Yusuf Vs Vigyapan Loke Delhi Advertising CGHS Ltd. (Supreme Court of India)
Balance Sheet Acknowledgments Can Extend Limitation for Recovery Suit: Supreme Court
Summary: The Supreme Court has held that entries in balance sheets, read with connected financial records and surrounding circumstances, can constitute an acknowledgment of liability under Section 18 of the Limitation Act, 1963. Such acknowledgment can give rise to a fresh period of limitation, preventing rejection of a recovery suit at the threshold.
In Yusuf v. Vigyapan Loke Delhi Advertising CGHS Ltd., 2026 INSC 1207, the Court set aside the Delhi High Court’s order rejecting a contractor’s recovery suit as time-barred. The judgment dated 6 November 2026 was delivered by a Bench comprising Justices Vikram Nath, Augustine George Masih and Sandeep Mehta.
Background of the Dispute
The original plaintiff, Wazir Hussain, entered into a civil works contract with the defendant cooperative housing society on 10 February 2000 for construction work relating to a multistorey building in Mayur Vihar, Delhi.
In 2014, he instituted a suit under Order XXXVII of the Code of Civil Procedure, 1908, seeking recovery of Rs. 11,16,000, together with Rs. 11,04,840 as interest calculated at 9% per annum, besides pendente lite and future interest. The claim arose from running bills raised between 2000 and 2003. The society had also issued cheques in his favour which were dishonoured.
The society sought rejection of the plaint under Order VII Rule 11 CPC, contending that the suit was barred by limitation, disclosed no cause of action and was otherwise not maintainable.
Trial Court and High Court Took Different Views
The Trial Court rejected the society’s application on 6 January 2020. It observed that outstanding amounts continued to appear in the society’s balance sheets from 2004 onwards until 2013. These entries amounted to acknowledgment of debt, giving rise to a fresh limitation period. Questions concerning the genuineness of bills and maintainability required evidence.
The Delhi High Court, however, allowed the society’s revision petition on 4 November 2024 and rejected the plaint as time-barred. It considered the financial records insufficient to establish acknowledgment of liability towards the plaintiff extending beyond 2005.
The original plaintiff’s legal heir challenged that decision before the Supreme Court.
Balance Sheet Entries Must Be Read With Connected Records
The Supreme Court examined whether the suit could be rejected at the threshold despite the balance sheet entries relied upon up to 2013.
The plaintiff relied on the society’s 2004–05 balance sheet and bank reconciliation statements, which expressly recorded three cheques issued in favour of “Wazir Hussain Contractor”. The Court observed that these entries directly connected the plaintiff with the society’s financial records and the transactions underlying the suit.
The plaintiff also relied on subsequent balance sheets carrying forward an amount under the head “Balances pertaining to 2004-05”. His case was that the sum claimed formed part of that carried-forward balance, when the records were read cumulatively.
Section 18 Does Not Require a Fixed Format
Under Section 18, an acknowledgment of liability must be in writing and signed by the party concerned, and must be made before expiry of the prescribed limitation period. A fresh limitation period is then computed from the time of signing.
The Court clarified that an acknowledgment need not specifically name the creditor or follow a prescribed format. Read with the circumstances surrounding the transaction, it must indicate a subsisting jural relationship.
In this case, the surrounding circumstances supported the plaintiff’s contention that the liability appeared in the society’s accounts and continued to be carried forward until 2013, renewing limitation every year.
Qualifications in Accounts Remain Relevant
The Court relied on Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal, which recognised that entries in books of account, including balance sheets, may constitute acknowledgment under Section 18.
However, an entry must be assessed in the context of the balance sheet as a whole, including qualifications or explanations in accompanying notes or the auditor’s report. The Court also referred to Axis Bank Ltd. v. Naren Sheth, reiterating the application of Section 18 to balance sheets acknowledging debt.
Exact Liability Requires Examination at Trial
The Court expressly clarified that its reasoning did not conclusively establish that the entire amount claimed was payable to the plaintiff.
The relationship between the cheques, the carried-forward balances and the amount claimed required examination of evidence. At the Order VII Rule 11 stage, the High Court ought not to have examined the evidence in depth and conclusively determined that no liability existed.
