Companies Act Case Law Ramesh B. Desai and others Vs Bipin Vadilal Mehta and others

CASE NO.:
Appeal (civil) 4766 of 2001

PETITIONER:
Ramesh B. Desai and others

RESPONDENT:
Bipin Vadilal Mehta and others

DATE OF JUDGMENT: 11/07/2006

BENCH:
Ashok Bhan & G.P. Mathur

JUDGMENT:
J U D G M E N T
G.P. Mathur, J.

This appeal, by special leave, has been preferred against the
judgment and order dated 10.3.2000 of a Division Bench of High
Court of Gujarat by which the appeal preferred against the order dated
12.3.1996 of the learned Company Judge, was dismissed and the order
of the learned Company Judge dismissing the Company Petition No.
35 of 1988, was affirmed.
2. The appellants had filed the Company Petition No. 35 of 1988
for rectification of the register of the company M/s. Sayaji Industries
Ltd. (hereinafter referred as to “the Company”) as provided by
Section 155 of the Companies Act. The respondent Nos. 1 and 2, viz.,
Bipin Vadilal Mehta and Priyam Bipinbhai Mehta moved Company
Application No. 113 of 1995 before the learned Company Judge to
dismiss the Company Petition No. 35 of 1988, without going into the
merits of the petition, on the ground that the same is barred by
limitation. This application was allowed by the learned Company
Judge by the judgment and order dated 12.3.1996 and the said order
was affirmed in appeal by a Division Bench of the High Court by the
judgment and order dated 10.3.2000, which are subject-matter of
challenge in the present appeal.
3. The Company Petition No. 35 of 1988 was filed by Ramesh B.
Desai and 8 others, who are shareholders of the Company, which is a
public limited company. The allegations made in the company
petition are as follows. Vadilal Lallubhai Mehta was the Chairman
and Managing Director of the Company. He had two sons, viz., Bipin
Vadilal Mehta and Suhas Vadilal Mehta (for short “Bipinbhai and
Suhasbhai”) and four daughters, who are all married. The family
owned several properties. Besides shares in the Company, there was
HUF Trust and other private limited companies under control of the
said family. A Memorandum of Understanding (MOU) was executed
by the family members on 30.1.1982 and the main object thereof was
to entrust the management of some of the companies to Bipinbhai and
some to Suhasbhai. It was decided that the management of M/s.
Sayaji Industries Ltd. and M/s. C.V. Mehta Private Ltd. was to be
entrusted to Bipinbhai while other companies such as M/s. Industrial
Machinery Manufacturers Pvt. Ltd., M/s. C. Doctor and Company
Pvt. Ltd., M/s. Mehta Machinery Manufacturers Pvt. Ltd. and M/s.
Oriental Corporation Pvt. Ltd., were to remain with Suhasbhai.
Clause 10 of MOU provided that Bipinbhai should deposit Rs.40 lacs
and odd with M/s. C.V. Mehta Pvt. Ltd. in order that the latter could
pay back the debts which it owed to Suhasbhai and his family
members and family concerns. This amount of Rs.40 lacs and odd
was the consideration for getting the controlling interest and
management of M/s. Sayaji Industries Ltd. and M/s. C.V. Mehta Pvt.
Ltd. Though under the terms of the MOU the said amount of Rs.40
lacs and odd was to be paid by Bipinbhai immediately, but he could
not do so as he could not arrange the necessary funds. The result of
non-payment by Bipinbhai was that he could not get the control and
management of M/s. Sayaji Industries Ltd. and M/s. C.V. Mehta Pvt.
Ltd. in January, 1982 as was contemplated by the MOU dated
30.1.1982. A modified MOU was accordingly executed on
13.11.1982 whereunder it was provided that Bipinbhai would pay the
entire amount in two instalments, one in the sum of Rs.20 lacs
pursuant to which the control and management of M/s. Sayaji
Industries Ltd. were to be transferred to him by making the transfer of
13,000 shares of the Company in his name and in the names of his
family members. The balance amount of Rs.19 lacs and odd was to
be deposited by Bipinbhai with M/s. C.V. Mehta Pvt. Ltd. within a
period of 24 months from the date of the agreement. This was
necessary as M/s. C.V. Mehta Pvt. Ltd. held 9,000 equity shares of
M/s. Sayaji Industries Ltd. Acquisition and control of M/s. C.V.
Mehta Pvt. Ltd. and thereby 9,000 equity shares of M/s. Sayaji
Industries Ltd. would have been possible only after payment of the
said amount. It is further averred in the company petition that
Bipinbhai was not in a position to pay or deposit Rs.20 lacs without
which he could not have got the controlling interest in M/s. Sayaji
Industries Ltd. He, therefore, devised a scheme whereunder the
Company, viz., M/s. Sayaji Industries Ltd. paid an amount of Rs.20
lacs by way of advance to M/s. Santosh Starch Products by means of
three cheques of Rs.10 lacs and Rs.5 lacs (both dated 13.11.1982) and
third cheque of Rs.5 lacs dated 25.11.1982, all drawn on Punjab
National Bank, Maskati Market Branch, Ahmedabad. The said M/s.
Santosh Starch Products paid an amount of Rs.20 lacs to Bipinbhai
and his family by means of three cheques of Rs.7 lacs, 6 lacs and 7
lacs all dated 13.11.1982 and drawn on the same branch of Punjab
National Bank. The aforesaid amount paid through cheques was
deposited in the personal account of Bipinbhai and his family
members on the same day. This whole amount of Rs.20 lacs was
transferred to M/s. C.V. Mehta Pvt. Ltd. in order to get control of the
company M/s. Sayaji Industries Ltd. as per the MOU. The specific
case of the petitioners in the company petition is that the funds of the
company amounting to Rs.20 lacs were utilized by Bipinbhai in
paying the said amount to M/s. C.V. Mehta Pvt. Ltd. for the purpose
of acquiring the shares of M/s. Sayaji Industries Ltd. and thereby he
became the director of the said company. This camouflage was
adopted only to ensure that the violation of Section 77 of the
Companies Act, which provision imposes a restriction on a company
to buy its own shares unless the consequent reduction of capital is
effected and sanctioned in pursuance of Section 100 to 104 or Section
402 of the Companies Act, would not be known. The aforesaid devise
of payment of advance by the Company to M/s. Santosh Starch
Products also violated Article 20 of the Articles of Association.
Bipinbhai had thus devised a scheme whereunder funds of the
company were directly used for the purpose of acquiring shares of the
company and also that of M/s. C.V. Mehta Pvt. Ltd., which in turn
was holding substantial shares of M/s. Sayaji Industries Ltd. The
company had no knowledge of the devise adopted by Bipinbhai nor
the company had authorized these transactions by passing any
resolution of the Board and the Company never rectified the action of
Bipinbhai. Bipinbhai was inducted in the management of the
company on 18.11.1982 and payment of cheque by the Company to
M/s. Santosh Starch Products on 25.11.1982 represented act of the
Company itself and clearly showed that the funds of the company
were being utilized in order to benefit Bipinbhai and his family
members. The transactions whereunder shares of M/s. C.V. Mehta
Pvt. Ltd. were acquired related to the period when Bipinbhai had been
inducted in the management of the Company. The manner of
acquiring the control of M/s. C.V. Mehta Pvt. Ltd. was violative of
