Fresh Cause Of Action Cannot Accrue U/S 18 Of Limitation Act If Liability Is Acknowledged After Expiry Of Period Of Limitation: Delhi High Court
The Delhi High Court bench of Justices Subramonium Prasad and Harish Vaidyanathanshankar has held that for a valid acknowledgment under section 18 of the Limitation Act, 1963 certain essential requirements must be met. Firstly, the acknowledgment must be made before the relevant period of limitation has expired. Secondly, it must pertain specifically to the liability concerning the right...
The Delhi High Court bench of Justices Subramonium Prasad and Harish Vaidyanathanshankar has held that for a valid acknowledgment under section 18 of the Limitation Act, 1963 certain essential requirements must be met. Firstly, the acknowledgment must be made before the relevant period of limitation has expired. Secondly, it must pertain specifically to the liability concerning the right in question. Lastly, the acknowledgment must be in writing and signed by the party against whom such right is claimed.
Since, in the present case, the liability was acknowledged only after the expiry of the limitation period, the claims could not be adjudicated by the Arbitrator or the District Judge. Consequently, both the award and the District Judge's order affirming it were set aside on the grounds of public policy and patent illegality.
Brief Facts:
The appellant, a society registered under the Societies Registration Act, 1860, was established to support the development of the Indian construction industry, including training, testing, and certification of construction workers and supervisors.
Pursuant to a Memorandum of Understanding (MoU) dated 05.05.2008 with the Employment Generation and Marketing Mission (EGMM), Department of Rural Development, Government of Andhra Pradesh, the appellant undertook training-related services.
Earlier, on 02.03.2006, the appellant had executed an MoU with the respondent for executing contracts received by the appellant. Under this arrangement, the appellant allotted training work (arising from the 2008 MoU) to the respondent during 2009–2010. The respondent completed the assigned work and raised invoices, which the appellant forwarded to EGMM for payment.
It is undisputed that a sum of ₹38,28,040 remains unpaid by EGMM for work performed by the respondent. Both the appellant and the respondent addressed several communications to EGMM requesting release of the outstanding amount.
The respondent filed ARB.P. 1/2020 under Section 11 of the Arbitration Act, leading to the appointment of a Sole Arbitrator on 27.09.2021. After pleadings, the appellant moved an application under Order VII Rule 11 Civil Procedure Code, 1908, claiming the respondent's claims were time-barred. The arbitrator dismissed it on 16.04.2022, holding the claims within limitation.
The appellant's Section 34 challenge to this order was rejected on 11.11.2022, as such dismissal isn't appealable under Section 34. An appeal (FAO (COMM) 50/2023) was disposed of on 24.02.2023, granting liberty to raise the limitation plea under Section 16 of the Arbitration Act, which the appellant subsequently did.
The Ld. Arbitrator held that the appellant's reply dated 21.11.2017 to the respondent's legal notice constituted a departure from its earlier stance of awaiting EGMM's payment, thereby triggering a fresh cause of action under Article 113 of the Limitation Act. Accordingly, the arbitrator rejected the appellant's Section 16 application on 19.05.2023, finding the respondent's claims to be within the limitation period.
The District Judge held that the letter dated 23.02.2017 constituted an acknowledgment of liability, thereby extending the limitation period from that date. As the claim was filed within three years of the acknowledgment, the Appellant's Section 34 petition was dismissed. This dismissal, dated 26.03.2024, is now under challenge in the present appeal.
Observations:
The court observed that in the present case, the Respondent seeks payment for work carried out in 2009 and 2010 pursuant to the MoU dated 05.05.2008. Since the MoU does not prescribe any specific timeline for payment, the Court is of the view that the claim is squarely governed by Article 18 of the Limitation Act, which applies to amounts payable for work done where no time for payment is fixed.
It further added that Article 113 of the Limitation Act is a residuary clause. It is well settled that Article 113 of the Limitation Act can be invoked only when no period of limitation is provided elsewhere in the schedule. Since, the present case is squarely covered by Article 18 of the Limitation Act, the Article 113 of the Limitation Act, therefore, cannot be invoked at all.
The Supreme Court in State of Punjab v. Gurdev Singh , (1991) held that if a suit is not covered by a specific limitation article, it falls under the residuary Article 113, which applies to all cases not otherwise provided for in the Limitation Act. Article 113 prescribes a three-year period from when the "right to sue accrues," meaning when the cause of action arises or a clear threat to the right is made by the defendant.
The court observed that for Section 18 of the Limitation Act to apply, acknowledgment of liability must occur within the original limitation period. The Appellant's last such acknowledgment was on 04.02.2014, making the limitation expire on 04.02.2017. The Respondent's reliance on a letter dated 21.11.2017 is misplaced, as it falls outside the limitation window. Both the Ld. Arbitrator and District Judge overlooked this key legal requirement.
The Supreme Court in Food Corpn. of India v. Assam State Coop. Marketing & Consumer Federation Ltd., (2004) held that under Section 18 of the Limitation Act, a written and signed acknowledgment of liability—made before the original limitation period expires—restarts the limitation period from the date of such acknowledgment. Importantly, this acknowledgment need not include an express or implied promise to pay.
The court concluded that the letter dated 21.11.2017 does not extend the limitation period.The decisions of the Learned District Judge and Learned Arbitrator contradict the Limitation Act, violate public policy, and suffer from patent illegality. The Respondent's claim is barred by limitation and thus non-arbitrable.
Accordingly, the present appeal was allowed and the impugned judgment was set aside.
Case Title: M/S CONSTRUCTION INDUSTRY DEVELOPMENT COUNCIL Versus M/S MCM WORLDWIDE PRIVATE LIMITED & ANR.
Citation: 2025 LiveLaw (Del) 614
Case Number: FAO (COMM) 83/2024 & CM APPL. 26835/2024
Judgment Date: 08/05/2025
For Appellant: Mr. N. K. Kantawala, Mr. Satyender Chahar, Mr. Amaya Mandir, Mr. Sidharth Vardhman, Mr. Nishant Kantawala, Advocates.
For Respondent: Mr. Siddharth Shankar and Mr. Sharique Ajmal, Advocates.