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TMI Blog2020 (10) TMI 596X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, thereafter, transferred to the plaintiff i.e. Shaheed Memorial Society [hereafter referred to as "Society"] takes the plea that, thenceforth, theses shares changed hands leaving the Society with no shares to its credit. 3.1 The Society claims otherwise and, hence, the dispute. Via this application, the Company seeks striking out of the suit albeit without a trial based on the legal provisions adverted to hereinabove. 3.2 Thus, the application is pivoted on the purported knowledge attributed to the Society concerning the alleged wrong. 4. Therefore, to appreciate the various submissions raised on behalf of the parties by their respective counsel qua this application, certain dates, events and facts are required to be noticed. Background facts: - 5. The Company was incorporated on 19.06.1959 with an authorized capital of Rs. 1, 00,000/- divided into 1, 000 shares of Rs. 100/- each. The issue and paid-up capital was, however, restricted to Rs. 1, 500/- comprising 15 shares of Rs. 100/- each. Out of the 15 shares, 10 shares were issued to Smt. Satya Chowdhry, the wife of CBP, who was also the first Chief Minister of Delhi. The remaining 5 shares were issued to one, Shri Kishor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gister of members only to wrest control of the Company. 7. It is important to bear in mind that apart from the Company which was arrayed as the first respondent in the company petition, the only other respondent was Mr. Janardhan Rai who was arrayed as respondent no. 2 albeit in his capacity as the director of the Company. 8. Insofar as the Company was concerned, in its reply, it denied the assertions made by the Society. Significantly, according to the Company, the Society had ceased to be its shareholder since 1990. 8.1 One of the major planks of the Company's defence was that the transferees of the shares had not been arrayed as parties to the company petition and, hence, it was not maintainable. 8.2 It is important to note that the reply on behalf of the Company was signed by Mr. Janardhan Rai, who, as indicated above, was arrayed as respondent no. 2 in the company petition. 9. The CLB, however, via an order dated 16.03.1998, passed in the aforementioned company petition, directed the Company to produce its register of members for inspection by the authorized representative of the Society. Furthermore, the Company was also directed to furnish a copy of the register of memb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the board of directors of the Company and replaced with four (4) new appointees i.e. Arjun Chowdhry, Ajay Yadav, Surender Pal and Abdul Haq Farhan. 14. Once the new management was in place, the Company, initiated steps to rectify the register of members. Assurance, in this behalf, was given by the Company's then-director one, Mr. Ajay Yadav. Mr. Ajay Yadav, as indicated above, was part of the new management which controlled the affairs of the Company. 14.1 This fact was communicated, by the Company to the Society vide letter dated 26.05.2006, wherein, in the operative part, the following was noted. "Conclusion: The board of directors shall take on record the shares of the society in the register of members after adhering to the procedures and provisions of the Companies Act, 1956, applicable rules, regulations and/pr department clarification/notification so far as applicable in this situation. Sd/- Ajay Yadav Director" 14.2 As a result of the change in circumstances, the Society on 29.05.2006, informed the CLB, through its advocates that it wished to withdraw the company petition. 14.3 At this hearing, the Company was represented by its chartered accountant one, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Society in favour of third parties. 21. Pursuant to this order, O.P. Sachdeva filed an affidavit dated 11.12.2007 wherein he stated in paragraph 12.1 that 9 transfer deeds concerning 230 shares had been executed, in his presence, on 29.01.1974. It is important to note, that, admittedly, O.P. Sachdeva had become a shareholder in the Company on 29.01.1974 and was appointed as a director on the board of the Company on 08.08.1982. Despite which, this crucial information was not articulated by the Company in its reply to the company petition filed before the CLB. 22. On 18.12.2007, counsel for Promila Kishore, Ankur Sachdeva and O.P. Sachdeva, informed the Court hearing the 2006 suit that they did not have, in their possession, any other document apart from the ones which had been filed with affidavit dated 11.12.2007 in conformance with the order dated 20.09.2007. 23. The record shows that transfer deeds were filed on 01.08.2008 qua 260 shares out of a total of 500 shares. The details of transfer, as captured in these documents and as adverted to in the plaint filed in the instant suit action, reveal the following. S. No. Transferor No. of Shares Transferred Transferee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were printed, for the first time, in 1978-1979. 