Section 77(2) of the Companies Act as it was only a devise for the
ultimate control of shares of M/s. Sayaji Industries Ltd. It was also
averred in the petition that Article 20 of the Articles of Association of
the Company stipulates that “none of the funds of the company shall
be employed in the purchase of shares of the company”. The
transaction devised by Bipinbhai in order to purchase the shares and
get control of the company is also contrary to Article 20 of the
Articles of Association of the Company and, therefore, it is void. It
was further pleaded in the company petition that the petitioners could
not detect the fraud earlier. They came to know about the same in
detail in the month of May, 1987 when a criminal complaint was filed
by some office bearers of the union of the Company before a criminal
court at Narol. After making enquiries and collecting information the
petitioner No. 1 gave a notice dated 14.6.1987 to the respondents to
make rectification in the register of the Company. It was accordingly
prayed in the Company Petition that directions may be issued to the
respondents to rectify the register of the Company in accordance with
Section 155 of the Companies Act and the names of Bipinbhai Vadilal
Mehta, Smt. Nirmaiben Bipinbhai Mehta and Priyambhai Bipinbhai
Mehta may be deleted from the register of the Company.
4. Though the Company Petition was filed on 10.11.1987 but after
nearly 8 years on 20.3.1995 an application being Application No. 113
of 1995 was filed by Bipinbhai and Priyambhai Mehta (respondent
Nos. 2 and 3 in the Company Petition) praying that the Company
Petition be dismissed as barred by limitation, without going into the
merits of the petition. The application was moved on the ground that
the Company Petition had been filed on 10.11.1987 seeking
rectification of the register and for deletion of names of respondents
Nos. 2 to 11 in accordance with Section 155 of the Companies Act.
The rectification had been sought in respect of shares registered in the
names of the respondents on 17.11.1982 and as the limitation for
moving such a petition was three years from the date of transfer of
shares, the period of limitation expired on 17.11.1985 and
consequently the company petition was barred by limitation. It was
submitted that the petition under Section 155 of the Companies Act,
which confers power on the court to decide the title, is in fact a suit
and it was only a summary proceeding in place of a suit and,
therefore, the period of limitation applicable for a suit would also
apply to such a petition. No application for condoning the delay
would be maintainable and the claim is extinguished on the expiry of
period of limitation. Assuming that the company petition is to be
construed as an application, even then the petition was barred in view
of Article 137 of the Limitation Act. The knowledge of the
proceedings was not relevant for the purpose of Article 137 because
for the purpose of such Article, limitation would start running from
the date the right accrues and the date of acquiring knowledge cannot
extend the period of limitation. It was also submitted that the
petitioners had asserted in the Company Petition that they came to
know about the transfer of shares and other details in the month of
May, 1987 when a criminal complaint was filed but the said complaint
had in fact been filed on 18.6.1987 whereas the petitioners had given
notice on 17.6.1987. It was further submitted that the petitioners in
the Company Petition had filed a separate application for condoning
the delay and since no order had been passed on the same, there was
no valid petition in the eyes of law.
5. The appellant No. 1 Ramesh B. Desai (petitioner No. 1 in the
Company Petition) filed reply on the grounds, inter alia, that the
application was not maintainable as the same had been filed when the
Company Petition had already been notified for final hearing and was
on the final hearing board. The Company Petition had been filed in
September, 1987 on which notice had been issued and respondent
Nos. 2 and 3 in the Company Petition filed their detailed affidavit and
reply on 22.3.1988 and the company also filed reply on the said date.
In their reply the contesting respondents raised a preliminary
objection regarding limitation and contended that on the preliminary
issue the main petition should be dismissed in limine. The said
preliminary objection was raised at the time of hearing and after
considering the objections the learned Company Judge considered it
appropriate to admit the main petition as far back as on 24.6.1988. It
was also submitted that by the order of the learned Company Judge
dated 17.2.1995 the Company Petition had already been fixed for final
hearing and in view of the said order the Company Application No.
113 of 1995 moved by the contesting respondents was not
maintainable at that stage and was liable to be dismissed. It was also
submitted that the contesting respondents wanted that the issue
regarding limitation should be heard as a preliminary issue which
cannot be done in law. The respondents had committed serious fraud
on the shareholders and also on the company and company’s funds
had been fraudulently utilized to purchase its own shares, which is
violative of Section 77 of the Companies Act. Whether there is a
fraud committed or not and whether in the circumstances of the case
delay can be condoned or not and what is the point of time for
commencement of limitation, are questions of fact and such questions
cannot be tried as a preliminary issue as they require evidence. It was
specifically asserted in para 4 of the affidavit filed in reply that the
question of limitation involved in the petition is not a pure question of
law as the same had to be decided on the basis of fraud, which will be
question of fact and the company court will have to decide whether
the petitioners in the company petition had got the knowledge of the
fraud and, if so, at what stage. This being a purely factual matter
could not be decided as a preliminary issue as the whole matter had to
be heard. That apart there being clear averments of fraud in the
Company Petition, under law, the limitation would start running only
from the date the fraud was discovered.
6. As mentioned earlier the learned Company Judge allowed the
Company Application No. 113 of 1995 and dismissed the Company
Petition as being barred by law of limitation. The appellants preferred
an appeal against the decision of the learned Company Judge before
the Division Bench of the High Court but the same was also dismissed
on 10.3.2000.
7. Mr. Soli J. Sorabjee, learned senior counsel for the appellants,
has submitted that the Code of Civil Procedure shall be applicable in
proceedings before the learned Company Judge. Sub-rule (1) of
Order XIV Rule 2 CPC lays down that notwithstanding that a case
may be disposed of on a preliminary issue, the Court shall, subject to
the provisions of sub-rule (2), pronounce judgment on all issues. Sub-
rule (2) of Order XIV Rule 2 CPC lays down that where issues both of
law and of fact arise in the same suit, and the Court is of opinion that
