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PETITIONER: P.C.K. MUTHIAH CHETTIAR & ORS.

       Vs.

RESPONDENT: V.E.S. SHANMUGHAM CHETTIAR & ANR.

DATE OF JUDGMENT: 26/07/1968

BENCH: BACHAWAT, R.S. BENCH: BACHAWAT, R.S. HEGDE, K.S.

CITATION:  1969 AIR  552            1969 SCR  (1) 444

ACT: Contract--agreement  to  sell   shares--non-disclosure    of receipt  of  substantial dividends which purchaser was under fiduciary duty to disclose- if vitiated by fraud.     Limitation  Act, 1908--s. 13--exclusion of  time  during which  defendant  abroad-cause of action arising  abroad  or defendant abroad at time of its accrual--if material.

HEADNOTE: C  was the owner of five original shares in a Rubber  Estate in  Malacca  After his death in December, 1912 his  son  the first  respondent  entered into a  compromise  agreement  in July, 1915 with the appellant, who was in partnership with C during his lifetime, whereby it was agreed that out of  five sharas,  21/2  would  belong  to  the  partnership  and  the remaining  shares to the first respondent, furthermore,  the appellant undertook recover the 5 shares and account to  the first  respondent  for 21/2 shares and for  the  income  and dividends  arising from them.  In January, 1924,  while  the appellant  and  the first respondent were both  at  Malacca, they  entered  into  another  agreement  whereby  the  first respondent  transferred  his remaining 21/2  shares  to  the defendant on receipt of 18,000 dollars as consideration.  In September,  1927  the  first respondent  instituted  a  suit against the appellant in India for a declaration that he was entitled  to all the original five shares and  for  accounts and  consequential relief, as both his agreements  with  the appellant were vitiated by fraud and fraudulent concealment. The Trial Court granted the declaration, but the High Court, in appeal held that while the arrangement of July, 1915  was valid, that of January, 1924 was vitiated by fraud and  that the  appellant  was  therefore liable to  account  for  21/2 shares  and  dividends   amounting to  35,535  dollars  with interest.  The High Court also rejected a contention  raised by  the  appellant that the period of his absence  from  the country could not be taken into account for determining  the period of limitation and that the suit was therefore  barred by limitation. On appeal to this Court,     HELD:  (i) The defendant had concealed the fact that  he had collected 35,535 dollars ’as dividend on the shares  and had the respondent known this, he would not have parted with

