The Supreme Court has held that entries in a company's or society's balance sheets can amount to an acknowledgment of liability under Section 18 of the Limitation Act, 1963, giving a creditor a fresh limitation period to pursue a recovery claim.
The Court clarified that such entries must be examined alongside other financial records and surrounding circumstances. It also ruled that a recovery suit should not be rejected at the initial stage when the available documents disclose a prima facie case requiring examination during trial.
Background
The dispute arose from a civil works contract dated February 10, 2000, under which the original plaintiff, Wazir Hussain, undertook construction work for Vigyapan Loke Delhi Advertising CGHS Ltd. in connection with a multi-storey building in Mayur Vihar, Delhi.
In 2014, Hussain filed a summary suit seeking recovery of Rs. 11.16 lakh, along with interest of Rs. 11,04,840. His claim was based on running bills raised between 2000 and 2003.
The defendant society sought rejection of the plaint under Order VII Rule 11 of the Code of Civil Procedure, arguing that the claim was time-barred. The Trial Court rejected the application in January 2020, observing that outstanding amounts continued to appear in the society's balance sheets from 2004 to 2013.
However, the Delhi High Court subsequently allowed the society's revision petition and rejected the suit on limitation grounds. The original plaintiff's legal heir then approached the Supreme Court.
A Bench comprising Justice Vikram Nath, Justice Augustine George Masih and Justice Sandeep Mehta examined whether the balance sheet entries could constitute an acknowledgment of liability under Section 18 of the Limitation Act.
The Court referred to earlier decisions, including Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal and Axis Bank Ltd. v. Naren Sheth, which recognised that balance sheet entries may amount to an acknowledgment of debt, depending on the circumstances.
The Bench noted that the society's bank reconciliation statements recorded three cheques issued in favour of Wazir Hussain Contractor. Subsequent balance sheets also carried forward an amount of Rs. 21,79,134 under the heading "Balances pertaining to 2004-05".
Explaining the legal position, the Court observed:
"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 Bench further clarified that the surrounding circumstances must indicate an existing legal relationship between the creditor and the debtor.
It also cautioned against deciding disputed financial questions at the stage of an application seeking rejection of the plaint.
The Court stated:
"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."
The Bench emphasised that the available material only needed to disclose a prima facie case. Whether the entire amount claimed was actually payable would require examination of evidence during trial.
Rejecting the argument that a time-barred debt could not be revived without an application for condonation of delay, the Supreme Court held that an acknowledgment under Section 18 automatically gives rise to a fresh limitation period.
The Court found that the Delhi High Court had erred in rejecting the plaint as time-barred. It set aside the High Court's order, revived the suit before the Trial Court and kept all questions concerning the merits of the claim open.
The appeal was accordingly allowed.
Case Details
Case Title: Yusuf v. Vigyapan Loke Delhi Advertising CGHS Ltd.
Case Number: Civil Appeal arising out of SLP (C) No. 30778 of 2024
Judges: Justice Vikram Nath, Justice Augustine George Masih and Justice Sandeep Mehta
Decision Date: November 06, 2026