the case or any part thereof may be disposed of on an issue of law
only, it may try that issue first if that issue relates to (a) the
jurisdiction of the Court, or (b) a bar to the suit created by any law for
the time being in force. Learned counsel has submitted that the
grounds on which a plaint can be rejected are given in Order VII Rule
11(d) CPC and the plea raised by the contesting respondents was one
as contemplated by clause (d) of the said Rule, which lays down that
the plaint shall be rejected where the suit appears from the statement
in the plaint to be barred by any law. The plea raised by the
contesting respondents in the Company Application was a plea of
demurrer where only the allegation made in the company petition had
to be seen and after assuming the averments made in the petition to be
true and correct it had to be seen whether the petition was barred by
any law including that of limitation. The learned counsel has
elaborated his arguments by submitting that the petitioners in the
Company Petition had clearly averred and taken a plea of fraud that
they could not get knowledge of the fact that the funds of the
company were utilized by Bipinbhai and his family members in
buying the shares of the Company and they got knowledge of the
same only in May, 1987 and in this view of the matter the provisions
of Section 17 of the Limitation Act are clearly attracted and the
limitation shall not begin to run till the date the petitioners discovered
the fraud or got knowledge of the same. Mr. Sorabjee has also
submitted that at any rate the plea raised by the petitioners involved
adjudication into questions of fact, which could not have been done
until the parties got opportunity to lead evidence and the learned
Company Judge committed manifest error of law in deciding the issue
of limitation as a preliminary issue and recording a finding against the
petitioners even before they had got an opportunity to lead evidence.
8. Mr. Iqbal Chagla, learned senior counsel for the respondents,
has supported the judgment of the learned Company Judge and also of
the Division Bench and has submitted that the expression “a bar to the
suit created by any law for the time being in force” occuring in sub-
rule (1)(b) of Order XIV Rule 2 CPC contains within its ambit a plea
relating to the bar of limitation. The learned counsel has elaborated
his contention by submitting that Section 3 of the Limitation Act
mandates that subject to the provisions contained in Sections 4 to 24,
every suit instituted, appeal preferred, and application made after the
prescribed period shall be dismissed although limitation has not been
set up as a defence and sub-rule (d) of Order VII Rule 11 also says
that the plaint shall be rejected where the suit appears from the
statement in the plaint to be barred by any law. In view of these
provisions, it has been submitted that the Company Petition was
rightly dismissed as the transaction in shares in question took place on
13.11.1982 and as the period of limitation by virtue of Article 137 of
the Limitation Act is only three years, the Company Petition which
was filed in May, 1987, was clearly barred by limitation. The learned
counsel has further submitted that the petitioners could not take any
advantage of Section 17 of the Limitation Act as the Company
Petition did not contain full particulars of the alleged fraud which is
mandatory in view of Order VI Rule 4 CPC nor any averment has
been made therein that the knowledge of right or title on which the
petition is founded was concealed by the fraud of the contesting
respondents. Mr. Chagla has also submitted that transfer of shares
had taken place as father Vadilal Lallubhai Mehta wanted that the
control of two companies, viz., M/s. Sayaji Industries Ltd. and M/s.
C.V. Mehta Pvt. Ltd. should vest with Bipinbhai and some other
companies, viz., M/s. Industrial Machinery Manufacturers Pvt. Ltd.,
M/s. C. Doctor and Company Pvt. Ltd., M/s. Mehta Machinery
Manufacturers Pvt. Ltd. and M/s. Oriental Corporation Pvt. Ltd.
should vest with Suhasbhai and the particulars of the arrangement so
made was recorded in MOU dated 30.1.1982 and the modified MOU
dated 13.11.1982. The fact that Suhasbhai supported the petitioners
of the Company Petition clearly demonstrated that he had turned
dishonest and wanted to deprive Bipinbhai of the control of the two
companies, which he had got after transfer of shares in his name. The
whole thing had been done in the knowledge of the father Vadilal
Lallubhai Mehta, who was the chairman and also his two sons and
thus the High Court had rightly held that the petition was barred by
limitation.
9. Before examining the contentions raised by the learned counsel
for the parties it will be useful to refer to the relevant statutory
provisions and the basic principles, which are involved in the case.
The Company Petition has been filed seeking rectification of the
register of members as contemplated by Section 155 of the Companies
Act. This provision has been deleted by Section 21 of the Companies
(Amendment) Act, 1988 (Act 31 of 1988) with effect from 31.5.1991
and has been incorporated in a modified form in Section 111. Prior to
its omission the said Section stood as under: –
“155. Power of Court to rectify register of members 
(1) If 
(a) the name of any person 
(i) is without sufficient cause, entered in the register
of members of a company, or
(ii) after having been entered in the register, is,
without sufficient cause, omitted therefrom; or
(b) default is made, or unnecessary delay takes place,
in entering on the register the fact of any person having
become, or ceased to be, a member;
the person aggrieved, or any member of the company, or
the company, may apply to the Court for rectification of
the register.
(2) The Court may either reject the application or
order rectification of the register, and in the latter case,
may direct the company to pay the damages, if any,
sustained by any party aggrieved.
In either case, the Court in its discretion may make
such order as to costs as it thinks fit.
(3) On an application under this section, the Court 
(a) may decide any question relating to the title of any
person who is a party to the application to have his
name entered in or omitted from the register,
whether the question arises between members or
alleged members, or between members or alleged
members on the one hand and the company on the
other hand; and
(b) generally, may decide any question which it is
necessary or expedient to decide in connection
with the application for rectification.
(4) From any order passed by the Court on the
application, or on any issue raised therein and tried
separately, an appeal shall lie on the grounds mentioned
in section 100 of the Code of Civil Procedure, 1908 ( 5 of
1908) 
(a) If the order be passed by a District Court, to the
High Court;
(b) If the order be passed by a single Judge of a High
Court consisting of three or more Judges, to a
Bench of that High Court.
(5) The provisions of sub-sections (1) to (4) shall
apply in relation to the rectification of the register of
debenture-holders as they apply in relation to the
rectification of the register of members.”

