When does the payment of interest or a part payment of principal amount by the debtor extend the period of Limitation?

Governing rule

Section 19 provides that where payment on account of a debt, or of interest on a legacy, is made before the expiration of the prescribed period by the person liable to pay the debt or by his duly authorised agent, a fresh period of limitation is computed from the time when the payment was made. The section applies only if the payment is properly acknowledged in writing in the manner required by the proviso.

The Supreme Court has treated payment and its written acknowledgement as the key ingredients; without both, the benefit of Section 19 is lost. A mere oral assertion of payment, or an entry in the creditor’s own books, will not do.

When it extends time

The payment must be made during the running period of limitation, not after it has expired. If limitation has already run out, the payment cannot revive the remedy. The payment may be of principal or of interest, and it may be in cash or another accepted form such as cheque, if the law’s requirements are satisfied.

The payment must also be “on account of” the debt or “of interest” as such. A payment which is unrelated to the debt, or which cannot be shown to have been made towards the debt, will not extend time. The Court in Karnataka State Road Transport Corp. v. Anja Devi treated payment as extending limitation only when the statutory conditions were fulfilled.

Written acknowledgement requirement

The proviso to Section 19 insists that the acknowledgement of payment must appear in the handwriting of, or in a writing signed by, the person making the payment, except in the historical case of payment of interest before 1 January 1928. This requirement is mandatory and meant to prevent false claims. The burden lies on the plaintiff to prove both the payment and the required written acknowledgement.

The Supreme Court in Sant Lal Mahton v. Kamla Prasad made it clear that payment by itself is not enough; the statutory form of acknowledgement is essential. In Tilak Ram v. Nathu, the Court emphasised that the document must show a subsisting liability and the necessary statutory formality.

Interest as such

Section 19 speaks of “payment of interest on a legacy” and in practice also covers payment of interest on debt where the statutory conditions are met. The payment must be of interest “as such,” meaning it must be clearly referable to interest and not merely a general credit entry or a vague adjustment. The creditor’s unilateral appropriation of an amount to interest is not enough by itself.

Cheque payments

A cheque can amount to part payment if it is issued and accepted as payment before limitation expires. The fresh period then runs from the date the cheque is given as payment, not from the date it is encashed. But a dishonoured cheque does not necessarily save limitation, because a cheque that never results in effective payment may fail the statutory test.

In Commissioner of Income Tax v. Ogale Glass Works, the Supreme Court treated payment by cheque as payment when the cheque was accepted as such. Later cases have also stressed that the cheque must truly operate as payment on account of the debt.

Part payment in kind

Payment need not always be in money. It may be in kind if the creditor accepts it as part satisfaction of the debt. What matters is whether the delivery or transfer amounts to payment on account of the debt or interest. If goods are accepted in satisfaction of part of the liability, limitation may be extended from that date.

Effect of payment

The legal effect of a valid payment under Section 19 is that a fresh period of limitation begins from the date of payment. The new period is the same as the original prescribed period for the suit or application. The previous running period is not wiped out in the sense of creating a new cause of action, but the law gives a fresh starting point.

For example, if a loan is repayable within three years and the debtor makes a valid part payment on the second year, the creditor gets a fresh three years from the date of that payment. If the payment is made after expiry, there is no extension.

Illustrations

1. A lends B Rs. 5,00,000 on 1 January 2020. The limitation period is three years. On 1 December 2022, B pays Rs. 50,000 towards the loan and signs a written endorsement of the payment. A fresh three-year period runs from 1 December 2022.

2. If B pays the same amount on 15 March 2023, after limitation expired on 1 January 2023, Section 19 does not help.

3. If B gives a cheque on 1 December 2022 as part payment and the cheque is accepted as payment, the fresh period runs from 1 December 2022.

4. If the cheque is dishonoured and there is no effective payment, limitation is not saved merely because the cheque was issued.

5. If the debtor merely writes in his own account book that payment was made, but the creditor never receives or sees it, that is not enough.

Leading cases

• Sant Lal Mahton v. Kamla Prasad — part payment must comply with Section 19 and its proviso.

• Tilak Ram v. Nathu — the liability must be subsisting and the statutory requirements must be met.

• Karnataka State Road Transport Corp. v. Anja Devi — payment on account of debt can extend limitation if properly proved.

• Commissioner of Income Tax v. Ogale Glass Works — cheque payment can constitute payment for legal purposes.

• Shanti Conductors v. Assam SEB — Section 19 requires strict proof of payment and written acknowledgement.

Brief conclusion

So, payment of interest or part payment of principal extends limitation only when it is made before limitation expires, by the person liable or his duly authorised agent, and is accompanied by the written acknowledgement required by Section 19. The result is a fresh period of limitation from the date of payment.