The Limitation Act, 1963 prescribes specific time limits within which legal actions must be initiated. For banks and financial institutions, understanding these timelines is crucial for debt recovery, enforcement of securities, filing suits, and responding to customer claims. Failure to act within the prescribed limitation period may result in the claim becoming time-barred, rendering it unenforceable in a court of law.
1. Importance of Limitation Period in Banking
Banks frequently engage in litigation for recovery of loans, enforcement of security interest, cheque dishonour cases, guarantee invocation, and contractual disputes. Key reasons why limitation matters:
* A time-barred debt cannot be enforced in court, even if dues are legitimately payable.
* Limitation impacts actions under CPC suits, SARFAESI Act, DRT filings, and IBC proceedings.
* Acknowledgment of debt under Section 18 or part-payment under Section 19 can revive limitation – a critical tool for lenders.
* Timely action supports internal audit and risk management frameworks.
2. Key Concepts Under the Limitation Act
(a) Computation of Limitation
* Generally starts from the date when the cause of action arises.
* In loan accounts, limitation starts from:
* Date of default, or
* Date of NPA, depending on case law.
(b) Extension via Acknowledgment – Section 18
* A signed acknowledgment before expiry of limitation restarts a fresh 3-year period for contractual debts.
(c) Part-Payment – Section 19
* Any payment towards the debt (interest or principal) before expiry of limitation renews the period.
(d) Legal Disability
* In cases involving minors, lunatics, etc., limitation extends as per the Act.
3. Comprehensive Chart of Limitation Periods Under the Limitation Act, 1
A. Suits Relating to Accounts and Contracts (Relevant for Banks)
| Nature of Suit / Claim | | Limitation Period | When Time Begins to Run |
| Money lent under an agreement | 3 years | Date when loan is made |
| Money lent payable on demand | 3 years | Date of loan (not from demand) |
| Recovery of overdraft | 3 years | When account becomes NPA or borrower defaults |
| Enforcement of promissory note payable on demand | 3 years | Date of execution |
| Price of goods sold & delivered | 3 years | Date of delivery |
| Compensation for breach of contract | 3 years | Date of breach |
| Suit for recovery of deposit (FD/RD etc.) | 3 years | When demand is made |
| Enforcement of guarantee | 3 years | Date of default by principal debtor |
| Suit by surety to recover from principal debtor | 3 years | Date surety pays the creditor |
| Enforcement of mortgage (mortgage suit) | 12 years | When money becomes due |
| Redemption of mortgage | 30 years | When right to redeem accrues |
B. Suits Relating to Negotiable Instruments
| Nature of Instrument | Limitation Period | Start Date |
| Cheque dishonour (Sec. 138 NI Act) | 1 month** to file complaint | From date of cause of action (after 15-day notice period) |
| Bill of exchange payable on demand | 3 years | Date of bill |
| Bill of exchange payable at fixed time | 3 years | Maturity date |
| Promissory note payable at fixed time | 3 years | Due date |
*Statutory timelines—NI Act—apply separately.
C. Suits Relating to Immovable Property
| Category | Limitation | Start Date |
| Possession based on title | 12 years | When dispossessed |
| Mortgagor’s right to redeem property | 30 years | When right accrues |
| Enforcement of mortgage for sale | 12 years | When money becomes due |
D. Suits Relating to Decrees and Judgments
| Nature of Application | Limitation | Start Date |
| Execution of decree (not being mandatory injunction) | 12 years | Date decree becomes enforceable |
| Execution of decree granting mandatory injunction | 3 years | Date decree is made |
E. Applications Under Special Laws
| Application Type | Limitation | Start Date |
| Application for review | 30 days | Date of decree |
| Application for leave to appeal | 30–90 days | As per CPC provisions |
F. Appeals
| Type of Appeal | Limitation |
| Appeal to High Court | 90 days |
| Appeal to other courts | 30 days |
4. Banking Examples (Practical Scenarios)
Example 1: Term Loan Account
* Default on 01.03.2023 → limitation expires 01.03.2026.
* If borrower signs acknowledgment on 15.02.2025, limitation renews to 15.02.2028.
Example 2: Cash Credit Account
* Last credit entry that reduces liability → 10.06.2023
* Limitation expires → 10.06.2026.
Example 3: Cheque Bounce
1. Cheque dishonoured
2. Notice issued within 30 days
3. Drawer fails to pay within 15 days
4. Complaint to be filed within 1 month of cause of action.
5. Points Every Banker Must Remember
* Track last acknowledgment and last credit carefully.
* For NPA accounts, limitation remains 3 years, subject to renewals under Sec. 18/19.
* Enforcement under SARFAESI must be within valid limitation.
* After limitation expires, a fresh acknowledgment cannot revive a time-barred debt.
* Maintain signed balance confirmations annually.
A Comprehensive Guide for Bankers
STATE-WISE LIMITATION VARIATIONS
(Note: Limitation Act, 1963 is a central law; however, certain states have local variations such as:
• Jammu & Kashmir and Ladakh – Adaptation orders post-2019 apply; older State limitation laws repealed.
• Maharashtra – Bombay Money-Lenders Act impacts enforceability but not limitation periods.
• Tamil Nadu – Certain tenancy and land-reform disputes have different limitation applications.
• North-eastern states – Customary law implications in property disputes may alter limitation triggers.)
SARFAESI / IBC LIMITATION INTERPRETATIONS
1. SARFAESI Act:
• Action under Sec. 13(2)/(4) must be within the same 3-year limitation applicable to the underlying debt.
• NPA date is not always the limitation start; default date is material.
• Supreme Court: Section 18 acknowledgment is valid even for SARFAESI actions.
2. IBC:
• Application under Sec. 7 or 9 must be within 3 years from default.
• Acknowledgment under Sec. 18 revives limitation for insolvency applications.
• Part-payment under Sec. 19 also extends limitation.
• IBC does NOT allow revival of time-barred debts unless valid acknowledgment existed before expiry.
Disclaimer:
This article provides a practitioner‑oriented overview for educational purposes and should not be treated as legal advice; readers should consult the Limitation Act, 1963 and authoritative case law for matter‑specific application and updates
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