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Limitation For Loan Recovery Suit to Be Computed from Date Of Issuance Of Loan Recall Notice

In a decision dated March 19, 2024, delivered by the High Court of Delhi in the case of Kulbhushan Sachdev v. ICICI Bank Limited & Anr. (2024 DHC 2165-DB) it was held that the date of limitation for a suit filed for the recovery of a loan cannot be calculated from the date of first default in payment of EMI but rather from the date of issuance of a loan recall notice, which is the date when the cause of action arose.

In the present case, a Company had obtained a loan from the bank for the purchase of a vehicle. On default in EMI payment, the Bank filed a suit in the commercial court seeking the recovery of the loan amount against the Company and impleaded the appellant. The present case was brought by the appellant, challenging this decision of the commercial court and claiming that the application for impleading the appellant was barred by limitation.

The appellant contended that the Company had defaulted in the payment of EMI on April 3, 2019 and therefore the cause of action for filing the suit arose on the said date. Since the application for impleading the appellant was made on July 12, 2022, the appellant contended that it was beyond the period of three years from the date of cause of action and therefore barred by limitation.

Observing that the period of limitation would not commence from the date of the first default in payment of an EMI, the court noted that at best, only the claims in respect of the EMIs that fell due three years prior to the date of filing the application to implead the appellant could be barred by limitation. Further, the court held that the date of issuance of the loan recall notice, despite which the appellant and the Company failed and neglected to repay the loan, was to be reckoned as the date on which the cause of action arose. Thus, the court held that the application filed was within the limitation period and upheld the order of the commercial court.