1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO.964 OF 2001 IN NOTICE OF MOTION NO.3813 OF 1999 IN SUIT NO.6714 OF 1999 Indian Bank & Ors. ... Appellants/ Trustees of Indian Bank Mutual Ori.plaintiffs Fund Vs. Deepak Fertilizers & ... Respondents Petrochemicals Corporation Ori.defts. 2 to 5 Ltd. & Ors. Mr.P.K. Samdhani, Sr. Advocate with Mr.Mayur Khandeparkar, Kirtida Chandarana & Dhiraj Mehta i/by Humranwala & Co. for appellants. Mr.S.V. Doijode with Ms.Meenakshi Iyer i/by Doijode & Associates for respondent no.1. Mr.Sanjay Kothari with Mr.S.V. Uttam i/by Pardiwala & Co. for respondents no.2 to 5. CORAM : J.N. PATEL,Acting C.J.& Smt. R.P. SondurBaldota, J. Judgment : 24th September, 2009 reserved on Judgment : 25th January,2010. pronounced on JUDGMENT (Per Smt.R.P. SondurBaldota, J) : 1. This appeal takes exception to the order dated 10th December 2001 passed by the learned Single Judge deciding the preliminary issue framed under Section 9(A) Code of Civil Procedure holding that the suit filed by the appellants against respondents no.2 to 5 is barred by the Law of Limitation. 2. The factual matrix of the case giving rise to the proceedings is as under : 2 In January 1989, respondent no.1- Company had come out with a public issue of 14% secured redeemable debentures. Respondents no.2 to 5 who are Non Resident Indians were allotted 16,000 debentures. Between May 1990 to December 1990, the appellants purchased 7,57,800 of the debentures through various stock brokers out of which about 5,58,000 debentures were belonging to the Non Resident Indians purchased through respondent no.6. The appellants took physical delivery of 7,57,800 debentures and forwarded the original debenture certificates along with transfer deeds to respondent no.1- Company. By February 1991, respondent no.1 transferred 4,15,775 debentures in the name of the appellants in its register of members. In respect of balance debentures of 342025, the issue of non transfer was taken up with the Bombay Stock Exchange. During the meetings with the Stock Exchange, the appellants were made aware of the difficulties in transferring the balance debentures in their favour. Then on 6th March 1991, appellant no.1 filed Company Petition, being Company Petition No.120 of 1991 against respondent no.1 for having failed to transfer remaining 3,42,025 debentures in favour of the appellants. While the petition was pending, respondent no.1- Company effected transfer of some more debentures i.e. 1,77,950 debentures by 3rd May 1991 and 36,000 after 3rd May 1991 leaving the balance of 1,20,000. These included 16,000 debentures standing in the name of respondents no.2 to 5 and the others standing in the names of four groups of Patel's, Jain's, Patkar's and Shah's. 3. The Company Petition was finally heard and disposed off by the order dated 10th/11th March 1991 and respondent no.1 was directed to rectify its register in respect of the debentures standing in the 3 names of Patel's, Jain's and Patkar's. The petition as regards the debentures in the names of respondents no.2 to 5 and debentures standing in the name of Shahs was rejected with a direction to the appellants to file a suit to seek appropriate declaration of their right to the debentures. The Court also rejected the prayer of the appellants in respect of payment of interest held by respondents no.2 to 5. 4. More than six months after disposal of the Company Petition, the appellants filed suit No.6714 of 1998 seeking a declaration that they are the absolute owners of 16000 redeemable debentures issued by respondent no.1- Company in the names of respondents no.2 to 5 and for a mandatory order directing the Company to rectify its register of debenture with further consequential reliefs. Respondents no.2 to 5 took out Notice of Motion No.1483 of 2001 raising a preliminary objection to the maintenability of the suit on the ground that the same was barred by the Law of Limitation. As the preliminary objection was related to the jurisdiction of the Court to entertain the suit the following preliminary issue was framed as required by Provisions of Section 9(A) of Code of Civil Procedure. “Do defendants no.2 to 5 prove that the suit as framed and filed is barred by Law of Limitation as against them” By the impugned order, the learned Single Judge held that the appellants had not filed the suit within the prescribed period of limitation as against respondents no.2 to 5 and dismissed the suit against them. This is the order presently under the appeal. 