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Effect of Fraud or Mistake Under Limitation Act

Submitted to- Ms. Ashu

10/4/2013

Submitted By- Divas Bhagat

Table of Contents

Introduction .......................................................... 3 Grounds for Execution of the period of limitation under Section 17 ................................. 5 Meaning of Mistake ............................................. 6 Meaning of Fraud ................................................ 7 Meaning of Knowledge ........................................ 9

Introduction

Section 17 of the Limitation Act, 1963 provides that:

1. Where, in the case of any suit or application for which a period of limitation is

prescribed by this Act—

(a) The suit or application is based upon the fraud of the defendant or respondent or

his agent; or

(b) The knowledge of the right of title on which a suit or application is founded is

concealed by the fraud of any such person as aforesaid; or

(c) The suit or application is for relief from the consequences of a mistake; or

(d) Where any document necessary to establish the right of the plaintiff or applicant

has been fraudulently concealed from him; the period of limitation shall not begin to

run until the plaintiff or applicant has discovered the fraud or the mistake or could,

with reasonable diligence, have discovered it, or in the case of a concealed document,

until the plaintiff or the applicant first had the means of producing the concealed

document or compelling its production:

However, nothing in this Section shall enable any suit to be instituted or application to

be made to recover or enforce any charge against, or set aside any transaction

affecting, any property which,-

(i) In the case of fraud, has been purchased for valuable consideration, by a person

who was not a party to the fraud and did not at the time of the purchase know, or have

reason to believe, that any fraud had been committed; or

(ii) In the case of mistake, has been purchased for valuable consideration subsequently

to the transaction in which the mistake was made, by a person who did not know, or

have reason to believe, that the mistake had been made; or

(iii) In the case of a concealed document, has been purchased for valuable

consideration by a person who was not a party to the concealment and, did not at the

time of purchase know, or have reason to believe, that the document had been

concealed.

(2) Where a judgment-debtor has, by fraud or force, prevented the execution of a

decree or order within the period of limitation, the court may, on the application of the

judgment-creditor made after the expiry of the said period extend the period for

execution of the decree or order-

However, such application is made within one year from the date of the discovery of

the fraud or the cessation of force, as the case may be.

Section 17 of the Limitation Act applies only to suits and application but not to

appeals. It applies to execution petitions. Section 17 does not apply to criminal cases;

a complaint of a criminal offence is not a suit or an application.

The provision of Section 17 applies in computing the period of limitation prescribed

by special or local law. Hence this Section applies to proceedings under the United

Province’s Encumbered Estates Act.

Grounds for Execution of the period of limitation under Section 17

The grounds for execution of the period of limitation under Section 17 are fraud,

mistake and concealments and the effect thereof.

The word ‘fraud’ is not defined in the Limitation Act. It must, therefore, have its plain

literal meaning. Fraud means dishonesty or grave moral culpability. It means deceit

and does not include robbery. It is stated that wherever fraud is alleged two elements

are at least essential viz. first deceit or intention to deceive or, in some cases a mere

secrecy; and secondly, either actual injury or possible injury or an intention to expose

same person either to actual injury or to a risk of possible injury by means of deceit or

secrecy.1

One of the essential conditions of fraud is that there must be an intention to deceive

another party. A necessary element in fraud is deception or deceit and getting

somebody to believe something that is not really correct.

The term ‘concealed fraud’ means a case of designed fraud by which a party, knowing

to whom the right belongs, conceals the circumstances giving that right, and by means

of such concealments enables himself to enter and hold property.

1 B. Monappa v. R.S. Ramappa [AIR 1966 Mad. 184]

In order to constitute fraud there must be some abuse of a confidential position, some

intentional imposition or some deliberate concealment of facts.

It is stated that ‘fraud’ does not necessarily imply moral turpitude; it is enough if the

conduct of the defendant or his agent is so unconscionable that it would be inequitable

to allow him to rely on the limitation period.2

Section 17 treats mistake on par with fraud by providing that the limitation runs in the

case of mistake from the date when the mistake was discovered or with due diligence

could have been discovered .

Meaning of Mistake

Mistake means an unconscious ignorance or forgetfulness of a fact, past or present,

material to the contract, or a belief in the present existence of a thing material to the

contract which does not exist; some intentional act, omission, or error arising from

ignorance, surprise, imposition, or misplaced confidence; in a legal senses, the doing

of an act under an errorless conviction, which act, but for such conviction would not

have been done. Mistake is not mere forgetfulness, it is a slip made, not by design but,

by mischance.

