Limitation for recovery from an employee begins upon shortage assessment, not subsequent demand.

Mohinder Pal, initially appointed as Sectional Officer (Civil) and later designated Junior Engineer (Civil), was placed in charge of five rural housing works and received construction materials from departmental stores and market sources.

He was required to maintain accounts of the materials received, consumed, transferred, or left unused.

On verification, the Board alleged that material valued at Rs. 1,26,650.30 had not been accounted for, and that Mohinder Pal had neither returned nor shown its transfer to another work.

A shortage/assessment report was forwarded by the Assistant Engineer to the Divisional Engineer on 25.02.1983.

Mohinder Pal was removed from service on 30.04.1985, and was thereafter called upon to reimburse the loss by letter dated 07.08.1985.

The Board instituted the recovery suit on 03.05.1988.

The Trial Court decreed the suit, holding it to be within limitation under Article 3 of the Limitation Act, 1963. The First Appellate Court reversed the decree, holding that the suit was governed by the employer–employee relationship and was barred by limitation. The Board preferred the present Regular Second Appeal.

Whether the suit for recovery of the value of unaccounted construction material was governed by Article 3 or Article 113 of the Limitation Act, 1963?

Whether the right to sue accrued when the shortage was assessed and reported on 25.02.1983, or only when a formal demand for reimbursement was issued on 07.08.1985?

Whether the recovery suit instituted on 03.05.1988 was barred by the three-year limitation period?

Article 3 of the Limitation Act, 1963 applies to a suit by a principal against an agent for movable property received by the agent and not accounted for; it does not govern a claim arising from an ordinary employer–employee relationship.

In the absence of a specific limitation provision, Article 113 applies and prescribes three years from the date on which the right to sue accrues.

Relying on Indian Evangelical Lutheran Church Trust Association v. Sri Bala & Co., 2025 INSC 42, and State of Punjab v. Gurdev Singh, (1991) 4 SCC 1, the Court held that the right to sue accrues when the plaintiff’s right is clearly and unequivocally violated or threatened; a subsequent demand or correspondence cannot extend or postpone limitation once it has commenced.

The Court held that the relationship between the Board and Mohinder Pal was that of employer and employee, not principal and agent. Accordingly, Article 3 was inapplicable and Article 113 governed the suit.

The alleged loss had already been assessed and reported on 25.02.1983, when the Board obtained a clear basis for asserting that material entrusted to Mohinder Pal was unaccounted for. That assessment constituted the infringement of the Board’s asserted right and triggered limitation.

The subsequent removal order dated 30.04.1985 and demand letter dated 07.08.1985 merely reiterated a claim that had already accrued; they could not revive or extend the limitation period.

Since the suit was filed on 03.05.1988, more than three years after 25.02.1983, it was barred by limitation.

It held that the suit was governed by Article 113 of the Limitation Act, 1963, that the cause of action accrued on 25.02.1983 when the shortage was assessed and reported, and that the demand issued on 07.08.1985 could not postpone limitation.

The recovery claim for Rs. 1,26,650.30 was therefore held time-barred.

Any pending application was also disposed of.