29. Since this information did not square-up with the stand that transfer of 260 shares was effected between 1969-1974, the Society decided to file the instant suit action. The present suit was, accordingly, instituted on 18.05.2012. 30. In the written statement filed by defendant no. 6 and 7 [i.e. Ankur Sachdeva and O.P. Sachdeva] on 20.11.2012, the stance adopted was one of complete denial. The accusation of forgery/fabrication was refuted. 31. Two years hence i.e. on 07.05.2014, the Company filed the captioned application. 32. On that very date i.e. 07.05.2014, defendant nos. 4 to 6 in the 2006 suit [i.e. Ajay Yadav, Abdul Haq Farhan and Surender Pal respectively] moved an application i.e. I.A. No. 9315/2014 under Order VI Rule 17 of the CPC to amend their written statement. The amendment sought was to incorporate the factum of forgery and fabrication of the transfer deeds. 32.1 Furthermore, Ajay Yadav, Abdul Haq Farhan and Surender Pal, i.e. defendants nos. 4 to 6 in the 2006 suit, preferred an application under Order XXXIX Rule 4 of the CPC to seek a modification of the order dated 06.11.2009, passed by the Division Bench, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition i.e. SLP (C) No. 29564/2018. 41.1 This SLP was dismissed on 19.11.2018, resulting in the order dated 08.08.2018, passed by this Court, being upheld. 42. Likewise, the SLP filed by defendant nos. 4 to 6 in 2006 suit [i.e. Ajay Yadav, Abdul Haq Farhan and Surender Pal respectively] against the order dated 24.09.2018, passed in CM (M) No. 1157/2018 was dismissed on 21.01.2019. Liberty was, however, given to seek expeditious hearing of the 2006 suit. 43. On 07.03.2019, the Single Judge disposed of the application [i.e. I.A. No. 4334/2019] filed by defendant nos. 4 to 6 [i.e. Ajay Yadav, Abdul Haq Farhan and Surender Pal respectively] under Order XXXIX Rule 4 of the CPC in the 2006 suit. The Court, via this order, restrained both the plaintiffs and the defendants in the 2006 suit from selling the properties of the Company till the disposal of the suit. Besides this, the Court directed transfer of another suit pending between the parties in the District Court i.e. CS No. 50/2017 to this Court, albeit with their consent. The rationale for the decision is contained in paragraph 15 and 172 of the order dated 07.03.2019. 43.1 In addition, thereto, it was also directed that the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 500 shares. Reference, in this regard, was made to annual returns filed by Company between 1968 and 1990. (v) The Division Bench, in its order dated 06.11.2009, passed in FAO (OS) 337/2009, had also referred to the factum of the Society instituting suit no. 141/1986 in the District Court to claim cancellation of the sale deed. (vi) The issued and paid-up capital of the Company was increased from time to time. In this context, it was stated that the Company, on the following dates, had issued shares as referred to hereafter. S.No. Date Shares issued by Company 1. 31.07.1959 15 2. 1962 560 3. 1975 815 4. 1983 965 5. 1985 2515 6. 1998 24920 (vi)(a) In 1983, 150 shares, in the form of a rights issue, were allotted to the Society. However, the Society in 1989, transferred not only the balance 5 shares available with it out of an original lot of the subject 500 shares but also 150 shares which came to be allotted to it in the form of rights shares. Resultantly, after 1989, the Society was left with no shares to its credit. This fact is reflected in not only the annual returns of the Company but also in ROC's letter dated 15.05.2007 addressed to the CLB. The ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a response received to an RTI application from Indian Security Service, cannot extend the period of limitation. The Society's case is that it did not execute the transfer deed; an aspect which it articulated right since 1997 when the company petition was filed before the CLB. (xiii) The annual returns filed with the ROC by the Company constituted constructive notice insofar as the Society was concerned. Society could have discovered the transfer of shares if it had exercised due diligence in the ordinary course. (xiv) The response received by the Society to its RTI application, at best, could only be considered as evidence of the alleged fraud. The RTI application could have been made by the Society in 1997 as well when it discovered that it ceased to be a shareholder in the Company. [See: Yeswant Deorao Deshmukh vs. Walchand Ramchand Kothari, AIR 1951 SC 16] (xv) The transfer deeds are stamped by the ROC with a date endorsed upon it. The deeds have to be executed within 3 months of the issuance of the transfer form. The transfer of shares is relatable to the annual returns filed from time to time and, hence, the allegation that fraud was perpetrated on the Society is comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CLB dated 31.05.2002 whereby the Company was directed to produce transfer deeds concerning the subject 500 shares. 