Supreme Court settles limitation period for recovery of money in commercial transactions: Krishna Gopal Kakani vs. Bank of Baroda (2008)

Date of the Judgment: September 30, 2008

Citation: [Not Available in Source]

Judges: Tarun Chatterjee, J., Harjit Singh Bedi, J.

When does the limitation period begin for recovering money in a commercial transaction? The Supreme Court of India addressed this question in a case involving a dispute between Krishna Gopal Kakani and Bank of Baroda. The court clarified the applicability of the Limitation Act, specifically concerning suits against trustees and the period within which a suit for recovery of money must be filed. This judgment was delivered by a bench comprising Justice Tarun Chatterjee and Justice Harjit Singh Bedi.

Case Background

In 1973, Krishna Gopal Kakani, proprietor of M/s. Oriental Traders, obtained a letter of authority to import raw materials. He approached Bank of Baroda for Letters of Credit, depositing 10% margin money on two Letters of Credit opened in August and September 1973. The Letters of Credit were negotiated in early 1974.

The imported consignment arrived on March 13, 1974, but Bombay Customs refused to release the goods. Facing demurrage charges and potential auction by the Port Trust, Kakani and the Bank (as joint-holders of the import license) approached the Bombay High Court. The Bank filed Miscellaneous Application No. 950/1975, with Kakani as respondent No. 7, asserting their rights as joint-holders.

On November 19, 1975, the Bombay High Court directed the sale of goods by public auction. The proceeds, amounting to Rs. 4,72,714.16, were deposited with the Prothonotary and Senior Master of the High Court, to be held subject to the rights of the parties and further orders of the High Court.

Miscellaneous Application No. 950/1975 was disposed of on October 3, 1979, directing the Bank to receive the deposited amount but to defray Rs. 8044.18 to the Bombay Port Trust for demurrage and to pay customs duty. Subsequently, the Bank withdrew a civil suit filed against Kakani in Indore on December 31, 1976.

On November 19, 1980, Kakani requested the Bank to refund the surplus amount and margin money. The Bank initially indicated the money would be paid after receiving orders from the Bombay Head Office. Despite reminders and communications between 1980 and 1988, the matter remained unresolved.

In 1986, Kakani consented to a proposal to adjust his dues against the debts of R.M. Patwa, another debtor of the Bank. Although the Bank initially agreed, it withdrew its consent on September 14, 1990. Kakani then filed Writ Petition No. 2840 of 1991 in the Bombay High Court, which was dismissed on October 25, 1991, due to delay. A subsequent Special Leave Petition was also dismissed.

In the execution petition related to R.M. Patwa’s case, the court initially directed the adjustment of Patwa’s debt against Kakani’s dues, but this order was overturned by the Supreme Court on January 12, 1996.

The present suit was filed on September 8, 1997, with Kakani claiming the cause of action arose on February 24, 1995, when the Bank filed a statement of accounts in the High Court. The Bank contended that the suit was time-barred, as it was filed more than 17 years after November 19, 1980.

Timeline

Course of Proceedings

The trial court decreed the suit in favor of Kakani, concluding that the Bank was a trustee of Kakani’s money and that the suit was not barred by limitation under Section 10 of the Limitation Act. Alternatively, the trial court held that the cause of action arose on August 1, 1997, when the demand notice was issued, or on February 24, 1995, when the statement of accounts was submitted in the Patwa case.

The Gujarat High Court reversed the trial court’s order, observing that the Bank was not a trustee and that the matter pertained to a commercial transaction. The High Court noted that Kakani was aware of the Bombay High Court’s directions for the public auction and deposit of proceeds, and should have raised objections earlier. The High Court also found that the suit was governed by Articles 22 and 24 of the Limitation Act, with a limitation period of three years from the date of money receipt or first demand.

Legal Framework

The judgment discusses the applicability of several legal provisions:

• Section 10 of the Limitation Act: This section deals with suits against trustees and their representatives, stating that “no suit against a person in whom property has become vested in trust for any specific purpose…shall be barred by any length of time.”
• Sections 9, 10, 14, and 19 of the Indian Trusts Act 1894: These sections relate to the creation of a trust.
• Section 88 of the Indian Trusts Act 1894: This section addresses advantages gained by a fiduciary, stating, “Where a trustee, executor, partner, agent, director of a company, legal advisor, or other person bound in a fiduciary character to protect the interests of another person…gains for himself any pecuniary advantage, he must hold for the benefit of such other person the advantage so gained.”
• Article 113 of the Limitation Act: This article provides a three-year limitation period for suits for which no specific period is provided elsewhere, running from “when the right to sue accrues.”
• Articles 22 and 24 of the Limitation Act: These articles relate to suits for money payable to the plaintiff for money received by the defendant, with a limitation period of three years.

Arguments

Appellant’s Arguments:

• Mr. Tapan Ray, the learned senior counsel for the appellant, argued that the suit was governed by Section 10 of the Limitation Act, or alternatively, Article 113 thereof, and that the High Court’s finding that it was governed by Articles 22 and 24 was erroneous.
• It was also submitted that it was not open to a Public Sector Undertaking such as the respondent-Bank to take the plea of limitation.
• Reliance was placed on Canbank Financial Services Ltd vs. Custodian & Ors. (2004) 8 SCC 355 to contend that a Banker holding a customer’s money would do so in a fiduciary capacity, making Section 10 of the Act applicable.
• The limitation period should start from February 24, 1995, when the accounts were submitted by the Bank in Court.

