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Companies Act, 1956 : Sections 77 and 155-Petition for rectification of register of the company on the ground that its director committed fraud by purchasing shares in his name out of company’s funds-Respondent seeking summary dismissal of petition on the ground of limitation-Company Judge dismissing the petition-Correctness of-Held: Company judge erred in throwing the petition at preliminary stage as being barred by limitation-There is no finding on the point that petitioner had knowledge of transaction earlier-Plea of limitation is a mixed question of law and fact and necessarily required evidence about the time when fraud was discovered-Code of Civil Procedure, 1908, Order 6 Rule 4; Order 7, Rule 11; Order 14, Rule 1-Limitation Act, Section 17 and Article 137. Section 77-Purchase by Company of its own shares-Legality of-Held: Not legal except when by way of reduction of share capital. Civil Procedure Code-Applicability of, to proceedings under Companies Act-Held: Applicable by virtue of Rule 6 of Companies (Court) Rules. Code of Civil Procedure, 1908 : Order 7, Rule 11-Rejection of plaint under-Scope of-Held: Averments made in plaint alone to be seen-Any affidavit filed in reply to petition cannot be looked into. Order 14, Rule 2-Preliminary issues-Mixed issues of law and fact-Jurisdiction of Court to try suit which involves mixed issue-Held: Where decision of issue of law depends upon decision of fact, it cannot be tried as a preliminary issue. Words and Phrases : `Barred by law’-Occurring in Order 7, Rule 11(d) CPC-Held: Includes barred by limitation. ` `Demurrer’-Meaning of-Discussed. Limitation Act, 1963 : Sections 17(1)(a), (b)-Applicability of-Belated petition for rectification of register of company on the ground that its director committed fraud by purchasing shares in his name out of company’s funds-Held: S.17(1)(a) is applicable and not S.17(1)(b). `V’ was the Managing Director of Sayaji Industries. He had two sons `B’ and `S’. In order to distribute properties between sons, `B’ was entrusted 2 companies, Sayaji Industries and CV Mehta Ltd. In terms of MOU dated 13.11.1982, `B’ was required to pay Rs.20 lacs, pursuant to which control and management of Sayaji Industries were to be transferred to him by making transfer of 13000 shares of Sayaji Industries in his name. As `B’ was not in a position to deposit Rs.20 lacs, a scheme was devised whereunder Sayaji Industries paid Rs.20 lacs by way of advance to Santosh Starch Ltd. The said Santosh Starch Ltd. paid an amount of Rs.20 lacs to `B’. This amount was transferred to CV Mehta Ltd. in order to get the control of Sayaji Industries. On 10.11.1987, petitioners who were shareholders of Sayaji Industries filed Company Petition for rectification of the register as provided under Section 155 of the Companies Act on the ground that `B’ utilized the funds of Sayaji Industries for the purpose of his shares which was in violation of Section 77 of Companies Act and that they could not detect fraud earlier and came to know about the same in May, 87 when a criminal complaint was filed by Union of Sayaji Industries. The respondents filed reply on 22.3.1988, in which they raised a preliminary objection regarding limitation and contended that on the preliminary issue, the main petition should be dismissed in limine. On 23.9.1995 respondents moved Company Application to dismiss the Company Petition without going into merits of petition on the ground that the same is barred by limitation. Company Judge allowed the Application holding that “there is not only no proof of fraud, but even the “averments of fraud” made in the petition do not amount to the averments of fraud in eye of law” within the meaning of Order VI Rule 4 CPC and dismissed the petition as barred by the law of limitation. This order was upheld in appeal by High Court. Hence the present appeal. =Allowing the appeal, the Court HELD: 1.1. A limited company cannot purchase its own shares except by way of reduction of capital with the sanction of the court. [427-h] 1.2. It is well-settled legal principle that any valuable consideration paid out of the company’s assets will make a transaction amounting to a purchase and therefore is invalid. [428-c-d] Trevor v. Whitworth, (1887) 12 AC 409, relied on. British and American Trustee and Finance Corporation v. Couper, 1894 AC 399, referred to. Buckley on the Companies Act – 14th edn., Palmer’s Company Law – 23rd edn.; Guide To The Companies Act by A. Ramaiya 16th Edn., referred to. 2. In view of Rule 6 of the Companies (Court) Rules, the provisions of the Code of Civil Procedure will be applicable in proceedings under the Companies Act. [428-d-e] Sangramsingh P. Gaekwad v. Shantadevi P. Gaekwad, [2005] 11 SCC 314, relied on. Major S.S. Khanna v. Brig. F.J. Dillon, AIR (1964) SC 497, referred to. 3. The Code of Civil Procedure does not confer jurisdiction upon the Court to try a suit on mixed issue of law and fact as a preliminary issue and where the decision on issue of law depends upon decision of fact, it cannot be tried as a preliminary issue. [429-c] 4. The plea raised by the contesting respondents is in fact a plea of demurrer. Demurrer is an act of objecting or taking exception or a protest. It is a pleading by a party to a legal action that assumes the truth of the matter alleged by the opposite party and sets up that it is insufficient in law to sustain his claim or that there is some other defect on the face of the pleadings constituting a legal reason why the opposite party should not be allowed to proceed further. [429-d] O.N. Bhatnagar v. Smt. Rukibai Narsindas and Ors., [1982] 2 SCC 244; Roop Lal Sathi v. Nachhattar Singh Gill, [1982] 3 SCC 487; Abdulla Bin Ali and Ors. v. Galappa and Ors., [1985] 2 SCC 54; Exphar Sa and Anr. v. Eupharma Laboratories Ltd. and Anr., [2004] SCC 688; Indian Mineral & Chemical Co. and Ors. v. Deutsche Bank, [2004] 12 SCC 376 and Popat and Kotecha Property v. State Bank of India Staff Association, [2005] 7 SCC 510, referred to. 5.1. The principle is well settled that in order to