Clients who approach me think that banks and lenders have superhuman rights to recover their money. I have witnessed clients hastily settling fresh loan repayment schedules or signing acknowledgment letters under stress which only go on to revive the time barred claims. It is critical to understand that an ARC has only the rights of the lending bank and no more. An ARC is under Indian law in no better position than the bank. The ARC does not get any extraordinary powers to escape the well defined period of limitation as laid down by our honorable parliament. Just because a time barred debt was assigned from a bank to an ARC, this does not restart the limitation period. Here are your rights if a legal notice has been wrongly served to you and you are at the verge of losing your prized commercial premise to a defective multi-crore recovery petition.

Why This Matter Matters All Over India in 20 26

India has never seen such heightened Banking & Debt Restructuring activity like this year. Banks are selling stressed assets worth billions to Private ARC’s in order to cleanse their books. This is a BUSINESS opportunity for them and ARC cases directly affect Delhi NCR – Noida – Gurugram corridor as well as Financial Capitals Mumbai – Pune – Bengaluru – Chennai etc. If you are a small-time entrepreneur, real estate owner or a middle class citizen who happened to be a guarantor for someone, these sudden ARC notices can push you into financial hardship and damage your corporate image.

ARC has caught many borrowers unaware due to cash crunch and halted their operating businesses with DRT suits or Possession notices. In Tier 2 and 3 cities such as Ghaziabad, Faridabad, Ahmedabad et.al most business borrowers don’t have immediate access to DRT lawyers and end up losing critical timelines to file their side. Plea of limitation is an affidavit defence before DRT which can lead to discharge of ARC’s Recovery Application. If you don’t raise this defence at prima facie level, DRT assumes debt as enforceable and goes on to attach your assets for auction.

Quick Facts: LIMITATION & ARC CLAIMS

Understanding the Core Legal Issue

ARC cannot revive a time barred loan claim before DRT.

No. An ARC cannot resurrect a loan claim before DRT if the claim was time barred at the point of filing/ or before filing. Primarily because ARC steps into the shoes of the lender only to the extent of an assignment. An assignment does not confer any greater rights than what the bank had at the point of assignment. If the bank allows limitation to run against itself by staying inactive or being negligent, the debt becomes unenforceable by judicial process or in front of any court/tribunal. There is no better right which an ARC can acquire from a bank.

Difference between a debt due and a debt legally recoverable.

A debt is always morally due until it is paid. But legally speaking, remedy to enforce that debt becomes barred from using the judicial machinery (DRB&CT/DRT) if the debt was not actively pursued within three years. After completion of three years without any legal interruption, the window to file a fresh OA under the Recovery of Debts and Bankruptcy Act stops existing. Sending notices of demand or fresh demands or asking for a balance confirmation after three years cannot create any constructive cause of action in favour of ARC.

LEGAL FRAMEWORK ON LIMITATION & ARCS

The concepts of Debt Recovery ,Asset Reconstruction and Limitation have to be mapped and understood clearly with respect to the Central statutes on point & ever changing judicial interpretations. When you are defending a case before the DRT from an ARC , there are three legislations which act as your bible .

Limitation Act, 1963

Everything else will depend on this piece of legislation. Section 3 of Limitation Act , 1963 states that every suit, appeal or application (except the ones provided for under this Act) instituted, presented or made after the prescribed period shall be dismissed, notwithstanding whether limitation has been pleaded or not. Three years is the prescribed period for filing a recovery of money suit before the tribunal either u/s 137 of the Recovery of Debts Due to Banks and Financial Institutions Act , 1993 (generally) or under Article 137.

Section 18 of Limitation Act, 1963.

Now section 18 of Limitation Act , 1963 talks about the effect of acknowledgment in writing. For the acknowledgment to extend the period of three years from the date of acknowledgment , two conditions must be fulfilled –

• The acknowledgment should be in writing and signed by the borrower/depositor or agent authorized in writing.
• The acknowledgment should be signed by the borrower/depositor prior to the expiry of the prescribed period of limitation.

Points which I (Advocate BK Singh) look into if I am defending a borrower is whether these acknowledgements were signed by the borrower after limitation was over.

Recovery of Debts and Bankruptcy (RDB) Act, 1993

This is the Act from which DRT derives its substantive jurisdiction. Bank/Lender (including ARC) files Original Application under Section 19 of RDB Act for recovery of its debt. Section 24 of RDB Act clearly mentions that Limitation Act, 1963 would apply to applications filed before a tribunal. Hence DRT has no power to entertain a time barred financial claim unless the condonation application for delay is very strongly upheld within very narrow parameters of law.

The SARFAESI ACT, 2002

Dependence on SARFAESI ACT, 2002 by ARCs has become substantial since it helps them skip tribunals and attach tangible properties directly. But Section 36 of SARFAESI Act slaps an absolute bar on such transactions. Section 36 explicitly says that no enforcement action shall be taken by any secured creditor if the claim is time-barred under the Limitation Act, 1963. Hence, if a money claim is time barred before DRT, parallel SARFAESI proceeding under Section 13(4) is equally unlawful.