4 5. Paragraph 19 of the plaint contains the averments as regards the limitation in which the appellants have taken up four contentions maintaining that the suit filed is within the period of limitation. The first contention is that the cause of action to file the suit arose only when the Company petition was disposed off on 10th/11th March 1991 directing the appellants to file suit. The second contention is that on execution of transfer deeds in respect of the debentures, respondents no.2 to 5 were relegated to the position of the trustees and held the debentures and the interest received thereon in trust for and on behalf of the appellants. In that circumstance, by virtue of Section 10 of the Limitation Act, action against respondents no.2 to 5 is not barred by limitation. Thirdly,that the appellants are entitled to exclusion of the time taken in prosecuting the petition under Section 111 of The Companies Act having prosecuted the same, bonafide, with due diligence as provided u/s 14 of the Limitation Act. Fourthly and lastly the appellants claim to have learnt about the denial of their title to the suit debentures by respondents no.2 to 5 only on receipt of their letter dated 26th May 1999. As such according to the appellants, the cause of action to file suit against respondents no.2 to 5 arose for the first time on receipt of letter dated 26th May 1999. 6. As per the impugned order, the only questions that were argued before the learned Single Judge in so far as the preliminary issue is concerned was entitlement of the appellants to the benefit of Sections 10 and 14 of the Limitation Act. The learned Single Judge rejected the contentions of the appellants holding that for taking benefit of Section 10 of the Limitation Act, it was necessary 5 for the appellants to establish that the property in the debentures had vested in respondents no.2 to 5 in trust for specific purpose by virtue of the transaction of transfer. The learned Single Judge was of the opinion that provisions of Section 10 could not apply when subject matter of the suit i.e. the property in dispute is merely shown to be held by a person in trust for another person. As regards the exclusion of time sought under Section 14 of the Limitation Act, the claim thereof was rejected by the learned Single Judge on two counts. Firstly that it cannot be said that the proceedings filed under the Companies Act were the proceedings being prosecuted in a wrong Court. Secondly that respondents no.2 to 5 were not parties to the proceedings. During the submissions in the appeal proceedings before us, the appellants have, however, laid stress also upon their contention that the cause of action to file the suit herein arose for the first time to them in the month of May 1999 on receipt of letter dated 26th May 1999 from respondents no.2 to 5 refusing transfer of the debentures. 7. Since the question of accrual of cause of action is a foundational question, we will first deal with the contention based thereon before touching upon the contentions based on Section 10 and 14 of the Limitation Act. As already seen above, at paragraph 19 of the plaint, the appellants start by claiming that the cause of action arose when the company petition was disposed off and the appellants were directed to file a suit and it ends up claiming that the appellants first learnt about the denial of the title to the suit debentures by respondents no.2 to 5 only on receipt of letter dated 26th May 1999 from them. It is, therefore, necessary to determine as 6 to when did the cause of action arise for the appellants to file the suit herein. 8. The suit essentially is for declaration of title of the appellants to the 16,000 redeemable debentures issued by respondent no.1- company and for a direction for registering the transfer of the said debentures in the registers of respondent no.1. Mr.Samdhani, the learned Senior Counsel for the appellants submitted that the cause of action to file the suit arose when the appellants were directed by the order dated 10th/11th March 1999 to file suit for declaration of ownership to the debentures as against respondent no.1. As far as respondents no.2 to 5 is concerned, they questioned title of the appellants for the first time in their letter dated 26th May 1999. He submits that the cause of action to file a suit for declaration of right would arise only upon a clear and unequivocal threat to infringement of the right. In support of the submission, he relies upon following observations in the decision of the Apex Court in the case of State of Punjab vs.Gurudeo (1991) SUPREME COURT CASES 2219. “The words “right to sue” ordinarily means the right to seek relief by means of legal proceedings. Generally, the right to sue accrues only when the cause of action arises, that is, the right to prosecute to obtain relief by legal means. The suit must be instituted when the right asserted in the