Supreme Court of India

RAMESH B. DESAI AND ORS.versusBIPIN VADILAL MEHTA AND ORS.

Citation: 2006 INSC 415
Decided: 11 July 2006
Disposal: Appeal(s) allowed
Bench: ASHOK BHAN

Holding

A petition for rectification of the register cannot be dismissed on a preliminary limitation ground where the limitation period depends on the discovery of fraud, as such limitation is a mixed question of law and fact requiring evidence, and a company may not purchase its own shares except by court‑sanctioned reduction of capital.

Summary

The petitioners, nine shareholders of Sayaji Industries Ltd., filed a Company Petition under Section 155 of the Companies Act seeking rectification of the register on the ground that the managing director, Bipin Mehta, had fraudulently used company funds to purchase its own shares, violating Section 77. The respondents moved to dismiss the petition on the ground of limitation, arguing that the three‑year period had expired. The Company Judge dismissed the petition as barred by limitation, a decision affirmed by the High Court. The Supreme Court held that a company cannot purchase its own shares except by court‑sanctioned reduction of capital, and that the limitation defence is a mixed question of law and fact that cannot be decided as a preliminary issue without evidence. Accordingly, the petition cannot be dismissed at the preliminary stage, and the appeal was allowed, directing the High Court to hear the petition afresh.

Issues considered

The legality of a company purchasing its own shares under Section 77 of the Companies Act, 1956.
Whether the Company Petition is barred by limitation under Section 17 of the Limitation Act, 1963.
Whether limitation is a mixed question of law and fact and can be decided as a preliminary issue under Order VII Rule 11(d) of the CPC.
Whether the provisions of the Code of Civil Procedure apply to proceedings under the Companies Act.
Whether the plea raised by the respondents amounts to a demurrer and how it should be dealt with.

Legislation cited

Code of Civil Procedure, 1908s. Order 1-1 Rule 2, s. Order 14 Rule 2, s. Order 6 Rule 1, s. Order 7 Rule 11(d)
Companies Act, 1956s. 155, s. 77
Companies (Amendment) Act, 1988s. Section 21
Limitation Act, 1963s. 17(1)(a), s. 17(1)(b)

Subjects

company lawshare purchasesection 77section 155limitationsection 17mixed question of law and factdemurrerCPC applicabilityfraudrectification of register

Judgment

A RAMESH B. DESAI AND ORS.
\I,

BIPIN YADILAL MEHTA AND ORS.

JULY II, 2006

B [ASHOK BHAN AND G.P. MATHUR, JJ.]

Companies Act, 1956 :

Sections 77 and 155-Petition for rectification of register of the company
C on the ground that its director committed fraud by purchasing shares in his
name ou/ of company's fi111ds-Respondent seeking swnmm)' dismissal of
petilion on !he ground of limitation--Company Judge dismissing the pelilion-
Correclness of-Held: Company judge erred in 1hr01ring the petition at
preliminary stage as being barred by limitation-There is no finding on the
D point that petitioner had knoll'/edge of transaclion earlier-Plea of limitation
is a mixed question of law and fact and necessarily required eridence about
the time when ji-aud l\'as discovered--Code of Civil Procedure, 1908, Order
6 Rule -I: Order 7, Rule I I; 01der 1-1, Rufe I-Limitation Act, Section /7 and
Article f 37.

E Section 77-Purchase by Company of ifs own shares-Legality of-
Held: Not legal except when by way of reduclion of share capilal.

Civil Procedure Code-Applicability of, to proceedings under Companies
Acl-Hefd: Applicable by virtue of Rule 6 of Companies (Court) Rules.

Code of Civil Procedure, 1908 : '
F
Order 7, Rule 11-Rejec/ion ofplaint under-Scope of-Held: Avermenls
made in plain/ alone to be seen-Any affidavil filed in reply to petition cannol
be looked info.

Order 1-1, Rule 2-Preliminary issues-Mixed issues of law andfact-
G Jurisdiclion of Court lo t1y suil which involves mixed issue-Held: Where
decision of issue of law depend1 upon decision offact, ii cannot he tried as
a preliminary issue.

Words and Phrases :

'Barred by law'-Occurring in Order 7, Rule I I(d) CPC-Held: Includes
H 414
RAMESH B. DESAI v. BIPIN VADILAL MEHTA 415
barred by limitation. A
'Demurrer '-Meaning of-Discussed.

