Is the Bank's Recovery Application Time-Barred? Limitation Before the DRT

Section 24 of the Recovery of Debts and Bankruptcy Act 1993 applies the Limitation Act 1963 to an application made to a Debts Recovery Tribunal, and an Original Application by a bank or financial institution is ordinarily governed by Article 137 of the Schedule to the Limitation Act — three years from the date on which the right to apply accrues. That right accrues on default, or on the date the facility was recalled where the agreement permits acceleration. A fresh period starts only on a written acknowledgement signed under Section 18 of the Limitation Act, or a part payment satisfying Section 19, made before the period then running has expired. Separately, defined stretches of time may be excluded from the computation — most often under Section 14 of that Act or Section 60(6) of the Insolvency and Bankruptcy Code 2016.

Limitation is the least glamorous defence in a recovery matter and frequently the most decisive. As an Advocate practising at the Delhi High Court and Senior Partner at Unified Chambers And Associates, the pattern I see is the same on both sides: a default eight or nine years old, letters and payments in between, and nobody has sat down with a calendar.

How does the Limitation Act reach a DRT application at all?

A Debts Recovery Tribunal is a creature of statute and does not exercise the ordinary civil jurisdiction of a court, so the Limitation Act 1963 does not apply to it of its own force. It applies because Section 24 of the Recovery of Debts and Bankruptcy Act 1993 says it does: the provisions of the Limitation Act 1963 shall, as far as may be, apply to an application made to a Tribunal.

That short section imports the whole Act, not a single period — Section 3 (mandatory dismissal), Section 4 (expiry when the forum is closed), Section 9 (time once begun does not stop), Section 14 (exclusion of time before a forum that could not entertain the matter), Sections 18 to 20, and the Schedule.

"As far as may be" is a genuine qualification, because provisions built around a civil suit do not always translate to a tribunal running its own procedure. Section 5, which permits an appeal or an application — other than an application under any provision of Order XXI of the Code of Civil Procedure 1908 — to be admitted after the prescribed period where the applicant shows sufficient cause, is the live example: whether it can be invoked to condone delay in filing an Original Application — itself the proceeding that initiates the case rather than a step within one — is contested, and should be checked rather than assumed.

Two boundary points. Section 24 attaches to applications, so the limitation governing execution of a Recovery Certificate is a separate and unsettled question, addressed in the note on Recovery Certificate execution. And the 1993 Act operates only where the debt is not less than twenty lakh rupees, the figure notified in 2018 under Section 1(4); below that the route is a civil suit or a summary suit under Order XXXVII of the Civil Procedure Code.

Which article of the Schedule applies, and is it always three years?

Article 137 sits in the Third Division of the Schedule, which deals with applications: any other application for which no period of limitation is provided elsewhere in that Division — three years — when the right to apply accrues. Because the Division provides no specific article for a recovery application to a tribunal, Article 137 is the residuary provision that catches it. That displaces the suit articles a bank would face in a civil court — notably Article 62, which gives twelve years to enforce payment of money secured by a mortgage or otherwise charged upon immovable property, running from when the money sued for becomes due.

Article 62 is the qualification neither side should gloss over. Where the application seeks not only a money decree but enforcement of a mortgage, whether its twelve years governs that part of the relief, or whether Article 137 covers the whole application because the proceeding is an application and not a suit, is contested. Research it on the facts of the particular security rather than asserting it.

When does the right to apply accrue — on default or on NPA classification?

The right accrues when the debt becomes due and payable and the lender could first have approached the Tribunal — not the date of sanction or disbursement. Establishing it requires the loan documents, not the pleadings.

Instalment facilities without acceleration. Where a term loan is repayable in instalments and the agreement contains no acceleration clause, or one the lender never invoked, each defaulted instalment gives rise to its own cause of action on its own due date. A single application may therefore be partly in time and partly out of it, and has to be computed instalment by instalment. A lump-sum prayer for the whole outstanding does not survive scrutiny.

