2006 Supreme(SC) 596

2006(6) Supreme 44
SUPREME COURT OF INDIA
(From Gujarat High Court)
Ashok Bhan and G.P. Mathur, JJ.
Ramesh B. Desai & Ors. — Appellants
versus
Bipin Vadilal Mehta & Ors. — Respondents
Civil Appeal No. 4766 of 2001
Decided on 11-7-2006
Counsel for the Parties :
For the Appellants : Soli J. Sorabjee, Sr. Advocate, Pritesh Kapoor, Ms. Hemantika Wahi and S. Sanjanwala, Advocates.
For the Respondents : Iqbal Chagla, V.A. Bobde, Sudhir Nanavati, Mihir Joshi, Uday UU. Lalit, (N.P.), Sunil Gupta, Sr. Advocates, Huzefa Ahmadi, Devang S. Nanavati, Saurin Mehta, Anshuman Mohapatra, Nakul Diwan, Riaz Chagla, Mrs. V.D. Khanna (for M/s. I.M. Nanavati Associates), Rutwik Panda, Jatin Zaveri, Prantap Kalra, Naresh K. Sharma, Ms. Bina Gupta, Ms. Inklee Barooah, Ms. Indrani Mukherjee and Ms. Sumita Hazarika, Advocates.

IMPORTANT POINTS
1. A limited company cannot purchase its own shares except by way of reduction of capital with the sanction of the court. 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, invalid.
2. The Code of Civil Procedure 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.

Headnote:(i) Civil Procedure Code, 1908 — Order XIV Rule 2(1)(b) — Preliminary issue — Plea of limitation raised by way of demurrer and not at the trial — Assertions in a plaint must be assumed to be true for the purpose of determining whether leave is required to be invoked on the point of demurrer.

       Held : 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.(Para 12)

       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. 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.(Paras 12 and 13)

       (ii) Civil Procedure Code, 1908 — Order VII Rule 11(d) — 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 — It is not permissible to look into the pleas raised in the written statement or to any piece of evidence.

       Held : 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.(Para 14)

       (iii) Civil Procedure Code, 1908 — Order VII Rule 11(d) — Plea of limitation — It being a mixed question of law and fact, cannot be decided as an abstract principle of law divorced from facts — Company petition — Unless it becomes apparent from the company petition that the same is barred by limitation, the petition cannot be rejected under Order VII Rule 11(d) CPC — Companies Act, 1956 — Section 155.(Para 16)

       (iv) Companies Act, 1956 — Sections 77, 155 (now deleted by Section 21 of the Companies (Amendment) Act, 1988 w.e.f. 31-5-1991), Section 111 — Companies (Court) Rules — Rule 6 — Power of Court to rectify register of members — Legality of the purchase by a limited company of its own shares — Company petition filed by shareholders of the company, a public limited company — ‘VLM’, Chairman and Managing Director of the company had two sons ‘B’ and ‘S’ — Memorandum of understanding executed to entrust management of some of the companies to ‘B’ and some to ‘S’ — Clause 10 of MOU provided that ‘B’ should deposit an amount as consideration for getting controlling interest and management of the companies — Specific case of petitioners that funds of the company were utilized by ‘B’ in paying the said amount for the purpose of acquiring shares of that company and thereby he became the director of the said company — It was pleaded in the company petition that petitioners could not detect the fraud earlier and that they came to know about the same in the month of May, 1987 — Company petition filed on 10-11-1987 seeking rectification in respect of shares registered in name of respondents on 17-11-1982 — Whether company petition filed was barred by limitation — (No) — High Court has to hear the company petition again — Limitation Act, 1963 — Section 17(1)(a) and 17(1)(b).

       Held : 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.(Para 24)

       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.(Para 27)

       (v) Civil Procedure Code, 1908 — Order VI Rule 4 — Pleadings — Complete particulars of fraud shall be stated in the pleading.

       Held : 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.(Para 19)