No Delay Condonation Application Was Required
The society’s objection that a time-barred debt could not be revived indefinitely was rejected. Since the entries constituted acknowledgment under Section 18, a fresh limitation period automatically ran from each subsequent acknowledgment. Consequently, no application seeking condonation of delay was required.
The Supreme Court allowed the appeal, set aside the High Court’s order and revived the suit before the Trial Court, leaving all questions on the merits open.
Cases Discussed
Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal — 2021 INSC 254; (2021) 6 SCC 366 (Supreme Court). The Supreme Court relied on this three-Judge Bench decision for the proposition that balance sheets may constitute acknowledgment under Section 18, subject to examination of the complete accounts, accompanying notes and auditor’s qualifications.
Axis Bank Ltd. v. Naren Sheth — 2023 INSC 820 (Supreme Court). Cited for reiterating that balance sheets acknowledging debt may attract Section 18 and that acknowledgment-related documents can be material in determining limitation.
FULL TEXT OF THE ORIGINAL JUDGMENT OF SUPREME COURT
1. Leave granted.
2. The present appeal is filed against the judgment and final order dated 04.11.2024 passed by the High Court of Delhi in C.R.P. No.66 of 2020 whereby the High Court allowed the Revision Petition filed by the defendant-respondent and rejeceted the plaint filed by the plaintiff-appellant as barred by limitation. For convenience, the parties shall be referred to by their respective positions before the Trial Court.
3. Brief facts giving rise to the appeal are as follows:
3.1. The original plaintiff, Wazir Hussain, instituted a suit under Order XXXVII of the Code of Civil Procedure, 1908 (for short, CPC) in 2014 seeking recovery of money due under a civil works contract dated 10.02.2000. The contract was entered into by the defendant-society (hereinafter referred to as ‘defendant’) for construction work to be carried out by the original plaintiff in connection with a multi-story building in Mayur Vihar, Delhi. He relied on running bills raised between 2000 and 2003 to seek recovery of Rs. 11,16,000/- along with interest of Rs. 11,04,840/- calculated at 9% p.a., and pendente lite and future interest at the same rate until realization.
3.2. The defendant filed an application under Order VII Rule 11 CPC seeking rejection of the plaint. It contended, inter alia, that the suit was barred by limitation, did not disclose a cause of action and was not maintainable in view of alleged embezzlement.
3.3. By order dated 06.01.2020, the Trial Court rejected the application. The Court observed that the outstanding amounts were being reflected in the balance sheets of the defendant-Society for the years 2004, 2005 till 2013, which amounts to acknowledgment of debt consequently giving rise to a fresh period of limitation. It further noted that the other issues regarding maintainability and genuineness of bills were questions requiring evidence.
3.4. Aggrieved, the defendant preferred a revision petition before the High Court. It primarily contended that the suit instituted in 2014 in respect of transactions dating back to 2000 and 2003 was barred by limitation.
3.5. By the impugned order dated 04.11.2024, the High Court allowed the revision petition and rejected the plaint as being barred by limitation. It observed that the bank statements relied upon by the plaintiff did not establish an acknowledgment of liability extending beyond 2005. It further noted that there was no balance sheet or any other document produced by the plaintiff showing any kind of acknowledgment.
3.6. Aggrieved, the legal heir of the original plaintiff is here before us.
4. We have heard the learned counsel appearing for the parties and examined the material placed on record.
5. The limited question before us is whether in the face of entries of defendant’s balance sheets up to 2013, the suit could have been rejected at threshold as being barred by limitation.
6. It is not in dispute that the running bills relied upon by the original plaintiff pertain to the period from 2000 and 2003. The defendant had also issued cheques in favour of the original plaintiff, which were dishonoured. The plaintiff’s case, however, is not founded solely on these transactions. He relies on the entries in the balance sheets of defendant-Society which as per him continued to reflect the amounts pertaining to the financial year 2004-05 up to the financial year 2012-13.
