IMPORTANCE OF ACKNOWLEDGEMENT UNDER INDIAN LAW

IMPORTANCE OF ACKNOWLEDGEMENT UNDER INDIAN LAW

GENERAL MEANING OF ACKNOWLEDGEMENT

Acknowledgement' generally refers to the acceptance or admission of the existence of something.

REASON FOR TAKING ACKNOWLEDGEMENT BETWEEN THE BORROWER AND LENDER

When the statute of limitations is about to expire and the lender does not want to immediately proceed against the borrower by filing a civil suit, and the parties agree to renew the promissory note, the borrower can make an Acknowledgement in writing to save limitation. Subsection (1) of Section 18 of the Limitation Act states that if, prior to the expiration of the prescribed period of limitation for a suit in respect of any right, an acknowledgement of liability in respect of such right is made in writing and signed by the party against whom such right is claimed, a new period of limitation shall be computed from the time when the acknowledgement was so signed.

CONDITIONS FOR VALID ACKNOWLEDGEMENT

For a valid Acknowledgment to save limitation the following conditions must be present:

1.   The Acknowledgment must be in writing.

2.   It must be signed by the borrower personally or by his duly authorized agent

3.   The Acknowledgment must be dated as otherwise the date of Acknowledgment should be separately proved; and

4.   The Acknowledgment must be made before the debt is time-barred.

 

 

CONSEQUENCES OF NOT MENTIONING THE DATE ON THE  ACKNOWLEDGMENT :-

It's always a good idea to acknowledge the debt with a date. In cases where there is a written acknowledgement of liability but no date is specified, oral evidence of the date when such acknowledgement was made may be given. It is the plaintiff's responsibility to demonstrate that his claim is timely, and it is his responsibility to present evidence demonstrating that the Acknowledgment was made within three years of the original date or the date of any subsequent Acknowledgments. There is no presumption that, in the absence of evidence as to the precise date of the endorsement, it should be assumed to have been made within three years of the previous endorsement.. Adikesaval Naidu vs. V.K.R. Krishnaswamy Mudaliar, (1965) 2 MLJ 516.

ACKNOWLEDGEMENT MUST BE IN WRITING :-

In order to save limitation by payment of some money, the payment ought to be in writing or under the signature of the debtor. Mere payment recorded by the creditor in the account would not save limitation. Syed Jalaluddin vs. Tara Pharmacy, (1965) 2 ALT, 372: AIR 1966, A.P. 136.

·       A letter written by a debtor to the creditor's brother read: "There is no use creating unnecessary hitch, because I would pay and you would receive the balance, paying and dying cannot be avoided". It was held that it was sufficient acknowledgment. 111 IC 617: 30 Bom. L.R., 688.

·       Any Acknowledgment of a debt under Section 19 of the Limitation Act, in order to save limitation, should be before the promissory note becomes time-barred. AIR 1938 Nag., 180.

·       The execution of a fresh promissory note after the personal remedy was barred could not operate as an Acknowledgment. AIR 1938, Rang. 134.

ACKNOWLEDGEMENT  IS USEFUL TO GIVE LIFE TO TIME-BARRED PROMISSORY NOTE AND THE SCENARIOS AS FOLLOWS:-

·       When a promissory note becomes time-barred, it is no longer enforceable and has no value because the promisee will be unable to sue the promisor and recover the debt. When a promissory note becomes time-barred, but the promisor does not want to cause loss to the promisee and wishes to discharge his liability, he may do so under the provisions of Section 25 sub-section (3) of the Indian Contract Act. The said sub-section (3) states that an agreement made without consideration is void unless it is a promise, made in writing and signed by the person to be charged with it, or by his agent generally or specially authorised in that behalf, to pay wholly or partially a debt for which the creditor could have enforced payment but for the law governing the limitation of suits. As a result, even after a promissory note has expired, the parties can reach an agreement to settle the debt. The following are the requirements for such an agreement:

·       the promise to pay must refer to a debt that the creditor could have enforced payment on but for the Law of Limitation; in other words, the consideration for the promise must be an identifiable debt whose recovery is barred by limitation.

·       it should be a clear promise to repay the debt in full or in part; and

·       the promise must be in writing and signed by the person or his duly  authorized agent. S.S. Srinivasa Raghavan vs. R. Jayaraman, (1975) 1 MLJ 414. It has been held that an agreement renewing time-barred promissory note is valid and enforceable in law. Mawaji Ramji vs. Premji Kumbhabhai Chanda, AIR 1967, Orissa 158: ILR (1967) Cut. 5. While an Acknowledgment to save limitation under Section 18 of the Limitation Act, 1963 should be before the promissory note becomes time-barred, an agreement under sub-section (3) of Section 25 of the Contract Act may be even after the promissory note becomes time-barred and the said sub-section (3) is far wider in scope than the Acknowledgment. Sri Kapaleeswara Temple vs. T. Tirunavukragu, AIR 1975, Mad. 164. That apart, for an agreement under the said sub-section (3), there should be a clear promise to pay the time-barred debt while it has been held that for an Acknowledgment under Section 18 of the Limitation Act a promise to pay is not necessary. AIR 1950, Bom. 94: ILR (1950) Bom. 741.