Section 77 of the Companies Act imposes restrictions on purchase by
company, or loans by company for purchase, of its own or its holding
company’s shares. Relevant part of sub-sections (1) and (2) of this
Section read as under: –
“77. Restrictions on purchase by company, or
loans by company for purchase, of its own or its
holding company’s shares. (1) No company
limited by shares, and no company limited by
guarantee and having a share capital, shall have
power to buy its own shares, unless the consequent
reduction of capital is effected and sanctioned in
pursuance of sections 100 to 104 or of section 402.
(2) No public company, and no private company
which is a subsidiary of a public company, shall
give, whether directly or indirectly, and whether by
means of a loan, guarantee, the provision of security
or otherwise, any financial assistance for the purpose
of or in connection with a purchase or subscription
made or to be made by any person of or for any
shares in the company or in its holding company:
Provided that ………………………………………………….
……………………………………” (omitted as not relevant)

10. The vexed question of the legality of the purchase by a limited
company of its own shares was set at rest by the decision of the House
of Lords in Trevor v. Whitworth (1887) 12 AC 409, since which it has
been clear law that a limited company cannot purchase its own shares
except by way of reduction of capital with the sanction of the court.
(see Buckley on the Companies Act  14th edn. p.1499). In the same
decision it was also held that even express authority in the
memorandum to the contrary was unavailing. The main reasons for
this prohibition were that such a purchase could either amount to
“trafficking” in its own shares, thereby enabling the company in an
unhealthy manner to influence the price of its own shares on the
market, or it would operate as a reduction of capital which can only be
effected with the sanction of the court and in the manner laid down in
the statute (See Palmer’s Company Law  23rd edn.  p. 440). In the
Guide To The Companies Act by A. Ramaiya (16th edn. p.951) apart
from Trevor v. Whitworth (supra), British and American Trustee and
Finance Corporation v. Couper 1894 AC 399, has also been referred
as a leading authority on the subject. Reference has also been made to
several decisions rendered by the superior courts in Australia and New
Zealand wherein it has been unequivocally held that “a transaction
which upon examination can be seen to involve a return of capital, in
whatever form, under whatever label, and whether directly or
indirectly, to a member, is void”. It is, therefore, well settled legal
principle that any valuable consideration paid out of the company’s
assets will make a transaction amounting to a purchase and, therefore,
invalid.
11. It may be mentioned here that in view of Rule 6 of the
Companies (Court) Rules, the provisions of the Code of Civil
Procedure will be applicable in proceedings under the Companies Act
(See Sangramsingh P. Gaekwad vs. Shantadevi P. Gaekwad (2005) 11
SCC 314).
12. Sub-rule (2) of Order XIV Rule 2 CPC lays down that where
issues both of law and of fact arise in the same suit, and the Court is
of opinion that the case or any part thereof may be disposed of on an
issue of law only, it may try that issue first if that issue relates to (a)
the jurisdiction of the Court, or (b) a bar to the suit created by any law
for the time being in force. The provisions of this Rule came up for
consideration before this Court in Major S.S. Khanna vs. Brig. F.J.
Dillon AIR 1964 SC 497, and it was held as under:-
“Under O. 14 R. 2 where issues both of law and of
fact arise in the same suit, and the Court is of opinion that
the case or any part thereof may be disposed of on the
issues of law only, it shall try those issues first, and for
that purpose may, if it thinks fit, postpone the settlement
of the issues of fact until after the issues of law have been
determined. The jurisdiction to try issues of law apart
from the issues of fact may be exercised only where in
the opinion of the Court the whole suit may be disposed
of on the issues of law alone, but the Code confers no
jurisdiction upon the Court to try a suit on mixed issues
of law and fact as preliminary issues. Normally all the
issues in a suit should be tried by the Court: not to do so,
especially when the decision on issues even of law
depends upon the decision of issues of fact, would result
in a lop-sided trial of the suit.”