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the  shares  with  all their  accrued  benefits  for  18,000 dollars.  The defendant was under a fiduciary obligation  to disclose  the  true state of affairs.  The  two  courts  had therefore  rightly found that the agreement was vitiated  by fraud. [446 F-G]     (ii)  In computing the period of  limitation  prescribed for the suit, "the time during which the defendant has  been absent  from India" has to be excluded under sec.  13.   The words  of  the section are clear and  full -effect  must  be given  to its language.  The section makes no exception  for cases  in  which  the cause of action  arose  in  a  foreign country or for cases in which the defendant was in a foreign country  at the time of the accrual of the cause of  action. [447 E-F]     Atul  Kristo Bose v. Lyon & Co., (1887) I.L.R. XIV  Cal. 457;  and  Mathukanni  v. Andappa,  A.I.R.  1955,  Mad.  96; referred to and applied. 445     Ruthinu  v.  Packiriswami, A.I.R. 1928  Mad.  1058;  and Subramania Chettiar v. Maruthamuthu, A.I.R. 1944  Mad.   437 disapproved  and overruled.     (iii)  On  the material on record it  was  necessary  to revise  the basis of valuation of the shares and  to  modify the decree passed by the High Court.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 705 of 1965.     Appeal  from the judgment and decree dated November  28, 1958 of the Madras High Court in Appeal No. 756 of 1964. M.S.K. Sastri and R. Thiagarajan, for the appellants.     T.R.   Srinivasan    and    R.   Kopalakrishnan,     for respondent No. 2. The Judgment of the Court was delivered by     Bachawat,  J.  Subramanian Chettiar was the owner  of  5 original shares subsequently represented by 1250, shares  in the  Chop  Leong Watt Thin Rubber Estate  in  Malacca.    On December  9,  1912 Subramanian died leaving behind  him  his widow and his son the plaintiff Shanmugham.   In August 1913 the  attorney  of Subramanian’s widow took  out  letters  of administration to his estate.   Subramarnian, the  defendant and  certain  others  were partners in the  P.M.S.  Firm  at Malacca.   On  July 16, 1915 while both Shanmugham  and  the defendant  were  at Malacca they entered into  a  compromise agreement  which is evidenced by Exhibits A-177  and  A-178. Under  this  compromise   they   agreed  that  out  of   the aforesaid  original  5  shares in the Shop  Leong  Watt  Hin Rubber  Estate 21/2 shares would belong to the  P.M.S.  Firm then  represented by the defendant as the  managing  partner and  the remaining 21/2 shares would belong  to  Shanmugham. Under this compromise the defendant agreed and undertook  to recover the 5 shares and to account to Shanmugham for the 2- 1/2 shares belonging to him and the income and the dividends arising therefrom.  On January 7, 1924 while Shanmugham  and the  defendant  were  at  Mallacca  they  entered  into   an agreement  which  is recorded in Exhibit B-2.   Under   this agreement  Shanmugham transferred his remaining 21/2  shares in  the Rubber Estate to the defendant on receipt  of  18000 dollars as consideration.  On September 14, 1927  Shanmugham instituted a suit against the defendant in the court of  the Subordinate Judge, Devakottai, asking for a declaration that he  was  entitled  to the original 5 shares  in  the  Rubber Estate,  that Exhibitis A-177, A-178 and B-2 were void,  and for accounts and consequential reliefs.   Shanmugham alleged

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that the transactions of July 16, 1915 and  January  7, 1924 were vitiated by fraud, and fraudulent concealment.   During the  pendency  of  the suit Shanmugham  was  adjudicated  an insolvent   and   thereupon   the   Official   Receiver   of Ramanathapuram L12Sup. C.I/68--14 446 was   added   as  the  2nd  plaintiff.    After   protracted proceedings  which  is  not necessary to  mention  now,  the Subordinate  Judge  granted  the  declarations  claimed   by Shanmugham  and passed  a preliminary decree  for  accounts. The  Subordinate Judge accepted the plaintiff’s  contentions and  held  that both the transactions of July 16,  1915  and January 7, 1924 were vitiated by fraud and were liable to be set  aside.    The defendant ’filed an appeal  in  the  High Court  of  Madras.   During the pendency of the  appeal  the defendant  died and his legal representatives were   brought on record.   The High Court held that the arrangement  dated July 16, 1915 was valid and was not vitiated by fraud.  With regard  to  the arrangement dated January 7, 1924  the  High Court  agreed  with  the  Trial  Court  and  held  that  the transaction was vitiated by fraud and that the defendant was liable  to account for 21/2 shares in the Rubber Estate  and dividends  amounting  to  35535 dollars and  50  cents  with interest  thereon.   The High Court also held that the  suit was not barred by limitation.   The High Court assessed  the value of 21/2 shares at 31250 dollars and in modification of the decree passed by the Trial Court passed a final  against the  defendant for Rs. 2,35,555 and further  interest.   The present  appeal has been preferred by the  defendants  after obtaining a certificate from the High Court.     Mr.   M.S.K.  Sastri  attacked  the  finding  that   the arrangement dated January 7, 1924 was vitiated by fraud.  He argued  that the High Court failed to take into account  the exception  to  sec. 19 of the Indian Contract Act  and  that assuming  that Shanmugham’s consent was procured  by  fraud, nevertheless  the agreement was not voidable as he  had  the means  of  discovering the truth  with  ordinary  diligence. There  is no substance  in this contention. The  two  courts have  concurrently found that the agreement was vitiated  by fraud.   The defendant concealed from Shanmugham that he had collected 35535 dollars and 50 cents on account of  dividend in  respect of the shares.  Had Shanmugham known  that  this huge  amount had been realised by way of dividend  he  would not  have  parted  with the shares with  all  their  accrued benefits  for the sum of 18000 dollars.   The defendant  was under a fiduciary obligation to Shanmugham to inform him  of the  true  state of affairs.  In the High Court it  was  not suggested  that Shanmugham had the means of discovering  the truth  with  ordinary diligence and it is now  too  late  to raise this contention.     Mr.  Sastri next contended that the suit was  barred  by limitation.   The suit is for obtaining relief on the ground of fraud and is governed by Art. 95 of the Indian Limitation Act,  1908.   The starting point of limitation is  the  date when  the fraud is known to the party wronged.    The  fraud was  committed on January  7, 1924.  The  Subordinate  Judge found that the fraud  was  discovered on or about April  16, 1924.   We accept this finding. 447 It may be noted that this finding was not challenged in  the High  Court.   The defendant was outside India  for  several months  in  1924  and  1926.  The  suit  was  instituted  on September 14, 1927. It is common case before us that if  the period  of  the defendant’s absence from India  is  excluded