Who Needs This Guidance?

This legal guide is created for the benefit of the following set of retail banking customers and businesses in distress:

• BUSINESS OWNERS/MSMES AND PROMOTERS OF COMPANIES: Those whose plants or project finance were stressed many years back and are now receiving revival calls from ARCs.
• INDIVIDUAL/GUARANTS: Those who have executed personal guarantees for corporate loans and are now being harassed by ARCs after a decade or two of the original company being liquidated/wind up.
• INDIVIDUAL PROPERTY OWNERS: Those who lost their jobs/unexpected business failures and had their properties (residential/commercial) hypothecated to the bank which were sold out to other parties.
• HIGH NET WORTH RETAIL BORROWERS: Those in high-value retail loans are being subjected to heavy recovery operations for aged and contested term loans/margin loans which were never tracked by your bank.

The ARC Redemption Cycle- Take Note Before They Bite

The key to defending your assets is by knowing your enemy’s game plan. Over the years of working with and for clients I have seen a pattern develop when an ARC discovers they have acquired a portfolio of aged or exposed accounts.

Stressed asset bought over by ARC from PSB or Indian private bank under an assignment deed. ARC’s recovery team conducts an incoming legal audit and shortlists all accounts with a 3 years limitation period from date of NPA soon expiring or already expired. ARC pops up with their “soft” tactics.

ARC sends out its first demand notice, or requests the borrower to personally meet them at its zonal office in New Delhi/Mumbai/Lucknow etc. Pretending to be cordial and cooperative, they try to set up a loan restructuring or loan settlement.

The borrower is tricked into signing a balance confirmation letter, new restructuring proposal or some nominal ad-hoc token payment. The legal effect of what is being asked is to obtain a new signature which can be used against you as an ‘acknowledgement’ under Section 18 or a ‘fresh promise’ to pay under Section 25(3) of Indian Contract Act. This is where the trap is set.

Using whatever letter, email or token payment they can dupe the borrower into providing, ARC’ lawyers from their legal panel office up an Original Application to be filed before the appropriate DRT. These documents are then used to deceitfully demonstrate to the Tribunal that the cause of action is indeed fresh and within three years.

TIMELINES & WINDOW OF DECISION

Time is the biggest tyrant against whom you battle while appearing before DRT’s. Technically ARC should have initiated its proceedings three years from the date of default. Tribunal wise – and speaking from experience of tribunals functioning in metros all over India – at the earliest your case gets listed only after typical delay from the system. Borrowers commit the cardinal sin of being complacent if ARC files after say four or five years – thinking that the filing counter at the DRT will govt “reject” the case summarily.  The DRT registry will enter the OA and it’s up to you to enter your appearance and file a written statement claiming your formal plea of limitation.

That is when the battle really begins. So if you get a summons from the DRT or a notice under Section 13(2) / 13(4) SARFAESI Act – you STRICTLY have a very small window (max 30 days) to get someone like ADVOCATE BK SINGH ON BOARD who will guide you to file an aggressive legally fluent reply loaded with facts. Miss this window to file your formal defence and the Bank will get ex-parte orders. Getting back the attachment on your factory/land/home will be an uphill task.

Mistakes made by borrowers receiving ARC Notices

• Accepting any random document thrown at you for signature by an ARC representative without understanding the implications of the small-print often used in such documents which allow you to admit liability for the old debt.
• Sending some money into your account hoping they will leave you alone – Deposit of an insignificant amount ( 21,000 or 50,000) by you in the hope of putting a stop to harassing recovery calls. most often Counsel for ARC can argue in Court that such act amounts to part-payment of debt thereby extending the period of limitation.
• Ignoring Summons & Demand receipts from DRT & Cheque Return Notices / Legal notices asking you to appear before the tribunal on the pretext that loan is old & therefore notice from ARC’ sole purpose is to harass you and therefore feeling prideful to not show up before the tribunal.
• Sending emails stating your case for more time or loss of business & still accepting the whole amount in your mails after the limitation period has expired.
• Not Having Copy of Bank Statements: Deleting your online bank transactions for older dates or misplacing your passbook therefore not having any evidence of date of last payment.
• Approaching Civil lawyers who do not understand the provisions of the RDB Act, SARFAESI Process & technical application of Section 36 SARFAESI Act.
• Accepting oral settlement from an Asset officer advising you not to worry they will drop the case against you while his law firm keeps processing your auction. Once property advertised for Auction. Until notice of Auction Publication is published on your flat walls.

WAYS ADVOCATE BK SINGH WILL HELP YOU IN BANK RECOVERY MATTERS

FAQs

Conclusion

Remember that the ARC has a LIMITED time to shake you up, stall your companies and attach your family assets. There is a set of laws that protects YOU if a bank or ARCOR has come knocking on your door for a loan that went dormant many years ago. India’s Limitation Act was created to prevent banks and financial institutions from springing these old, sometimes 40+ year old loans on unsuspecting citizens.