Limitation Under Art. 68 & 91(a) Runs From 'Date Of Actual Knowledge' Of Misappropriation: Delhi High Court

The Delhi High Court has clarified that the phrase "first learns" used in the Limitation Act 1963 vide Articles 68 and 91(a) in its Schedule means "actual knowledge" of misappropriation and not merely "speculative knowledge."Limitation under Article 68 pertains to specific movable property lost, or acquired by theft, or dishonest misappropriation or conversion. The period of limitation is 3 years, time from which begins to run when the person having the right to the possession of the property first learns in whose possession it is.Similarly, Article 91(a) pertains to wrongfully taking or detaining any specific movable property lost, or acquired by theft, or dishonest misappropriation, or conversion. The period of limitation is three years, time fir which begins to run when the person having the right to the possession of the property first learns in whose possession it is.In this backdrop, Justice Prathiba M. Singh held:"the language `first learns' clearly means actual knowledge and not speculative knowledge. The knowledge cannot be by means of inference but ought to be clear knowledge. Such knowledge should include the factum as to the exact location of the movable property, as to who is in possession of the same or the proceeds thereof."Background The Plaintiffs had vested certain shares with the Defendants. The suit was filed alleging that Defendant had misappropriated the sales of the shares. However, the misappropriation came to light in 2005 vide receipt of transaction statement by the Plaintiff, while the actual sale occurred in 2003. Thus, the Court was seized with the issue of the time from which the Limitation Period started. The Trial Court and Appellate Court had found the Defendant guilty of misappropriation. However, on Limitation, the Courts held that since the actual sales were in 2003, the applicable limitation period of three years expired in 2006. However, the suit was filed in 2008. Therefore, the suit was barred by Limitation. This issue of expiry of Limitation came up for adjudication before the Delhi High Court. "First Learns" in A. 68/91(a) Relying on a catena of High Court decisions and Supreme Court precedents, the Court came to the conclusion that the language "first learns" in both these provisions, clearly means actual knowledge and not speculative knowledge. Citing the Supreme Court in Standard Chartered Bank v. Andhra Bank Financial Services Ltd. Ors., (2016) 1 SCC 207, the Court quoted as follows in the context of these provisions: "the period of limitation shall start running from the date when the person "first learns "… A mere suspicion or a whisper of knowledge is not enough for the period of limitation to start running." "In order for a proceeding to be filed seeking recovery of moveable property or for compensation in lieu thereof, it would not be sufficient if the Plaintiff has merely been informed of a possibility of the location or possession. A mere possibility would not amount to knowledge in the absence of some concrete information," it was held. Burden of Proof On the aspect of Burden of Proof of proving actual knowledge, the Court citing Standard Chartered quoted as follows: "Obviously where a person has a right to sue within three years from the date of his coming to know of a certain fact, it is for him to prove that he had the knowledge of the said fact on a particular date, for the said fact would be within his peculiar knowledge." The Court found that Defendant had evaded all attempts to seek inquiry on the shares by the Plaintiffs. The Defendant had simply denied most Plaint pleadings save for one defense. The Defendant claimed that the sales were made on the instructions of the Plaintiffs and that the Defendants had not misappropriated any sale proceeds. However, Defendant had not adduced any evidence to this effect. Thus, the Defendant had failed to disprove its defense of not withholding the sale proceeds. Ruling As the Period of Limitation ran from the date of actual knowledge of possession of the misappropriated property, evidenced by the receipt of transaction statement in 2005 by the Plaintiffs, the suit was within the Limitation Period. Finding the Trial Court and Appellate Court in error after finding the Defendant guilty of misappropriating the Plaintiff's share, the Court allowed this second Appeal with the following directions for compensation: "A decree for recovery of money is passed in favour of the Plaintiffs and against Defendant No.2 for a sum of Rs.1,15,400/- along with interest @ 9% per annum from the date of institution of the suit i.e., 30th July, 2008 till date of actual payment." Case Name: K.N. Rao & Anr. V. M/s. Composite Securities Ltd. & Ors. Citation: 2022 LiveLaw (Del) 77 Date of Judgment: 28.1.2022 Coram: Justice Prathiba M. Singh Click Here To Read/Download Order

Limitation Under Art. 68 & 91(a) Runs From 'Date Of Actual Knowledge' Of Misappropriation: Delhi High Court

Prateek Chakraverty

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Limitation Under Art. 68 & 91(a) Runs From 'Date Of Actual Knowledge' Of Misappropriation: Delhi High Court

Prateek Chakraverty

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