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under  sec. 13 of the Indian Limitation Act, 1908, the  suit is not barred by limitation.   Section 13 reads :--                       "In computing the period of limitation               prescribed for any suit, the time during which               the  defendant has been absent from India  and               from  the territories beyond India  under  the               administration of the Central Government shall               be excluded."     It is to be noticed that the agreement dated January  7, 1924  was entered into between Shanmugham and the  defendant at  Malacca.   The  cause of action for the  suit  arose  at Malacca  and  at  the time of the accrual of  the  cause  of action  the  defendant was at Malacca.   Mr.  Sastri  argued that in these circumstances sec. 13 has no application.   We are unable to accept this contention.      On the date of the filing of the suit the defandant was residing  at  Kothamangalam within the jurisdiction  of  the court  of the Subordinate Judge, Devakottai. That Court  had jurisdiction  to entertain and try the suit and  the  Indian Limitation  Act was applicable to the suit though the  cause of  action may have arisen outside India. In  computing  the period  of  limitation prescribed for the  suit.  "the  time during  which the defendant has been absent from India"  has to  be  excluded under sec. 13.   The words of  the  section are;  clear and full effect must be given to  its  language. The section makes no exception for cases in which the  cause of  action arose in a foreign country or for cases in  which the  defendant was in a foreign country at the time  of  the accrual  of the cause of action. In all such cases the  time during  which the defendant has been absent from India  must be excluded in computing the period of limitation.       In  Atul Kristo Bose v. Lyon & Co.(1)  the  defendants were foreigners and they never came to India on or after the date  of the accrual of the cause of action.   The  Calcutta High  Court held that sec. 13 applied and that the suit  was not  barred by limitation. The Court was not impressed  with the argument that according to this construction a defendant who  was  in  England when a cause  of  action  against  him accrued,  and has remained there ever since might be  liable after  an  indefinite time to be sued in a  Calcutta  court. In Mathukanni v. Andappa(2) the plaintiff and the  defendant who were residents of Mannargudi in India had gone to : (1) [1887] I.L.R. XIV Cal. 457. (2) A.I.R. 1955 Madras 96. 448 Kaula  Lampur to earn their livelihood, and while there  the defendant  executed  a promissory note to the  plaintiff  on November 16, 1921.   In 1925 the plaintiff brought a suit on the  promissory  note  in the  District  Munsif’s  Court  of Mannargudi.   The cause of action in the suit arose  outside India.    A Full Bench of the Madras High Court  held  that- ’the plaintiff was entitled to the benefit of sec. 13 and in computing  the  period  of limitation  he  was  entitled  to exclude  like time during which the defendant was absent  in Kaula  Lainput.   We  agree with this decision.   The   Full Bench rightly overruled the earlier decisions in Rathinu  v. Packiriswami(1) and Subramania Chettiar v.  Maruthamuthu(2). We hold that the suit is not barred by limitation.     Mr. Sastri argued that the .suit is bad for  non-joinder of  the other partners of the P.M.S. Firm.   The  point  was not  taken  in  the courts below.   It is not  open  to  the appellant to take this point ’at this late stage. The  High Court valued 625 shares representing the  original shares in the Rubber Estate at 31250 dollars on ’the footing that  the  value  of each share on January 7,  1924  was  50

