of Limitation Act is that fraud nullifies everything. Thus, appeal against the party can be admitted beyond limitation, if party has committed fraud (in submitting non-genuine documents at adjudication in this case) – CC v. Candid Enterprises 2001(130) ELT 404 (SC 3 member bench).

Section 17 - Effect of fraud or mistake - (1) Where, in the case of any suit or application for which a period of limitation is prescribed by this Act-

(a)  The suit or application is based upon the fraud of the defendant or respondent or his agent; or
(b)  The knowledge of the right or title on which a suit or application is founded is concealed by the fraud of any such person as aforesaid; or
(c)  The suit or application is for relief from the consequences of a mistake; or
(d)  Where any document necessary to establish the right of the plaintiff or applicant has been fraudulently concealed from him;

The period of limitation shall not begin to run until the plaintiff or applicant has discovered the fraud or the mistake or could, with reasonable diligence, has discovered it, or in the case of concealed document, until the plaintiff or the applicant first had the means of producing the concealed document or compelling its production:

Provided that nothing in this section shall enable any suit to be instituted or application to be made to recover or enforce any charge against or set aside any transaction affecting, any property which-

(i)  In the case of fraud, has been purchased for valuable consideration by a person who was not a party to the fraud and did not at the time of the purchase know, or have reason to believe, that any fraud had been committed, or

(ii)  In the case of mistake, has been purchased for valuable consideration subsequently to the transaction in which the mistake was made, by a person who did not know, or have reason to believe, that the mistake had been made, or

(iii)  In the case of a concealed document, has been purchased for valuable consideration by a person who was not a party to the concealment and, did not at the time of purchase know, or have reason to believe, that the document had been concealed.

(2) Where a judgment-debtor has, by fraud or force, prevented the execution of a decree or order within the period of limitation, the court may, on the application of the judgment-creditor made after the expiry of the said period extend the period for execution of the decree or order:

Provided that such application is made within one year from the date of the discovery of the fraud or the cessation of force, as the case may be.

Effect of acknowledgment in writing – If acknowledgment of any property is right or liability is obtained in writing duly signed by the party against whom such property, right or liability is claimed, before the expiration of period of limitation, a fresh period of limitation is computed from date of acknowledgment. [section 18(1)], Acknowledgment can be signed either personally or by an agent duty authorized in this behalf. [section 18(2)]. [That is why Banks and Financial Institutions insist on confirmation of balance every year].

Section 18 - Effect of acknowledgment in writing -
(1) Where before the expiration of the prescribed period for a suit or application in respect or any property or right, an acknowledgment 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 derived his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.

(2) Where the writing containing thee acknowledgment 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.

Explanation - For the purposes of this section, -

(a)  An acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set-off, or is addressed to a person other than a person entitled to the property or night;

(b)  The word "signed" means signed either personally or by an agent duly authorized in this behalf ; and

(c) An application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right.

As held in Subbarsadya vs Narashimha, AIR 1936 It is not necessary that an acknowledgment within Section 18 must contain a promise pay or should amount to a promise to pay. 



Q. Explain Legal Disability under Limitation Act, 1963. Who can get the benefit of legal disability? How legal disability effects on the period of limitation?
Statutes of limitations are designed to aid defendants. A plaintiff, however, can prevent the dismissal of his action for untimeliness by seeking to toll the statute. When the statute is tolled, the running of the time period is suspended until some event specified by law takes place. Tolling provisions benefit a plaintiff by extending the time period in which he is permitted to bring suit.

Various events or circumstances will toll a statute of limitations. It is tolled when one of the parties is under a legal disability—the lack of legal capacity to do an act—at the time the cause of action accrues. A child or a person with a mental illness is regarded as being incapable of initiating a legal action on her own behalf. Therefore, the time limit will be tolled until some fixed time after the disability has been removed. For example, once a child reaches the age of majority, the counting of time will be resumed. A personal disability that postpones the operation of the statute against an individual may be asserted only by that individual. If a party is under more than one disability, the statute of limitations does not begin to run until all the disabilities are removed. Once the statute begins to run, it will not be suspended by the subsequent disability of any of the parties unless specified by statute.

Mere ignorance of the existence of a cause of action generally does not toll the statute of limitations, particularly when the facts could have been learned by inquiry or diligence. In cases where a cause of action has been fraudulently concealed, the statute of limitations is tolled until the action is, or could have been, discovered through the exercise of due diligence. Ordinarily, silence or failure to disclose the existence of a cause of action does not toll the statute. The absence of the plaintiff or defendant from the jurisdiction does not suspend the running of the statute of limitations, unless the statute so provides.

The statute of limitations for a debt or obligation may be tolled by either an unconditional promise to pay the debt or an acknowledgement of the debt. The time limitation on bringing a lawsuit to enforce payment of the debt is suspended until the time for payment established under the promise or Acknowledgment has arrived. Upon that due date, the period of limitations will start again.