Facilities that have been recalled. Most institutional lending documents allow the entire outstanding to fall due immediately on an event of default. Once the lender exercises that right, the whole balance becomes due on the date of recall and time runs from that date for the entire claim. The recall notice is usually the most important date on the file, and its issue and proof of service both matter.

Section 9 bites hard. Once time has begun to run, no subsequent disability or inability to make an application stops it. Internal approvals, a change of recovery officer, transfer to a stressed-assets vertical, or pending settlement correspondence do not suspend the period. Only the statutory extensions and exclusions do.

Is the NPA date the same as the date of default?

They are related and not the same. Classifying an account as a non-performing asset is a regulatory consequence arising under the Reserve Bank of India's prudential norms on income recognition, asset classification and provisioning — ninety days of overdue interest or principal on a term loan, and an account remaining out of order on a cash credit. Banks conventionally plead the NPA date because it is a documented event with a recorded date, but it is a consequence of default rather than the default itself, and by definition later. A borrower testing limitation should work back to the earliest date on which the lender could have moved. Whether the classification was correctly made is a separate question, covered in the note on challenging a wrongful NPA classification.

What about cash credit and other running accounts?

Article 1 of the Schedule gives three years for the balance due on a mutual, open and current account where there have been reciprocal demands between the parties, computed from the close of the year in which the last item admitted or proved is entered in the account. Borrowers occasionally argue that a cash credit account qualifies, so every operation resets the period. Mutuality defeats that: an account is mutual only where the transactions create independent obligations on both sides, with the balance capable of shifting from one party to the other, whereas in a cash credit facility the customer's remittances operate only in reduction of the customer's own debt. Nor do the bank's own book entries help it — debits of interest, charges and legal costs are unilateral acts of the creditor.

What exactly does a Section 18 acknowledgement require?

Section 18(1) provides that where, before the expiration of the prescribed period, an acknowledgement of liability in respect of a property or right is made in writing signed by the party against whom that right is claimed, or by a person through whom he derives his title or liability, a fresh period of limitation is computed from the time the acknowledgement was signed. Four conditions hold together:

1. Writing. An oral admission, however clear, does nothing.

2. Signature. Explanation (b) defines "signed" as signed either personally or by an agent duly authorised in this behalf. Authority is live where the signatory is an employee or one of several directors.

3. An acknowledgement of liability. The writing must admit a subsisting relationship of debtor and creditor, expressly or by necessary implication. The admission of the jural relationship counts, not any particular form of words.

4. Timing. It must be made before the expiration of the period then running. Where the writing is undated, Section 18(2) allows oral evidence of when it was signed, though not of its contents.

Explanation (a) is generous about everything else. An acknowledgement suffices even though it omits the exact nature of the right, avers that the time for payment has not yet come, is accompanied by a refusal to pay, is coupled with a claim to set off, or is addressed to someone other than the person entitled — which is what allows a document prepared for shareholders and regulators to work in favour of a bank that never received it.

Which documents actually work?

• **The balance confirmation letter.** The classical instrument, and the reason lenders circulate confirmation formats annually.
• **A corporate borrower's audited financial statements.** An entry in a signed balance sheet disclosing a sum due can amount to an acknowledgement, but not automatically: read it with the notes to accounts and the directors' report, since a note recording the liability as disputed can neutralise it.
• **An OTS proposal.** A written, signed settlement proposal proceeds on the footing that a debt exists, which is why it so often decides the limitation question. See the note on the <a href="/blog/one-time-settlement-ots-legal-framework" style="color: inherit; text-decoration: underline; text-underline-offset: 2px;">legal framework of a One-Time Settlement</a>.
• **A reply to a Section 13(2) SARFAESI demand notice.** A reply disputing the computation while conceding the facility acknowledges liability; a reply denying the debt entirely does not. The drafting risk is examined in the note on <a href="/blog/how-to-reply-sarfaesi-13-2-notice" style="color: inherit; text-decoration: underline; text-underline-offset: 2px;">replying to a Section 13(2) notice</a>.

