Balance Sheet Entries as Acknowledgment of Debt

Source: Supreme Court

Why in News? 

A bench of Justice Vikram Nath, Justice Augustine George Masih and Justice Sandeep Mehta decided Yusuf v. Vigyapan Loke Delhi Advertising CGHS Ltd. (2026). The Court allowed an appeal by the legal heir of the original plaintiff. It set aside the Delhi High Court’s order rejecting the plaint as barred by limitation under Order VII Rule 11 CPC and restored the suit before the trial court. 

The Court also held: 

• Entries in a balance sheet can be an acknowledgment of liability under Section 18 of the Limitation Act, and start a fresh period of limitation. 
• Section 18 does not require the acknowledgment to name the creditor or follow a fixed format. It only has to show a subsisting jural relationship. 
• At the Order VII Rule 11 stage, the court should not go deep into the evidence. It only has to see whether the plaint discloses a prima facie case.

What was the Background of the Yusuf v. Vigyapan Loke Delhi Advertising CGHS Ltd. (2026) Case? 

• The contract: The original plaintiff, a contractor, had a civil works contract with the defendant society to construct a multi-storey building in Mayur Vihar, Delhi. 
• Running bills: The plaintiff relied on running bills raised between 2000 and 2003. 
• 2014: The plaintiff filed a summary suit under Order XXXVII CPC to recover:  
  • Rs 11,16,000 as principal, and 
  • Rs 11,04,840 as interest at 9% a year. 
• The defendant’s application: It asked for the plaint to be rejected under Order VII Rule 11 CPC because the suit was:  
  • time-barred, 
  • disclosed no cause of action, and 
  • was not maintainable. 

Proceedings in the lower courts: 

• Trial Court (2020): It dismissed the defendant’s application. The outstanding amounts appeared in the defendant’s balance sheets from 2004–05 until 2013, which amounted to an acknowledgment of debt and started a fresh period of limitation. 
• Delhi High Court (2024): It allowed the defendant’s revision petition and rejected the plaint. It held that:  
  • the bank statements did not show any acknowledgment of liability after 2005; 
  • the 2013 balance sheet showed Rs 21,79,465 under “sundry creditors” for 2004–05, but did not show that the amount was due and payable to the plaintiff; 
  • the plaintiff had produced no balance sheet or other document showing an acknowledgment. 

Question before the Supreme Court: 

• Given the entries in the defendant’s balance sheets up to 2013, could the suit be rejected at the threshold as barred by limitation?

What were the Court’s Observations? 

On the scope of Section 18: 

• A written acknowledgment of a subsisting liability starts a fresh period of limitation from the date the acknowledgment is made. 
• In effect, the limitation period is renewed or extended. 

On balance sheet entries as acknowledgment: 

• The Court relied on Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal, which held that entries in books of account, including balance sheets, can be an acknowledgment under Section 18. 
• That ruling carries a caveat. The entry must be read in the context of the balance sheet as a whole, including any qualifications or explanations in the notes or the auditor’s report. 

On the facts: 

• The plaintiff relied on the defendant’s balance sheet for 2004–05 and the bank reconciliation statements. 
• These statements expressly recorded three cheques issued in favour of “Wazir Hussain Contractor”. 
• These entries directly link the original plaintiff to the defendant’s financial records and to the transactions behind the suit. 

On the form of acknowledgment: 

• Section 18 does not require the acknowledgment to name the creditor specifically, or to be drawn up in a fixed format, as long as it acknowledges a subsisting liability. 
• The only requirement is that, read with the surrounding circumstances, it shows a subsisting jural relationship. 
• Here, the surrounding circumstances supported the plaintiff’s claim that:  
  • a liability existed, 
  • it was shown in the defendant’s own balance sheets, and 
  • it was carried forward up to 2013, which renewed the limitation period every year. 

On the limits of the finding: 

• The Court clarified that the entries do not conclusively prove that the entire amount claimed was owed. 
• How the cheques, the amounts carried forward and the sum claimed relate to each other requires evidence. These are matters for trial. 

On the Order VII Rule 11 stage: 

• The High Court should not have gone into the depths of evidence and conclusively decided that no liability existed. 
• It only had to see whether the plaint disclosed a prima facie case on the material available. 

On condonation of delay: 

• The defendant argued that a time-barred debt cannot be revived indefinitely, especially without an application for condonation of delay. The Court rejected this. 
• Since the entries are acknowledgments under Section 18, a fresh period of limitation runs automatically from each later acknowledgment. 
• So no application for condonation of delay was needed. 

Decision 

• The Delhi High Court was wrong to allow the revision petition and reject the plaint as time-barred. 
• The impugned order was set aside. 
• The suit was revived on the file of the trial court. 
• All questions on the merits of the claim were left open. 

What is Section 18 of the Limitation Act, 1963? 

About: 

• Section 18 deals with the effect of acknowledgment in writing. 
• It falls under Part III of the Act, “Computation of Period of Limitation”. 

Section 18(1): 

• If a written acknowledgment of liability is made and signed by the party against whom a right is claimed, or by someone through whom they derive title or liability, 
• before the prescribed period expires, 
• a fresh period of limitation is computed from the date it was signed. 

Section 18(2): 

• If the writing is undated, oral evidence may be given of the time it was signed. 
• Oral evidence of its contents is not allowed. 
• Explanation to Section 18: An acknowledgment is enough even if it: 
• does not specify the exact nature of the property or right; 
• says the time for payment or delivery has not yet come; 
• is accompanied by a refusal to pay; 
• is coupled with a claim to set-off; or 
• is addressed to someone other than the person entitled to the property or right. 

Key conditions: 

• The acknowledgment must be made before the limitation period expires. It cannot revive a debt that is already time-barred. 
• It must be in writing and signed. 
• It must relate to a subsisting liability.