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CASE NO.: Appeal (civil)  4766 of 2001

PETITIONER: Ramesh B. Desai and others

RESPONDENT: Bipin Vadilal Mehta and others

DATE OF JUDGMENT: 11/07/2006

BENCH: Ashok Bhan & G.P. Mathur

JUDGMENT: J U D G M E N T

G.P. Mathur, J.

       This appeal, by special leave, has been preferred against the  judgment and order dated 10.3.2000 of a Division Bench of High  Court of Gujarat by which the appeal preferred against the order dated  12.3.1996 of the learned Company Judge, was dismissed and the order  of the learned Company Judge dismissing the Company Petition No.  35 of 1988, was affirmed. 2.      The appellants had filed the Company Petition No. 35 of 1988  for rectification of the register of the company 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 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.  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  Pvt. Ltd., M/s. Mehta Machinery Manufacturers Pvt. Ltd. and M/s.  Oriental Corporation Pvt. Ltd., were to remain with Suhasbhai.   Clause 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

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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

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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 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 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 law.   5.      The appellant No. 1 Ramesh B. Desai (petitioner No. 1 in the  Company Petition) filed reply on the grounds, inter alia, that the  application was not maintainable as the same had been filed when the  Company Petition had already been notified for final hearing and was  on the final hearing board.  The Company Petition had been filed in  September, 1987 on which notice had been issued and respondent  Nos. 2 and 3 in the Company Petition filed their detailed affidavit and  reply on 22.3.1988 and the company also filed reply on the said date.   In their reply the contesting respondents raised a preliminary  objection regarding limitation and contended that on the preliminary  issue the main petition should be dismissed in limine.  The said  preliminary objection was raised at the time of hearing and after

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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 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  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 discovered. 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 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 (1) of  Order XIV Rule 2 CPC lays down that notwithstanding that a case  may be disposed of on a preliminary 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 in force.  Learned counsel has submitted that the  grounds on which a plaint can be rejected are given in Order VII Rule  11(d) CPC and the plea raised by the contesting respondents was one  as contemplated by clause (d) of the said Rule, which lays down that  the plaint shall be rejected where the suit appears from the statement  in the plaint to be barred by any law.  The plea raised by the  contesting 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 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 till the date the petitioners discovered  the fraud or got knowledge of the same.  Mr. Sorabjee has also  submitted that at any rate the plea raised by the petitioners involved

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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. 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 (1)(b) of Order XIV Rule 2 CPC contains within its ambit a plea  relating to the bar of 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  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  13.11.1982 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, 1987, was clearly barred by limitation.  The learned  counsel has further submitted that the petitioners could not take any  advantage of Section 17 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 also submitted that transfer of shares  had taken place as father Vadilal Lallubhai Mehta wanted that the  control of two companies, viz., M/s. Sayaji Industries Ltd. and M/s.  C.V. Mehta Pvt. Ltd. should vest with Bipinbhai and some other  companies, viz., M/s. Industrial Machinery Manufacturers Pvt. Ltd.,  M/s. C. Doctor and Company Pvt. Ltd., M/s. Mehta Machinery  Manufacturers Pvt. Ltd. and M/s. Oriental Corporation Pvt. Ltd.  should vest with Suhasbhai and the particulars of the arrangement so  made was recorded in MOU dated 30.1.1982 and the modified MOU  dated 13.11.1982.  The fact that Suhasbhai supported the petitioners  of the Company Petition clearly demonstrated that he had turned  dishonest and wanted to deprive Bipinbhai of the control of the two  companies, which he had got after transfer of shares in his name.  The  whole thing had been done in the knowledge of the father Vadilal  Lallubhai Mehta, who was the chairman and also his two sons and  thus the High Court had rightly held that the petition was barred by  limitation. 9.      Before examining the contentions raised by the learned counsel  for the parties it will be useful to refer to the relevant statutory  provisions and the 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 31.5.1991  and has been incorporated in a modified form in Section 111.  Prior to  its omission the said Section stood as under: - "155. Power of Court to rectify register of members \026  (1) If \026 (a)     the name of any person \026 (i)     is without sufficient cause, entered in the register  of members of a company, or (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;

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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.         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 \026 (a)     may decide any question relating to the title of any  person who 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 (b)     generally, may decide any question which it is  necessary or expedient to decide in connection  with the application for 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 100 of the Code of Civil Procedure, 1908 ( 5 of  1908) \026 (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 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 (1) and (2) of this  Section read as under: - "77. Restrictions on purchase by company, or  loans by company for purchase, of its own or its  holding company’s shares. \027(1) No company  limited by shares, and no company limited by  guarantee and having a share capital, shall have  power to buy its own shares, unless the consequent  reduction of capital is effected and sanctioned in  pursuance of sections 100 to 104 or of section 402.  (2) No public company, and no private company  which is a subsidiary of a public company, shall  give, whether directly or indirectly, and whether by  means of a loan, guarantee, the provision of security  or otherwise, any financial assistance for the purpose  of or in connection with a purchase or subscription  made or to be made by any person of or for any  shares in the company or in its holding company:  Provided that ..........................................................  .........................................." (omitted as not relevant)

