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Report No. 89

Chapter 17

Fraud and Mistake

17.1. Section.-Effect of fraud or mistake on limitation.- In general, a person's ignorance of his right to sue does not suspend the running of limitation. However, it has been recognised for a long time that "the right of a party defrauded is not affected by lapse of time so long as he remains, without any fault of his own, in ignorance of the fraud which has been committed"1 Acting on this principle, section 17 provides that in the case of certain types of fraud, the period of limitation shall not start running until the fraud has been discovered. This, of course, is only a broad statement of the principle, several matters of detail which are dealt with in the section will be mentioned in due course.

More or less the same principle is applied by the Act where relief from the consequences of a mistake is the very basis of the cause of action, the period of limitation shall not begin to run until the plaintiff or applicant has discovered the mistake.

In both these cases, the relaxation is given by the Act itself In addition, there is a third case where the Act gives a power to the court to extend the period of limitation on the ground of fraud. Where a judgment debtor has, by fraud or force, prevented the execution of a decree or order within the period of limitation, on the ground of fraud.

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 judgment creditor's application made after the expiry of the period prescribed for execution, extend the period, if the application is made within one year from the date of discovery of fraud or the cessation of the force, as the case may be. Incidentally, this provision takes in not only fra.-a circumstance that affects knowledge, but also for.-a circumstance that affects the exercise of the right, and not its knowledge.

1. Rolfe v. Gregory, (1864) 4 De GJ&S 576 (579) (Lord Westbury).

17.2. Sources of the contents of the section.- The section may appear to be rather long; this is due to several factors, mainly historical. The main subject of the secti.-fra.-was dealt in the Act of 1908 in section 19.

However, that section did not specifically deal with a cause of action which itself was founded on fraud; it dealt only with fraud that prevented knowledge of a right already accrued. The Law Commission, in its Report1 on the earlier Act, considered it proper that that case should be includ.-as in the English Act.2

Secondly, as recommended by the Law Commission, in the same Report the case of mistake has also been covered in the present Act again, on the lines of the English Act. In India, the earlier Limitation Act of 1908 did not contain a provision for mistake in the body of the Act. Article 96 of that Act, however, laid down a period of three years for a suit "For relief on the ground of mistake" and provided that the starting point shall be "When the mistake becomes known to the plaintiff."

Thus, fraud and mistake are the matters dealt with in section 17(1). Sub¬section (2) of the section, relating to fraud or force preventing the execution of a decree, is derived from section 48(2) proviso of the Code of Civil Procedure, 1908.

Section 48 was repealed (as recommended by the Law Commission in its report on the Limitation Act, 1908) but it was necessary to retain, on the statute book, this part of section 48 and the Law Commission recommended that it should find a place in the Limitation Act, in the section dealing with fraud.3

1. Law Commission of India, 3rd Report (Limitation Act, 1908), paras. 48-49.

2. Section 26, Limitation Act, 1939 (English).

3. Law Commission of India, 3rd Report (Limitation Act, 1908), paras. 48-49.

17.3. Comparative study of Indian and English Law.- At this stage, it would be useful to refer to certain developments in this field in the United Kingdom. Section 26 of the U.K. Limitation Act 19391, as it stands after its revision by the Limitation Amendment Act 19802 is reproduced below as of interest:

"Postponement of limitation period in case of fraud, concealment or mistake-

26. (1) Subject to sub-section (3) of this section, where in the case of any action for which a period of limitation is prescribed by this Act, eith.-

(a) the action is based upon the fraud of the defendant; or

(b) any fact relevant to the plaintiffs right of action has been deliberately concealed from him by the defendant; or

(c) the action is for relief from the consequences of a mistakes; the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

(2) For the purposes of the last foregoing sub-section, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.

(3) Nothing in this section shall enable any acti.-

(a) to recover, or recover the value of, any property; or

(b) to enforce any charge against, or set aside any transaction affecting, any property; to be brought against the purchaser of the property or any person claiming through him in any case where the property has been purchased for valuable consideration by an innocent third party since the fraud or concealment or (as the case may be) the transaction in which the mistake was made, took place.

(4) A purchaser is an innocent third party for the purposes of this secti.-

(a) in the case of fraud or concealment of any fact relevant to the plaintiff's right of action, if he was not a party to the fraud or (as the case may be) to the concealment of that fact and did not at the time of the purchase know or have reason to believe that the fraud or concealment had taken place; and

(b) in the case of mistake if he did not at the time of the purchase know or have reason to believe that the mistake had been made.

Case law that has accumulated on the above provision in England though of interest need not be mentioned here as it is not material for the purposes of the present Report.

