Effect of Fraud or Mistake (Section 17) | The Limitation Act, 1963

Read the article below to grasp the concept that Section 17 acts as a protective measure, allowing individuals to seek legal remedies.

Introduction

The Limitation Act, 1963 (hereinafter as “the Act”) stipulates periods within which legal proceedings must be commenced, failing which the right to seek legal remedy is terminated. However, there exist circumstances which may cause genuine delay in the filing of suits where rigid application of limitation periods may lead to injustice, especially in meritorious cases.

To combat this issue, the Act also provides certain safeguards in specific circumstances to provide relief to cases when there exist genuine causes of delay. One such circumstance is fraud or mistake, the safeguard for which is provided under Section 17 of the Act.

This provision of the Act provides for relief in cases where the litigant’s right to seek remedy has been affected due to the other party’s fraud or mistake which has been committed without the aggrieved party’s fault. It pauses the limitation period until the fraud or mistake has been discovered by the litigant or could have been discovered by exercising reasonable care or diligence. Essentially, this provision protects the rights of victims of fraud or mistake to seek legal remedy by allowing them to initiate proceedings even after the expiry of the standard limitation period.

Further, however, this provision also adds some reasonable restrictions to this relief and the length till which this benefit is available to the litigant. Therefore, by maintaining a balance between the right of parties to seek legal remedy and putting reasonable restrictions, the provision aims for a fair administration of justice within the framework of the existing law of limitation.

In furtherance of this, the present article seeks to analyse the provisions laid down under Section 17 of the Act, focusing on the reliefs and the restrictions provided under it along with a landmark case law to shed light on how administration of justice is done in genuine cases.

Relief in Case of Fraud or Mistake

This provision does not apply to criminal cases, but only suits or applications for which period of limitation has been prescribed by the Act. The provision provides for four situations when the period of limitation of the concerned legal action is paused. These circumstances are:

• When the suit or application filed is based on the defendant’s fraud or the fraud of their agent.
• When the knowledge of the right or title forming the basis of the suit or application is hidden due to the fraud of the defendant or their agent.
• When the suit or application is seeking relief from the consequences of a mistake.
• When a document essential for establishing the plaintiff’s or applicant’s right has been fraudulently concealed from them.

In the aforementioned situations, the period of limitation does not commence unless and until the victim of the fraud or mistake has discovered it or could have discovered it with due care or diligence, or in case of a concealed document until the applicant first had the means of procuring such document.

It was observed in Pallav Sheth v. Custodian, (2001) 7 SCC 549, that a provision like this embodies the fundamental principles of justice and equity by demonstrating that a litigant must not face penalty for failing to adopt a legal procedure when the facts or the material essential for them to do so has been actively concealed from them. Also, in case of fraud by the defendant or their agent, they must not gain the benefit of a limitation period running in their favour by such fraud.

The onus of proof of the existence of fraud is with the party alleging such fraud, i.e., the plaintiff who is required to give clear proof of the fraud alleged by them as the court will not presume it from the mere existence of suspicious circumstances.

Reasonable Restrictions

After providing relief to the litigants seeking justice in case of fraud or mistake, Section 17 of the Act also provides for certain reasonable restrictions to avoid the misuse of such benefit that has been provided by the provision. The second part of the provision states the conditions when no legal action can be commenced to recover or enforce a charge or invalidate a property transaction if:

• The property was acquired for valuable consideration by an individual who was not involved in the fraud and was unaware of the fraud at the time of purchase.
• The property, which is associated with a mistake, was obtained for valuable consideration after the mistake occurred by someone uninformed or who did not have any reason to believe in the mistake.
• The property, connected to a concealed document, was acquired for valuable consideration by someone who was not a part of such concealment and was either unaware or did not have any reason to believe in the concealment during the purchase.

The provision further provides that if a judgment debtor uses fraud or force to obstruct the execution of a decree or order within the limitation period, the court, at its discretion, may extend the execution period upon the application of judgment-creditor, provided that the application is submitted within one year from discovering such fraud or the cessation of force.

Such restrictions make sure that the innocent purchasers are also taken care of and that they do not face any disadvantage for being a part of a transaction with bona fide intention.

Important Case Law

Mahabir Kishore v. State of M.P., AIR 1990 SC 313

This is a classic case regarding Section 17 of the Act, particularly Section 17(1)(c), which provides relief in the limitation period in case of a mistake, wherein the matter involves the mistake of law. When charged with additional fees for the manufacture and sale of liquor, a court ruled against such fees, however, the government persisted in collecting such fees. When people approached trial court for relief, the suit was barred by limitation to seek a refund which was upheld by the High Court. Therefore, the aggrieved parties approached the Supreme Court where the court decided on the question whether such suit was barred by limitation law or not.

The court observed that in situations where a payment is made due to a mistake of law, as opposed to a mistake of fact, the error is generally realized by the party only when a court declares such law as invalid. Identifying a mistake of law is rarely possible unless a judgment affirms the law’s validity, unlike mistakes of fact, which can often be discovered with reasonable diligence or care, even before a court rules on it. The need for a court’s judgment on the invalidity of the law generally signifies that the parties may not readily distinguish legal mistakes without the authoritative intervention of a judicial decision.

Through various precedents, the apex court held that in a suit for refund of money which was paid by mistake of law, Section 72 of the Indian Contract Act, 1872 becomes applicable and the prescribed limitation period of three years as well as Section 17(1)(c) of the Act will be applicable, allowing for the run of the limitation period from the date of knowledge of the law, under which the money was paid, being pronounced as void. The date of such knowledge will be the date of the judgment of a competent court declaring such law to be void.

In such a scenario, the High Court judgment was set aside and the appeal was allowed. The Supreme Court allowed for the condonation of delay owing to the mistake of law.

Conclusion

Section 17 of the Limitation Act, 1963 is an essential provision depicting the balance between adherence to law and the administration of justice. By bringing flexibility to the rigid timelines of the law of limitation in case of fraud or mistake, it allows meritorious cases to have their day in court and exercise their right to seek legal remedy. In addition, there are reasonable restrictions which prevent misuse of such relief. It also makes sure that the negligence of a party in not being able to discover the mistake or fraud by not exercising due diligence is not awarded either. A combination of all such provisions in Section 17 points towards the ethics of the Limitation Act, making it quite indispensable to the Act.

References

[1] Dr. Medha Kolhatkar, Commentary on the Limitation Act, 12th Edition, 2019

[2] U.N. Mitra, Law of Limitation and Prescription Law, 16th edition, 2021

[3] Law of Limitation, 1963, Available Here

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