47.1 Likewise, reference was made to order dated 20.09.2007, passed in the 2006 suit, whereby defendant nos. 1, 6 and 7 i.e. Promila Kishore, Ankur Sachdeva and O.P. Sachdeva were directed to place on record the original transfer deeds. 47.2 This resulted in Mr. O.P. Sachdeva i.e. defendant no. 7 filing an affidavit dated 11.12.2007. In the affidavit, Mr. O.P. Sachdeva claimed that 9 transfer deeds relating to 230 shares were executed in his presence on 29.01.1974 [See: paragraph 12.1 of the affidavit] 47.3 Besides this, O.P. Sachdeva also averred in paragraph 5 of this affidavit that register of members, since its inception, was in possession of the Company. 47.4 This information, according to Mr. Mohan, was at variance with the stand taken by the Company via affidavits dated 06.04.1998 and 14.05.1998. In these affidavits, the Company took the stand that all its vital documents were destroyed in a fire accident and amongst others, it included the register of members. 47.5 Mr. Mohan also referred to the stand of the Company when it was under the control of def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be alleged by the Society, it could only be done once it was discovered. 50. The submission was that without material particulars, fraud could neither be alleged [as required under Order VI Rule 4 of the CPC] nor established. Therefore, the contention advanced on behalf of the Company was untenable since the transactions-in-issue which are assailed on the ground of fraud could be assailed only when the material particulars of the fraud were discovered. Thus, the starting point of limitation would be the date when the fraud is discovered. [See M.D. Noorul Hoda vs. Bibi Raifunissa, (1996) 7 SCC 767; Pallav Seth vs. Custodian, (2001) 7 SCC 549; and Syed Shah Mohiuddin vs. Syed Shah Ahmed, AIR 1974 SC 2184.] 50.1 The issue concerning fraud and limitation is a mixed question of law and fact which cannot be decided in an application under Order VII Rule 11 of the CPC. [See Ramesh Desai vs. Vipin Vadilal Mehta, (2006) 5 SCC 638; and Chhotanben vs. Kiritbhai Thakkar, AIR 2018 SC 2447] 50.2 The application preferred under Order VII Rule 11 of the CPC can only be adjudicated upon the basis of averments made in the plaint and the documents appended to it. 50.3 Furthermore, in support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation of the record. 55. At that juncture i.e. when the company petition was filed, the Company was, perhaps, under the sway of Sachdevas, therefore, in the reply filed on 21.10.1997 the stand taken was that the shares of the Society had already been transferred. However, the CLB did not let the matter rest at that and vide order dated 16.03.1998 directed production of the register of members of the Company for inspection by the Society. 55.1 Consequently, two affidavits were filed on behalf of the Company dated 06.04.1998 and 14.05.1998 which inter alia alluded to the fact that the records of the Company, which included the register of members, had been destroyed in a fire accident. The affidavit dated 06.04.1998 also adverted to the fact that the share certificate no. 3 bearing distinctive numbers 61-560, which concerned the subject 500 shares, in 1968, was split into 100 scripts comprising 5 shares each. 55.2 Thereafter, despite the order of the CLB dated 31.05.2002, directing the production of the instruments by which the original script was split, the same was not produced before the CLB. 56. In the interregnum, for a brief period, the control of the Company purportedly v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stand of the Company and the Sachdevas, at least at this juncture, seems to be facially dented given the report dated 23.05.2017 prepared by the forgery detection cell of the Indian Security Press. 64. As noted above, the position changed when the Indian Security Press, in response to the RTI applications filed on behalf of the Society, reported that the stamps affixed on transfer deeds were printed in 1979; a fact which is evident not only from the replies filed by the Indian Security Press but also from the report dated 23.05.2017 prepared by its forgery detection cell. 64.1 It is because of these subsequent events that vide order dated 03.04.2018 amendments to the written statement of defendant nos. 4 to 6 in the 2006 suit were allowed and the order was sustained right up till the Supreme Court with the dismissal of the SLP on 19.11.2018. 64.2 By this amendment, defendant nos. 4 to 6 were allowed to plead in their defence that the transfer deeds were forged and fabricated documents. It is also on account of this reason that the Single Judge vide order dated 07.03.2019, restrained the parties in the 2006 suit, which includes the Company and the Society, from dealing, alienating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them. As a matter of fact, the Society rightly contends that the fraud has not been unravelled to the full extent as even now it is not known as to what happened to the remaining 240 shares. 