1. Limitation Act, 1939 (2 & 3 Geo. 6, C. 21), (English).

2. Limitation (Amendment) Act, 1980, C. 24 (English).

17.4. Wide meaning to the word 'fraud' in England.- The English authorities have been interpreting the word 'fraud' very widely and have been regarding dishonesty as fraud for the purposes of the Limitation Act, even if the conduct in question, would not constitute fraud at common law.1-2

"The contention on behalf of the appellants that the statute is a bar unless the wrong doer is proved to have taken active measures in order to prevent detention is opposed to common sense as well as to the principles of equity. Two men, acting independently, steal a neighbour's coal. One is so clumsily in his operations, or so incautious, that he has to do something more in order to conceal his fraud.

The other chooses his opportunity so wisely, and acts so warily, that he can safely calculate on not being found out for many a long day. Why is the one to get scot-free at the end of a limited period rather than the other? It would be something of a mockery for courts of equity to denounce fraud as "a secret thing", and to profess to punish it sooner or later, and then to hold out a reward for the cunning that makes detection difficult or remote."

We do not, of course, propose any change in the article in our Act on this point.

1. Beaman v. A.R.T.S. Ltd., (1949) 1 All ER 465.

2. Built Coal Mining Co. v. Osborne, 1899 AC 351.

17.5. Fraud subsequent to accrual of cause of action.- In relation to section 17, we first deal with a few cases relating to fraud subsequent to accrual of the cause of action. In a Calcutta case1, the father of a minor obtained a decree, but died before its execution. The judgment debtor got himself appointed as guardian of the minor's property, but did not disclose to the Court his indebtedness to the minor under the decree. It was held that the judgment debtor, once he became a guardian, was under an obligation to make a full disclosure to the court of his indebtedness. His non-disclosure amounted to a fraud, both on the court and on the minor.

The Madras Law Journal, commenting on this case (while recognising that substantial justice was done in the case), doubted whether an act of fraud committed after accrual of the cause of action is within the section.2

The view of the Madras High Court3 is also to the effect that section 18 of the Limitation Act, 1908 cannot apply to a case where there was no fraud at the date when the cause of action arose, but a subsequent act of fraud was relied on to save limitation.

The Patna High Court4, while commenting upon section 18 (of the Act of 1908) in connection with an application under Order 21, rule 90 of the Civil Procedure Code, 1908, observe.-

"It is clear from the language of this section that the petitioner, in order to get the benefit of it, must satisfy the Court that he had been kept from the knowledge of his right to file an application to set aside the sale by the opposite party. His right to set aside the sale clearly accrues after the sale. Therefore, the fraud perpetrated by the opposite party must be a fraud committed after the sale and not fraud committed in bringing about the sale: and the fraud must be one by which the petitioner has been kept from the knowledge of his right to file, the application to set aside the sale."

In the absence of later case law continuing the controversy, no change is needed.

1. Gobinda Lal v. Nalini Kanto, AIR 1925 Cal 584: ILR 52 Cal 63.

2. Comment in (1925) 48 Nip (Journal) 31.

3. Ramalagu Serval v. Solai Seroai, AIR 1921 Mad 283.

4. Jagdhar v. Dhorai, AIR 1920 Pat 725.

17.6. The Indian law.- Unlike the English law (where there is no general statutory definition of "fraud"), the Indian Contract Act, 1872 defines "fraud". Case law that has developed in India around this statutory definition governs the concept of fraud, so far as that Act is concerned. Limiting ourselves to the law as contained in section 17 of the Limitation Act, we find that it would not be inconsistent with the scheme of things if we give a wider meaning and content to the word "fraud" for the purpose of the Limitation Act, leaving the definition of "fraud" in the Contract Act unaltered.

That is to say, on proof, of the existence of certain circumstances, a plaintiff would be able to cross the first hurdle of limitation and to seek postponement of the point from which time shall begin to run against him under the Limitation Act. This would be regardless of the question whether the matter is tried on merits, the same set of circumstances is to be regarded as sufficient to enable him to obtain a judgment against the defendant on the ground of "fraud" as a matter of substantive rights.

17.7. English provision.- As adumbrated earlier1, in England section 26 of the Limitation Act has been amended to enlarge the concept of fraud law or equity. The debates show that it was the intention of the legislature to allow the courts to develop this field of law. A general proposition enunciated by Lord Evershed M.R. "that fraud is conduct or inactivity which, having regard to some special relation¬ship between the parties concerned, was an unconscionable thing for the one to do towards the other" appears to us to be a tersely comprehensive statement of the position2.

1. See para. 17.3, supra.

2. Kitchen v. R.A.F. Association, (1958) 3 All ER 241 (247).

17.8. Principle of English provision to be incorporated.- We are of the view that a suitable Explanation should be added to section 17 of the Limitation Act, taking the substance from the English provision as to unconscionable conduct1. In principle, we find the English provision a useful one.

1. For the draft, see end of this Chapter.

17.9. Mistake and the case of the unconstitutional statute.- Besides dealing with fraud, section 17 also deals with relief based on mistake. The use of the expression 'mistake' raises the question of relief claimed by a person on the ground that a statute or statutory instrument on the strength of which his rights had been interfered with has been found to be unconstitutional. There are a few decisions of the Supreme Court of India on the subject, to be noticed presently.



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