Limitation Act, I 963 :

Sections 17(J)(a), (b)-Applicability of-Belated petition for rectification B
of register of company on the ground that its director committed fraud by
purchasing shares in his name out of company's fimds-Held: S. J7(J)(a) is
applicable and not S.17(J)(b).

'V' was the Managing Director ofSayaji Industries. He had two sons
'B' and 'S'. In order to distribute properties between sons, 'B' was C
entrusted 2 companies, Sayaji Industries and CV Mehta Ltd. In terms of
MOU dated 13.11.1982, 'B' was required to pay Rs.20 lacs, pursuant to
which control and management of Sayaji Industries were to be transferred
to him by making transfer of 13000 shares of Sayaji Industries in his name.
As 'B' was not in a position to depesit Rs.20 lacs, a scheme was devised
whereunder Sayaji Industries paid Rs.20 lacs by way of advance to Santosh D
Starch Ltd. The said Santosh Starch Ltd. paid an amount of Rs.20 lacs to
'B'. This amount was transferred to CV.Mehta Ltd. in order to get the
control of Sayaji Industries.

On 10.11.1987, petitioners who were shareholders of Sayaji E
Industries filed Company Petition for rectification of the register as
provided under Section 155 of the Companies Act on the ground that 'B'
utilized the funds of Sayaji Industries for the purpose of his shares which
was in violation of Section 77 of Companies Act and that they could not
detect fraud earlier and came to know about the same in May, 87 when a
criminal complaint was filed by Union of Sayaji Industries. F
The respondents filed reply on 22.3.1988, in which they raised a
preliminary objection regarding limitation and contended that on the
preliminary issue, the main petition should be dismissed in limine. On
23.9.1995 respondents moved Company Application to dismiss the
Company Petition without going into merits of petition on the ground that G
the same is barred by limitation. Company Judge allowed the Application
holding 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" within the meaning of Order VI Rule 4 CPC and dismissed
the petition as barred by the law of limitation. This order was upheld in H
416 SUPREME COURT REPORTS [2006) SUPP. 3 S.C.R.

A appeal by High Court. Hence the present appeal.

Allowing the appeal, the Court

HELD: 1.1. A limited company cannot purchase its own shares
except by way of reduction of capital with the sanction of the court.
B (427-H)

1.2. It is 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 is invalid. (428-C-D(

Trevor v. Whitworth, (1887) 12 AC 409, relied on.
c
British and American Trustee and Finance Corporation v. Couper, 1894
AC 399, referred to.

Buckley on the Companies Act - 14th edn., Palmer's Company Law -
23rd edn.; Guide To The Companies Act by rl. Ramaiya 16th Edn., referred
D to.
2. 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. (428-D-E)

E Sangramsingh P. Gaekwad v. Shantadevi P. Gaekwad, (2005( 11 SCC
314, relied on.

Major S.S. Khanna v. Brig. F.J. Dillon, AIR (1964) SC 497, referred
to.

3. The Code of Civil Procedure does not confer jurisdiction upon the
F 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. (429-CJ

4. 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.
G 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. (429-D)

H O.N. Bhatnagar v. Smt. Rukibai Narsindas and Ors., (1982) 2 SCC 244;
RAMESH B. DESAI v. BIPIN VADI LAL MEHTA 417

Roop Lal Sathi v. Nachhattar Singh Gill, [1982) 3 SCC 487; Abdulla Bin Ali A
and Ors. v. Galappa and Ors., [1985) 2 SCC 54; Exphar Sa and Anr. v.
Eupharma Laboratories Ltd. and Anr., [2004) SCC 688; Indian Mineral &
Chemical Co. and Ors. v. Deutsche Bank, [2004) 12 SCC 376 and Popat and
Kotecha Property v. State Bank of India Staff Association, [2005) 7 SCC 510,
referred to.
B
5.1. The principle is 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. C
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 filed by the respondents
seeking dismissal of the Company Petition cannot at all be looked into. D
[430-F-H[

5.2. 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 E
words "barred by law" occurring in Order VII Rule ll(d) CPC would
also include the ground that it is barred by law oflimitation. 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 p
Rule ll(d) CPC. [431-H; 432-A, DJ

Balasaria Construction Pvt. Ltd. v. Hanuman Seva Trust and Ors., in
CA No. 4539/2003 decided by Supreme Court on 8.1 t.2005, relied on.

