legal aspects in banking-doubts

I have four doubts.Please clarify.


1. A borrower has availed a loan from the bank which has become NPA.The Outstanding bal is approx 1.5 lakhs.

He has kept nearly Rs.5 lakhs in his SB account. The borrower also complains that he has availed the loan at 13.5% and now it is at 17.25& due to changes in Bank's PLR/BASE RATE. He is not allowing to transfer funds from saving a/c to NPA a/c. How can the bank use Bankers right to set off? What is the procedure to be followed.

2. By law of limitation the documents will expire after 3 years hence revival letter should be obtained from the borrower. In personal loans, my bank has instructed that revival is not necessary for standard accounts.The logic is that the bank will get the coverage for 3 years from the last date of repayment.Whay can't this be applicable to all type of loans?

3.While initiating steps under SARFASI 13(2) notice has to be sent to the borrower and should get it acknowledged. Can the notice be directly published in newspaper without sending regd notice/getting acknowledgement?

4. What are the steps of recovery if no property is available as security?How can the steps be initiated?





Mr. Arjun Murali,

1. Generally all the banks obtain loan documents containing a specific clause that, the borrower agrees to pay the variated rate of interest and notice of variation is waived. In such cases there is no need for the bank to send notice to the borrower as and when the bank's Prime Lending Rate (PLR) changes since such notice is waived by borrower as per the clause in the agreement.

2. Bankers have unfettered jurisdiction over all the monies coming to their possession to recieve amalgamate and adjust the general balances in the accounts. This is called Banker's Lein u/s 171 of Indian Contract Act. This statutory right is available to bank unless there is an agreement contrary to such exercise of right. Since  funds in SB account are available and there is no agreement or legal bar restraining the bank from invoking Sec.171 of Indian Contract Act,the borrowal account need not be classified as NPA. The borrower also could send a mandate to the bank for adjustment of the defaulted dues by transfering funds from his SB account.

3. Loan documents will not expire by law of limitation as long as payments are made by borrower under his signature as payments save the loan documents from becoming time barred. Another way for banks to save limitation is botaining of 'Debt Acknowledgments',

4. No action can be taken under SARFAESI Act unless 13(2) notice is served to the bank. Direct publication of 13(2) notice is not known to law of enforcement of security interest.

5. If there is no security interest, the bank has to file its claim in civil court or DRT depending upon the amount of debt due.



All questions are answered properly but relating to 3rd querry, the queriest was asking whether notice has to be sent to borrower not the Bank.  But the expert CPS, Ramachary has mistaken it as notice sent to Bank instead of borrower.  Kindly clarify.  

Chief Manager(Law)


Rule 3. Demand Notice:-

1) The service of demand notice as referred to in sub section (2) of section 13 of the [Act] shall be made by delivering or transmitting at the place where theborrower or his agent, empowered to accept the notice or documents on behalf of the borrower, actually and voluntarily resides or carries on business or personally works for gain, by registered post with acknowledgement due, addressed to the borrower or his agent empowered to accept the service or by Speed Post or by courier or by any other means of transmission of documents like fax message or electronic mail service.

Provided that where authorized officer has reason to believe that the borrower or his agent is avoiding the service of the notice or that for any other reason, the service can not be made as aforesaid, the service shall be effected by affixing a copy of the demand notice on the outer door or some other conspicuous part of the house or building in which the borrower or his agent ordinarily resides or carries on business or personally works for gain and also by publishing the contents of the demand notice in two leading newspapers, one in vernacular language, having sufficient circulation in that locality.


Dear Mr. Ravindra P.,

Point 3 is my answer to query No.2  for which Mr.narendra s.p.gave clarification reproducing the entire Rule 3 (including the mandatory proviso) of Security Interest (Enforcement) Rules 2002.

Reg: query No.3 my opinion is that the loan documents must be kept alive by the creditor by obtaining debt acknowledgement from borrower, before bar of limitation. Payment of part of debt under signature of borrower or his authorised agent  saves   limitation, provided such part payments are made before bar of the documents by limitation.

I hope now there is no ambiguity in the matter.




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