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TMI Blog1996 (3) TMI 428X X X X Extracts X X X X X X X X Extracts X X X X ..... i. Respondent No. 1 happens to be the secretary of the company, namely, Sayaji Industries Ltd. Respondents Nos. 2 and 3 are Shri Bipin Mehta and Shri Priyam Mehta, who have taken out the company application. The case of the petitioners in the company petition is that, they are the shareholders of the company, namely, Sayaji Industries Ltd. and of Maize Products, one of the units of the said company and, therefore, they are interested in the proper functioning and the management of the said company. They feel more concerned, in particular, for the proper utilisation and application of the funds and assets of the company. They are also interested in seeing that the funds of the company are not utilised for private, personal, or collateral purposes. According to them, respondent No. 1 company is a public limited company, having its registered office at Kathwada, Ahmedabad. Respondents Nos. 2 to 11 are the directors of the said company. Respondent No. 2, Shri Bipin Mehta, was inducted as an additional director of Sayaji Industries Ltd. on February 18, 1982, and was appointed as a managing director on the same day. According to the petitioners, respondent No. 3, Shri Priyam Mehta, was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears that this amount was paid and, approximately, 13,000 shares of the company came to be transferred in the name of Shri Bipin Mehta and his family. The remaining amount of Rs. 19 lakhs (approximately) was required to be deposited by Shri Bipin Mehta with C.V. Mehta Pvt. Ltd. This was necessary because C.V. Mehta Pvt. Ltd. held 9,000 equity shares of Sayaji Industries Ltd. It was, therefore, absolutely, necessary for Shri Bipin Mehta to pay or deposit the above said amount of Rs. 19 lakhs to or with C.V. Mehta Pvt. Ltd. within a period of 24 months from the date of the second MOU. It was made clear that if the above said amount of Rs. 19 lakhs were to be paid, during the second period, Shri Bipin Mehta would get into the management. This would happen immediately on the payment of the said sum. According to the petitioners, Shri Bipin Mehta and Shri Priyam Mehta were not in a position to manage for the above said amount and, therefore, some arrangement which would be in consonance with the provisions of the Companies Act, 1956, was required to be made. As a part of this arrangement, according to the petitioners, the company, respondent No. 1, advanced a sum of Rs. 20 lakhs to San ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stries Ltd. The petitioners aver that these facts would show, beyond any manner of doubt, that this arrangement, under which the shares could be obtained, was clearly contrary to and in violation of the mandatory provisions contained under section 77 of the Companies Act, 1956, and, therefore, the whole transaction would be null and void. It is also the say of the petitioners that, apart from the transactions being void in view of section 77 of the Companies Act, 1956, they are also bad and violative of article 20 of the articles of association of the company, when read with section 36 of the Companies Act, 1956. According to the petitioners, thus, a fraud came to be practised upon the statute and, therefore, the petitioners, as the shareholders, are entitled to the relief under section 155 of the Companies Act, 1956, for the rectification of the share register as the said transactions were a fraud, not only on the statute, but on the shareholders also, and were effected with mala fide purpose. The petitioners had called upon the respondents to rectify the share register, so that the status quo ante was re-established, but that has not been done. The petitioners, therefore, have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted June 17, 1987, available at annexure "D". It is further averred that the petitioners were aware of the transactions in question right from November, 1982, as in the said month of year 1982, Shri Vadilal L. Mehta, father of respondents Nos. 2 and 12, and the chairman and managing director of respondent No. 1-company and Shri Suhas Mehta, respondent No. 12, the managing director of respondent No. 1-company and petitioner No. 1-Shri Ramesh Desai, the administrative manager of the company, were all present. The alleged transactions had taken place on November 12, 13 and 25, 1982. On November 18, 1982, Shri Suhas Mehta had resigned as managing director, but had continued as the director of respondent No. 1-company and Shri Bipin Mehta was inducted as its director and the managing director, in the meeting of the board of directors, where both Shri Vadilal Mehta and Shri Suhas Mehta were present. On September 7, 1983, Shri Vadilal Mehta and Shri Suhas Mehta had resigned from their respective posts from the company. On October 7, 1983, petitioner No. 1, Shri R. B. Desai, had also resigned from the company with effect from November 7, 1983. Based upon this factual data the affiant, Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions are taken note of, it is clear that, even if the further affidavit-in-reply has not been filed, it