Part-Payments Extend Limitation Period, Delhi High Court Revives Federal Bank's Recovery Suit

The Delhi High Court has revived Federal Bank's recovery suit against a borrower, holding that part-payments made by a borrower extend the limitation period and cannot be ignored while computing delay.

Setting aside a Commercial Court order that had dismissed the suit as time-barred, a Bench of Justices Anil Kshetarpal and Amit Mahajan said courts must recompute the limitation from the date of the last payment if payments are made within time.

“Once part-payments within limitation are admitted or established from the record, the consequence under Section 19 of the Limitation Act follows as a matter of law, and the Court is bound to compute limitation afresh from the date of the last such payment,” the bench said.

The case arose from a Rs.15 lakh cash credit facility granted on February 20, 2010 to the late B.M. Bajaj, proprietor of Zen Electricals. The account was classified as a Non-Performing Asset on February 8, 2016. Payments, however, continued till September 2016.

Federal Bank filed an application before the Debts Recovery Tribunal on May 23, 2018. After the DRT's pecuniary jurisdiction was enhanced, the matter was returned on December 18, 2020, with liberty to approach a competent civil court.

The bank then instituted a commercial suit on September 6, 2021 seeking recovery of Rs.10,91 lakhs with interest.

The Commercial Court dismissed the suit, holding that the limitation had expired in August 2015. It also questioned the bank's statement of account and the authorisation of its representative.

The High Court disagreed.

It held that the last payment dated September 28, 2016, required limitation to be computed afresh. It further ruled that the period spent prosecuting proceedings before the DRT was liable to be excluded under Section 14 of the Limitation Act.

The bench found that the Commercial Court had taken an unduly technical view in rejecting the certified statement of account, especially when the proceedings were ex parte.

On the issue of legal heirs, the Court held that non-filing of the borrower's death certificate was not fatal. It clarified that the liability of the legal heirs would remain limited to the estate inherited by them.

Allowing the appeal, the High Court decreed the suit for Rs. 10,91,115 along with interest at 13.25% per annum with monthly rests from the date the suit was filed until the amount is fully realised.