How banks enforce money suit while document is time-barred?

[Banks have many other ways to find out whether they can still enforce the recovery suits against the defaulter where period of limitation has already been expired.]

The life of a loan document (DPN) is three years. Once the document is time-barred then the bank will not be able to enforce money suit to recover its due through Court of Law (known as the statute of limitations).  However, we need not assume that the borrower doesn’t still owe it to creditor because loan document (DPN) is time-barred.  Banks have many other ways to find out whether they can still enforce the recovery suits against the defaulter.

We know that acknowledgement of liabilities obtained from the borrower before expiry of limitation period grants a fresh period of limitation to the loan documents under section 18 of limitation act.  The section 25(3) comes to the rescue of time-barred loan documents, where the period of limitation has already been expired. The acknowledgement of debt which was made within the period of limitation shall be treated as a promise to pay and same can be invoked by the application of Section 25 (3) of the Contract Act. A fresh period of limitation starts from the date of acknowledgement of debt.

The below mentioned cases illustrate that pieces of evidence such as letters /e-mails (where liability is admitted), liability mention in the balance sheet, part payment of a loan made by cheque/ cash amounts to acknowledgement of debt. Acknowledgement of debt by the party during the limitation period of loan documents  would automatically extend validity period of loan document for the further period of 3 years from the date of such acknowledgement provided that the same is directly or indirectly relates to the debt.

1. In the case of Suresh Kumar Joon vs Mool Chand Motors (Delhi High Court), the Hon’ble court ruled that repayment of debt by cheque to the plaintiff amounts to acknowledgement of debt under section 25(3). Hence, deposit of cheque or cash towards part-payment signed by the borrower or his agent any time before the expiry of document deemed as acknowledgement of debt, and a fresh period of limitation commences from the date of such remittances. [Even a dishonored cheque issued by the debtor towards repayment of debt may also be submitted as evidence for acknowledgement of debt].
2. In the caser of M/s. Sudarshan Cargo Pvt. Ltd. vs. M/s. Techvac Engineering Pvt. Ltd. the Hon’ble Karnataka High Court ruled that an acknowledgment is sent by an ‘originator’ to the ‘addressee’ by e-mail, without any intermediary, it amounts to valid acknowledgement of debt though not signed as per Limitation Act. Thus, an ordinary letter or e-mail where liability to the bank is admitted is treated as acknowledgement of liability. [Electronic communication by e-mail which is an alternative to the paper based method of communication and is legally recognized under the Information Technology Act, 2000.]
3. In the case of R. Sureshchandra & Co. vs. Vandnere Chemicals Works [Bombay High Court], it was held that balance sheet of the firm signed by the partner stating that the firm is liable to pay certain amount, amounts to promise. It shall attract the proviso of section 25(3). Thus, the mention in the balance sheets is an admission of indebtedness and sufficient acknowledgment under the Indian Limitation Act. The limitation period is calculated from the date it is signed on the balance sheet.

Disclaimer:  This article is not a legal advice. The content of this article is to provide only a general guide made out of author’s banking experience. The author is not responsible for the mistakes, errors, or quality of information provided in this article.   For clarifications or interpretations if any, the readers are suggested to take the advice from a qualified legal practitioner. The liabilities or claims of any nature on account of information provided in this article for whatsoever cause are not recognized.

 Related article:

1. What is revival letter for bank loan?
2. What is the remedy to revive time-barred debt?