would not be open for learned counsel, Mr. Sanjanwala, to urge that the contention regarding the proceedings being barred by the law of limitation, has, in fact, not been taken, and that the said question, therefore, is not open for a judicial scrutiny. Mr. Devang Nanavati, learned counsel, while supporting the application for dismissing the petition on the preliminary issue of limitation, without settling the other issues, urges that the petition appears to have been presented years after the expiry of the period of limitation. No allegations of fraud in the eye of law have ever been averred, much less established, and there is not a slightest suggestion in the pleadings that due to fraud, the petitioners were kept away from the knowledge of their right to initiate the proceedings. That it is pleaded that after due diligence the petitioners could not have the awareness of fraud which would take away the knowledge of their right to move the court and have appropriate remedy. All this, contends learned counsel, would be enough to brand the petition as barred by the law of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question requires to be formulated and answered because of the fact that learned counsel, Mr. Sanjanwala, has urged with great vehemence that the issue regarding the limitation cannot be considered and decided as a preliminary issue. Reliance is being placed upon the provisions contained in Order XIV, rule 2(2) of the Civil Procedure Code, 1908. Upon reference to the above said provisions on which learned counsel, Mr. Sanjanwala, places heavy reliance, it becomes apparent that there is a command to the court, to pronounce judgment on all issues. Rule 2(1) of Order XIV says 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. Thus, it is clear that sub-rule (1) of rule 2 of the Order is made subject to the provisions of sub-rule (2). Sub-rule (2) says that, where the issues, both of law and fact, arise in the same suit, and the court is of the opinion that the case could 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. It is further made clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he court is of the opinion that the case or any part thereof may be disposed of on the issue of law only, it shall try those issues first. It is also said that, normally, all the issues in a suit should be tried by the court and not to do so, especially when the decision on the issues even if law depends upon the decision of issues of fact, would result in a lop-sided trial of the suit. The decision rendered by the Supreme Court in the year 1963, of course, is prior to the general amendment in the Code of Civil Procedure and the relevant linked provisions contained in Order XIV, rule 2. Reliance is being placed upon the pronouncement of this court in Saurashtra Cement and Chemicals Industries Ltd. v. Esma Industries Pvt. Ltd. 30(2) GLR 1263 ; [1990] 69 Comp Cas 372 (Guj). In this decision, while examining the provisions contained under Order XIV, rule 2, it has been said that, whether a company petition is not maintainable as not complying with the requirements of section 399 is a mixed question of law and fact and is not a pure question of law. Further, there is no bar of jurisdiction of the court. Therefore, the issue as to whether a company petition is maintainable or not, canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Civil Procedure Code, the issues regarding limitation can be tried first. The settlement of the remaining issues could be postponed. Upon consideration of all the aspects of the case, if one is satisfied that the case could be disposed of by deciding any issue of law only, it could be done. This is all that has been said by the above said statutory provisions and the case law. This is what I feel : Question (A) : The whole controversy has arisen because of the provisions contained under article 137 of the Limitation Act, 1963. This residuary article says that, in an application for which no period of limitation is provided elsewhere, the period of limitation would be three years and the period of limitation would start to run from the date, when the right to apply accrues. It is not in dispute before me, in the present proceedings, that the petition for the rectification of the register has not been made within the stipulated period of three years. In fact, it appears to have been presented after about six years. It is, therefore, clear 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions contained in Order VI, rule 4 of the Civil Procedure Code, has said thus : "Under the contract law of India, as well as by ordinary principles, coercion, undue influence, fraud, and misrepresentation are all separate and separable categories in law. They may overlap or may be combined. But in pleadings, general allegations, however strong may be the words in which they are stated, are insufficient even to amount to an averment of fraud of which any court ought to take notice." This say of the Privy Council said in the year 1915 makes it abundantly clear that, by ordinary principles, coercion, undue, influence and fraud, etc., are all separate and separable categories in law. They may overlap or may be combined. But, in