suit is infringed or when there is a clear and unequivocal threat to infringe that right by the defendant against whom the suit is instituted“ He submits that after appellant no.1 was directed to file a suit to seek appropriate directions with regard to 16,000 debentures, the appellants had addressed a letter to respondents no.2 to 5 requesting 7 them to confirm in writing their “No Objection” to respondent no.1- Company, paying the redemption amount and unpaid interest to the appellants. However, respondents no.2 to 5 by their letter dated 26th May 1999 claimed that they had not sold the said 16,000 debentures and further alleged that the signatures appearing on the transfer deeds were forged. According to Mr.Samdhani, this was the first categorical denial by respondents no.2 to 5 of the rights of the appellants and therefore the learned Judge ought to have held that the suit has filed is not barred by Law of Limitation. 9. As against the above, Mr.Kothari, the learned counsel for respondents no.2 to 5, by taking us through the chronology of the events, submits that the dispute as regards the title of the appellants in respect of the debentures was known to them since the year 1991 or atleast since the year 1994. After respondent no.1- Company registered only part of the debentures purchased by the appellants, the appellants had taken the matter to the Bombay Stock Exchange. The meetings with Bombay Stock Exchange were held on 18th December 1990, 26th December 1990 and 11th February 1990 in that regard. Copy of the minutes of atleast one meeting i.e. dated 18th December 1990 are annexed to the plaint. The minutes note difficulties as regards registration of the transfer of the disputed debentures in the name of the appellants. One of the objections noted was that the signatures on most of the transfer deeds did not tally with the signatures on record of respondent no.1. Annexure to the minutes lists the names of such persons including those of respondents no.2 to 5. Thereafter appellant no.1 filed company petition against respondent no.1 alone. By it's letter dated 3rd May 8 1991 and 7th May 1991, respondent no.1- company recorded that the transfer deeds relied upon by the appellants were defective and that there was a fraud in respect of the same and that there were proceedings initiated by the Enforcement Directorate in respect of the same. By it's subsequent letters dated 23rd December 1991, respondent no.1 once again informed appellant no.1 that the transfer of the debentures including 16,000 debentures standing in the names of respondents no.2 to 5 was refused on the ground that : (i) signatures of the transferors on the purported transfer deeds were different from the specimen signatures. (ii) the permission of RBI was required for the transfer since transferors were NRIs; (iii)fresh transfer deeds duly attested by the Indian Consulate General, Dubai should be submitted. By the same letter, the names and addresses of respondents no.2 to 5 were communicated to appellant no.1 and the debenture certificates along with transfer forms returned to it. Thus atleast on 23rd December 1991, appellant no.1 was made aware that the transfer deeds did not contain signatures of respondents no.2 to5 and the signatures thereon were different from the specimen signatures. Despite this knowledge, appellant no.1, apparently did not approach respondents no.2 to5 for fresh signatures and their attestation by Consulate General, Dubai. These respondents also were not made parties to the pending company petition. It appears that thereafter appellant no.1 made an application for amending the company petition to place the entire correspondence on record and to add various prayers therein 9 including prayer for declaration of the ownership of debentures. But there was no amendment sought to implead respondents no.2 to 5. The application for amendment was disposed off in the year 1994. In the year 1991 itself, respondents no.2 to 5 had informed respondent no.1 about the loss of debenture certificates. This fact has been brought on record by respondent no.1. Similarly the fact of investigation by the officers of Enforcement Directorate,Mumbai on the basis of the complaint received by them about possible violations of Foreign Exchange Regulation Act in respect of transfer of debentures by NRIs was also made known to appellant no.1 through the affidavits filed by respondent no.1 in the company petition. Thus appellant no.1 was well aware of the clouds over the title claimed by it to suit debentures as early as 1991. But the first action taken by the appellants in that regard was only after disposal of the company petition in the year 1999. The appellants sent letter