Though there has been a slight amendment in the language of Order
XIV Rule 2 CPC by the Amending Act, 1976, but the principle
enunciated in the above quoted decision still holds good and there can
be no departure from the principle that the Code confers no
jurisdiction upon the Court to try a suit on mixed issue of law and fact
as a preliminary issue and where the decision on issue of law depends
upon decision of fact, it cannot be tried as a preliminary issue.
13. The plea raised by the contesting respondents is in fact a plea of
demurrer. Demurrer is an act of objecting or taking exception or a
protest. It is a pleading by a party to a legal action that assumes the
truth of the matter alleged by the opposite party and sets up that it is
insufficient in law to sustain his claim or that there is some other
defect on the face of the pleadings constituting a legal reason why the
opposite party should not be allowed to proceed further. In O.N.
Bhatnagar vs. Smt. Rukibai Narsindas and others (1982) 2 SCC 244
(para 9) it was held that the appellant having raised a plea in the
nature of demurrer, the question of jurisdiction had to be determined
with advertence to the allegations contained in the statement of claim
made by respondent 1 under Section 91(1) of the Act and those
allegations must be taken to be true. In Roop Lal Sathi vs. Nachhattar
Singh Gill (1982) 3 SCC 487 (para 24), it was observed that a
preliminary objection that the election petition is not in conformity
with Section 83(1)(a) of the Act i.e. it does not contain the concise
statement of the material facts on which the petitioner relies, is but a
plea in the nature of demurrer and in deciding the question the Court
has to assume for this purpose that the averments contained in the
election petition are true. Reiterating the same principle in Abdulla
Bin Ali and others vs. Galappa and others (1985) 2 SCC 54, it was
said that there is no denying the fact that the allegations made in plaint
decide the forum and the jurisdiction does not depend upon the
defence taken by the defendants in the written statement. In Exphar
Sa and another vs. Eupharma Laboratories Ltd. and another (2004) 3
SCC 688 (para 9), it was ruled that where an objection to jurisdiction
is raised by way of demurrer and not at the trial, the objection must
proceed on the basis that the facts as pleaded by the initiator of the
impugned proceedings are true. The submission in order to succeed
must show that granted those facts the court does not have jurisdiction
as a matter of law. In this case the decision of the High Court on the
point of the jurisdiction was set aside as the High Court had examined
the written statement filed by the respondents in which it was claimed
that the goods were not at all sold within the territorial jurisdiction of
Delhi High Court and also that the respondent No. 2 did not carry out
business within the jurisdiction of the said High Court. Following the
same principle in Indian Mineral & Chemicals Co. and others vs.
Deutsche Bank (2004) 12 SCC 376 (paras 10 and 11), it was observed
that the assertions in a plaint must be assumed to be true for the
purpose of determining whether leave is liable to be revoked on the
point of demurrer.
14. The principle underlying Clause (d) of Order VII Rule 11 is no
different. We will refer here to a recent decision of this Court
rendered in Popat and Kotecha Property vs. State Bank of India Staff
Association (2005) 7 SCC 510 where it was held as under in para 10
of the report: –
“10. Clause (d) of Order 7 Rule 7 speaks of suit, as
appears from the statement in the plaint to be barred by
any law. Disputed questions cannot be decided at the
time of considering an application filed under Order 7
Rule 11 CPC. Clause (d) of Rule 11 of Order 7 applies
in those cases only where the statement made by the
plaintiff in the plaint, without any doubt or dispute shows
that the suit is barred by any law in force.”

It was emphasized in para 25 of the reports that the statement in the
plaint without addition or subtraction must show that it is barred by
any law to attract application of Order 7 Rule 11 CPC. The principle
is, therefore, well settled that in order to examine whether the plaint is
barred by any law, as contemplated by sub-rule (d) of Order VII Rule
11 CPC, the averments made in the plaint alone have to be seen and
they have to be assumed to be correct. It is not permissible to look
into the pleas raised in the written statement or to any piece of
evidence. Applying the said principle, the plea raised by the
contesting respondents that the Company Petition was barred by
limitation has to be examined by looking into the averments made in
the Company Petition alone and any affidavit filed in reply to the
Company Petition or the contents of the affidavit filed in support of
Company Application No. 113 of 1995 filed by the respondents
seeking dismissal of the Company Petition cannot at all be looked
into.
15. Paragraphs 14 and 21 of the Company Petition read as under: –
“14. Even the action on the part of respondent Nos. 2
and 3 to use company’s funds would amount to fraud on
the statute. They have clearly played fraud on Section 77
of the Act and it is also settled law that the party who has
committed fraud could not be allowed to retain the fruits
of the fraudulent action perpetrated by them. On this
principle also status quo ante should be restored so that
respondent Nos. 2 and 3 do not get benefit of the fraud
played upon the statute.”
“21. The petitioners further say that though the share
transfers were effected in the year 1982, the petitioners
could not have detected the fraud earlier, but they came
to know about the fraud in detail when the specific
criminal complaint was filed by some interested persons,
the office bearers of the Union of the Company before
the Criminal Court at Narol and they came to know by or
about in the month of May, 1987. Hereto annexed and
marked Annexure I is the copy of the said complaint.
Thereafter they enquired into the matter and collected
whatever additional material available. Petition No. 1
gave notice dated 14.6.1987. However, respondents 2 to
11 wasted too much time in correspondence and
thereafter this petition is filed immediately.”

