Running Account – When Is It Time Barred?

We have dealt with a couple of articles in relation to the topic of statue of limitation i.e. when a claim is barred from being litigated in court because it is time-barred by law. Today, we will briefly discuss another topic in relation to statue of limitation- what is a running account, and when does a claim premised on a running account time-barred?

What is a Running Account?

In business dealings, a running account is a continuous record of transactions between two parties—typically a seller and a buyer. It includes a stream of invoices issued and payments made over time, all reflected in a single account balance rather than settling each transaction individually.

The courts, including in the case of Bajaj Textiles Ltd v Gian Singh, have described a running account as one where the parties do not link payments to specific invoices but instead operate on the basis of a general balance, with all transactions aggregated over time.

This kind of account remains active until it is settled in full, written off, or legally resolved.

When Does the Limitation Period Apply?

The Limitation Act 1953 in Malaysia states that any claim for debt recovery must be made within six years from the date the cause of action arises. For straightforward invoices, this is usually the due date of payment. However, applying this rule to running accounts isn’t so simple.

In a running account, the limitation period does not apply to each transaction individually. Instead, courts treat the entire running account as a single, ongoing obligation. Therefore, the six-year time limit is assessed from the date of the last payment or acknowledgment made toward the account.

This means that even if some invoices are older than six years, a more recent payment can refresh the entire account and prevent the claim from becoming time-barred.

What does the law say?

A key case in Malaysian law is Malayan Banking Bhd v Wembley Industries Holdings Bhd, where the court confirmed that payments into a running account are not tied to specific invoices. This reinforces the idea that the entire balance can be claimed, provided the creditor files a suit within six years from the last payment.

Similarly, in Stamford College v Seri Stamford College, the court held that part payments extended the limitation for the whole sum due, not just individual parts. This aligns with Section 26(2) of the Limitation Act 1953, which states that the limitation period resets if the debtor acknowledges the debt in writing or makes a part payment.

How This Affects Creditors and Debtors

For creditors, this principle is helpful. You don’t need to track limitation dates for each invoice—what matters is the most recent payment or acknowledgment. As long as that occurred within the past six years, you may still recover the entire outstanding sum.

For debtors, it means that even a small payment or a signed acknowledgment can restart the limitation clock. If you’re looking to contest an old debt, be mindful of any recent interactions that may have reset the limitation period without you realizing it.

Summary Box: Key Points on Running Account Limitation

A claim on a running account is only considered time-barred if there has been no payment or acknowledgment for more than six years. If a payment has been made—even a partial one—the limitation period resets, and the creditor may pursue the entire outstanding balance.

Understanding this legal principle is crucial for businesses managing ongoing transactions and debt recovery. If you’re involved in a dispute over a running account or unsure about your rights under the Limitation Act, it’s best to consult with a qualified company secretary or legal advisor.