2006 ALL SCR 347
SUPREME COURT OF INDIA

Ashok Bhan J.G.P. Mathur J.

Ramesh B. Desai and others Vs. Bipin Vadilal Mehta and others

Appeal (Civil) 4766 of 2001

11th July 2006

Petitioner Counsel:
Respondent Counsel:

Examination Equity Interest Plea of Fraud Procedure Prohibition Reference Sanction Settlement State Territorial Jurisdiction Transfer Written Statement Affidavit Cheque Companies Complaint Admission Fraud Judgment and Order Dismissal Plaint Pleadings Statement Suit

Cases Cited :

Para 10: House of Lords in Trevor Vs. Whitworth (1887) 12 AC 409
Para 10: American Trustee and Finance Corporation Vs. Couper 1894 AC 399
Para 11: Sangramsingh P. Gaekwad Vs. Shantadevi P. Gaekwad (2005) 11 SCC 314
Para 12: Major S.S. Khanna Vs. Brig. F.J. Dillon AIR 1964 SC 497
Para 13: O.N. Bhatnagar Vs. Smt. Rukibai Narsindas and others (1982) 2 SCC 244
Para 13: Roop Lal Sathi Vs. Nachhattar Singh Gill (1982) 3 SCC 487
Para 13: Abdulla Bin Ali and others Vs. Galappa and others (1985) 2 SCC 54
Para 13: Exphar Sa and another Vs. Eupharma Laboratories Ltd. and another (2004) 3 SCC 688
Para 13: Indian Mineral & Chemicals Co. and others Vs. Deutsche Bank (2004) 12 SCC 376
Para 14: Popat and Kotecha Property Vs. State Bank of India Staff Association (2005) 7 SCC 510
Para 21: Bishundeo Narain and another Vs. Seogeni Rai and others AIR 1951 SC 280
Para 21: Bijendra Nath Srivastava Vs. Mayank Srivastava and others (1994) 6 SCC 117
Para 21: Sangramsinh P. Gaekwad and others Vs. Shantadevi P. Gaekwad and others (2005) 11 SCC 314
Para 22: Syed Shah Gulam Ghouse Mohiuddin and others Vs. Syed Shah Ahmad Mohiuddin Kamisul Quadri and others AIR 1971 SC 2184
Para 22: Kasturi Lakshmibayamma Vs. Sabnivis Venkoba Rao and others AIR 1970 AP 440

JUDGEMENT



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 Com