The case set up by the petitioners in the Company Petition is that they
had absolutely no knowledge of the alleged utilization of the funds of
the Company for purchase of shares by Bipinbhai and they came to
know about it by or about in the month of May, 1987 when a criminal
complaint was filed by some office bearers of the union of the
Company and thereafter petitioner No. 1 gave notice dated 14.6.1987.
As mentioned earlier two cheques of Rs.10 lacs and 5 lacs were given
on 13.11.1982 and another cheque of Rs.5 lacs was given on
25.11.1982 by M/s. Sayaji Industries Ltd. to M/s. Santosh Starch
Products and on the same day M/s. Santosh Starch Products gave
Rs.20 lacs through cheques to Bipinbhai and his family members.
Thereafter, Bipinbhai purchased 8,600 shares of the Company M/s.
Sayaji Industries Ltd. and became its Managing Director on
18.11.1982. Though we should not be understood as recording any
finding on this point, but in the natural course of events or at least it
looks quite probable that the petitioners in the company petition, who
are small shareholders of the Company, may not have come to know
about the aforesaid transactions.
16. A plea of limitation cannot be decided as an abstract principle
of law divorced from facts as in every case the starting point of
limitation has to be ascertained which is entirely a question of fact. A
plea of limitation is a mixed question of law and fact. The question
whether the words “barred by law” occurring in Order VII Rule 11(d)
CPC would also include the ground that it is barred by law of
limitation has been recently considered by a two Judge Bench of this
Court to which one of us was a member (Ashok Bhan J.) in Civil
Appeal No. 4539 of 2003 (Balasaria Construction Pvt. Ltd. vs.
Hanuman Seva Trust and others) decided on 8.11.2005 and it was
held: –
“After hearing counsel for the parties, going
through the plaint, application under Order 7 Rule 11(d)
CPC and the judgments of the trial court and the
High Court, we are of the opinion that the present
suit could not be dismissed as barred by limitation
without proper pleadings, framing of an issue of
limitation and taking of evidence. Question of
limitation is a mixed question of law and fact. Ex facie
in the present case on the reading of the paint
it cannot be held that the suit is barred by time.”

This principle would be equally applicable to a Company Petition.
Therefore, unless it becomes apparent from the reading of the
Company Petition that the same is barred by limitation the petition
cannot be rejected under Order VII Rule 11(d) CPC.
17. In natural course of events it looks quite probable that a third
party may not come to know that the Company had advanced money
to M/s. Santosh Starch Products on 13.11.1982 and M/s. Santosh
Starch Products gave Rs.20 lacs to Bipinbhai and his family members
on the same day and the said money was utilized for purchasing the
shares. It is noteworthy that M/s. Santosh Starch Products is a
supplier of the Company M/s. Sayaji Industries Ltd. and in such
circumstances the payment of money by the Company to M/s. Santosh
Starch Products could not have raised any suspicion. At any rate
accepting the version given in the Company Petition as correct and
without taking into consideration any plea raised in the affidavits filed
in reply thereto or any other material or evidence, it is absolutely clear
that having regard to the provisions of Section 17(1) of the Limitation
Act, the limitation for filing the Company Petition had not begun to
run until May, 1987 when the petitioners claim to have got knowledge
of the alleged fraud committed by the respondents in utilizing the
funds of the Company for purchase of its shares, which is a clear
violation of Section 77 of the Companies Act. Thus the Company
Petition cannot be thrown out at the preliminary stage as being barred
by limitation and the view to the contrary taken by the learned
Company Judge and also by the Division Bench is clearly erroneous
in law.
18. As mentioned earlier before the admission of the Company
Petition notice was issued and affidavit in reply was filed by R.T.
Doshi, who was working as Company Secretary of the Company.
This affidavit was filed for the purpose of opposing the admission of
the Company Petition. It was averred therein that the Company
Petition was barred by gross laches, delay, acquiescence as the
petition had been filed after more than five years of transaction in
question. The plea raised by the petitioners that they came to know
about the alleged transaction in May, 1987 when a criminal complaint
was filed was sought to be refuted by stating that the criminal
complaint was filed on 18.6.1987, but before that the petitioner No. 1
had given a notice to the Company dated 17.6.1987. It was also
averred in the affidavit of R.T. Doshi that the petitioners were aware
of the transaction right from November, 1982 and the petitioner No. 1
Ramesh B. Desai, who was Administrative Manager of the Company,
resigned from the post held by him on 7.10.1983. Based upon these
facts it was submitted in reply affidavit of R.T. Doshi that the
petitioner No. 1 was aware of the fact that the petition was barred by
limitation. The learned Company Judge, after referring to the
aforesaid material and the contentions raised by the learned counsel
for the parties, held as under: –
“Here, before me, looking to the averments in the petition
and in the affidavit in reply, it can be said that, a material
proposition regarding the limitation has been affirmed by
the petitioners and the same is being denied by the other
side and, therefore, there is a subject of a distinct issue
and that issue appears to be an issue of law, for the
reasons which I shall have to assign.”

