Balance-sheet entries can revive a time-barred debt, rules Supreme Court

The Supreme Court has restored a 2014 recovery suit that two courts below had thrown out as time-barred. A contractor's legal heir sued a Delhi cooperative housing society in 2014 for money due under a 2000-2003 construction contract. The society sought rejection of the plaint under Order VII Rule 11 of the Code of Civil Procedure, 1908, arguing the claim was stale. The trial court kept the suit alive, noting the society's own balance sheets showed the amount outstanding as late as 2013.

The Delhi High Court reversed this in a revision petition, holding the balance-sheet entries did not amount to an acknowledgment of liability. The Supreme Court disagreed. Under Section 18 of the Limitation Act, 1963, a written acknowledgment of a subsisting liability, made before the limitation period expires, starts a fresh limitation period from the date of acknowledgment. Following its earlier rulings in Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal and Axis Bank Ltd. v. Naren Sheth, the Court held that entries in a company's balance sheet can qualify as such an acknowledgment, and need not name the creditor or follow any set form, so long as they show a subsisting relationship between the parties.

At the Order VII Rule 11 stage, courts may only check whether the plaint discloses a prima facie case, not conclusively decide the merits. The suit now revives at the trial court, with all questions on the merits left open.