Respondent’s Arguments:

• The learned counsel for the respondent argued that Section 10 of the Act pertained to suits against trustees and their representatives, and that there was no element of the creation of a trust in this case.
• Even if Article 113 were applicable, it provided for a limitation of 3 years from the time when the right to sue accrued, and as the appellant had admitted that a demand had been made on several occasions from 1980 onwards, the right to sue would have accrued from that date.
• The suit was one for recovery of money simpliciter and would be governed by Article 22 or 24 of the Act.
• The appellant had slept over the matter for years, and all pleas were open to the defendant.

Issues Framed by the Supreme Court

1. Whether the suit was governed by Section 10 of the Limitation Act, or alternatively, Article 113 thereof.

Treatment of the Issue by the Court

Authorities

Cases Relied Upon by the Court:

• Canbank Financial Services Ltd vs. Custodian & Ors. (2004) 8 SCC 355 (Supreme Court of India): The appellant argued that this case supported the view that a banker holding a customer’s money would do so in a fiduciary capacity, thus making Section 10 of the Limitation Act applicable. However, the Court distinguished this case, noting that it related to a situation where funds were utilized by stock-brokers under specific instructions, which was not the case here.
• Mst. Rukhmabai vs. Lala Laxminarayan & Ors. AIR 1960 SC 335 (Supreme Court of India): This case was cited to determine when the right to sue accrues under Article 120 of the Limitation Act of 1908 (which corresponds to Article 113 of the 1963 Act). The Court observed that the right to sue accrues when the defendant has clearly and unequivocally threatened to infringe the right asserted by the plaintiff.
• M.V.S. Manikayala Rao vs. M.Narasimhaswami & Ors. AIR 1966 SC 470 (Supreme Court of India): This case followed the principle established in Mst. Rukhmabai vs. Lala Laxminarayan & Ors. regarding the accrual of the right to sue.
• The Madras Port Trust vs. Hymanshu International AIR 1979 SC 1144 (Supreme Court of India): This case was cited by the appellant to argue that a Public Sector Undertaking should not raise a plea of limitation. However, the Court distinguished this case, noting that the suit had already been decreed in favor of the private party, and the government department concerned supported the claim.
• UCO Bank vs. Hem Chandra Sarkar AIR 1990 SC 1329 (Supreme Court of India): This case was also cited by the appellant to argue against raising a plea of limitation. The Court distinguished this case, noting that the bank had received the price of goods but failed to deliver them, and this fact had been virtually admitted by the bank’s representative.

Legal Provisions Considered by the Court:

• Section 10 of the Limitation Act: This section deals with suits against trustees and their representatives. The Court analyzed whether the Bank could be considered a trustee in this case.
• Sections 9, 10, 14, and 19 of the Indian Trusts Act 1894: These sections relate to the creation of a trust. The Court considered whether a trust had been created in this case.
• Section 88 of the Indian Trusts Act 1894: This section addresses advantages gained by a fiduciary. The Court analyzed whether a fiduciary relationship existed between the Bank and the appellant.
• Article 113 of the Limitation Act: This article provides a three-year limitation period for suits for which no specific period is provided elsewhere. The Court considered when the right to sue accrued under this article.
• Articles 22 and 24 of the Limitation Act: These articles relate to suits for money payable to the plaintiff for money received by the defendant. The High Court had applied these articles, and the Supreme Court considered their applicability.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Canbank Financial Services Ltd vs. Custodian & Ors. (2004) 8 SCC 355: The Court distinguished this case, noting that it related to a different factual scenario involving specific instructions from Hiten Dalal.
• Mst. Rukhmabai vs. Lala Laxminarayan & Ors. AIR 1960 SC 335: The Court applied the principle that the right to sue accrues when the defendant has clearly and unequivocally threatened to infringe the right asserted by the plaintiff.
• M.V.S. Manikayala Rao vs. M.Narasimhaswami & Ors. AIR 1966 SC 470: The Court followed the principle established in Mst. Rukhmabai vs. Lala Laxminarayan & Ors.
• The Madras Port Trust vs. Hymanshu International AIR 1979 SC 1144: The Court distinguished this case, noting that the suit had already been decreed in favor of the private party, and the government department concerned supported the claim.
• UCO Bank vs. Hem Chandra Sarkar AIR 1990 SC 1329: The Court distinguished this case, noting that the bank had received the price of goods but failed to deliver them, and this fact had been virtually admitted by the bank’s representative.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Appellant’s Inaction: The Court repeatedly emphasized the appellant’s prolonged inaction in pursuing his remedies. Despite making demands from 1980 onwards and even threatening legal action in 1988, the appellant did not file the suit until 1997, well beyond the limitation period.
• Lack of Trust Relationship: The Court found no evidence to support the existence of a trust relationship between the appellant and the Bank. The deposit of money with the Bank was a result of a court order and did not create a fiduciary duty.
• Awareness of Proceedings: The Court noted that the appellant was aware of the proceedings in Miscellaneous Application No. 950 of 1975 but did not participate or share the expenses.

Fact:Law Ratio

Logical Reasoning

Key Takeaways

• The limitation period for suits seeking recovery of money in commercial transactions is strictly enforced.
• The absence of a trust or fiduciary relationship is crucial in determining the applicability of Section 10 of the Limitation Act.
• Parties must act diligently and promptly to pursue their legal remedies within the prescribed limitation period.

Development of Law

The ratio decidendi of this case is that the limitation period for suits seeking recovery of money in commercial transactions is strictly enforced, and the absence of a trust or fiduciary relationship is crucial in determining the applicability of Section 10 of the Limitation Act. There is no change in the previous position of law.

Conclusion

The Supreme Court dismissed the appeal, upholding the High Court’s decision that the suit was barred by limitation. The Court found that no trust relationship existed between the appellant and the Bank, and the suit was filed well beyond the prescribed limitation period.