Limitation for Recovery of Money: Three Years, Acknowledgment and Part Payment

The first question a lawyer asks about an old unpaid debt is not how much is owed but how old it is. Under the Limitation Act, 1963, a suit filed after the prescribed period is barred, however genuine the debt. The debt itself does not vanish, but the court will not enforce it by a suit. For creditors, understanding limitation is therefore the difference between a recoverable claim and a worthless one.

What Is the General Limitation Period?

For most money recovery claims, the period is three years. The Schedule to the Act sets out specific articles, but for contracts and loans the period is generally three years, and the question is from which date it runs:

• Price of goods sold and delivered: three years from delivery, or from the end of the agreed credit period
• Money lent: three years from the date the loan was made, or when it became repayable
• Compensation for breach of contract: three years from the date of breach
• Money deposited to be returned on demand: three years from the date of demand
• Other claims with no specific article: three years from when the right to sue arises

The starting point is not always the invoice date. For an invoice payable in 30 days, time generally runs from the end of the credit period. For a running account between parties, courts look at the last transaction in a continuing account, and the position can be more complex. A creditor should compute the date from the contract and not from memory.

Can a Written Acknowledgment Extend the Period?

Yes. Section 18 of the Limitation Act provides that where, before the period expires, the debtor acknowledges liability in a writing signed by the debtor or an authorised agent, a fresh period of limitation starts from the date of the acknowledgment. The acknowledgment need not promise to pay; it is enough that it admits the liability. Examples include a balance confirmation signed by the debtor, a letter admitting the amount due, or a reply to a legal notice that accepts the debt while asking for time.

Three conditions matter. The acknowledgment must be in writing and signed. It must be made before the original period has expired, since an acknowledgment after expiry does not revive a barred claim under Section 18. And it must relate to the specific liability. An unsigned entry in the creditor's own books, or a vague reference to dealings, usually does not qualify. Emails are now often relied on, and courts have accepted properly authenticated emails as acknowledgments when they clearly admit the debt.

Does Part Payment Restart the Clock?

Under Section 19, a payment made by the debtor on account of a debt before the period expires gives a fresh period from the date of payment, provided that the fact of payment is acknowledged by a writing signed by the person making it, or appears in that person's handwriting. A creditor should therefore insist on a covering letter or signed receipt with any part payment, which also protects the creditor on the amount still owed.

What If the Debt Is Already Time-Barred?

A time-barred debt cannot be recovered by a suit, but a fresh written and signed promise to pay it can create a new enforceable promise under Section 25(3) of the Indian Contract Act. Courts therefore distinguish between an acknowledgment of liability that comes too late, which does not revive the claim, and a fresh promise to pay a time-barred debt, which can be enforced as a new contract if its conditions are met. A cheque given for a time-barred debt has been a subject of litigation under Section 138, and our note on security cheques and Section 138 explains how courts view legally enforceable debt.

Which Periods Can Be Excluded?

The Act allows some time to be excluded when computing the period:

• Section 14: time spent bona fide in a court that lacked jurisdiction
• Section 15: time during which a stay, injunction or required statutory notice prevented filing
• Section 12A of the Commercial Courts Act: time spent in pre-institution mediation
• Section 17: where limitation runs from the discovery of fraud or mistake

The Supreme Court also excluded the period from March 2020 to February 2022 from limitation because of the pandemic, so claims whose period ended in that window were treated as extended. A creditor with an old claim should confirm how that exclusion applies to the facts.

What Is the Limitation for Other Proceedings?

Different proceedings have different clocks. A decree for money can generally be executed within 12 years of the decree. A Section 9 application under the IBC is subject to the three-year period from the date of default, as we explain in our guide to IBC Section 9. A cheque bounce complaint has its own short statutory deadlines. And a legal notice does not stop limitation from running, as we note in our guide to a legal notice for recovery of money.

How Should Creditors Manage the Clock?

Keep a diary of key dates, from the invoice date and due date to the last payment and acknowledgment. Obtain signed balance confirmations from customers each year. Never assume that continued dealings extend limitation. And do not wait for a customer to refuse payment before taking advice, because limitation runs silently. For a larger recovery plan, see our overview of recovering dues from a company that is not paying.

If you have an older debt and are unsure whether it is still in time, our Commercial Disputes practice can compute the position from your documents, and you can request a consultation.