MODE OF ACKNOWLEDGMENT

Section 18 of the Limitation Act makes no specific provision for Acknowledgment. The debtor's statement, "I executed promissory note and the contents of the note are correct," was deemed sufficient Acknowledgement. Mad. 464, AIR 1921. All that is required is an acknowledgement of liability; a promise to pay is not required. Bom. 94, AIR 1950. An endorsement of payment of interest on the promissory note serves to extend the period of limitation. M. Mahalingaiah vs. Kempe Gowda, 1972 AIR 1972, Mys. 152, 1 Mys. LJ 57.

ACKNOWLEDGMENT MUST INDICATE THE JURAL RELATIONSHIP OF DEBTOR AND CREDITOR

The Supreme Court has stated that the words used in the Acknowledgment must indicate the jural relationship of the debtor and creditor and must appear to be given with the intent to admit such jural relationships. S.F. Mazda vs. Durga Prasad, AIR 1961 SC 1236.

PAYMENT BY CHEQUE

whether or not Acknowledgement Giving a cheque does not constitute payment, and it does not give a fresh start to limitation if the cheque is returned unpaid. If the cheque is not honoured, it cannot be said that the amount represented by the cheque has been paid to the payee by the drawer, and thus the limitation is not saved. North India Finance Corporation. (P) Ltd. vs. V.R.L. Soni, AIR 1973, P & H 35, and Dharam Singh vs. Khanchand, AIR 1966, All. 137.

REACQUIRED STAMP DUTY ON ACKNOWLEDGMENT

The stamp duty for an acknowledgement of debt exceeding Rs. 500/- in amount or value written or signed by, or on behalf of, a debtor in order to supply evidence of such debt is one rupee, according to Article 1 of Schedule I-A to the Indian Stamp Act. That is, whenever an acknowledgement is taken on a promissory note, the acknowledgement should be stamped with a one-rupee adhesive revenue stamp. If the Acknowledgement is not so stamped, Section 35 of the Stamp Act declares it inadmissible as evidence.

It is worth noting that Section 18 of the Limitation Act saves limitation where an acknowledgement is taken under it, and even if such an acknowledgement is unstamped, the limitation is saved; however, the difficulty arises when the lender wishes to proceed against the borrower on the basis that the promissory note is not time-barred by virtue of the Acknowledgment.

The Acknowledgment will be inadmissible in evidence if it is not stamped, and the suit will be dismissed. As a result, it has been determined that acknowledging a liability in respect of a right contemplated by Section 18 of the Limitation Act, 1963 and acknowledging a debt referred to in Article 1 of Schedule I-A to the Stamp Act are distinct and separate. If the parties intend to acknowledge a pre-existing debt within the limitation period, it is an Acknowledgement under the Limitation Act.

If, on the other hand, it is an Acknowledgment for the purpose of providing evidence for a debt, it is a Stamp Act Acknowledgment. If any Acknowledgment falls into the latter category and is not stamped, it undoubtedly falls foul of Section 35 of the Stamp Act and is inadmissible. There is no such barrier if it belongs to the former class. Sugavasi Venkataswamy vs. Chowdary Punamchand Hasthimal Co., (1972) 2 An. WR 55: AIR 1972, A.P. 292. Thus, where an unstamped Acknowledgment saves limitation, an unstamped Acknowledgment will be inadmissible in evidence under Section 35 of the Stamp Act when the question of filing a suit arises.

 

MODE OF STAMPING ON ACKNOWLEDGMENT

Section 11 of the Indian Stamp Act authorises the use of adhesive stamps (typically known as Revenue Stamps and sold by Post Offices) or other special types of adhesive stamps, such as notary stamps, or stamps impressed only at the top of a full sheet of paper (typically known as non-judicial stamp paper) on instruments chargeable with required stamp duty under law, as well as certain other specified instruments.

Section 10 provides for the payment of stamp duty in accordance with the provisions of the Act or, in the absence of such provisions, as the State Government may prescribe by rule. It is possible that Section 11 implies that stamp duty on documents other than those mentioned in it must be written on impressed stamps, but in light of Section 10, it appears that in the absence of an express provision in the Stamp Act indicating the manner in which an Acknowledgement should be stamped, the State Governments have the power to indicate that an Acknowledgement could be stamped with adhesive stamps.