69. Thus, when the issue is examined from this perspective, Mr. Mohan's contention that Section 17 of the 1963 Limitation Act gives leeway to the party seeking to institute an action to count the period of limitation from the date the fraud is discovered, has merit. 70. The fraud, insofar as the execution of the transfer deeds is concerned, only got discovered once the original transfer deeds were produced by the Sachdevas' in 2006 suit pursuant to order dated 20.09.2007. It is only thereafter the Society filed RTI applications with the Indian Security Press which led to the discovery of the fraud in August - September 2010. 71. The argument advanced on behalf of the Company that the Society could have filed its RTI applications earlier has no merit as Section 17 of the 1963 Limitation Act, in no uncertain terms, says that the period of limitation shall not begin to run until the plaintiff or the applicant has discovered the fraud or, could with reasonable diligence have discovered the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the claimant where the provision is amenable more than one outcome. 75. Therefore, to my mind, the suit is prima facie within limitation. The plaint cannot be rejected on the ground of limitation without testing the averments made in the plaint and the documents appended thereto at the trial. 76. It is trite to say that to adjudicate upon an application under Order VII Rule 11 of the CPC all that the Court has to look at is the averments made in the plaint and the documents appended thereto. At this stage, the defence lodged qua the action is to be ignored. [See: Dahiben vs. Arvindbhai Kalyanji Bhanusali (Gajra) (D) Thr. LRs and Others3, 2020 SCC OnLine SC 562].3 77. The other argument advanced on behalf of the Company that the suit was barred under the provisions of Order XXIII Rule 1 of the CPC has no merit as the emergence of subsequent circumstances concerning the transfer deeds pertaining to 260 shares provided a fresh cause of action to the Society. Therefore, the withdrawal of the company petition in the earlier round would have no bearing on the present suit. 78. One of the crucial issues, which arises for consideration in the present suit is whether or not the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1883 in equal measure to his 3 sons Appuhamy, Kiri Banda and Punchi Appuhamy. This deed was unregistered. In 1884, that very land was sold and transferred to his 3 sons who were minors. ii. Subsequently, one of his sons Appuhamy died. At the time of his death, Appuhamy was a bachelor. His other son Kiri Banda married the plaintiff i.e. Punchi Hamine. Kiri Banda died leaving behind Punchi Hamine and their son Sirisena. iii. In 1913, Punchirala gifted the entire land to his sole surviving son i.e. Punchi Appuhamy. While doing so Punchirala sought to revoke the gift made of the very same land in favour of his 3 children in 1883. However, in the gift deed of 1913, Punchirala did not advert to the sale deed executed by him in 1884 in favour of his 3 sons. iv. In the same year i.e. 1913, Punchirala instituted a suit against Punchi Hamine [the widow of Kiri Banda]. This suit was followed by another suit in which Punchirala had, arrayed as defendants, Punchi Appuhamy, Punchi Hamine and her son i.e. Srisena who was represented by Punchi Hamine as his guardian-ad-litem. In this suit, the case set up by Punchirala was via the gift deed of 1913 [whereby land was given exclusively to Pun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This argument is very similar to the submission made before me that the alleged fraud could have been discovered had an enquiry been made with the Indian Security Press immediately after the transfer deeds concerning 260 shares were produced in Court by Sachdevas/Company. 83.2 The relevant observations made, in the Privy Council judgement, are extracted hereafter for the sake of convenience. Observations of Jayewardene, A. J. "17. ... The present case, in my opinion, falls within that definition of "concealed fraud." The failure of Punchirala to disclose the sale of 1884, which was known to him and was, as the District Judge finds, designedly concealed by him, defrauded the real owners, the widow and the child of Kiri Banda, who were induced to believe that they were not the real owners and that he, Punchirala, was the owner and entitled to possession. Then it is said that the existence of the sale of 1884 could have been discovered with reasonable diligence as the deed had been duly registered. But, as the learned District Judge says, the widow had no reason to suspect that her deceased husband had any other title than the deed of gift of 1883 and no duty was cast on her to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Mining