The learned Company Judge then proceeded to hold that “there is not
only no proof of fraud, but even the “averments of fraud” made in the
petition do not amount to the averments of fraud in eye of law” and
finally held that “the petition appears prima facie to be barred by the
law of limitation, regard being had to the residuary Article 137 of the
Limitation Act”. After referring to some authorities and Order VI
Rule 4 CPC the learned Company Judge held that “though the word
“fraud” and the term “fraud on the Company”, “fraud on statute” and
“fraud on the shareholders” are used more than once, but absolutely
no particulars in that respect have been given”. After so observing the
learned Company Judge has concluded that “the position would be
that, these averments of fraud said to be made in the petition cannot be
said to be the averments of fraud, in eye of law, within the meaning of
Order VI Rule 4 CPC.”
19. Undoubtedly, Order VI Rule 4 CPC requires that complete
particulars of fraud shall be stated in the pleadings. The particulars of
alleged fraud, which are required to be stated in the plaint, will depend
upon the facts of each particular case and no abstract principle can be
laid down in this regard. Where some transaction of money takes
place to which ‘A’, ‘B’ and ‘C’ are parties and payment is made by
cheques, in normal circumstances a third party ‘X’ may not get
knowledge of the said transaction unless he is informed about it by
someone who has knowledge of the transaction or he gets an
opportunity to see the accounts of the concerned parties in the Bank.
In such a case an assertion by ‘X’ that he got no knowledge of the
transaction when it took place and that he came to know about it
subsequently through some proceedings in court cannot be said to be
insufficient pleading for the purpose of Order VI Rule 4 CPC. In such
a case ‘X’ can only plead that he got no knowledge of the transaction
and nothing more. Having regard to the circumstances of the case, we
are of the opinion that the High Court was in error in holding that
there was no proper pleading of fraud.
20. The learned Company Judge has referred to the affidavit in
reply filed by R.T. Doshi opposing the admission of the Company
Petition and on the basis of the said affidavit has laid great emphasis
on the fact that father Vadilal Lallubhai Mehta was present all along
with the appellant No. 1 Ramesh B. Desai at all material times and
that things were done in the presence of everyone, viz., two sons of
Vadilal Lallubhai Mehta, namely, Bipinbhai and Suhasbhai.
Emphasis has also been laid on the fact that the last cheque dated
25.11.1982 given by the Company to M/s. Santosh Starch Products
was signed by the petitioner No. 1 Ramesh B. Desai himself. These
are all questions of fact, findings on which could be recorded only
after the parties had been given opportunity to adduce evidence. The
mere fact that one cheque for Rs.5 lacs was signed by Ramesh B.
Desai does not lead to the only inference that he got knowledge of the
entire transaction relating to payment of Rs.20 lacs by the Company to
M/s. Santosh Starch Products and the payment of the said amount on
the same day by M/s. Santosh Starch Products to Bipinbhai and his
family members. The learned Company Judge and the Division
Bench in appeal have referred to these facts and have recorded a
finding that the petitioners had knowledge of the entire transaction
and the Company Petition was barred by limitation. It is important to
point out that apart from Ramesh B. Desai there are 8 other
shareholders who had filed the Company Petition. There is not even a
slightest inkling in the impugned judgments of the High Court that the
other 8 petitioners had acquired knowledge of the transaction much
earlier. In our opinion the approach adopted by the High Court is
clearly illegal as no finding on the point of knowledge could have
been recorded until the parties had been given opportunity to lead
evidence and in such circumstances dismissal of the Company
Petition at a preliminary stage on the finding that it was barred by
limitation is clearly erroneous in law.
21. Mr. Iqbal Chagla, learned counsel for the respondents, has
submitted that the full particulars of fraud had not been given in the
Company Petition and as such there was no compliance of Order VI
Rule 4 CPC in the Company Petition and the learned Company Judge
has rightly dismissed the same. In support of this submission he has
placed reliance on Bishundeo Narain and another vs. Seogeni Rai and
others AIR 1951 SC 280 wherein it was held that “in case of fraud,
undue influence and coercion, the parties pleading it must set forth
full particulars and the case can only be decided on the particulars as
laid. There can be no departure from them in evidence. General
allegations are insufficient even to amount to an averment of fraud of
which any court ought to take notice however strong the language in
which they are couched may be”. Reliance has also been placed on
Bijendra Nath Srivastava vs. Mayank Srivastava and others (1994) 6
SCC 117 and paragraphs 208 and 228 of the report in Sangramsinh P.
Gaekwad and others vs. Shantadevi P. Gaekwad and others (2005) 11
SCC 314, where the same principle has been reiterated. We have
already considered this aspect of the matter and in our opinion in the
facts and circumstances of the case the plea raised in the Company
Petition cannot be held to be wanting in compliance of Order VI Rule
4 CPC.
22. The learned Company Judge and the Division Bench of the
High Court have dealt with the point of limitation by posing the
question whether the petitioners could avail of the benefit of Section
17(1)(b) of the Limitation Act as they were claiming that they did not
get any knowledge of the transaction prior to May, 1987 and that the
petition was within time from the date on which they got knowledge
of the transaction. Mr. Chagla has strenuously urged that in order to
invoke the aid of Section 17(1)(b) of the Limitation Act the petitioners
must establish that there has been fraud and that by such fraud they
have been kept away from knowledge of their right to or of the title
whereon it is founded. For substantiating this submission reliance has
been placed on Syed Shah Gulam Ghouse Mohiuddin and others vs.
Syed Shah Ahmad Mohiuddin Kamisul Quadri and others AIR 1971
SC 2184, Kasturi Lakshmibayamma vs. Sabnivis Venkoba Rao and
others AIR 1970 AP 440 and in Re Marappa Goundar AIR 1959
Madras 26, wherein the aforesaid principle has been enunciated.
23. The petitioners in the Company Petition have relied upon
Section 17 of the Limitation Act in support of their claim that the
limitation will start running only when they got knowledge of the
fraud committed by the contesting respondents, i.e., in May or June,
1987. The relevant part of sub-section (1) of Section 17 on which the
petitioners base their claim is being reproduced below: –
“17. Effect of fraud or mistake.(1) Where, in the case
of any suit or application for which a period of limitation
is prescribed by this Act,
(a) the suit or application is based upon the fraud of the
defendant or respondent or his agent; or
(b) the knowledge of the right or title on which a suit
or application is founded is concealed by the fraud of any
such person as aforesaid; or
(c) the suit or application is for relief from the
consequences of a mistake; or
(d) ………………………………… (omitted as not relevant)
the period of limitation shall not begin to run until the
plaintiff or applicant has discovered the fraud or the
mistake or could, with reasonable diligence, have
discovered it; or in the case of a concealed document,
until the plaintiff or the applicant first had the means of
producing the concealed document or compelling its
production:
Provided that ………………………………………………….
……………………………………” (omitted as not relevant)

