high court of gujarat

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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.

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 … Continue reading

The facts in a nutshell are that the appellants are engaged in transmitting signals from their `Head Ends’ located at Ahmedabad to various cable operators, who in turn receive the same and transmit by way of cables to their subscribers. According to the appellants, they are not liable to pay Entertainment Tax under the provisions of the Gujarat Entertainment Tax Act, 1977 (hereinafter referred to as `the Act’). According to the appellants, they are transmitting signals to cable operators and the cable operators thereafter transmit signals to actual subscribers who are entertained. In the circumstances, according to the appellants, they are neither `Proprietors’ nor providing any entertainment to anyone and, therefore, they are not liable to pay any tax under the Act.

1 NON-REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 7026-7029 OF 2011 (Arising out of S.L.P.(C) Nos.17158-17161 of 2010) Indusind Media & Commun. Ltd. & Anr. …..Appellants. Versus Mamlatdar & Ors. …..Respondents J U D G M E N T ANIL R. DAVE, J. 1. Leave granted. 2. Being aggrieved … Continue reading

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