10.     The vexed question of the legality of the purchase by a limited  company of its own shares was set at rest by the decision 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 \026 14th edn. p.1499).  In the same  decision it was also held that even express authority in the

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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 Palmer’s Company Law \026 23rd edn. \026 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 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. 11.     It may 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 vs. Shantadevi P. Gaekwad (2005) 11  SCC 314). 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 issue first if that issue relates to (a)  the jurisdiction of the Court, or (b) a bar to the suit created by any law  for the time being in force.  The provisions of this Rule came up for  consideration before this Court in Major S.S. Khanna vs. Brig. F.J.  Dillon AIR 1964 SC 497, and it was held as under:-         "Under O. 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 may be disposed of on the  issues of law only, it shall try those issues first, and for  that purpose may, if it thinks fit, postpone the settlement  of the issues of fact until after the issues of law have been  determined. The jurisdiction to try issues of law apart  from the issues of fact may be exercised only where in  the opinion of the Court the whole suit may be disposed  of on the issues of law alone, but the Code confers no  jurisdiction upon the Court to try a suit on mixed issues  of law and fact as preliminary issues. Normally all the  issues in a suit should be tried by the Court: not to do so,  especially when the decision on issues even of law  depends upon the decision of issues of fact, would result  in a lop-sided trial of the suit."  

Though there has been a slight amendment in the language of Order  XIV Rule 2 CPC by the Amending Act, 1976, but the principle  enunciated in the above quoted decision still holds good and there can  be no departure from the principle that the Code 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 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 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 vs. Smt. Rukibai Narsindas and others (1982) 2 SCC 244  (para 9) it was held that the appellant having raised a plea in the

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nature of demurrer, the question of jurisdiction had to be determined  with advertence to the allegations contained in the statement of 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 vs. Nachhattar  Singh Gill (1982) 3 SCC 487 (para 24), it was observed that a  preliminary objection that the election petition is not in conformity  with Section 83(1)(a) of the Act i.e. it does not contain the concise  statement of the material facts on which the 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 others vs. Galappa and others (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 in the written statement.  In Exphar  Sa and another vs. Eupharma Laboratories Ltd. and another (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 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 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 others vs.  Deutsche Bank (2004) 12 SCC 376 (paras 10 and 11), it was observed  that the assertions in a plaint must be assumed to be true for the  purpose of determining whether leave is liable to be revoked on the  point of demurrer.   14.     The principle underlying Clause (d) of Order VII Rule 11 is no  different.  We will refer here to a recent decision of this Court  rendered in Popat and Kotecha Property vs. State Bank of India Staff  Association (2005) 7 SCC 510 where it was held as under in para 10  of the report: - "10.    Clause (d) of Order 7 Rule 7 speaks of suit, as  appears from the statement in the plaint to be barred by  any law.  Disputed questions cannot be decided at the  time of considering an application filed under Order 7  Rule 11 CPC.  Clause (d) of Rule 11 of Order 7 applies  in those cases only where the statement made by the  plaintiff in the plaint, without any doubt or dispute shows  that the suit is barred by 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 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 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. 15.     Paragraphs 14 and 21 of the Company Petition read as under: - "14.    Even the action on the part of respondent Nos. 2  and 3 to use company’s funds would amount to fraud on

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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 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 1982, 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,  the office bearers of the Union of the Company before  the Criminal Court at Narol 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 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 office bearers of the union of the  Company and thereafter petitioner No. 1 gave notice dated 14.6.1987.   As mentioned earlier two cheques of Rs.10 lacs and 5 lacs were given  on 13.11.1982 and another cheque of Rs.5 lacs was given on  25.11.1982 by M/s. Sayaji Industries Ltd. to M/s. Santosh Starch  Products and on the same day M/s. Santosh Starch Products gave  Rs.20 lacs through cheques to Bipinbhai and his family members.   Thereafter, Bipinbhai purchased 8,600 shares of the Company M/s.  Sayaji Industries Ltd. and became its Managing Director on  18.11.1982.  Though we should not be understood as recording any  finding on this point, but in the natural course of events or at least it  looks quite probable that the petitioners in the company petition, who  are small shareholders of the Company, may not have come to know  about the aforesaid transactions.   16.     A plea of limitation 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" occurring in Order VII Rule 11(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. vs.  Hanuman Seva Trust and others) decided on 8.11.2005 and it was  held: - "After   hearing   counsel   for   the   parties,   going    through the plaint, application under Order 7 Rule 11(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   of  limitation is a mixed question of law and fact.  Ex facie  in 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 same is barred by limitation the petition