pleadings, general allegations, however strong may be the words in which they are stated, are insufficient even to amount to an averment of fraud of which any court ought to take notice. Thus, it is clear that general allegations regarding fraud without the necessary particulars would even not amount to an averment of fraud of which the court ought to take notice. The principle laid down by the Privy Council should be appreciated by noticing that, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticulars are not provided, the recital of the word "fraud" repeatedly and in strong fashion, also would not even amount to an averment regarding the fraud of which the court should take cognizance or notice. When the pleadings in the petition before me are examined, in view of this settled principle, it appears that, though the word "fraud" and the terms "fraud on the company", "fraud on the statute" and "fraud on the shareholders" are used more than once, absolutely no particulars in that respect are provided. 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 the eye of law, within the meaning of Order VI, rule 4 of the Civil Procedure Code, 1908. The whole exercise on the part of learned counsel, Mr. Sanjanwala, to establish that there are averments of fraud in the pleadings was necessary because learned counsel wanted to have shelter under the provisions contained in section 17(1)(b) of the Limitation Act, 1963. Section 17 of the Act of 1963 deals with the question of effect of fraud or mistake. It is said that, where, in the case of any suit or application for which a period of limitation is pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho is accessory thereto or who claims through the person guilty of fraud otherwise than in good faith and for valuable consideration. These three conditions must concur in proceedings to set aside execution sales on the grounds set out in section 18 of the Limitation Act, 1908. It is not enough for instance for the plaintiff or the applicant to show that the action by the defendant or respondent was fraudulent." Moreover, the question regarding reasonable diligence as understood within the meaning of section 17 of the Limitation Act, 1963, also requires to be considered. As made clear by the Madras High Court in Ramanathapuram Market Committee v. East India Corporation Ltd., AIR 1976 Mad 323, by the use of the words "with reasonable diligence" under section 17, the Legislature has given scope to the defendant to contend that, with reasonable diligence, the plaintiff could have discovered the fraud or the mistake earlier. I have already taken a view that all was done in the presence of everybody concerned. Even if it was not so, the petitioners could have discovered this with reasonable diligence. On this count also, they would not be able to bring their case within the purview of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging director of the respondent-company. This had happened in pursuance of a resolution of the board of directors of respondent No. 1-company, where both Shri Vadilal Mehta and Shri Suhas Mehta were present. Even thereafter, Shri Vadilal Mehta, father, had continued and functioned as chairman and managing director. On the top of this, the last cheque dated November 25, 1982, for Rs. 5 lakhs given to the suppliers, Santosh Starch Products, as part payment of the total sum of Rs. 2 lakhs, was drawn and signed not by anybody else, but petitioner No. 1, Shri Ramesh B. Desai himself. The facts, therefore, would go to show that the whole arrangement was known to the parties. It was within the knowledge of the petitioners, Shri Ramesh Desai along with the secretary of respondent No. 1-company and Shri Bipin Mehta and Shri Priyam Mehta, respondents Nos. 2 and 3, respectively. It was also within the knowledge of respondent No. 12, Shri Suhas Mehta, who supports the case of the petitioners. Therefore, it is clear, beyond any manner of doubt that the petitioners have not been able to establish their case under which, they would be able to fall within the purview of section 17 of the Limitatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e illegal. A declaration to that effect was sought for. It was held that, the suit would be one under article 113 of the Limitation Act, 1963, and if the statutory time limit expires, the court cannot give the declaration sought for. The whole situation gets clarified from the following observations of the apex court : "If an Act is void or ultra vires it is enough for the court to declare it so and it collapses automatically. It need not be set aside. The aggrieved party can simply seek a declaration that it is void and not binding upon him. A declaration merely declares the existing state of affairs and does not 'quash' so as to produce a new state of affairs. But none the less the impugned dismissal order has at least a de facto operation unless and until it is declared to be void or a nullity by a competent body or court. ... It will be clear from these principles, that the party aggrieved by the invalidity of the order has to approach the court for relief of declaration that the order against him is inoperative and not binding upon him. He must