examine whether the plaint is barred by any law, as contemplated by sub-rule (d) of Order VII Rule 11 CPC, the averments made in the plaint alone have to be seen and they have to be assumed to be correct. It is not permissible to look into the pleas raised in the written statement or to any piece of evidence. Applying the said principle, the plea raised by the contesting respondents that the Company Petition was barred by limitation has to be examined by looking into the averments made in the Company Petition alone and any affidavit filed in reply to the Company Petition or the contents of the affidavit filed in support of Company Application filed by the respondents seeking dismissal of the Company Petition cannot at all be looked into. [430-f-h] 5.2. A plea of limitation cannot be decided as an abstract principle of law divorced from facts as in every case the starting point of limitation has to be ascertained which is entirely a question of fact. A plea of limitation is a mixed question of law and fact. The question whether the 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. This principle would be equally applicable to a Company Petition. Therefore, unless it becomes apparent from the reading of the Company Petition that the same is barred by limitation the petition cannot be rejected under Order VII Rule 11(d) CPC. [431-h; 432-a, d] Balasaria Construction Pvt. Ltd. v. Hanuman Seva Trust and Ors., in CA No. 4539/2003 decided by Supreme Court on 8.11.2005, relied on. 6.1. 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. 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 `B’ 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 M/s. Sayaji Industries Ltd. and in such circumstances the payment of money by Sayaji Industries Ltd. 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 Company Judge and also by the Division Bench is clearly erroneous in law. [432-e-h; 433-h; 434-a] 6.2. It is important to point out that apart from Ramesh B. Desai there are 8 other shareholders who had filed the Company Petition. There is not even a slightest inkling in the impugned judgments of the High Court that the other 8 petitioners had acquired knowledge of the transaction much earlier. The approach adopted by the High Court is clearly illegal as no finding on the point of knowledge could have been 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. 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. [434-g-h; 435-a] Bishundeo Narain and Anr. v. Seogeni Rai and Ors., AIR (1951) SC 280; Bijendra Nath Srivastava v. Mayank Srivastava and Ors., [1994] 6 SCC 117; Sangramsinh P. Gaekwad and Ors. v. Shantadevi P. Gaekwad and Ors., [2005] 11 SCC 314; Syed Shah Gulam Ghouse Mohiuddin and Ors. v. Syed Shah Ahmad Mohiuddin Kamisul Quadri and Ors., AIR (1971) SC 2184; Kasturi Lakshmibayamma v. Sabnivis Venkoba Rao and Ors., AIR (1970) AP 440 and In Re Marappa Goundar, AIR (1959) Madras 26, held inapplicable. 7. 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. The petitioners are not claiming any right or title over the shares of the Company, which according to them were purchased out of the funds of the Company hence, the case is covered by Section 17(1)(a) of the Limitation Act and not by Section 17(1)(b). [437-a] Soli J. Sorabjee, Pritesh Kapoor, Hemantika Wahi and S. Sanjanwala for the Appellants. Iqbal Chagla, V.A. Bobde, Sudhir Nanavati, Mihir Joshi, Uday U. Lalit (N.P.), Sunil Gupta, Huzefa Ahmadi, Devang S. Nanavati, Saurin Mehta, Anshuman Mohapatra, Nakul Diwan, Riaz Chagla, V.D. Khanna (for I.M. Nanavati Associates), Rutwik Panda, Jatin Zaveri, Prantap Kalra, Naresh K. Sharma, Bina Gupta, Inklee Barooah, Indrani Mukherjee and Sumita Hazarika for the Respondents.

Gujarat High Court in Ahmedabad

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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 
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 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 
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 
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  
(1) If 
(a) the name of any person 
(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;
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 
(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) 
(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. (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  14th edn. p.1499). In the same 
decision it was also held that even express authority in the 
memorandum to the contrary was unavailing. The main reasons for 
this prohibition were that such a purchase could either amount to 
"trafficking" in its own shares, thereby enabling the company in an 
unhealthy manner to influence the price of its own shares on the 
market, or it would operate as a reduction of capital which can only be 
effected with the sanction of the court and in the manner laid down in 
the statute (See Palmer's Company Law  23rd edn.  p. 440). In the 
Guide To The Companies Act by A. Ramaiya (16th edn. p.951) apart 
from Trevor v. Whitworth (supra), British and American Trustee and 
Finance Corporation v. Couper 1894 AC 399, has also been referred 
as a leading authority on the subject. Reference has also been made to 
several decisions rendered by the superior courts in 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 
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 
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 
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 
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. 
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.(1) Where, in the case 
of any suit or application for which a period of limitation 
is prescribed by this Act,
(a) the suit or application is based upon the fraud of the 
defendant or respondent or his agent; or
(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 
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 
(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 
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.

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