[S.18 Limitation Act] Liability Must Be Acknowledged Within Limitation Period For Extension Of Limitation: Allahabad High Court

The Allahabad High Court held that if the claim under the Micro, Small and Medium Enterprises Development Act, 2006 is not filed within limitation, the same cannot be raised upon acknowledgment of the liability by the other party after expiry of limitation.

Section 18 of the Limitation Act provides that where a party acknowledges its liability within the period prescribed for filing a suit or application in respect of the liability, then fresh period of limitation starts from the date when such liability is acknowledged in writing.

Perusing Section 18 of the Limitation Act, the bench comprising of Chief Justice Arun Bhansali and Justice Vikas Budhwar held that “for taking advantage of acknowledgement for the purpose of extension of limitation, it is sine qua non that the acknowledgement must take place within the period of limitation.”

Factual Background

Appellant approached the Micro, Small and Medium Enterprises Facilitation Council claiming Rs.40,17,889/- as principal and Rs.3,25,59,035/- as interest under the MSMED Act. Respondent raised objections regarding claimed being barred by 14 years. It was held that the claim for the years 1998 to 2001 could not be raised in 2012.

Before the Commercial Court under Section 34 of the Arbitration and Conciliation Act, 1996, the appellant argued that since the respondent had acknowledged liability in the years 2010 to 2014, the reference was not barred by limitation. Though the appellant came to be registered under the MSMED Act in 2010, the Commercial Court held that the claim for the supply last made in the year 2000 was barred by limitation. The order of the Commercial Court was challenged before the High Court under Section 37 of the Act.

High Court Verdict

The Court observed that the appellant never made any claim before the Council that the claim for dues from 1998 to 2000 was within the period of limitation despite there being an objection from the respondent. It was observed that though the appellant was relying on acknowledgment of certain liability by the respondent in the years 2010 to 2014, the date on which cause of action arose was in 2000.

The Court held that acknowledgement of liability by the respondent ought to have been done within the period of limitation prescribed for raising the claim by the appellant. Acknowledgement of liability which arose in the year 2000, in 2010 does not revive a stale claim, held the Court.

Accordingly, the appeal against the order of the Commercial Court was dismissed.

Case Title: M/S Standard Niwar Mills v. Government of India Ministry of Home Affairs Procurement Wing Jaisalmer House [APPEAL UNDER SECTION 37 OF ARBITRATION AND CONCILIATION ACT 1996 DEFECTIVE No. - 146 of 2024]

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