6.1. Undoubtedly, Order VI Rule 4 CPC requires that complete G
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. In natural course of events it looks quite probable
that a third party may not come to know that the Company had advanced
H
418 SUPREME COURT REPORTS [2006] SUPP. 3 S.C.R.

A money to Mis. Santosh Starch Products on 13.11.1982 and M/s. Santosh
Starch Products gave Rs.20 lacs to 'B' and his family members on the same
day and the said money was utilized for purchasing the shares. It is
noteworthy that 1\1/s. Santosh Starch Products is a supplier of Mis. Sayaji
Industries Ltd. and in such circumstances the payment of money by Sayaji
B Industries Ltd. to Mis. 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
C · 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 Company Judge and
D also by the Division Bench is clearly erroneous in law.
(432-E-H; 433-H; 434-AI

6.2. It is important to point out that apart from Ramesh B. Desai
there are 8 other shareholders who had filed the Company Petition. There
E 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. The approach adopted by the High Court is clearly illegal
as no finding on the point of knowledge could have been recor•Jed until
the parties had been given opportunity to lead evidence and in such
circumstances dismissal of the Company Petition at a preliminary stage
F on the finding that it was barred by limitation is clearly erroneous in law.
ln 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. (434-G-H; 435-A(

Bishundeo Narain and Anr. v. Seogeni Rai and Ors., AIR (1951) SC
G 280; Bijendra Nath Srivastava v. Mayank Srivastava and Ors., (1994( 6 SCC
117; Sangramsinh P. Gaekwad and Ors. v. Shantadevi P. Gaekwad and Ors.,
[2005] 11 SCC 314; Syed Shah Gu/am Ghouse Mohiuddin and Ors. v. Syed
Shah Ahmad Mohiuddin Kamisul Quadri and Ors., AIR (1971) SC 2184;
Kasturi Lakshmibayamma v. Sabnivis Venkoba Rao and Ors., AIR (1970) AP
H 440 and Jn Re Marappa Goundar, AIR (1959) Madras 26, held inapplicable.
RAMESH B. DESAI v. BIPIN VADILAL MEHTA [G.P. MATHUR. J.] 419

7. Section 17(1)(b) will apply when the plaintiff or applicant is claiming any A
kind of right or title to any moveable or immoveable property etc. 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
hence, the case is covered by Section 17(1)(a) of the Limitation Act and not
by Section l7(1)(b). (437-A)
B
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4766 of2001.

From the Judgment and Order dated 10.3.2000 of High Court of Gujarat
at Ahmedabad in O.J. Appeal No. 9/1996.

Soli J. Sorabjee, Pritesh Kapoor, Hemantika Wahi and S. Sanjanwala for C
the Appellants.

Iqbal Chagla, V.A. Bobde, Sudhir Nanavati, Mihir Joshi, Uday U. Lalit
(N.P.), Sunil Gupta, Huzefa Ahrnadi, Devang S. Nanavati, Saurin Mehta,
Anshuman Mohapatra, Nakul Diwan, Riaz Chagla, V.D. Khanna (for J.M.
Nanavati Associates), Rutwik Panda, Jatin Zaveri, Prantap Kalra, Naresh K. D
Sharma, Bina Gupta, Inklee Barooah, lndrani Mukherjee and Sumita Hazarika
for the Respondents.

The Judgment of the Court was delivered by

G.P. MATHUR, J. This appeal, by.special leave, has been preferred E
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. 35of1988, was affirmed.
F
2. The appellants had filed the Company Petition No. 35 of 1988 for
rectification of the register of the company Mis. 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. 113of1995 before
the learned Company Judge to dismiss the Company Petition No. 35of1988, G
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 H
420 SUPREME COURT REPORTS (2006] SUPP. 3 S.C.R.

