A commercial claim can be perfectly genuine and still be legally unenforceable.
That is the trap limitation creates. A business may have supplied goods, performed services, lent money, suffered a contractual breach or been promised payment in writing. Yet if the appropriate proceedings are not initiated within the prescribed period, the court may be required to reject the claim as time-barred.
Under Section 3 of the Limitation Act, 1963, a court must dismiss a suit, appeal or application filed after the prescribed limitation period, even if limitation has not been raised as a defence. The question is therefore not simply whether a client has a legal right, but whether that right is still enforceable through the proposed proceeding. The Supreme Court has recently reiterated the mandatory nature of Section 3.
For businesses, the problem is often that the limitation clock starts much earlier than expected.
Three Years Is Common, But Not a Universal Rule
Many commercial disputes have a three-year limitation period, but saying “commercial claims have three years” is an oversimplification.
For example, Article 55 of the Limitation Act prescribes three years for a suit seeking compensation for breach of contract, running from when the contract is broken or, in certain circumstances, when the breach complained of occurs. Other contractual and monetary claims are governed by different Articles in the Schedule.
The starting point therefore depends on the nature of the claim and the event from which limitation legally begins.
That distinction matters. A business cannot safely calculate limitation merely by looking at the date of its last demand letter or the date on which it finally decided to consult a lawyer.
The Invoice Date Is Not Always the Whole Story
Consider an unpaid commercial invoice.
If payment was contractually due 30 days after delivery, the limitation analysis may begin from when the payment became due, subject to the applicable Article and the terms of the transaction.
Now consider a contract involving several milestones. Each breach may have a different date. A continuing supply relationship may involve multiple invoices and multiple causes of action rather than one indefinitely continuing claim.
This is why a limitation opinion should begin with the contract, payment terms, invoices and correspondence, rather than simply asking, “When was the last payment?”
The wrong starting date can make an otherwise careful limitation calculation fundamentally wrong.
The Section 18 Acknowledgment Trap
One of the most useful and most misunderstood provisions for commercial creditors is Section 18.
Where, before the original limitation period expires, the party against whom the right is claimed makes a written and signed acknowledgment of liability, a fresh period of limitation is computed from the date the acknowledgment was signed.
But there is a critical qualification: the acknowledgment must be made before the prescribed limitation period expires. It cannot ordinarily revive a claim that had already become time-barred.
The acknowledgment also does not necessarily have to be an unconditional promise to pay. The Supreme Court has recognised that an acknowledgment can remain legally relevant even where the writing is accompanied by a refusal to pay or a claim of set-off.
This makes commercial correspondence extremely important.
A debtor’s email saying that an amount is “under reconciliation”, a signed confirmation of outstanding dues, or certain financial statements may have limitation consequences depending on their wording and context.
In Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal, (2021) 6 SCC 366, the Supreme Court confirmed that an acknowledgment of liability in a company’s balance sheet can attract Section 18, subject to the circumstances and statutory requirements.
The practical lesson is equally important for debtors: acknowledging a liability can have consequences beyond accounting.
Part-Payment Can Also Change the Calculation
Section 19 addresses another situation that commercial teams sometimes overlook: payment made on account of a debt or interest.
Where the statutory conditions are satisfied, a fresh limitation period can be computed from the date of the payment.
But businesses should not assume that every transfer of money automatically resets limitation. The payment must fall within the statutory framework, and the evidentiary record matters.
A creditor should therefore preserve payment confirmations and determine exactly what debt the payment was made towards. A debtor should similarly understand how a part-payment may affect the limitation position.
“We Kept Negotiating” Is Not a Limitation Strategy
Commercial negotiations can continue for months or years.
That does not necessarily stop limitation from running.
Letters promising that payment will be discussed, settlement meetings, internal approvals and repeated assurances may not, by themselves, extend limitation. What matters is whether the relevant statutory mechanism—such as a qualifying acknowledgment under Section 18 has actually been triggered.
This is particularly dangerous where a creditor keeps waiting because the counterparty appears cooperative.
A sensible commercial approach is to conduct limitation checks while negotiations are continuing, rather than assuming that negotiations preserve the claim.
If a settlement is being negotiated close to the limitation deadline, legal advice should address the limitation position independently of the settlement discussions.
Continuing Breach Does Not Mean “Limitation Never Starts”
Section 22 deals with continuing breaches and continuing torts. Where a continuing breach exists, a fresh period of limitation begins to run at every moment during which the breach continues.
But this provision should not be stretched to convert every recurring consequence of an old breach into a continuing cause of action.
The Supreme Court has recently cautioned against treating statutory provisions concerning continuing causes of action as a mechanism for keeping stale claims alive indefinitely. In an MSME arbitration matter, the Court specifically rejected an attempt to stretch the concept of continuing cause of action to an unreasonable point where it would effectively revive dead claims.
The distinction between a continuing breach and the continuing consequences of a completed breach can therefore become decisive.
Section 14 Can Save Time – But Only in the Right Case
Another important provision is Section 14, which allows exclusion of time spent prosecuting a previous proceeding in good faith and with due diligence where the proceeding relates to the same matter and was unable to be entertained because of a jurisdictional defect or a similar cause. This is not a general extension mechanism.
The Supreme Court has explained that Section 14 concerns exclusion of time, rather than an ordinary discretionary extension under Section 5. Where its statutory conditions are satisfied, the relevant period is excluded while computing limitation.
Therefore, a business that initially approaches the wrong forum should not simply assume that the entire period spent there will automatically be protected.
The earlier proceeding, the nature of the jurisdictional defect, diligence and good faith all matter.
Fraud and Concealment Have Their Own Rules
Section 17 provides specific rules where a suit or application is based on fraud, the right or title has been concealed by fraud, relief is sought from the consequences of a mistake, or a necessary document has been fraudulently concealed.
In specified circumstances, limitation does not begin until the fraud or mistake is discovered, or could with reasonable diligence have been discovered.
But Section 17 is not a general answer whenever a claimant discovers inconvenient facts late. Its conditions must actually be satisfied. The Supreme Court has also distinguished Section 17 from Section 5 and made clear that these provisions operate differently.
Commercial Clients Should Conduct a Limitation Audit Early
Before filing a commercial suit, arbitration claim or other proceeding, counsel should construct a limitation chronology.
That chronology should identify:
- the contractual obligation;
- the date of breach or default;
- when the cause of action accrued;
- applicable limitation Article;
- acknowledgments under Section 18;
- qualifying payments under Section 19;
- any basis for exclusion under Section 14;
- any specific issue under Sections 17 or 22; and
- the proposed filing date.
This exercise often reveals a problem before substantial legal costs are incurred.
It can also change litigation strategy. If the original claim is approaching limitation, a client may need to act immediately rather than continue commercial negotiations indefinitely.
The Costliest Limitation Mistake Is Waiting for Certainty
A client may genuinely be owed money. The other side may have repeatedly promised payment. Negotiations may still be active. None of those facts, without more, guarantees that the claim remains legally enforceable.
The safest approach is to identify limitation when the dispute first emerges, not when the client finally decides to litigate.
For commercial businesses, the practical rule is simple: never treat limitation as a filing-stage technicality. Treat it as part of the substantive assessment of whether the claim is worth pursuing at all.