The effect of substituting or adding a new plaintiff or defendant with reference to the date of institution of a suit is primarily governed by Section 21 of the Limitation Act, 1963. This section addresses the crucial issue of when the suit is deemed to have been instituted against or by the newly added or substituted party for the purpose of calculating the limitation period.

General Rule (Section 21(1)): The general rule established by Section 21(1) is that where, after the institution of a suit, a new plaintiff or defendant is substituted or added, the suit, as regards him, shall be deemed to have been instituted when he was so made a party. This means that the date of institution of the suit for the new party is not the original date when the suit was filed, but the date on which the application for adding or substituting them was made, or the date on which the court actually passed the order to add/substitute them.

Implication of the General Rule: This rule can have significant consequences. If the period of limitation for filing a suit against or by the new party has already expired by the time they are added or substituted, the suit against or by them will be time-barred, even if the original suit was filed within the limitation period. The new party cannot benefit from the 'relation back' doctrine to the original date of institution.

Proviso to Section 21(1) – Exception for Good Faith Mistake: The proviso to Section 21(1) introduces an important exception to the general rule. It states that if the court is satisfied that the omission to include a new plaintiff or defendant was due to a mistake made in good faith, it may direct that the suit, as regards such plaintiff or defendant, shall be deemed to have been instituted on any earlier date. This earlier date could even be the original date of institution of the suit.

Conditions for applying the Proviso:

• There must be a 'mistake' in omitting the party.
• The mistake must have been made 'in good faith'. Good faith implies due care and attention.
• The court has discretion to allow the relation back to an earlier date.

This proviso aims to prevent injustice where a genuine, honest mistake occurred in not impleading a necessary or proper party initially. For instance, if a plaintiff sues a wrong person due to a bona fide error in identity, and later seeks to substitute the correct defendant, the court may allow the substitution to relate back to the original date, provided the mistake was in good faith.

Section 21(2) – Assignment or Devolution of Interest: Section 21(2) clarifies that nothing in sub-section (1) applies to a case where a party is added or substituted owing to an assignment or devolution of any interest during the pendency of a suit. This covers situations where:

• A party dies, and their legal representatives are brought on record (e.g., under Order XXII, Rule 3 or 4 of CPC).
• A party transfers their interest in the subject matter of the suit to another person during the pendency of the suit (e.g., under Order XXII, Rule 10 of CPC).

In such cases, the legal representatives or assignees are not considered 'new' parties in the sense of Section 21(1). The suit is deemed to continue from its original date of institution, and the question of limitation under Section 21(1) does not arise for these parties. Their addition or substitution merely represents a continuation of the original cause of action by or against the successor-in-interest.

In summary, while the general rule is that adding or substituting parties does not relate back to the original date of the suit, potentially leading to limitation issues, the Limitation Act provides crucial exceptions for good faith mistakes and for cases of assignment or devolution of interest, ensuring that justice is served without unduly penalizing genuine errors or natural changes in party status.