A 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.
B 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
C 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 Mis. Sayaji Industries Ltd. and Mis.
C. V. Mehta Private Ltd. was to be entrusted to Bipinbhai while other companies
such as Mis. Industrial Machinery Manufacturers Pvt. Ltd., Mis. C. Doctor
and Company Pvt. Ltd., Mis. Mehta Machinery Manufacturers Pvt. Ltd. and
D Mis. Oriental Corporation Pvt. Ltd., were to remain with Suhasbhai. Clause I0
of MOU provided that Bipinbhai should deposit Rs.40 lacs and odd with
Mis. 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
E interest and management of Mis. Sayaji Industries Ltd. and Mis. 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 Mis.
Sayaji Industries Ltd. and Mis. C.V. Mehta Pvt. Ltd. in January, I982 as was
F contemplated by the MOU dated 30. I .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 Mis. Sayaji Industries Ltd. were to
be transferred to him by making the transfer of 13,000 shares of the Company
G 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 Mis. C.V. Mehta
Pvt. Ltd. within a period of 24 months from the date of the agreement. This
was necessary as Mis. C.V. Mehta Pvt. Ltd. held 9,000 equity shares of
Mis. Sayaji Industries Ltd. Acquisition and control of Mis. C. V. Mehta Pvt.
Ltd. and thereby 9,000 equity shares of Mis. Sayaji Industries Ltd. would
H have been possible only after payment of the said amount. It is further
RAMESH B. DESAI v. BIPIN VADILAL MEHTA [G.P. MATHIJR, J.] 421

averred in the company petition that Bipinbhai was not in a position to pay A
or deposit Rs.20 lacs without which he could not have got the controlling
interest in Mis. Sayaji Industries Ltd. He, therefore, devised a scheme
whereunder the Company, viz., Mis. Sayaji Industries Ltd. paid an amount of
Rs.20 lacs by way of advance to Mis. Santosh Starch Products by means of
three cheques of Rs.IO lacs and Rs.5 lacs (both dated 13.11.1982) and third B
cheque of Rs.5 lacs dated 25.11.1982, all drawn on Punjab National Bank,
Maskati Market Branch, Ahmedabad. The said Mis. 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 C
members on the same day. This whole amount of Rs.20 lacs was transferred
to Mis. C.V. Mehta Pvt. Ltd. in order to get control of the company Mis.
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 Mis. C.V. Mehta
Pvt. Ltd. for the purpose of acquiring the shares of Mis. Sayaji Industries Ltd. D
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 I00 to I04 or Section 402 of the Companies Act, would E
not be known. The aforesaid devise of payment of advance by the Company
to Mis. Santosh Starch Products also violated Article 20 of the Articles of
Association. Bipinbhai had thus devis~d a scheme whereunder funds of the
company were directly used for the purpose of acquiring shares of the
company and also that of Mis. C.V. Mehta Pvt. Ltd., which in tum was
holding substantial shares of Mis. Sayaji Industries Ltd. The company had F
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 reetified 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 Mis. Santosh Starch Products on 25.11.1982 represented act of G
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 Mis. 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 Mis. C.V. Mehta Pvt.
Ltd. was violative of Section 77(2) of the Companies Act as it was only a H
422 SUPREME COURT REPORTS (2006) SUPP. 3 S.C.R.

A devise for the ultimate control of shares of Mis. 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
B 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 Naro!. After making enquiries and collecting information the petitioner
C 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
D 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
E 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
F 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 I7.11.1985 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
G 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
H of the proceedings was not relevant for the !JUrpose of Article 13 7 because
RAMESH B. DESAI v. BIPIN VADILAL MEHTA (G.P. MA THUR, J.] 423
for the purpose of such Article, limitation would start running from the date A
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 B
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. I Ramesh B. Desai (petitioner No. l in the Company C
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
is.sued 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 D
the said date. In their reply the contesting respondents rnised a preliminary
objection regarding limitation and contended that on the preliminary issue the
main petition shouid 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 E
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. 1l3 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 F
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 G
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 H
424 SUPREME COURT REPORTS [2006] SUPP. 3 S.C.R.

A 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.
B
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
C 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(!) of Order XIV Rule 2 CPC lays
down that notwithstanding that a case may be disposed of on a preliminary
D 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
E in force. Learned counsel has submitted that the grounds on which a plaint
can be rejected are given in Order VII Rule I l(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
.F 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
G 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
H till the date the petitioners discovered the fraud or got knowledge of the same.
RAMESH B. DESAI v. BIPIN VADILAL MEHTA [G.P. MATHUR, J.] 425

Mr. Sorabjee has also submitted that at any rate the plea raised by the A
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.
B
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 (I )(b) of
Order XIV Rule 2 CPC contains within its ambit a plea relating to the bar of C
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 D
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. I 1.1982 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, I987, was clearly barred by E
limitation. The learned counsel has further submitted that the petitioners
could not take any advantage of Section I7 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 F
also submitted that transfer of shares had taken place as father Vadilal Lallubhai
Mehta wanted that the control of two companies, viz., Mis. Sayaji Industries
Ltd. and Mis. C.V. Mehta Pvt. Ltd. should vest with Bipinbhai and some other
companies, viz., Mis. Industrial Machinery Manufacturers Pvt. Ltd., Mis. C.
Doctor and Company Pvt. Ltd., Mis. Mehta Machinery Manufacturers Pvt.
Ltd. and Mis. Oriental Corporation Pvt. Ltd. should vest with Suhasbhai and G
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 H
426 SUPREME COlJRT REPORTS [2006] SUPP. 3 S.C.R.

