TMI Blog2006 (7) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... Wahi and S. Sanjanwala for the Appellant. Iqbal Chagla, V.A. Bobde, Sudhir Nanavati, Mihir Joshi, Uday U. Lalit (N.P.), Sunil Gupta, Huzefa Ahmadi, Devang S. Nanavati, Saurin Mehta, Anshuman Mohapatra, Nakul Diwan, Riaz Chagla, Mrs. V.D. Khanna, Rutwik Panda, Jatin Zaveri, Prantap Kalra, Naresh K. Sharma, Ms. Bina Gupta, Ms. Inklee Barooah, Ms. Indrani Mukherjee and Ms. Sumita Hazarika for the Respondent. JUDGMENT 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 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 Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided that Bipinbhai would pay the entire amount in two instalments, one in the sum of Rs. 20 lakhs pursuant to which the control and management of 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 lakhs and odd was to be deposited by Bipinbhai with C.V. Mehta Pvt. Ltd. within a period of 24 months from the date of the agreement. This was necessary as C.V. Mehta Pvt. Ltd. held 9,000 equity shares of Sayaji Industries Ltd. Acquisition and control of C.V. Mehta Pvt. Ltd. and thereby 9,000 equity shares of 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... violative of section 77(2) of the Companies Act as it was only a device for the ultimate control of shares of 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 Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 respon-dents 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 membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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., Sayaji Industries Ltd. and C.V. Mehta Pvt. Ltd. should vest with Bipinbhai and some other companies, viz., Industrial Machinery Manufacturers Pvt. Ltd., C. Doctor and Company Pvt. Ltd., Mehta Machinery Manufacturers Pvt. Ltd. and Oriental Corp-oration 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectification 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." 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as held as under: ". . .Under O. 14 R. 2 Code of Civil Procedure, 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." (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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. v. 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 v. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 lakhs and 5 lakhs were given on 13-11-1982 and another cheque of Rs. 5 lakhs was given on 25-11-1982 by Sayaji Industries Ltd. to Santosh Starch Products and on the same day Santosh Starch Products gave Rs. 20 lakhs through cheques to Bipinbhai and his family members. Thereafter, Bipinbhai purchased 8,600 shares of the Company 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk Srivastava [1994] 6 SCC 117 and paragraphs 208 and 228 of the report in Sangramsingh P. Gaekwad s case ( supra ), 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Indian Limitation Act, 1908 which reads as under : "Section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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