approach the court within the prescribed period of limitation. If the statutory time limit expires the court cannot give the declarat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords 'patent or latent' show that it makes no difference for this purpose whether the order bears a 'brand of invalidity upon its forehead'. Lord Diplock pointed out that the order would be presumed to be valid unless the presumption was rebutted in competent legal proceedings by a party entitled to sue. He added that there might be no one entitled to sue, for example if a statutory time-limit had expired. In that case, the order would have to stand. Cooke J. expressed the same idea in a New Zealand case. Except perhaps in comparatively rare cases of flagrant invalidity, the decision in question is recognised as operative unless set aside. The truth of the matter is that the court will invalidate an order only if the right remedy is sought by the right person in the right proceedings and circumstances. The order may be hypothetically a nullity, but the court may refuse to quash it because of the plaintiff's lack of standing, because he does not deserve a discretionary remedy, because he has waived his rights, or for some other legal reason. In any such case the 'void' order remains effective and is, in reality, valid." This say of the learned author based upon decisions would go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of orders. And that brings us back to the question that determines this case : Has Parliament allowed the necessary proceedings to be taken ?" The above said material is sufficient to warrant a conclusion that learned counsel Mr. Sanjanwala and Mr. Soparkar are not in a position to urge, successfully, before me that, because they would brand the transaction as void, the period of limitation as provided under the Limitation Act, 1963, under the relevant article would not be attracted. Question (E) : Learned counsel for the petitioners has urged that the petition requires to be admitted on the ground that the petitioners have been able to satisfy that they have sufficient cause within the meaning of section 5 of the Limitation Act, 1963. As a necessary corollary to this, learned counsel urges that the delay if any, should be condoned and the petition should be admitted. This contention also coming from learned counsel cannot be accepted even recognising that the term "sufficient cause" occurring in section 5 of the Limitation Act, 1963, requires a liberal construction. With a view to have the benefit of the extension of the prescribed period by bringing their case within the purvi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Champa, 17 GLR 44. In this decision, while considering the provisions contained under section 23 of the Limitation Act, 1908, equivalent to section 22 of the Limitation Act, 1963, it has been said thus : "The essence of a continuing wrong, is that the act complained of creates a continuing series of injuries and is of such a nature that it renders the doer of that act responsible for the said continuance. Where the injury complained of is complete on a certain date there is no 'continuing wrong' even though the damage caused by that injury might continue. If, however, the act is such that the injury itself is continuous, then there is a 'continuing wrong' and the case is governed by section 23 of the Limitation Act, 1908. However, in cases where the wrong committed infringes a right which is of a continuing nature and which can be enjoyed every day and every moment, that wrong is of a continuing character and gives rise to a fresh cause of action every moment it continues." The above said was a case of erection of a cabin on disputed land. The action was said to be a continuing wrong, because by the erection of the cabin, the right of easement or right to keep a certain piece of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... need be. This contention, therefore, also does not appear to be accepted. In the result, therefore, the following conclusions could be drawn : (1)The petition has been presented beyond the period provided by the law of limitation, i.e., article 137 of the Limitation Act, 1963. (2)In the facts and circumstances of the case and regard being had to the provisions contained in Order XIV, rule 2(2) of the Code of Civil Procedure, 1908, the issue regarding limitation can and requires to be tried first. (3)The provisions contained under section 17(l)(b) of the Limitation Act, 1963, do not save the petition from being branded as barred by the law of limitation as "averments of fraud" do not amount to "averments of fraud in law" under which it can be said that the knowledge of the right of the petitioners was concealed. The special facts and circumstances annexed to the petition oblige to come to the conclusion that, even if the case of fraud is accepted or assumed, the petitioners by due diligence could have become aware regarding their right. (4)The law of limitation cannot be ignored on the count that the alleged transaction is void. (5)No cause for condonation of delay is shown, m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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