A restructuring agreement, revival letter or written request for time usually qualifies too. An oral assurance, the bank's own statement of account and a notice issued by the bank do not.

Does a part payment extend limitation under Section 19?

Yes, on stricter terms than most files assume. Section 19 provides that where payment on account of a debt is made before the expiration of the prescribed period by the person liable to pay it, or by his duly authorised agent, a fresh period runs from the time the payment was made. The proviso is the operative part: an acknowledgement of the payment must appear in the handwriting of, or in a writing signed by, the person making the payment.

The payment by itself extends nothing. A credit in the bank's ledger, an electronic transfer with nothing but a narration, or an amount recovered through set-off against another account do not on the face of the record satisfy the proviso. This is why a recovery team asks for a covering letter with every payment, and why a borrower's file often shows payments the lender cannot in fact rely on. Explanation (b) further excludes money payable under a decree or order of a court from the meaning of "debt" here, and the payment must be on account of the debt in question — an amount appropriated towards a different facility invites an argument to be met with the accounts.

Who is bound by an acknowledgement or a payment?

Ordinarily only the person who made it. Section 20(2) provides that nothing in Sections 18 and 19 renders one of several joint contractors, partners, executors or mortgagees chargeable by reason only of an acknowledgement signed by, or a payment made by, another of them. A confirmation signed by one of three co-borrowers therefore does not by that fact alone extend limitation against the other two.

Where a guarantor is involved the sub-section does not answer the question directly, because a surety is not one of the four categories it names. The analysis runs through Section 18 itself, which requires the writing to come from the party against whom the right is claimed or from a person through whom he derives his title or liability. On that footing a payment or confirmation by a surety is not, of itself, the principal borrower's act, and the converse must be tested against the terms of the guarantee, some of which are drafted to make an acknowledgement by the borrower bind the surety. Read the deed before conceding the point either way.

Why must a fresh acknowledgement fall inside a period that is still running?

Because Sections 18 and 19 operate only on something done "before the expiration of the prescribed period". Once three years have run out there is nothing left to extend, and a signed confirmation or part payment in year four revives nothing. The analysis is therefore a chain: each acknowledgement must fall within the three years running from the previous one, and a single gap of more than three years anywhere breaks it permanently. A limitation defence is a dated chronology, not an argument.

One thing does survive expiry. Section 25(3) of the Indian Contract Act 1872 makes an agreement without consideration valid where it is a promise, in writing and signed by the person to be charged or his authorised agent, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law of limitation. That creates a fresh contractual obligation on the terms of the promise, running from the date of the promise, rather than reviving the original cause of action. A borrower who signs a settlement proposal for an old and unenforceable debt may therefore be assuming a new and enforceable one.

What else comes out of the computation?

Extension is not the only route open to a lender whose dates look tight. Four exclusions arise regularly.

• **Section 14 of the Limitation Act.** Sub-section (2) deals with applications specifically: in computing limitation for an application, time spent prosecuting with due diligence another civil proceeding against the same party for the same relief is excluded, where that proceeding was prosecuted in good faith before a forum which, from defect of jurisdiction or other cause of a like nature, was unable to entertain it. It is the provision relied on where a claim was first filed as a civil suit, or before a Tribunal without jurisdiction. Note that the sub-section speaks of a court, and its application to tribunal proceedings runs through the "as far as may be" language of Section 24.
• **Section 60(6) of the Insolvency and Bankruptcy Code 2016.** In computing limitation for any suit or application by or against a corporate debtor for which a moratorium has been ordered, the period the moratorium is in place is excluded. Its scope is set out in the note on <a href="/blog/moratorium-section-14-ibc-scope" style="color: inherit; text-decoration: underline; text-underline-offset: 2px;">Section 14 of the IBC</a>.
• **The pandemic exclusion.** General directions for judicial and quasi-judicial proceedings excluded 15 March 2020 to 28 February 2022 from limitation computation, with a floor of ninety days from 1 March 2022 where the balance remaining was shorter. Anyone asserting or resisting a bar across those years must work the dates through.
• **Section 4.** Where the prescribed period expires on a day the Tribunal is closed, the application may be made on the day it reopens.

