Limitation period for contract disputes in India: the deadlines that decide whether you can sue

Why limitation is a contract-management problem, not just a litigation one

Section 3 of the Limitation Act, 1963 provides that every suit instituted, appeal preferred and application made after the prescribed period shall be dismissed, "although limitation has not been set up as a defence". The court raises it on its own. A claim that is perfectly good on the merits is lost if it is filed a day late.

The dates that decide limitation are almost never litigation dates. They are contract dates: when an invoice fell due, when a delivery should have happened, when a counterparty refused to perform, when someone signed a balance confirmation. They sit in the contract repository and the finance ledger long before a matter reaches the legal team, and that gap is where claims quietly expire.

What is the limitation period for breach of contract?

The Schedule to the Limitation Act sets the period and, just as importantly, the date from which it runs. For contract claims the entries most often in play are:

• Article 55 — compensation for breach of any contract, express or implied, not specially provided for: three years from when the contract is broken; where there are successive breaches, from the breach sued on; where the breach is continuing, from when it ceases.
• Article 54 — specific performance: three years from the date fixed for performance or, if no date is fixed, from when the plaintiff has notice that performance is refused.
• Article 14 — price of goods sold and delivered with no fixed credit period: three years from the date of delivery. Article 15 — where payment is due after a fixed credit period: three years from when the credit period expires.
• Article 18 — price of work done at the defendant's request with no time fixed for payment: three years from when the work is done.
• Article 113 — any suit for which no period is provided elsewhere in the Schedule: three years from when the right to sue accrues.

The trap is the start date, not the length

Almost every contract entry is three years, so teams remember the number and forget the column next to it. The period for unpaid goods on credit terms runs from the end of the credit period, not the invoice date. For specific performance it can run from the day the other side refused, which may be an email nobody filed against the contract. For a continuing breach it runs from when the breach stops.

Each of those start dates is a fact about a specific agreement. If the repository records only the signing date and the expiry date, it cannot tell anyone when the clock on a claim actually started.

What restarts the clock: acknowledgment and part-payment

Section 18 provides that where, before the prescribed period expires, an acknowledgment of liability is made in writing and signed by the party against whom the right is claimed, a fresh period of limitation is computed from the date it was signed. The Explanation to Section 18 makes the acknowledgment sufficient even if it omits to specify the exact nature of the right, says the time for payment has not yet come, refuses to pay, or is coupled with a set-off claim.

Section 19 does the same for a payment made on account of a debt before the period expires — the fresh period runs from the date of payment — provided the payment is acknowledged in the handwriting of, or a writing signed by, the person making it.

Two conditions do the work. The acknowledgment or payment must come before expiry — nothing revives a claim that is already time-barred. And it must be in writing and signed. Signed balance confirmations, payment-plan letters and part-payment advices are therefore not routine correspondence; they are limitation events, and they belong on the contract record with their dates.

Section 5 does not rescue a late suit

Section 5 lets a court admit an appeal or application after the prescribed period if sufficient cause is shown. It applies to appeals and applications, not to suits. There is no general power to condone delay in filing a suit for breach of contract, which is why the three-year deadline has to be treated as fixed.

Commercial disputes: Section 12A pre-institution mediation

Under Section 12A of the Commercial Courts Act, 2015, a suit that does not contemplate urgent interim relief shall not be instituted unless the plaintiff first exhausts pre-institution mediation. The Act applies to commercial disputes of a specified value, which Section 2(1)(i) sets at not less than three lakh rupees.

In Patil Automation Private Limited v. Rakheja Engineers Private Limited (17 August 2022), the Supreme Court declared Section 12A mandatory and held that a suit instituted in violation of it must be met with rejection of the plaint under Order VII Rule 11, which the court can do on its own. It made that declaration effective from 20 August 2022.

Mediation has to be completed within three months of the application, extendable by two months with the parties' consent. The second proviso to Section 12A(3) provides that the period during which the parties remained occupied with pre-institution mediation shall not be computed for limitation. So mediation does not eat into the three years — but the application has to be made, and recorded, before the period runs out.

Arbitration clauses: limitation applies, and the notice is the start

Section 43(1) of the Arbitration and Conciliation Act, 1996 applies the Limitation Act to arbitrations as it applies to court proceedings. Section 43(2) treats an arbitration as commenced on the date in Section 21: unless the parties agree otherwise, the date on which the respondent receives a request for the dispute to be referred to arbitration.

In practice that makes the notice invoking arbitration the act that stops the clock. Proof of when it was received by the counterparty matters as much as the notice itself.

Can a contract shorten the limitation period?

Generally, no. Section 28 of the Indian Contract Act, 1872 makes void, to that extent, any agreement that limits the time within which a party may enforce its rights through the usual legal proceedings, or that extinguishes rights or discharges liability on the expiry of a specified period. Arbitration agreements are saved by Exceptions 1 and 2.

Exception 3 saves a term in a guarantee given by a bank or financial institution that extinguishes rights on expiry of a specified period, provided that period is not less than one year from the specified event. A bank guarantee claim window is therefore a real, enforceable deadline in a way that a shortened claims clause in an ordinary supply contract usually is not.

What a contract repository should track as limitation triggers

None of this needs a litigation system to begin with. It needs the contract record to hold the dates that start, pause and restart the clock, with an owner and a reminder well before the three years end:

• Payment due dates and credit-period ends for every invoice in dispute, not just the contract term.
• The date and document of each breach, refusal to perform or termination notice.
• Every signed acknowledgment, balance confirmation and part-payment, with its date — each one restarts the period.
• The date a Section 12A mediation application was made and when mediation ended, since that window is excluded.
• The date the counterparty received any notice invoking arbitration.
• Bank guarantee claim-period expiry dates, which are enforceable as written.
• A computed limitation date per claim, reviewed when any of the above changes, and handed to the litigation team with the contract attached.