Co. v. Osborne, (1899) A.C. 351. Lord James of Hereford delivering the judgment of the Judicial Committee said: " The contention on behalf of the appellants that the statue is a bar unless the wrongdoer is proved to have taken active measures in order to prevent detection (of a concealed fraud) is opposed to common sense as well as to the principles of equity." See also Oolkers v. Ellis (1914) 2. K.B. 139, where the above cases and others are referred to and followed. But it is said that our Prescription Ordinance applies to all actions whether at law or in equity indifferently and time begins to run from the moment the cause of action accrues, that is on the commission of the fraud, but a fresh cause of action might accrue not on the discovery of the fraud, but on the commission of a positive act in ended fraudulently to conceal the original fraud and the cause of action it gave rise to. This contention, it was strenuously submitted, is supported by the judgment of the Privy Council in the local case of Dodwell & Co. v. E. John & Co. (1918) 20 N.L.R. 206; (1918) A. C.563. In this case the Agent and Manager of the Plaintiff Company had paid to the defendants large sums of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Mr. Ganju to buttress his argument that the starting point of limitation on the ground of fraud gets shifted only when the fraud committed prevents the revelation of the knowledge of the right available to the litigant to institute an action. 83.1 A close perusal of the facts obtaining in Yeswant Deorao case would show that the decree holder's application for execution was rejected on the ground that its execution was sought beyond the period of limitation [i.e. 3 years] which commenced from the date when the earlier application for execution was rejected. In the appeal before the Supreme Court, several grounds were raised by the decree holder to assail the judgement of the Bombay High Court, one of which was, as indicated above, that the judgement debtor had prevented execution of the decree by suppressing the fact that he was the owner of "Prabhat newspaper". 83.2 In other words, the argument advanced was that a discovery of this fact, which, according to the decree holder, was a fraudulent act of deliberate omission by the judgement debtor, gave a fresh starting point of limitation for execution of the decree. The Supreme Court on the first point agreed with the decree hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for accounts to the extent of the share of her deceased husband. The objection taken by the appellant/defendant that the suit was barred by limitation was rejected by the courts below by taking recourse to Section 17 of the 1963 Limitation Act. The High Court reversed the view of the courts below on the ground that the fraud employed by the erstwhile partners did not prevent the respondent/plaintiff to file a suit for accounts and share in profits upon automatic dissolution of the firm with the death of her husband under the provisions of Section 42 (c) of the Partnership Act. 84.1 In reaching this conclusion, the Single Judge of the Karnataka High Court relied upon Yeswant Deorao case which, as noted above, is distinguishable on facts. A close reading of paragraph 8 of the judgement would show that the respondent/plaintiff had not "alleged or established" that the "machinations" of the defendant had prevented her from seeking accounts. The Court also observed that the respondent/plaintiff had not pleaded or deposed that she could not ask for accounts or that defendants had, in any manner, prevented her from seeking accounts concerning the former firm. In the instant case, the sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serves to be dismissed. It is ordered accordingly. 89. It is, however, made clear that observations made hereinabove will not impact the trial of the suit on merits. ---------------- Notes: 1. "1.6 The Company has been duly maintaining its statutory records including Register of Members, Minutes Books of Director's Meetings and Members Meetings etc. and these old records are still in the possession of the company as follows: (a) Members Register since inception, (b) Minutes Books for the period 1974 onwards." 2. "15. Thus, the applications are disposed of by making absolute till the decision of the suit the order dated 4th February, 2019, insofar as restraining all parties including the plaintiffs and the defendants, from dealing, alienating, encumbering and/or parting with any of the assets or properties of plaintiff no. 1 company. xxx xxx xxx 17. The counsel for the plaintiffs has no objection subject to the clarification that the Revision Petition already pending is not made infructuous and / or application under Order VII Rule 11 of the CPC in the said suit is considered afresh by this Court." 3. "41. In exercise of power under this provision, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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