Is limitation a defence the borrower has to plead?

Section 3(1) makes the bar mandatory in terms: 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. On that text the Tribunal must satisfy itself that the application is in time whether or not the defendant raises the point.

Relying on that is a mistake, because limitation in a recovery matter is never a pure question of law. Whether the application is in time depends on the date of default, the terms of the facility, whether and when the loan was recalled, and what the borrower signed or paid in between. None of that reaches the record unless a party puts it there.

Section 22 of the 1993 Act frees the Tribunal from the Code of Civil Procedure and directs it to be guided by the principles of natural justice, subject to the Act and the Debts Recovery Tribunal (Procedure) Rules 1993. The pleading discipline of Order VIII Rule 2 of the Code — which names limitation expressly among the grounds a defendant must raise in his pleading — is therefore not directly binding, but it remains the standard by which a written statement is judged. Plead limitation as a preliminary objection with the chronology set out date by date, deal specifically with every acknowledgement and payment relied on rather than denying them generally, and ask for limitation to be framed as an issue so that it is decided rather than absorbed into the merits.

One distinction should stay in view: limitation bars the remedy, it does not extinguish the debt. Section 27 extinguishes the right itself only on expiry of the period for a suit for possession of property. A time-barred loan remains a debt in the parties' accounts and can found a fresh promise under Section 25(3). The borrower has immunity from the proceeding, not a discharge.

Does limitation also stop SARFAESI enforcement?

It does. Section 36 of the SARFAESI Act 2002 provides that no secured creditor is entitled to take any of the measures under Section 13(4) unless its claim in respect of the financial asset is made within the period of limitation prescribed under the Limitation Act 1963. Possession, sale of the secured asset and takeover of management are therefore unavailable, and the point can be taken in a securitisation application under Section 17 before the same Tribunal.

The insolvency side works the same way. Section 238A of the Insolvency and Bankruptcy Code 2016 applies the Limitation Act 1963 to proceedings before the National Company Law Tribunal, the Debts Recovery Tribunal and their appellate tribunals, and Article 137 governs an application to admit a corporate debtor, running from the date of default. The established position is that the Code is a resolution mechanism rather than a recovery forum, and cannot revive a claim already out of time. The admission requirements are set out in the note on Section 7 and financial creditor admission.

A checklist for testing a recovery application on limitation

1. Identify the date of default pleaded, and test it against the loan agreement and account statements rather than the narrative in the application.

2. Locate the recall notice; note whether the facility was accelerated, on what date, and how service was effected.

3. For an instalment facility with no exercised acceleration, tabulate the instalments and mark which fall outside three years from filing.

4. Build a chronology of every document the borrower signed in between — confirmations, restructuring letters, settlement proposals, replies to notices, financial statements.

5. Test each against the four conditions of Section 18: writing, signature, admission of a subsisting liability, and a date inside the period then running.

6. For each payment relied on, ask for the writing the proviso to Section 19 requires; test the signatory against Section 20(2) before conceding that a document binds a co-borrower, and against the terms of the deed of guarantee before conceding that it binds a surety.

7. Look for any gap exceeding three years in the chain — one gap ends the matter.

8. Add back the exclusions the applicant is entitled to before concluding that the claim is barred.

9. Where the period had already expired, examine anything signed afterwards for a promise standing on its own under Section 25(3).

The procedure within which this is argued is set out in the Debt Recovery Tribunal guide, and the wider enforcement landscape in the guide to debt recovery in India. See also the glossary of Indian legal terms, the note on courts and tribunals, the page for banks, NBFCs and ARCs, and the debt recovery practice area.

This article is general information on the law and not legal advice; whether a particular application is within time depends on the loan documents, the dates of default and recall, and every writing signed in between. Queries may be directed through the contact page.