The term mistake comprises within its scope a mistake of law as well as a mistake of

fact. A mistake of law occurs when a person having full knowledge of facts comes to

an erroneous conclusion as to their legal effect. A mistake of fact is a mistake which

2 Archar v. Moss, Applegate v, Moss, [(1971) 1 All ER. 7470]

takes place when some fact which really exists is unknown; or some fact is supposed

to exist which really does not exist. Mistake of foreign laws is a mistake of fact.

It has been held that in a suit for refund of money paid by mistake of law Section 72

of the Contract Act and provision of 17( 1 )(c) of Limitation Act 1963 will be attracted

and limitation will run only from the date on which the particular law under which it

was paid was declared by a competent court as invalid.3

Meaning of Fraud

The word ‘fraud’ with reference to Section 17 of the Limitation Act is to be such fraud

as is essential ingredient of the cause of action. Fraud affects limitation only where it

prevented a person from knowing of his right or the title on which his claim was

fraud. Fraud contemplated under Section 17 is the actual and active fraud in the means

adopted to keep the person injured out of the knowledge of his right. There must be

some abuse of a confidential position, some intentional imposition or some deliberate

concealment of facts; a designed fraud by which a party knowing to whom the right

belonged, concealed the facts and circumstances giving that right.

The fraud contemplated in Section 17 is the fraud of the defendant or same person

through whom he derives his title; it does not mean the fraud of the third person. If it

is alleged that the fraud was committed by the servant or agent of the defendant, it

must be shown that it was committed for the general or specific benefit of the

principal and not for the private purposes of the servant or agent.

3 M. Kishore v. State of M.P [AIR 1990 SC 313]

The time will be extended under Section 17 of the Limitation Act only as against the

—

(a) Person guilty of fraud or mistake, or fraudulently concealing document, or

(b) His agent, or

(c) Who claims through such person other than a bona fide purchaser for valuable

consideration?

Section 17 of the Limitation Act can have no application where the fraud alleged by

the party applying to set aside an execution sale is mere understatement of the valued

of the properties in the sale proclamation.

It has been held that under Section 17(1), the period of limitation shall not run against

the plaintiff or the applicant until the plaintiff or the applicant discovered fraud or

could with reasonable diligence have discovered the fraud or mistake. It follows that if

the plaintiff or the applicant is aware of his right to seek relief he follows that if the

plaintiff or the applicant is aware of his right to seek relief he cannot claim the benefit

of Section 17.4

When he was aware of his right he cannot get the benefit of the Section 17 by alleging

that he was prevented by fraud of the defendant to exercise such right. What the

Section 17 concerned itself with is the knowledge of the right and not the exercise of

it.

4 re, Marappa Gounder [AIR 1959 Mad.26]

Meaning of Knowledge

Knowledge required by Section 17 is not mere suspension. The knowledge must be

clear and definite knowledge of the facts constituting the particular fraud.

Under Section 17( 1) of the Limitation Act, 1963 if the suit or application is based on

the fraud of the defendant or the respondent or his application is based on the fraud of

the defendant or the respondent or his agent it is enough for the plaintiff or the

applicant to prove the fraud.

Under Section 17( 1) of the Limitation Act, 1963 if the suit or application is based on

the fraud of the defendant or the respondent or his application is based on the fraud of

the defendant or the respondent or his agent it is enough for the plaintiff or the

applicant to prove the fraud. If he relies upon concealment of knowledge of the right

or title on which the suit or application is founded, by the fraud of the defendant or the

respondent or his agent, he will have to prove fraud by the defendant or the respondent

or his agent and also the concealment of the knowledge of the right or title on which

his suit or application is founded by such fraud.

It is stated that where once the fraud has been established by the plaintiff, or where the

circumstances are such that fraud may be presumed, the burden is on the defendant

(who sets up limitation) to show that the plaintiff had clear knowledge of the facts

constituting the fraud at a time which is too remote to allow him to bring the suit.5

5 Rahimbhoy v. Turner [17 Bom. 341 (PC)]

The plaintiff or the applicant must prove the mistake initially when the suit or

application is for relief from the consequence of mistake. When he proves it then the

burden shifts upon the defendant or the respondent or his agent to prove that the

plaintiff or the applicant had either discovered or could have discovered the mistake

with reasonable diligence at a time beyond the period of limitation.

