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TMI Blog2006 (7) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... irmed. 2. The appellants had filed the Company Petition No. 35 of 1988 for rectification of the register of the company Sayaji Industries Ltd. ('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 ('Bipinbhai and Suhasbhai') and four da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to pay or deposit Rs. 20 lakhs without which he could not have got the controlling interest in Sayaji Industries Ltd. He, therefore, devised a scheme whereunder the Company, viz., Sayaji Industries Ltd. paid an amount of Rs. 20 lakhs by way of advance to Santosh Starch Products by means of three cheques of Rs. 10 lakhs and Rs. 5 lakhs (both dated 13-11-1982) and third cheque of Rs. 5 lakhs dated 25-11-1982, all drawn on Punjab National Bank, Maskati Market Branch, Ahmedabad. The said Santosh Starch Products paid an amount of Rs. 20 lakhs to Bipinbhai and his family by means of three cheques of Rs. 7 lakhs, 6 lakhs and 7 lakhs 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 lakhs was transferred to C.V. Mehta Pvt. Ltd. in order to get control of the company 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 lakhs were utilized by Bipinbhai in paying the said amount to C.V. Mehta Pvt. Ltd. for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 respondent Nos. 2 to 11 in accordance with section 155 of the Companies Act. The rectification had been sought in respect of shares registe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liminary 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 spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en 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 mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 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 Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the suit." (p. 502) 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 v. Smt. Rukibai Narsindas [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 allegati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny 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 suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts 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 1 l(d) CPC would also include the ground that it is barred by law of limitation has been recently considered by a two Judges Bench of this Court to which one of us was a member (Ashok Bhan, J.) in Balasaria Construction (P.) Ltd. v. Hanuman Seva Trust [Civil Appeal No. 4539 of 2003 dated 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 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 lakhs 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 lakhs by the Company to Santosh Starch Products and the payment of the said amount on the same day by 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nowledge 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 v. Syed Shah Ahmad Mohiuddin Kamisul Quadri AIR 1971 SC 2184, Kasturi Lakshmibayamma v. Sabnivis Venkoba Rao AIR 1970 AP 440 and Marappa Goundar, In re AIR 1959 Mad. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Indian 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 recast 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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