7. The original plaintiff contended that the continued reflection of these amounts in the Society’s accounts, more particularly in the entry dated 31.03.2013, constituted an acknowledgment of liability. On this basis, he asserted that a fresh period of limitation began from the date of acknowledgment reflected in the balance sheet entries. Therefore, the suit could not have been rejected as being time-barred.
8. The High Court took note of the bank entries relied upon by the original plaintiff, however refused to treat them as acknowledgment of amount due to be payable. It observed that the balance sheet as on 31.03.2013 reflected an amount of Rs.21,79,465/- under the head of sundry creditors pertaining to the year 2004-05, but it did not in any way indicate that the amount was due and payable to the original plaintiff. It similarly observed that the balance sheet for 2004-05 and the bank reconciliation statement which made a reference to the cheques issued in original plaintiff’s favour, also did not record any acknowledgment of liability of the Society.
9. In order to understand the effect of the balance sheet entries of 2013, we have to turn to Section 18 of the Limitation Act, 1963. It states the following:
“18. Effect of acknowledgment in writing.- (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 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 derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed. …”
Simply stated, a written acknowledgment of a subsisting liability gives rise to a fresh period of limitation, commencing from the date on which the acknowledgment is made. In effect, the period of limitation is renewed, or extended.
10. In Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal1, a three-judge bench of this Court held that entries in books of account, including balance sheets, may constitute an acknowledgment of liability under Section 18 of Limitation Act. However, it also provided a caveat to the effect that the said entry must be assessed in the context of the balance sheet as a whole, including any qualifications or explanations contained in the accompanying notes or auditor’s report.
11. The same principle was reiterated in Axis Bank Ltd. v. Naren Sheth2 wherein this Court recognized that Section 18 of Limitation Act would apply in case of balance sheets acknowledging a debt.
12. In the present case, the original plaintiff relies on the defendant-Society’s balance sheet for the year 2004-05 and the bank reconciliation statements for the same financial year. The latter explicitly records three cheques issued in favour of ‘Wazir Hussain Contractor’. These entries directly connect the original plaintiff with the Society’s financial records and transactions underlying the suit.
13. The plaintiff further relies on defendant-Society’s balance sheets for the subsequent financial years wherein an amount of Rs.21,79,134/- continued to be carried forward under the head ‘Balances pertaining to 2004-05’. As per him, the amount claimed in the suit formed a part of the amount reflected in the balance sheets, read cumulatively with the cheques and bank reconciliation statements. As such, it constituted an acknowledgment of liability from 2005 onwards.
14. Section 18 of the Limitation Act does not require that an acknowledgment 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 only requirement is that the acknowledgment, when read in conjunction with the other circumstances surrounding the transaction, must indicate a subsisting jural relationship. In the present set of facts, the surrounding circumstances amply support the claim of the original plaintiff that a liability existed, that it was reflected in defendant’s own balance sheets and that the same continued to be carried forward to the year 2013, renewing the limitation period every year.
15. The above discussion is not to be read to mean that the entries conclusively establish that the entire amount as is claimed in the suit was owed to the original plaintiff. The precise relationship between the cheques issued, amounts carried forward and the sum claimed, inter alia, would require examination of evidence. These are matters for trial. At the stage of considering an application under Order VII Rule 11 CPC, the Court ought not to have gone into the depths of evidence and conclusively determined the non-existence of liability. It was required only to assess whether the plaint disclosed a prima facie case on the basis of the material available.
16. The defendant’s contention that a time-barred debt cannot be revived indefinitely, more particularly so in the absence of an application seeking condonation of delay, cannot be sustained. Since the entries constitute an acknowledgment under Section 18 of the Limitation Act, a fresh period of limitation would automatically run from each subsequent date of acknowledgment. In that event, there was no requirement for an application seeking condonation of delay.
17. In light of the above discussion, we are of the view that the High Court fell in error in allowing the defendant’s revision petition and rejecting the plaint as being barred by limitation. The impugned order is accordingly set aside. The suit shall stand revived on the file of the Trial Court. All questions on the merits of the claim shall remain open.
18. The appeal is accordingly allowed.
19. Pending application(s), if any, shall stand disposed of.
Notes:
1 2021 INSC 254.
2 2023 INSC 820.