When the plaintiff or the applicant alleged that the fraud or mistake became known to

him within the period of limitation and gives prima facie evidence of his case, it is for

the defendants to show that he had clear knowledge or could have known it with

reasonable diligence at a time beyond the period of limitation.

Under Section 17(1) of the Limitation Act, the limitation time, in the case of fraud or

mistake, from the time the plaintiff or the applicant discovered the fraud or mistake, or

could with reasonable diligence have discovered it. The plaintiff shall have to aver in

the plaint the date on which he discovered the fraud or mistake as the case may be,

and shall also have to aver that with reasonable diligence he could not have discovered

it prior to that date.

It has been held that when the mistake of the officer was pleaded as a ground for

invoking Section 17 of the Act, and it was found that such plea was genuine, the

benefit of Section 17(1)(c) would be extended to the plaintiff and the limitation would

run from the date when the plaintiff discovered the mistake.6

In the case of concealed document under Section 17(1)(d), the time runs from the date

when the plaintiff or the applicant first has the means of producing the document or

6 Richardson Cruddas v. H.D. Mendha, [AIR 1973 Cal. 119],

compelling its production. In the case of a suit to recover the fee or other levy under

mistake limitation starts from the date on which the declaration was made by the final

court of appeal that the levy is void.

The proviso (i) of the sub-section (1) of Section 17 has made it clear that a bona fide

purchaser for value without notice of the sale will be protected and the benefit of

Section 17 cannot be extended to set aside the sale as against him.

In the case of mistake, under the proviso (ii) of sub-section(l) of Section 17 where the

property has been purchased for valuable consideration subsequent to the transaction

in which the mistake was made by a person who did not know, or have reason to

believe that the mistake has been committed, Section 17 does not enable a suit to be

instituted or an application made, to recover, or to enforce a charge against him or to

set aside any transaction affecting such property.

In the case of concealed document under proviso (iii) of sub-section (17) of the

Section 17 where the property has been purchased for valuable consideration by a

person who was not a party to the concealment and did not at the time of purchase

know, or have reason to believe that the document had been concealed, Section 17

does not enable a suit to be instituted, or an application made to recover, or to enforce

a charge against, or to set aside any transaction affecting such property.

If a suit is on the face of it time-barred, Order VII rule 6 of the CPC requires that the

plaintiff shall show the ground on which exemption from the law of limitation is

claimed. Therefore, if the plaintiff claims exemption on the ground of fraud on the

part of the defendant, he must prove the fraud. In such a case, it is for the plaintiff to

give in the first instance clear proof of the fraud alleged by him. The court will not

pressure it from the mere existence of suspicious circumstances.

It has been held that absence of averment of fraud is not material; what is to be proved

is that fraud was actually practised by the decree-holder.7

It has been held that the date of knowledge is to be excluded from computation of

limitation period.8

The Section 17 of Limitation Act will apply to a person claiming through another

guilty of fraud or accessory to it otherwise than in good faith and for valuable

consideration. Under Section 17 of the Limitation Act, the fraud of the agent of the

defendant or the respondent is also included.

In order to constitute fraud it is not enough that there should be merely a tortious act

unknown to the injured party but that there must be some abuse of confidential

position, some intentional imposition, or some deliberate concealment of facts; there

must be something actually said or done which is directly intended to prevent

discovery.

Section 17 of the Limitation Act is attracted only where there is an active and

designed fraud and it had no application when the other party merely remains silent

and does not do any act which is designed to prevent knowledge of the cause of

action.

7 Pailee v. Krishna [AIR 1971 Ker. 331]8 Baikunth v. Kesor [AIR 1969 Pat. 160],

It is clear that where the right or entitlement to such relief is itself » kept concealed by

reason of fraud or hoax practised of which the plaintiff becomes a victim, in those

circumstances, the cause of action in law is held to arise only when the victim realises

the factum of fraud perpetrated or at a point of time when the victim could have with

reasonable diligence learnt or become aware of the hoax practised.

Fraud like any other charge must be established beyond reasonable doubt. A finding

as to fraud cannot be based on suspicious or conjecture.

Section 17 of the Limitation Act is an enabling section which postpones the starting

point of limitation for suit and application.