Section 6 - Legal disability
 (1) Where a person entitled to institute a suit or make an application for the execution of a decree is, at the time from which the prescribed period is to be reckoned, a minor or insane, or an idiot, he may institute the suit or make the application within the same period after the disability has ceased, as would otherwise have been allowed from the time specified therefor in the third column of the Schedule.

(2) Where such person is, at the time from which the prescribed period is to be reckoned, affected by two such disabilities, or where, before his disability has ceased, he is affected by another disability, he may institute the suit or make the application within the same period after both disabilities have ceased, as would otherwise have been allowed from the time so specified.

(3) Where the disability continues up to the death of that person, his legal representative may institute the suit or make the application within the same period after the death, as would otherwise have been allowed from the time so specified.

(4) Where the legal representative referred to in sub-section (3) is, at the date of the death of the person whom he represents, affected by any such disability, the rules contained in sub-sections (1) and (2) shall apply. (5) Where a person under disability dies after the disability ceases but within the period allowed to him under this section, his legal representative may institute the suit or make the application within the same period after the death, as would otherwise have been available to that person had he not died.

Explanation.-For the purposes of this section, 'minor' includes a child in the womb.


Q. Explain - Limitations bars remedy but does not extinguish the right.
Extracts from the judgment in the case of Bombay Dyeing and Mfg Co. Ltd. v. State of Bombay AIR 1958 SC 328 :

Section 27 of the Limitation Act provides that when the period limited to a person for instituting a suit for possession of any property has expired, his right to such property is extinguished. And the authorities have held-and rightly, that when the property is incapable of possession, as for example, a debt, the section has no application, and lapse of time does not extinguish the right of a person thereto.

Under Section 25(3) of the Contract Act, a barred debt is good consideration for a fresh promise to pay the amount. When a debtor makes a payment without any direction as to how it is to be appropriated, the creditor has the right to appropriate it towards a barred debt. It has also been held that a creditor is entitled to recover the debt from the surety, even though a suit on it is barred against the principal debtor. And when a creditor has a lien over goods by way of security for a loan, he can enforce the lien for obtaining satisfaction of the debt, even though an action thereon would be time-barred.

In American Jurisprudence, Vol. 34, page 314, the law is thus stated:

'A majority of the courts adhere to the view that a statute of limitations as distinguished from a statute which prescribes conditions precedent to a right of action, does not go to the substance of a right, but only to the remedy. It does not extinguish the debt or preclude its enforcement, unless the debtor chooses to avail himself of the defence and specially pleads it. An indebtedness does not lose its character as such merely because it is barred, it still affords sufficient consideration to support a promise to pay, and gives a creditor an insurable interest.'

In Corpus Juris Secundum, Vol. 53, page 922, we have the following statement of the law: 'The general rule, at least with respect to debts or money demands, is that a statute of limitation bars, or runs against, the remedy and does not discharge the debt or extinguish or impair the right, obligation or cause of action. '

The position then is that under the law a debt subsists notwithstanding that its recovery is barred by limitation.

The modes in which an obligation under a contract becomes discharged are well defined, and the bar of limitation is not one of them. The following passages in Anson's Law of Contract, 19th edition, page 383, are directly in point:

'At Common Law, lapse of time does not affect contractual rights. Such a right is of a permanent and indestructible character, unless either from the nature of the contract, or from its terms, it be limited in point of duration. But though the right possesses this permanent character, the remedies arising from its violation are withdrawn after a certain lapse of time; interest reipublicae ut si finis litium. The remedies are barred, though the right is not extinguished."

"And if the law requires that a debtor should get a discharge before he can be compelled to pay, that requirement is not satisfied if he is merely told that in the normal course he is not likely to be exposed to action by the creditor."

The Bombay High Court in the case of J.K. Chemicals Ltd. v. CIT [1966] 62 ITR 34, again considered the question. The assessee-company, which kept its accounts on the mercantile system, debited the accounts as and when it incurred any liability on account of wages, salary or bonus due to its employees even though the amounts were not disbursed in cash to the employees, and obtained deduction of the amounts so debited in the respective years in computing its total income. Certain portion of the wages, salary and bonus, so debited, was in fact not drawn by the employees. On June 30, 1957, a sum of Rs. 5,929 which had remained undrawn but had been allowed to be deducted during the accounting years 1945 to 1953 was credited to the profit and loss account of the said year. The Department included this amount in the total income of the accounting year on the ground that the trading liability in respect of which deduction had been allowed had ceased to exist, and under section 10(2A), the amount in question should be deemed to be income.

The Bombay High Court held that, in order that an amount may be deemed to be income under section 10(2A), there must be a remission or cessation of the liability in respect of that amount. The mere fact that more than three years had elapsed since the accrual of the liability and that the debts had become unenforceable against the assessee under the general law does not constitute cessation of the trading liability within the meaning of section 10(2A). A mere entry of credit in the accounts in respect of the amount would also not bring about a remission or cessation of the liability. Section 10(2A) was not, therefore, applicable and the amount was not liable to be assessed as income of the accounting year in which the credit entry was made.