DEFINITION OF  ACKNOWLEDGMENT ACCORDING TO THE STAMPS ACT

According to Article 1 of Schedule I-A of the Stamp Act, an Acknowledgment is defined as "Acknowledgement of a debt exceeding twenty rupees in amount or value written or signed by, or on behalf of, a debtor in order to supply evidence of such debt in any book (other than a banker's pass book) or on a separate piece of paper when such book or paper is left in the creditor's possession; provided that such Acknowledgment does not contain

ACKNOWLEDGMENT OF MERE LIABILITY WOULD NOT REQUIRE STAMP DUTY:

The sole purpose of an Acknowledgment subject to Stamp Duty, according to this definition, is to provide evidence of a debt. A liability other than a debt may also be acknowledged. Such an acknowledgement of liability would obviously not necessitate the payment of stamp duty, nor would an acknowledgement of a debt necessitate the payment of stamp duty if the debt is less than four hundred and ninety-nine rupees. Stamp duty is required for amounts greater than Rs. 500/-.

THE MAIN PURPOSE OF AN ACKNOWLEDGMENTS

·       to extend the period of limitation, or

·       is intended to serve as proof of a debt. If it is the first one, no stamp duty is required. Where the Acknowledgement is intended to be evidence of a debt in excess of Rs. 499, a stamp duty of one rupee is required, subject to variations in different states of India.

 

ACKNOWLEDGMENT NEVER CREATES ANY NEW RIGHT

·       Acknowledgement does not confer any new rights. It aids in the renewal of an existing liability.

·       Acknowledgment must indicate the existence of an ongoing liability, such as creditors and debtors. S.F. Mazda vs D.P. Chamaria AIR 1961,SC 1236.

·       The words used in the Acknowledgement must indicate that the parties have a legal relationship. Such an intention does not have to be expressed explicitly

·        It can be inferred by implication that, in general, a liberal interpretation of the Acknowledgement in question should be used. As a result, an Acknowledgment does not need to be accompanied by an express or implied promise to pay. However, the Acknowledgment statement must refer to an existing liability. Laxmi Ratan Cotton Mills Co., vs. Aluminium Corporation of India Limited, AIR 1971, SC 1482

SUBSISTING LIABILITY IS IMPORTANT FOR ISSUING THE ACKNOWLEDGEMENT

The essential feature of a valid acknowledgment is that the writing in question must admit only a continuing liability. Vallima vs. Sivathanu, AIR 1979 SC 1937. Also See Laxmi Ratan Cotton Mills vs. Aluminum Corporation of India, AIR 1971 SC 1482.

ACKNOWLEDGMENT BY A PARTNER IS VALID

An acknowledgement given by a partner of a firm is valid against the firm's other partners and saves limitation. Meenakshi vs. P.S.M. Subrahmanyam, AIR 1957, Madras 8.

THE FOLLOWING ARE NOT CONSIDERED AS ACKNOWLEDGEMENTS

·       Letter from a Higher Authority Requesting payment of dues is not an acknowledgement.

·       The Madras High Court ruled that a letter sent by the Collector's office to the Defendants asking them to settle the dues under intimation to that office did not constitute an acknowledgment of liability sufficient to invoke Section 18 of the Limitation Act. Kalpana Trading Co., Coimbatore vs. Executive Officer, Gram Panchayat, Tiruchirapally, AIR 1999 Mad. 371.

ACKNOWLEDGEMENTS  GIVES FRESH  CAUSE OF ACTION

An unconditional acknowledgement not only saves limitation but also provides a cause of action on which a suit can be maintained. Hiralal vs. Badkulal, AIR 1953, SC 225

ACKNOWLEDGE FOR  PART PAYMENT OF A DEBT :-

When a debt is partially paid, the limitation period under Section 19 of the Indian Limitation Act 1963 is extended. The Acknowledgement of Part Payment of a Debt, on the other hand, must be in writing and signed by the person making the Acknowledgement.

EFFECTS OF WRITING ACKNOWLEDGMENT AND UNDATED ACKNOWLEDGMENT

Section 18 of the Indian Limitation Act, 1963 provides the answer. It is as under:

"Section 18.

(1) Where before the expiration of the prescribed period for a suit or application in respect of any property  or right, an Acknowledgment of liability  in respect  of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability a fresh period of limitation shall be computed from the time when the Acknowledgment was so signed.

(2) Where the writing containing the Acknowledgment is undated, oral evidence may be given of the time when it was signed but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872).

Explanation -For the purposes of this Section-

(a) an Acknowledgment may be sufficient though it omits to specify the exact

nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy or is coupled with a claim to set-off or is addressed to person other than a person entitled to the property or right;

(b) the word "signed" means signed either personally or by an agent duly authorized in this behalf; and

(c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right.

 

DOES  ACKNOWLEDGMENT NEED TO BE FOLLOWED ANY FORMAT

Like other deeds, acknowledgement is not a formal instrument that creates any right or liability. Acknowledgment will be used as evidence or to extend the statute of limitations in order to recover a debt or enforce a liability. As a result, the formal parts that are commonly found in deeds will not be included in Acknowledgment. They should always be written in simple and straightforward language, with only the debt or liability acknowledged and signed without any additions.

WITNESSES ARE NECESSARY FOR THE ACKNOWLEDGMENT

•     No witnesses are required for an Acknowledgement.