24. In our opinion, in view of the facts pleaded in the Company
Petition, the case is covered by Section 17(1)(a) of the Limitation Act
and not by Section 17(1)(b) as the petitioners are not claiming any
right or title over the shares of the Company, which according to them
were purchased out of the funds of the Company. Section 17(1)(b)
will apply when the plaintiff or applicant is claiming any kind of right
or title to any moveable or immoveable property etc. Their simple
case is that in view of the fact that the funds of the Company were
utilized for purchase of shares by Bipinbhai, which were then
recorded in his name, the whole transaction was in violation of
Section 77 of the Companies Act, and consequently the register of the
Company required to be rectified in accordance with Section 155 of
the Companies Act. It was also pleaded that the petitioners had got no
knowledge of the fraud played by the respondents of the Company
Petition whereby the funds of the Company were utilized for purchase
of shares and they came to know about it in May, 1987 through the
criminal complaint. In view of the pleadings as aforesaid, it is Section
17(1)(a) of the Limitation Act which would govern the situation and
not Section 17(1)(b) of the Limitation Act.
25. The decisions cited by Mr. Chagla have been rendered on
Section 18 of the Limitation Act, 1908 which reads as under: –
“S.18. Effect of Fraud :
Where any person having a right to institute a suit or
make an application has, by means of fraud, been kept
from the knowledge of such right or of the title on which
it is founded,
or where any document necessary to establish such
right has been fraudulently concealed from him,
the time limited for instituting a suit or making an
application 
(a) against the person guilty of the fraud or accessory
thereto, or
(b) against any person claiming through him otherwise
than in good faith and for a valuable consideration,
shall be computed from the time when the fraud first
became known to the person injuriously affected thereby,
or, in the case of the concealed document, when he first
had the means of producing it or compelling its
production.”

26. The corresponding provision of Section 18 of the Limitation
Act, 1908 is Section 17 of the Limitation Act, 1963. The Statement of
Objects and Reasons for amending Section 18 of the old Limitation
Act read thus : –
“OBJECTS AND REASONS”
Clause 16: – Section 18 of the existing Act has been re-
cast on the lines of Section 26 of the Limitation Act,
1939, of the united Kingdom so as to include actions
based on fraud and also for relief founded on mistake.
The clause also seeks to afford suitable protection to
purchasers for valuable consideration in all such cases.
Sub-clause (2) incorporates the principle contained
in the proviso to Section 48 of the Code of Civil
Procedure, 1908, which now finds a place in this Bill (see
Art. 135). The benefit is, however, made available only
if the application for extension is made within one year
from the date of discovery of the fraud or cessation of
force.”

Clause (a) of sub-section (1) of Section 17 of Limitation Act, 1963 is
same as clause (a) of Section 26 of the English Act. There was no
corresponding provision like clause (a) of sub-section (1) of Section
17 in Section 18 of the old Limitation Act and this provision has been
introduced for the first time as a result of the amendment. All the
decisions cited by Mr. Chagla have been rendered on Section 18 of
Limitation Act, 1908. In view of the amendment incorporated in the
Limitation Act, 1963 and specially the language in which Section 17
is cast now, they can have no application to the facts of the present
case
27. Mr. Soli Sorabjee has also submitted that the continuance of the
name of Bipinbhai in the register of the Company was a continuing
wrong and, therefore, the period of limitation would begin to run at
every moment of time during which the wrong name of Bipinbhai
continues to remain in the register. Learned counsel has submitted
that in such a situation the principles enshrined in Section 22of the
Limitation Act will apply and the Company Petition cannot be held to
be barred by limitation and the view to the contrary taken by the High
Court is erroneous in law. Since we have held above that the
Company Petition could not be dismissed on a preliminary issue,
namely, as being barred by limitation as the petitioners had not been
given opportunity to lead evidence and the finding of the High Court
has been reversed on that point, we do not consider it appropriate to
examine the aforesaid contention on merits. However, as the High
Court has to hear the Company Petition again, the findings recorded
by the High Court on the point of continuing wrong and condonation
of delay are set aside.
28. The appeal accordingly succeeds and is hereby allowed with
costs throughout. The judgment and order dated 12.3.96 passed by
learned Company Judge and that of the Division Bench dated
10.3.2000 are set aside. The High Court shall decide the Company
Petition afresh in accordance with law.
29. It is made clear that any observation made in this order is only
for the limited purpose of deciding this appeal and shall not be
construed as an expression of opinion on the merits of the case.

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