Limitation Period for Loan Recovery in India
Lenders have a deadline to sue. A signed acknowledgement or part payment before it ends restarts the clock.
The limitation period is the time limit within which a lender must go to court to recover a debt. It is set by the Limitation Act, 1963. Section 3 says a suit filed after that period must be dismissed, even if the borrower never raises the point.
For most unsecured loans the period is three years; for money secured by a mortgage on property it is twelve. But the clock can restart, and that is where recovery work and this law meet.
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The Periods That Matter for Loans
From the Schedule to the Limitation Act, 1963.
Money lent
Period
3 years
Time starts from
When the loan is made
Article
19
Money lent, payable on demand
Period
3 years
Time starts from
When the loan is made
Article
21
Promissory note payable on demand
Period
3 years
Time starts from
The date of the note
Article
35
Breach of contract (not specially provided for)
Period
3 years
Time starts from
When the contract is broken
Article
55
Money secured by a mortgage or charge on immovable property
Period
12 years
Time starts from
When the money sued for becomes due
Article
62
Mortgagee's suit for foreclosure
Period
30 years
Time starts from
When the mortgage money becomes due
Article
63(a)
Execution of a decree
Period
12 years
Time starts from
When the decree becomes enforceable
Article
136
Any other application with no set period
Period
3 years
Time starts from
When the right to apply accrues
Article
137
| Claim | Period | Time starts from | Article |
|---|---|---|---|
| Money lent | 3 years | When the loan is made | 19 |
| Money lent, payable on demand | 3 years | When the loan is made | 21 |
| Promissory note payable on demand | 3 years | The date of the note | 35 |
| Breach of contract (not specially provided for) | 3 years | When the contract is broken | 55 |
| Money secured by a mortgage or charge on immovable property | 12 years | When the money sued for becomes due | 62 |
| Mortgagee's suit for foreclosure | 30 years | When the mortgage money becomes due | 63(a) |
| Execution of a decree | 12 years | When the decree becomes enforceable | 136 |
| Any other application with no set period | 3 years | When the right to apply accrues | 137 |
Which Article Applies Depends on the Loan
A term loan with an EMI schedule, an overdraft and a demand loan can fall under different Articles, and the start date can differ. Courts decide this case by case on the loan's terms. For the exam, remember the headline numbers: 3 years for money lent, 12 years for mortgage-secured money, 12 years to execute a decree.
How the Clock Restarts
- 1
Written acknowledgement (section 18)
If, before the period ends, the borrower signs a written acknowledgement of the debt, a fresh period starts from the date it was signed. It still counts even if it does not state the exact amount or comes with a refusal to pay.
- 2
Part payment (section 19)
If, before the period ends, the borrower (or their authorised agent) pays part of the debt or interest, a fresh period starts from the payment date. The payment must be acknowledged in the payer's handwriting or in a writing they sign.
- 3
After expiry, neither works
Both sections need the acknowledgement or payment to happen before the period runs out.
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The Same Clock Applies to SARFAESI, DRT and IBC
- check_circleSARFAESI, section 36: a lender cannot take section 13(4) measures unless its claim is within the limitation period.
- check_circleRDB Act, section 24: the Limitation Act applies to applications before the DRT.
- check_circleIBC, section 238A: the Limitation Act applies to proceedings before the NCLT, NCLAT, DRT and DRAT under the Code.
- check_circleSection 5 lets a court admit a late appeal or application for sufficient cause, but it does not apply to suits.
For Agents: Acknowledgements Must Be Voluntary
A signed balance confirmation or a part-payment receipt can keep a lender's legal rights alive, which is why banks value them. They must come from the borrower freely. Pressuring a borrower to sign, or misstating what the paper means, breaks the conduct rules agents are bound by.
How the DRA Exam Tests This
Questions ask for a number (3 or 12 years), for the effect of an acknowledgement (fresh period from the date of signing), or for the condition that makes it valid (in writing, signed, before expiry). The trap is the timing: an acknowledgement after the period has ended does not revive the right to sue under section 18. Another trap is assuming oral promises count; they do not.
FAQs
What is the limitation period for loan recovery in India?expand_more
Generally three years for money lent and twelve years for money secured by a mortgage on immovable property, under the Limitation Act, 1963. A decree can be executed within twelve years.
Does paying a small amount restart the limitation period?expand_more
Yes, if it is paid before the period ends and is acknowledged in writing by the payer. A fresh period starts from the payment date under section 19.
Can a bank recover a loan after three years?expand_more
It depends. If the borrower signed a written acknowledgement or made a part payment before the period ended, a fresh period runs. Mortgage-secured money has twelve years. A court decides whether a specific claim is in time.
Does the limitation period apply to SARFAESI?expand_more
Yes. Section 36 of the SARFAESI Act bars section 13(4) measures unless the lender's claim is within the limitation period.
Next steps
- Civil Suitarrow_forward
- SARFAESI Actarrow_forward
- Defaulter's Rightsarrow_forward
- Preparationarrow_forward
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