RAMESH B. DESAI AND ORS. versus BIPIN VADILAL MEHTA AND ORS.

Citation: [2006] SUPP. 3 S.C.R. 414 · Decided: 11-07-2006 · Supreme Court of India · Bench: ASHOK BHAN · Disposal: Appeal(s) allowed
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Judgment (excerpt)

A 
RAMESH B. DESAI AND ORS. 
\I, 
BIPIN YADILAL MEHTA AND ORS. 
JULY II, 2006 
B 
[ASHOK BHAN AND G.P. MATHUR, JJ.] 
Companies Act, 1956 : 
Sections 77 and 155-Petition for rectification of register of the company 
C on the ground that its director committed fraud by purchasing shares in his 
name ou/ of company's fi111ds-Respondent seeking swnmm)' dismissal of 
petilion on !he ground of limitation--Company Judge dismissing the pelilion-
Correclness of-Held: Company judge erred in 1hr01ring the petition at 
preliminary stage as being barred by limitation-There is no finding on the 
D point that petitioner had knoll'/ edge of transaclion earlier-Plea of limitation 
is a mixed question of law and fact and necessarily required eridence about 
the time when ji-aud l\'as discovered--Code of Civil Procedure, 1908, Order 
6 Rule -I: Order 7, Rule I I; 01der 1-1, Rufe I-Limitation Act, Section /7 and 
Article f 37. 
E 
Section 77-Purchase by Company of ifs own shares-Legality of-
Held: Not legal except when by way of reduclion of share capilal. 
F 
Civil Procedure Code-Applicability of, to proceedings under Companies 
Acl-Hefd: Applicable by virtue of Rule 6 of Companies (Court) Rules. 
Code of Civil Procedure, 1908 : 
Order 7, Rule 11-Rejec/ion of plaint under-Scope of-Held: Avermenls 
made in plain/ alone to be seen-Any affidavil filed in reply to petition cannol 
be looked info. 
Order 1-1, Rule 2-Preliminary issues-Mixed issues of law andfact-
G Jurisdiclion of Court lo t1y suil which involves mixed issue-Held: Where 
decision of issue of law depend1 upon decision of fact, ii cannot he tried as 
a preliminary issue. 
Words and Phrases : 
'Barred by law'-Occurring in Order 7, Rule I I(d) CPC-Held: Includes 
H 
414 
' 
RAMESH B. DESAI v. BIPIN VADILAL MEHTA 
415 
barred by limitation. 
A 
'Demurrer '-Meaning of-Discussed. 
Limitation Act, I 963 : 
Sections 17(J)(a), (b)-Applicability of-Belated petition for rectification B 
of register of company on the ground that its director committed fraud by 
purchasing shares in his name out of company's fimds-Held: S. J 7(J)(a) is 
applicable and not S.17(J)(b). 
'V' was the Managing Director ofSayaji Industries. He had two sons 
'B' and 'S'. In order to distribute properties between sons, 'B' was C 
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 depesit Rs.20 lacs, a scheme was devised 
whereunder Sayaji Industries paid Rs.20 lacs by way of advance to Santosh D 
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 E 
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. 
F 
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 G 
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 H 
416 
SUPREME COURT REPORTS [2006) SUPP. 3 S.C.R. 
A 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. 
B 
(427-H) 
c 
1.2. It is well-settled legal principle that any valuable consideration 
paid out of the company's assets will ma
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