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dollars.  There  is force in Counsel’s criticism  that  this valuation ,is erroneous. The Trial Court did not record  any finding  as to the value. The High Court said that  in  1930 the value of the shares was 31250 dollars, and as there  was a  boom in the post-war period and a slump had set in  since 1921,  the value on January 7, 1924 would be 31250  dollars. The  parties relied on the ’testimony of Tan Siew Giab.   He proved  Exhibit A-74, a list of transfers of shares  in  the Rubber Estate between June 29, 1920 and September 14,  1931. From  the list it appears that the price per share  on  June 29, 1920 was between 23 and 20 dollars; on March 29, 1923,20 dollars;  on  September 5, 1923, 10 dollars;  on  April  11, 1924,  20  dollars; on August 10, 1925, 10  dollars  and  on January  22, 1930 and February 28, 1930, 50  dollars.    The price of the shares went up in 1930.   But it is common case that  the  shares should be ,valued as on January  7,  1924. On the material on the record we assess the value of a share on  that  date to be 20 dollars.  The value  of  625  shares would  therefore be 12500 dollars.   Having regard  to  this finding  the  decree  passed  by  the  High  Court  requires modification.     The  High Court held that the defendants were liable  to pay  (1) 35535 dollars and 50 cents on account of  dividend, (2) interest thereon at 6% per annum from the date of  their receipt  till  November 28, 1958, (3)  10250  dollars  after deducting  from the value of the shares amounting  to  31250 dollars  the sum of 18000 dollars received by the  plaintiff on January 7, 1924 and another sum of 3000 dollars given  up by  the  plaintiff.    Having  regard  to  our  finding  the defendants are liable to be debited under (1) A.I.R. 1928 Mad. 1058. (2) A.I.R. 1944 Mad. 437. 449 the  last  head with 12500 dollars and are  entitled  to  be credited  with 18000 dollars and 3000 dollars.   Thus  under the last head the defandants are entitled to a net credit of 8500 dollars.  The result is that the defendants are  liable to pay 35535 dollars 50 cents minus 8500 dollars, that is to say,  27035 dollars 50 cents and interest thereon at 6%  per annum.   From the material on the record it is not  possible to  find out the precise dates of receipt of the  dividends. Counsel  on  both  sides are agreed  that  we  should  allow interest on 27035 dollars and 50 cents at 6% per annum  from January 7, 1924 upto November 28, 1958 and further  interest at  6% per annum from November 28, 1958  until payment.  The agreed rate of exchange is Rs. 156 per 100 dollars.     Counsel on both sides have worked out the figures and on that basis the defendants are liable to pay Rs. 42174 and 60 paises  for  principal  and  Rs. 88292  and  49  paises  for interest  upto November 28, 1958 aggregating to  Rs.  130467 and   interest  on Rs. 42174 and 60 paises at 6%  per  annum from November 28, 1958 until payment.     The appeal is allowed in part.  The decree passed by the High Court is reduced to Rs. 130467 with interest at 6%  per annum  on  Rs. 42174 and 60 paises from  November  28,  1958 until   payment.    Directions  II,  III,  IV,  V   and   VI incorporated  in the High Court decree are  affirmed.    The parties will pay and bear their own costs in this Court. The second respondent will be at liberty to retain his costs out of the estate of the first respondent in his hand. R.K.P.S.                            Appeal allowed in part. 450