AOD full form refers to “Acknowledgment of Debt” in banking.
It is a written document/agreement serves as a meditator document between a debtor and a creditor.
The debtor, who is a person took a loan from a bank or financial institution, acknowledges their liability to repay a specific sum of money to the creditor.
IMPORTANT POINTS ABOUT AOD
- AOD is a written agreement that the debtor signs.
- It must be dated to establish the timeline.
- The names of the debtor and creditor should be mentioned in the document.
- The debt amount should be stated both in numbers and words.
- The AOD must include the applicable interest rate.
- It should specify the due date of payment.
- Payment terms should be mentioned in the document.
- The AOD can be signed by the debtor (borrower), co-obligant, or surety of the loan.
AOD AND THE LAW OF LIMITATION
According to the Law of Limitation Act 1963, a debt becomes time-barred after three years from the date of the loan documents.
However, if the bank or financial institution asks you to sign an AOD, it extends the limitation period by another three years.
This will provide benefits both the creditor and the debtor. You avoid legal complications, and the bank gets additional time to recover the money.
VALIDITY OF AOD
An Acknowledgment of Debt is valid for three years from the date it was signed.
After three years, it becomes time-barred. To revive its validity, the creditor needs to obtain a new AOD with the debtor’s signature.
PURPOSE
An Acknowledgment of Debt is essentially an acknowledgment of liability.
It is not required to be stamped unless it is presented as evidence of the debt, as mentioned in an article published in The Economic Times.
FAQs
Q1: Why do banks ask for an Acknowledgment of Debt when I am unable to repay the loan instalments?
Banks ask for an AOD because as per the Limitation Act 1963, a debt becomes time-barred after 36 months or three years from the date of the loan document.
By obtaining an AOD, the bank ensures the document remains enforceable.
Q 2: What is a revival letter in banking?
A revival letter is also called as another form of AOD. It is obtained from the borrower or guarantor to revive the enforceability of the loan document.
Q3: What is a letter of continuity?
In simple words a letter of continuity is a document signed by the borrower before the loan amount is disbursed. It serves as an acknowledgment that the balance amount will continue until it is completely paid off.
Q4: What does AOS mean?
 AOS stands for “Acknowledgment of Security.”