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cannot be rejected under Order VII Rule 11(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 M/s. Santosh Starch Products on 13.11.1982 and M/s. Santosh  Starch Products 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 M/s. Santosh Starch Products is a  supplier of the Company M/s. Sayaji Industries Ltd. and in such  circumstances the payment of money by the Company to M/s. 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 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 learned  Company Judge and also by the Division Bench is clearly erroneous  in law. 18.     As mentioned earlier before the admission of the Company  Petition notice was issued and affidavit in reply was filed by R.T.  Doshi, who was working as Company Secretary of the Company.   This affidavit was filed for the purpose of opposing the admission of  the Company Petition.  It was averred therein that the Company  Petition was barred by gross laches, delay, acquiescence  as the  petition had been filed after more than five years of transaction in  question.  The plea raised by the petitioners that they came to know  about the alleged transaction in May, 1987 when a criminal complaint  was filed was sought to be refuted by stating that the criminal  complaint was filed on 18.6.1987, but before that the petitioner No. 1  had given a notice to the Company dated 17.6.1987.  It was also  averred in the affidavit of R.T. Doshi that the petitioners were aware  of the transaction right from November, 1982 and the petitioner No. 1  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. 1 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: - "Here, before me, looking to the averments 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 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 "averments of fraud" made in the  petition do not amount to the averments of fraud in eye of law" and  finally held that "the petition appears prima facie 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 observing the  learned Company Judge has concluded that "the position would be  that, these averments 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

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Order VI Rule 4 CPC." 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 fraud. 20.     The learned Company Judge has referred to the affidavit in  reply filed by R.T. Doshi opposing the admission of the Company  Petition and on the basis of the said affidavit has laid great emphasis  on the fact that father Vadilal Lallubhai Mehta was present all along  with the appellant No. 1 Ramesh B. Desai at all material times and  that things were done in the presence of everyone, viz., two sons of  Vadilal Lallubhai Mehta, namely, Bipinbhai and Suhasbhai.   Emphasis has also been laid on the fact that the last 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 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 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.

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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  facts and circumstances of the case the plea raised in the Company  Petition cannot be held to be wanting in compliance of Order VI Rule  4 CPC. 22.     The learned Company Judge and the Division Bench of the  High Court have dealt with the point of limitation by posing the  question whether the petitioners could avail of the benefit of Section  17(1)(b) of the Limitation Act as they were claiming that they did not  get any knowledge of the transaction prior to May, 1987 and that the  petition was within time from the date on which they got knowledge  of the transaction.  Mr. Chagla has strenuously urged that in order to  invoke the aid of Section 17(1)(b) of the Limitation Act the petitioners  must establish that there has been fraud and that by such fraud they  have been kept away from knowledge of their right to or of the title  whereon it is founded.  For substantiating this submission reliance has  been placed on Syed Shah Gulam Ghouse Mohiuddin and others vs.  Syed Shah Ahmad Mohiuddin Kamisul Quadri and others AIR 1971  SC 2184, Kasturi Lakshmibayamma vs. Sabnivis Venkoba Rao and  others 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 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 (1) of Section 17 on which the  petitioners base their claim is being reproduced below: - "17. Effect of fraud or mistake.\027(1) Where, in the case  of any suit or application for which a period of limitation  is prescribed by this Act,\027 (a)     the suit or application is based upon the fraud of the  defendant or respondent or his agent; or (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 (c)     the suit or application is for relief from the  consequences of a mistake; 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 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)

24.     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

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criminal complaint.  In view of the pleadings as aforesaid, it is Section  17(1)(a) of the Limitation Act which would govern the situation and  not Section 17(1)(b) of the Limitation Act. 25.     The decisions cited by Mr. Chagla have been rendered on  Section 18 of the 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 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 \026 (a)     against the person guilty of the fraud or accessory  thereto, or (b)     against any person claiming through him otherwise  than in good faith and for a valuable consideration,  shall be computed from the time when the fraud first  became known to the person injuriously affected thereby,  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 Reasons for amending Section 18 of the old Limitation  Act read thus : - "OBJECTS AND REASONS" Clause 16: - 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 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 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 (1) of Section 17 of Limitation Act, 1963 is  same as clause (a) of Section 26 of the English Act.  There was no  corresponding provision like clause (a) of sub-section (1) 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 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 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 in law.  Since 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

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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 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. 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.