Any contract that is executed by an executant without for any consideration is void in the eyes of law. As per section 25 (3) of the Contract Act, a fresh promise made for repaying the time barred debt is a valid consideration and the same is enforceable in a court of law. Therefore, it is possible to revive a time barred debt by obtaining a fresh express promissory note from the borrower(s) and Guarantor(s) promising to repay the time-barred dues.
The essential ingredient of section 25(3) of Indian Contract Act is that the creditor claims the amount of debt subject to the conditions.
(i) The promise must be written and signed by the promisor or his agent generally or specially authorized in that behalf.
(ii) The promise may be to pay the whole or part of the debt and the debt must be which the creditor would have enforced for payment but for the law of limitation.
The difference between section 18 of limitation act and section 25(3) of contract act is that under the former act, an acknowledgement obtained from the party before the expiry of the period of limitation would extends the validity period of the document for further period of 3 years, whereas a promise made under section 25(3) to pay debt after the expiry of limitation period, should be an express and not implied promise. Normal practice by the bankers is to obtain a fresh DPN (or set of documents) along with a letter signed by the promisor or his/her authorized agent to pay the time barred dues.
Related articles:
- What is revival letter for a bank loan?
- How banks can enforce money suit while the document is time-barred?