A 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
B 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 3 1.5 .1991 and has been incorporated in a modified form in Section
111. Prior to its omission the said Section stood as under: -
c
"155. Power of Court to rectify register of members-{!) If
(a) the name of any person
(i) is without sufficient cause, entered in the register of members of
a company, or
D (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;
E
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.
F
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
G 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
H (b) generally, may decide any question which it is necessary or
RAMESH B. DESAI v. BIPIN VADILAL MEHTA [G.P. MATHUR, J.] 427
expedient to decide in connection with the application for A
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 JOO of the Code of Civil Procedure, 1908
(5of1908)- B
(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 C
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 (I) and (2) of this Section read as D
under:-
"77. Restrictions on purchase by company, or loans by company for
purchase, of its own or its holding company's shares.-{!) 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 E
the consequent reduction of capital is effected and sanctioned in
pursuance of sections I00 to I04 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 F
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)
G
I 0. 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 H
428 SUPREME COURT REPORTS [2006] SUPP. 3 S.C.R.

A 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
B 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
C 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.
D
11. It m'!y 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 v.
Shantadevi P. Gaekwad, [2005] I I SC(; 314).
E 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 iss'.le first ifthat 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
p provisions of this Rule came up for consideration before this Court in Major
S.S. Khanna v. Brig. F.J. Dillon, AIR (1964) SC 497, and it was held as
under:-"

Under 0. 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
G 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
H
RAMESH B. DESAI v. BIPIN VADILAL MEHTA [G.P. MATHUR, J.) 429

jurisdiction upon the Court to try a suit on mixed issues of law and A
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 ame~dment in the language of Order XIV Rule B
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 C
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 D
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 and
Ors., [ 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 E
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 v. Nachhattar Singh Gill, [ 1982]
3 sec 487 (para 24), it was observed that a preliminary objection that the
election petition is not in conformity with Section 83(l)(a) of the Act i.e. it
does not contain the concise statement of the material facts on which the p
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 Ors. v. Galappa and Ors., [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 G
in the written statement. In Exphar Sa and Anr v. Eupharma Laboratories
Ltd. and Anr., [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 H
430 SUPREME COURT REPORTS [2006] SUPP. 3 S.C.R.

A 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
B 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 Ors. 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.
c 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 I0 of the report: -

D "I 0. 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
E 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
F 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
G 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.

H 15. Paragraphs 14 and 21 of the Company Petition read as under: -
RAMESH B. DESAI v. BIPIN VADILAL MEHTA [G.P. MATHUR, J.] 431

"14. Even the action on the part of respondent Nos. 2 and 3 to use A
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 B
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 I982, 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, C
the office bearers of the Union of the Company before the Criminal
Court at Naro! 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 D
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 E
office bearers of the union of the Company and thereafter petitioner No. I
gave notice dated 14.6.1987. As mentioned earlier two cheques of Rs.IO lacs
and 5 lacs were given on 13.11.1982 and another cheque of Rs.5 lacs was
given on 25.11.1982 by Mis. Sayaji Industries Ltd. to Mis. Santosh Starch
Products and on the same day Mis. Santosh Starch Products gave Rs.20 lacs F
through cheques to Bipinbhai and his family members. Thereafter, Bipinbhai
purchased 8,600 shares of the Company Mis. 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 G
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" H
432 SUPREME COURT REPORTS [2006] SUPP. 3 S.C.R.

