According to Section 2 (j) of the Limitation Act, 1963, the life of a loan document (DPN) is three years. Once the original Demand Promissory Note (DPN) is expired then the bank will not be able to enforce money suit to recover its due through Court of Law. If the loan is secured by the mortgage of immovable property, the mortgage is valid up to 12 years. However, money suit is easier compare to the mortgage suit. In order to keep the option of easy way of recovery through money suit, this period of 3 years of DPN is saved from time to time by obtaining Revival Letter (RL) under signature of borrowers and guarantors. The Revival Letter (RL) so obtained from the borrower(s)/guarantor(s) extends validity period of loan document for the further period of 3 years from the date of Acknowledgement of liability in terms of section 18 of Limitation Acts.
Section 18 of limitation act only bars the legal remedy; it does not extinguish the right of creditor to set-off. For example, the right of set-off can be exercised by the banks in case of jewels pledged to the bank against gold or loan granted against bank deposits even though the documents become time-barred.
- How banks can enforce money suit while the document is time-barred?
- What is the remedy to revive time-barred debt?