2006 (7) TMI 325 - SC - Companies Law

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? Held that - Appeal allowed. 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.

Issues Involved:
1. Barred by Limitation
2. Plea of Fraud
3. Applicability of Section 17 of the Limitation Act
4. Compliance with Order VI Rule 4 CPC
5. Continuing Wrong and Section 22 of the Limitation Act

Issue-wise Detailed Analysis:

1. Barred by Limitation:
The primary issue was whether the Company Petition No. 35 of 1988 was barred by limitation. The respondents argued that the petition, filed on 10-11-1987, was outside the three-year limitation period from the date of the share transfer (17-11-1982). The Court held that the plea of limitation is a mixed question of law and fact and cannot be decided as a preliminary issue without giving the petitioners an opportunity to lead evidence. The Court emphasized that the limitation period would begin only when the petitioners discovered the fraud, as per Section 17 of the Limitation Act.

2. Plea of Fraud:
The petitioners alleged that the funds of Sayaji Industries Ltd. were fraudulently used by Bipinbhai and his family to acquire shares of the company, violating Section 77 of the Companies Act. The Court noted that fraud allegations require a detailed examination of facts and cannot be dismissed at a preliminary stage without evidence. The petitioners claimed they discovered the fraud in May 1987, which would affect the limitation period.

3. Applicability of Section 17 of the Limitation Act:
The petitioners relied on Section 17(1)(a) of the Limitation Act, which states that the limitation period does not begin until the fraud is discovered. The Court agreed that the case was covered by Section 17(1)(a) as the petitioners were not claiming any right or title over the shares but were seeking rectification of the register due to the fraudulent use of company funds. The Court held that the limitation period would start from the date the fraud was discovered.

4. Compliance with Order VI Rule 4 CPC:
The respondents argued that the petition did not comply with Order VI Rule 4 CPC, which requires full particulars of fraud to be stated in the pleadings. The Court held that the particulars of fraud depend on the facts of each case and that the petitioners' assertion that they had no knowledge of the transaction until May 1987 was sufficient. The Court found the High Court in error for holding that there was no proper pleading of fraud.

5. Continuing Wrong and Section 22 of the Limitation Act:
The petitioners argued that the continuance of Bipinbhai's name in the register was a continuing wrong, and thus the limitation period would begin to run at every moment of time. The Court did not examine this contention on merits but set aside the High Court's findings on continuing wrong and condonation of delay, remanding the matter for fresh consideration.

Conclusion:
The Supreme Court allowed the appeal, setting aside the judgments of the learned Company Judge and the Division Bench of the High Court. The Court directed the High Court to decide the Company Petition afresh in accordance with the law, emphasizing that the observations made were only for deciding the appeal and should not be construed as an opinion on the merits of the case.

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