A occurring in Order VII Rule l l(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. v. Hanuman Seva
Trust and Ors.. decided on 8.11.2005 and it was held: -

B "After hearing counsel for the parties, going through the plaint,
application under Order 7 Rule I l(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 oflimitation is a mixed question of law and fact. Ex facie in
c 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
D same is barred by limitation the petition cannot be rejected under Order VII
Rule I l(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 Mis.
Santosh Starch Products on 13. I 1.1982 and Mis. Santosh Starch Products
E 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
Mis. Santosh Starch Products is a supplier of the Company Mis. Sayaji
Industries Ltd. and in such circumstances the payment of money by the
Company to Mis. Santosh Starch Products could not have raised any
suspicion. At any rate accepting the version given in the Company Petition
F 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 c!ear
that having regard to the provisions of Section 17( I) 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
G committed by the respondents in utilizing the funds of the Company for
purchase of its shares, which is a clear violaticn of Section 77 of the Companies
Act. Thus the Company Petition cannot be thrown out at the preliminary
stage as being barred by limitatic'1 and the view to the contrary taken by the
learned Company Judge and also by the Division Bench is clearly erroneous
in law.
H
RAMESH B. DESAI v. BIPIN VA DI LAL MEHTA [G.P. MA THUR. J.] 433
18. As mentioned earlier before the admission of the Company Petition A
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 !aches, 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 B
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. I had given a notice to
the Company dated 17.6.1987. It was also averred in the affidavit ofR.T. Doshi
that the petitioners were aware of the transaction right from November, 1982 C
and the petitioner No. I 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. I 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: - D
"Here, before me, looking to the averrnents 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 E
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 "averrnents of fraud" made in the petition do
not amount to the averrnents of fraud in eye of law" and finally hel~ that "the F
petition appears primafacie 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 observin3 G
the learned Company Judge has concluded that "the position would be that,
these averrnents 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 H
434 SUPREME COURT REPORTS (2006] SUPP. 3 S.C.R.

' A 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
B pa1ty '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
C 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
D 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. I 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
E Suhasbh~i. Emphasis has also been laid on the fact that the last cheque dated
25 .11.1982 given by the Company to Mis. Santosh Starch Products was
signed by the petitioner No. I 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
F he got knowledge of the entire transaction relating to payment of Rs.20 lacs
by the Company to Mis. Santosh Starch Products and the payment of the
said amount on the same day by Mis. 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
G 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
H illegal as no finding on the point of knowledge could have been recorded until

ii
RAMESH B. DESAI v.,J3!PIN VAD!LAL MEHTA [G.P. MATHUR, l] 435
the parties had been given opportunity to lead evidence and in such A
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 YI Rule 4 CPC in the Company B
Petition and the learned Company Judge has rightly dismissed the same. In
support of this submission he has placed reliance on Bishundeo Narain and
Anr. v. Seogeni Rai and Ors., 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 C
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 v. Mayank
Srivastava and Ors., [I 994] 6 SCC 117 and paragraphs 208 and 228 of the
report in Sangramsinh P. Gaekwad and Ors. v. Shantadevi P. Gaekwad and D
Ors., [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 YI Rule 4 CPC.

22. The learned Company Judge and the Division Bench of the High E
Court have dealt with the point of limitation by posing the question whether
the petitioners could avail of the benefit of Section 17(l)(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 F
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 Gu/am Ghouse Mohiuddin and Ors.
v. Syed Shah Ahmad Mohiuddin Kamisu/ Quadri and Ors., AIR (1971) SC G
2184, Kasturi Lakshmibayamma v. Sabnivis Venkoba Rao and Ors., 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 H
436 SUPREME COURT REPORTS (2006] SUPP. 3 S.C.R.

A 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 (I) of Section 17 on which the petitioners base their claim is being
reproduced below: -

B "17. Effect offraud or mistake. - (I) 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
c (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

(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
E
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)
F 24. In our opinion, in view of the facts pleaded in the Company Petition,
the. case is covered by Section l 7(1)(a) of the Limitation Act and not by
Section l 7(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 l 7(l)(b) will apply when the plaintiff or
G 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.
H It was also pleaded that the petitioners had got no knowledge of the fraud
RAMESH B. DESAI v. BIPIN VADILAL MEHTA [G.P. MATHUR, J.] 437
played by the respondents of the Company Petition whereby the funds of the A
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 B
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 C
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 . D
(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 E
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 p
Reasons for amending Section 18 of the old Limitation Act read thus : -"

OBJECTS AND REASONS"

Clause I 6: ·· 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 G
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 H
438 SUPREME COURT REPORTS (2006} SUPP. 3 S.C.R.

A 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 (I) of Section 17 of Limitation Act, 1963 is same as
clause (a) of Section 26 of the English Act. There was no corresponding
B provision like clause (a) of sub-section (I) 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
C 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
D 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 22 of the Limitation Ai:t 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,
E 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
p 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.
G
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.

D.G. Appeal allowed.
H

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