dated 25th May 1999 to respondents no.2 to 5 not for obtaining their fresh signatures on the transfer deeds. The letter does not even mention that respondents no.2 to 5 had sold debentures to them by putting signatures on the transfer deeds. The letter merely refers to the debentures owned by respondents no.2 to 5 and states that since there were certain objections raised by the company as regards signatures on the transfer deeds, the debentures had remained to be transferred. The letter thereafter makes reference to the company petition and the order passed therein. The letter then requests respondents no.2 to 5 to “confirm in writing that you have no objection to the payment of redemption amount and unpaid interest in respect of the 16,000 debentures” with a further request to pay to the appellants interest 10 paid by respondent no.1 on the debentures till date. Strangely the appellants completely avoided the dispute as regards signatures on the transfer deeds. Respondents no.2 to 5 replied by their letter dated 26th May 1999 denying that they had sold debentures and alleging that the signatures appearing on the transfer deeds were forged. They requested the appellants to furnish particulars of the transaction of sale i.e. the date of purchase of debentures, the name of broker of the appellants, name of the broker from whom the appellants broker purchased the debentures, the price at which same were purchased and the particulars of the payments. The information came to be given by appellant no.1 vide its letter dated 31st July 1999. 10. The above undisputed facts show with sufficient clarity that the title claimed by appellant no.1 in the suit debentures was not accepted by respondent no.1 as far back as 1991. The document of transfer i.e. the transfer deed was alleged to be a doubtful document. Despite this knowledge, appellant no.1 did not even consider it necessary to confront respondents no.2 to 5 either directly or through it’s brokers. Some step in that regard was taken only in the year 1999 i.e. 8 years after the knowledge. Therefore, we have no hesitation in holding that the cause of action to file the suit of declaration of title to the suit debentures had accrued to appellant no.1 in December 1991 and the suit filed in the year 1999 was clearly barred by the Law of Limitation. 11. The next contention of the appellants is based on Section 10 11 of the Limitation Act, 1963. The claim was rejected by the learned Single Judge by holding that : “From the perusal of Section 10 of the Limitation Act,it is clear that for application of Section 10 of the Limitation Act, the suit must relate to the property which is vested in the debentures for specific purpose. In so far as the present case is concerned, the property in question is the debentures and it is nobody's case that as a result of transfer alleged to have taken place between the plaintiffs and the defendant nos.2 to 5, the title in the debentures vested in the defendant nos. 2 to 5. On the contrary, the title in the debentures had already vested in the defendant nos.2 to 5 and if the case of the plaintiffs in the plaint is to be accepted, the defendant nos.2 to 5 were divested of the title as a result of the transfer. Thus, in my opinion, provisions of Section 10 could not apply to the present suit”. Mr.Samdhani submits that the learned Judge has erred in placing an extremely restrictive interpretation on the expression “vested in trust” in Section 10 of the Limitation Act. According to him, respondents no.2 to 5 who were divested of their proprietary rights were vested with the obligation in trust to hold the property for the benefit of transferee in view of the transfer of the debentures. In this regard, Mr.Samdhani seeks support from decision of our High Court in killick Nixon Ltd. vs.Bank of India and others, reported in (1985) Vol. 57 Company Cases 831, with a particular reliance upon the following observations: “Both express and constructive trustees basically represent the interest of their 12 beneficiaries. If persons who represent the interest of others are excluded, then both express and constructive trustees would have to be excluded from the term “members”. For the same reason, if an express trustee who represents the interest of a beneficiary is a member or can be construed as a member for the purpose of Ss.397 and 398, then there is no reason why constructive trustee should also not be so held as such a member”. 