2020 (10) TMI 596 - HC - Companies Law

Court dismisses application challenging plaint, orders trial on fraud allegations.

The court dismissed the application seeking rejection of the plaint, finding the suit prima facie within limitation and requiring trial due to fraud ... Ownership of shares - time limitation to claim ownership - The applicant, it appears, discovered, in and about April-June 1997 (after a gaop of about 4 years), that its name, as the shareholder of the Company, does not find mention in the annual return filed by the Company with the ROC. - whether the plaintiff could have filed a suit for declaration claiming a right in the subject 500 shares, based on the allegation that it was defrauded, given the aforementioned events? HELD THAT:- The period of limitation provided in Article 59 of the 1963 Limitation Act [which is 3 years] can commence only when the fraud was discovered in line with the provisions of Section 17 of the said Act. The expression “first become known to him” appearing in Article 59 in the context of an action filed based on a fraud employed by the defendant could only mean when the fraud was first discovered or could have been discovered by the plaintiff by employing reasonable diligence. It is important to bear in mind as to whether fraud in actuality has been committed or not can only be known after a pleading, in that behalf, is made which is tested, based on evidence led by parties - it is only when the fraud got unravelled in August-September 2010 could the material particulars as to how the fraud was employed have been pleaded as is the requirement under Order VI Rule 4 of the CPC. The date concerning the discovery of fraud is crucial as the limitation under Article 59 in line with Section 17 of the 1963 Limitation Act would commence only from that date. The argument that fraud with reasonable diligence could have been discovered earlier is untenable in the instant case as there nothing on record to demonstrate that the plaintiffs were aware of the fact that the stamps affixed on the transfer deeds produced in Court were not printed around the same time when the transfer deeds were purportedly executed. 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. Whether or not the transfer deeds concerning 260 shares are genuine documents? - HELD THAT:- Section 17 of the 1963 Limitation Act [which is pari materia to Section 18 of the 1908 Limitation Act], embody the fundamental principles of justice and equity, whereby, a party should not be prevented, from taking recourse to legal proceedings, when certain facts and materials are deliberately concealed from it. The opposite party, which has acted fraudulently, should not be allowed to use the statute of limitation as a shield where fraud is employed. Therefore, to close the instant suit, at this juncture, by allowing the captioned application, would cause, to my mind, serious impediment in the examination that the Court would be called upon to conduct about the genuineness of the documents-in-issue i.e. the transfer deeds. The prayer made in the captioned application lacks merit and hence deserves to be dismissed - application dismissed. Issues Involved:1. Application under Order VII Rule 11 read with Section 151 of CPC for rejection of the plaint on the grounds of limitation and Order II Rule 2 read with Section 11 of CPC.2. Ownership and transfer of 500 shares initially allotted to CBP and later transferred to the Society.3. Alleged fraudulent transfer of shares and concealment of material facts.4. Jurisdiction of civil courts versus Company Law Board (CLB) in granting relief.5. Bar of limitation under Section 17 of the Limitation Act, 1963.6. Applicability of Order XXIII Rule 1 and Order II Rule 2 of CPC.7. Examination of the genuineness of transfer deeds.Issue-wise Detailed Analysis:1. Application under Order VII Rule 11 read with Section 151 of CPC:The Company sought rejection of the plaint on the grounds that it was barred by limitation and under the provisions of Order II Rule 2 read with Section 11 of CPC. The application was based on the purported knowledge attributed to the Society concerning the alleged wrong. The Company argued that the right to sue inured to the Society much before 25.04.2012, the date when the instant suit was filed, emphasizing that the Society was aware of the transfer of shares as early as 1997 when it filed a company petition for rectification of the register of members.2. Ownership and Transfer of 500 Shares:The controversy revolved around the ownership of 500 shares initially allotted to CBP and later transferred to the Society. The Company contended that these shares had changed hands, leaving the Society with no shares to its credit. The Society disputed this claim, asserting that it remained the rightful owner of the 500 shares.3. Alleged Fraudulent Transfer of Shares:The Society alleged that the directors of the Company had illegally omitted its name from the register of members and transferred the shares to themselves or their nominees without proper compliance with statutory provisions. It was argued that the transfer deeds concerning 260 shares were forged and fabricated, a fact discovered only after responses to RTI applications revealed that the stamps affixed on the transfer deeds were printed in 1979, while the transfers were purportedly executed between 1969-1974.4. Jurisdiction of Civil Courts versus CLB:The Company argued that the civil court could not grant the relief of declaration and that such power was conferred on the CLB. However, the court noted that the CLB did not have the jurisdiction to grant the relief of declaration sought by the Society, particularly in light of the alleged fraud discovered later.5. Bar of Limitation under Section 17 of the Limitation Act, 1963:The Society contended that the suit was within limitation under Section 17 of the Limitation Act, 1963, which provides that the period of limitation shall not begin to run until the plaintiff has discovered the fraud or could have discovered it with reasonable diligence. The court found merit in this contention, noting that the fraud concerning the execution of transfer deeds was discovered only in August-September 2010, following responses to RTI applications.6. Applicability of Order XXIII Rule 1 and Order II Rule 2 of CPC:The Company argued that the suit was barred under Order XXIII Rule 1 read with Section 11 of CPC, as the Society had already lodged a challenge by way of a company petition, which was withdrawn. The court rejected this argument, noting that the emergence of subsequent circumstances concerning the transfer deeds provided a fresh cause of action to the Society. Similarly, the argument that the suit was barred under Order II Rule 2 was found untenable, as the Society could not have made a claim for cancellation of the transfer deeds until they were produced.7. Examination of the Genuineness of Transfer Deeds:The court emphasized that the issue of whether the transfer deeds concerning 260 shares were genuine required a trial. It noted that the discovery of fraud in the execution of the transfer deeds provided a fresh cause of action for the Society to seek a declaration of its rights in the subject shares and cancellation of the transfer deeds.Conclusion:The court dismissed the application under Order VII Rule 11, holding that the suit was prima facie within limitation and that the allegations of fraud required a trial. The court also rejected the arguments based on Order XXIII Rule 1, Order II Rule 2, and Section 11 of CPC, noting that the discovery of fraud provided a fresh cause of action. The observations made in the judgment were stated to not impact the trial of the suit on merits.