Case: Ramesh B. Desai  Vs. Bipin Vadilal Mehta

2. The appellants had filed the Company Petition No. 35 of 1988 for rectification of the register of the company M/s. 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. 113 of 1995 before the learned Company Judge to dismiss the Company Petition No. 35 of 1988, without going into the merits of the petition, on the ground that the same is barred by limitation. This application was allowed by the learned Company Judge by the judgment and order dated 12.3.1996 and the said order was affirmed in appeal by a Division Bench of the High Court by the judgment and order dated 10.3.2000, which are subject-matter of challenge in the present appeal3. The Company Petition No. 35 of 1988 was filed by Ramesh B. Desai and 8 others, who are shareholders of the Company, which is a public limited company. The allegations made in the company petition are as follows. Vadilal Lallubhai Mehta was the Chairman and Managing Director of the Company. He had two sons, viz., Bipin Vadilal Mehta and Suhas Vadilal Mehta (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 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 M/s. Sayaji Industries Ltd. and M/s. C.V. Mehta Private Ltd. was to be entrusted to Bipinbhai while other companies such as M/s. Industrial Machinery Manufacturers Pvt. Ltd., M/s. C. Doctor and Company vt. Ltd., M/s. Mehta Machinery Manufacturers Pvt. Ltd. and M/s. Oriental Corporation Pvt. Ltd., were to remain with SuhasbhaiClause 10 of MOU provided that Bipinbhai should deposit Rs.40 lacs and odd with M/s. 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 interest and management of M/s. Sayaji Industries Ltd. and M/s. 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 M/s. Sayaji Industries Ltd. and M/s. C.V. Mehta Pvt. Ltd. in January, 1982 as was contemplated by the MOU dated 30.1.1982. 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 M/s. 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 lacs and odd was to be deposited by Bipinbhai with M/s. C.V. Mehta Pvt. Ltd. within a period of 24 months from the date of the agreement. This was necessary as M/s. C.V. Mehta Pvt. Ltd. held 9,000 equity shares of M/s. Sayaji Industries Ltd. Acquisition and control of M/s. C.V. Mehta Pvt. Ltd. and thereby 9,000 equity shares of M/s. 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 lacs without which he could not have got the controlling interest in M/s. Sayaji Industries Ltd. He, therefore, devised a scheme whereunder the Company, viz., M/s. Sayaji Industries Ltd. paid an amount of Rs.20 lacs by way of advance to M/s. Santosh Starch Products by means of three cheques of Rs.10 lacs and Rs.5 lacs (both dated 13.11.1982) and third cheque of Rs.5 lacs dated 25.11.1982, all drawn on Punjab National Bank, Maskati Market Branch, Ahmedabad. The said M/s. 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 members on the same day. This whole amount of Rs.20 lacs was transferred to M/s. C.V. Mehta Pvt. Ltd. in order to get control of the company M/s. 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 M/s. C.V. Mehta Pvt. Ltd. for the purpose of acquiring the shares of M/s. Sayaji Industries Ltd. 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 100 to 104 or Section 402 of the Companies Act, would not be known. The aforesaid devise of payment of advance by the Company to M/s. Santosh Starch Products also violated Article 20 of the Articles of Association. Bipinbhai had thus devised a scheme whereunder funds of the company were directly used for the purpose of acquiring shares of the company and also that of M/s. C.V. Mehta Pvt. Ltd., which in turn was holding substantial shares of M/s. Sayaji Industries Ltd. The company had 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 rectified 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 M/s. Santosh Starch Products on 25.11.1982 represented act of 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 M/s. 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 M/s. C.V. Mehta Pvt. Ltd. was violative of Section 77(2) of the Companies Act as it was only a devise for the ultimate control of shares of M/s. 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 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 Company4. Though the Company Petition was filed on 10.11.1987 but after nearly 8 years on 20.3.1995 an application being Application No. 113 of 1995 was filed by Bipinbhai and Priyambhai Mehta (respondent Nos. 2 and 3 in the Company Petition) praying that the Company Petition be dismissed as barred by limitation, without going into the merits of the petition. The application was moved on the ground that the Company Petition had been filed on 10.11.1987 seeking rectification of the register and for deletion of names of 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 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 17.11.1985 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 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 of the proceedings was not relevant for the purpose of Article 137 because for the purpose of such Article, limitation would start running from the date 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 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 law5. 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 the Company Application No. 113 of 1995 moved by the contesting respondents was not maintainable at that stage and was liable to be dismissed. It was also submitted that the contesting respondents wanted that the issue regarding limitation should be heard as a preliminary issue which cannot be done in law. The respondents had committed serious fraud on the shareholders and also on the company and companys funds had been fraudulently utilized to purchase its own shares, which is violative of Section 77 of the Companies Act. Whether there is a fraud committed or not and whether in the circumstances of the case delay can be condoned or not and what is the point of time for commencement of limitation, are questions of fact and such questions cannot be tried as a preliminary issue as they require evidence. It was 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 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 discovered6. 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 Court but the same was also dismissed on 10.3.2000.

Court's reasoning:
19. Undoubtedly, Order VI Rule 4 CPC requires that complete 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. 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 party 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 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 fraud20. 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 cheque dated 25.11.1982 given by the Company to M/s. Santosh Starch Products was signed by the petitioner No. 1 Ramesh B. Desai himself. These are all questions of fact, findings on which could be recorded only after the parties had been given opportunity to adduce evidence. The mere fact that one cheque for Rs.5 lacs was signed by Ramesh B. Desai does not lead to the only inference that he got knowledge of the entire transaction relating to payment of Rs.20 lacs by the Company to M/s. Santosh Starch Products and the payment of the said amount on the same day by M/s. Santosh Starch Products to Bipinbhai and his family members. The learned Company Judge and the Division Bench in appeal have referred to these facts and have recorded a finding that the petitioners had knowledge of the entire transaction and the Company Petition was barred by limitation. It is important to point out that apart from Ramesh B. Desai there are 8 other shareholders who had filed the Company Petition. There is not even a slightest inkling 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 illegal as no finding on the point of knowledge could have been recorded until the parties had been given opportunity to lead evidence and in such circumstances dismissal of the Company Petition at a preliminary stage on the finding that it was barred by limitation is clearly erroneous in law21. 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 VI Rule 4 CPC in the Company Petition and the learned Company Judge has rightly dismissed the same. In support of this submission he has placed reliance on Bishundeo Narain and another vs. Seogeni Rai and others 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 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 vs. Mayank Srivastava and others (1994) 6 SCC 117  and paragraphs 208 and 228 of the report in Sangramsinh P. Gaekwad and others vs. Shantadevi P. Gaekwad and others (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 acts 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 CPC24. In our opinion, in view of the facts pleaded in the Company Petition, the case is covered by Section 17(1)(a) of the Limitation Act and not by Section 17(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 17(1)(b) will apply when the plaintiff or 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. It was also pleaded that the petitioners had got 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 Act27. 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 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 22of the Limitation Act 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 inSince we have held above that the Company Petition could not be dismissed on a preliminary issue, namely, 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 wrong and condonation of delay are set side.