12. In the said proceedings, the question arising for consideration of the Division Bench was “Whether a member of a company who has transferred his shareholding to another person but whose name continues to be on the register of members of the company because the company has not deleted his name and entered the name of the transferee in his place, can maintain a petition under Ss.397 and 398”. There was no dispute as regards the transfer of the shareholding. In fact the transferor had agreed to exercise all his rights as a holder of shares in question at the behest of the transferee and had in fact given a power attorney for this purpose to the transferee. Therefore facts of the case cited are materially different from the facts of this case. Though there can be no dispute as regards the proposition that the transferor of shares is in the position of a constructive trustee who holds the shares which have been sold, for the benefit of the transferee the same finds no application to the facts of the case where the respondents dispute the transaction of sale. 13. As regards the argument on interpretation of Section 10 of The Limitation Act, we are not impressed with that either. The text 13 of Section 10 reads as under : “10. Suits against trustees and their representatives.- Notwithstanding anything contained in the foregoing provisions of this Act, no suit against a person in whom property has become vested in trust for any specific purpose, or against his legal representatives or assigns (not being assigns for valuable consideration), for the purpose of following in his or their hands such property, or the proceeds thereof, or for an account of such property or proceeds, shall be barred by any length of time.” Bare reading of the Section makes it clear that it is applicable where by a transaction property becomes vested in trust in a person for any specific purpose and a suit is filed for following the property or proceeds thereof in the hands of such person. In the instant case, the suit debenture did not come to vest in trust in respondents no.2 to 5 on account of the alleged transaction of sale between them and appellant no.1. The right of absolute ownership was already vesting in respondents no.2 to 5, even before appellant no.1 came into the picture. What is argued is that on account of transaction of sale between the two the position of respondents no.2 to 5 became relegated to that of a trustee in order to take care of the state of limbo between signing of title deeds and effecting transfer on the records of the company. 14. As regards the last argument of the appellant for exclusion of time under Section 14 of the Limitation Act, we confirm the finding of the learned Single Judge that the same are not attracted to the facts of the case in as much as it does not satisfy the 14 conditions contained in the provision. For claiming exclusion of time of proceeding bonafide in Court without jurisdiction under Section 14, four conditions are required to be satisfied. The conditions are : i) The previous proceedings must be between the same parties. ii) The previous proceedings must involve the same issue. iii) The previous proceedings must have been filed in good faith and prosecuted with due diligence. iv) The proceedings filed are in a wrong court i.e. the court is unable to entertain the proceedings from defect of jurisdiction or other cause of a like nature. 15. Facts of the present case show that none of the conditions are satisfied by it. Respondents no.2 to 5 were not parties to the Company Petition. As observed by the learned Single Judge, the Company Petition obviously was filed for a direction to register the transfer on assumption that there is a complete transfer of title from the holder of the debentures to the appellants. In so far as the suit filed subsequently, there is a declaration claimed that the appellants have become owners of the debentures with a consequential relief for effecting the transfer. Therefore, really speaking, it cannot be said that issues arising in the present suit was also an issue in the company petition. As has been submitted by Mr.Kothari, the learned counsel for the respondents, it would be difficult to say that the appellants had prosecuted the company petition in good faith. This is because despite pointing out time and again that 15 respondents no.2 to 5 have disputed their signatures on the transfer deeds and despite raising plea of non joinder of necessary party, the appellants did not consider it fit to implead respondents no.2 to 5 to the company petition. It is also doubtful whether the facts of the present case satisfy the last condition of Section 14 i.e. defect of jurisdiction or the other cause of a like nature, since the company petition had been partly allowed. In these circumstances, in our opinion, the learned Single Judge has rightly held that the appellants are not entitled to the benefit of exclusion under Section 14 of The Limitation