(Judgment of the Court was delivered by R.SUBBIAH, J.,) This appeal is preferred against the order of a learned single Judge of this Court dated 10.03.2008 in an application filed by the appellant herein under Order VII Rule 11 of C.P.C.for rejecting the plaint filed by the respondents herein on two grounds, namely, (i) the claim as disclosed in the plaint is hopelessly barred by limitation; and (ii) there is no cause of action at all to file a suit against the defendants.
2. The facts, which led to file the application under Order VII Rule 11 of C.P.C., are as follows:
The appellant herein is the 1st defendant in the suit. The 1st respondent/1st plaintiff is a Private Limited Company and the 2nd respondent/2nd plaintiff is one of the shareholders of the 1st plaintiff company. Defendants 1 to 5 in the suit are related companies promoted by one Mr. G.Venkateswaran. The said G.Venkateswaran was also one of the Directors of the 1st Plaintiff company for some time during the period from 1987 to 1990. Defendants 1 to 5, along with another related entity, possessed 7,80,000 shares in M/s.Shaw Wallace Company Limited. The said shares were seized by the Commissioner of Income Tax in a raid conducted by the Income Tax Department in the premises of G.Venkateswaran and his group of companies. Hence, the said Venkateswaran approached the Directors of the 1st plaintiff company, stating that defendants 1 to 5 were the lawful owners of 7,80,000 shares of Shaw Wallace Company, which were seized by the Income Tax Department and the Income Tax Department would sell these seized shares by coercive process unless income tax due of Rs.380 lakhs was paid by 30.11.1987. Further, the said Venkateswaran informed the plaintiffs/respondents that such sale by the Income Tax Department would result only in fire sale value being realised and hence, he requested the plaintiffs to buy these shares at Rs.85/- per share totalling to Rs.663 lakhs approximately. The 1st Plaintiff and G.Venkateswaran for himself and on behalf of his group of companies, namely, defendants 1 to 5, discussed the issue and finally it was agreed by the 1st plaintiff that a sum of Rs.380 lakhs would be paid for the specific purpose of discharging the claim of the Income Tax Department made against them, so that the said shares might become freehold and capable of being transferred to the 1st plaintiff thereafter. Accordingly, the plaintiffs and the said Venkateswaran entered into an agreement for sale of shares on 09.11.1987, under which 7,80,000 shares of Shaw Wallace Company Limited, which were in the seisin of the Income Tax Department, were agreed to be purchased by the 1st plaintiff for a total consideration of Rs.663 lakhs. Pursuant to the agreement, the 2nd plaintiff/2nd respondent arranged for funds and paid the amount on 30.l1.1987 by way of pay order in favour of the income tax department for the release of 7,80,000 Shaw Wallace shares from the custody of the Income Tax Department for the purpose of proceeding with the transfer of the said shares in favour of the plaintiffs. After the payment of the said amount only, the plaintiffs came to know that the said Venkateswaran and his group of companies were lawful owners of only 1,74,399 shares, but not of the entire 7,80,000 shares as represented by G.Venkateswaran originally. Hence, the grievance of the respondents/ plaintiffs is that the money entrusted with defendants 1 to 5 and the said G.Venkateswaran were not applied for the purpose for which they were entrusted, namely, release of the entire 7,80,000 shares but only 1,74,399 shares were released. Therefore, there was a breach of trust committed by G.Venkateswaran and his group of companies. Subsequently when G.Venkateswaran was contacted on 16.09.1989, the parties made an approximate to draw up an account for the breach of trust committed by defendants 1 to 5 and Mr.G.Venkateswaran and a sum of Rs.1,800 lakhs was arrived at as a sum payable to the 1st plaintiff. However, neither G.Venkateswaran nor defendants 1 to 5 made an attempt to make good the benefit illegally gained by their breach of trust. G.Venkateswaran also owned up his mistake and agreed on 24.01.1990 by himself and on behalf of defendants 1 to 5 that they would jointly and severally make good the loss to the plaintiffs. Consequently, G.Venkateswaran and defendants 1 to 5 deposited with the 1st plaintiff the shares belonging to them and also executed share transfer forms as security. Though G.Venkateswaran and defendants 1 to 5 deposited the shares belonging to the group of companies with the 1st plaintiff, they failed to make good the sum of Rs.380 lakhs to the plaintiffs. The plaintiffs had no other alternative but to proceed on the basis of the pledge. Hence, the plaintiffs have handed over the shares and transfer forms on 02.12.1992 to Vysya Bank Bangalore, by way of security in accordance with their rights as pledges. Apart from the deposit of shares, the said Venkateswaran had also attempted to make good his dues in part by conveying two of his companies, which held encumbered lands in Mahabalipuram. But the assets of these companies were under encumbrance to the Indian Bank, Jaffarkhanpet, in respect of the loan availed by the company for Rs.3 crores. The shares in these companies were valued by defendants 1 to 5 themselves and the shares were duly conveyed to the 1st plaintiff's nominees. That amount was also given credit to by the 1st plaintiff but defendants 1 to 5 have not settled the loan with the Indian Bank in respect of the outstanding amount, in respect of which, a case was pending against them before the Debts Recovery Tribunal. The Vysya Bank, to whom the shares were pledged, was also not in a position to transfer the shares since the Income Tax Department made a claim over the said shares in view of the tax due by G.Venkateswaran and defendants 1 to 5. In the meantime, the said Venkateswaran passed away in the year 2003 and the plaintiffs were left to deal with the problems pertaining to the pledged suit shares. In view of the attachment by the Income Tax Department, the Vysya Bank, with whom the shares were pledged, refused to proceed further and called upon the plaintiffs to pay them their charges and to take the suit shares. On settlement of the outstanding of the Vysya Bank, the Vysya Bank released all of their claims on the suit shares and returned the suit shares after duly cancelling all their endorsements, accompanied with an official letter dated 25.08.2006. At this juncture, the plaintiffs came to know that defendants 1 to 5 and Venkateswaran with deliberate intention to prevent the enforcement of the pledge, manipulated the affairs of the 1st plaintiff as if all those shares which were pledged to the 1st plaintiff had been treated as lost and issued duplicate shares which are now currently floating in the market.
3. After getting back the shares from Vysya Bank on 25.08.2006, the 1st plaintiff realized that the management of the 1st defendant has dishonestly and fraudulently floated duplicate shares of the suit shares in the market. Therefore, the plaintiffs have come forward with the present suit as against defendants 1 to 5 on the ground that defendants 1 to 5 are jointly and severally liable to make good the loss sustained by the 1st plaintiff on account of the breach of trust committed by defendants 1 to 5, by seeking the following reliefs:
(A) For a preliminary decree, directing that an account be taken by the Court of the sums misapplied by the defendants 1 to 5 as from 30.11.87 and that the monies so found due may be realised and that defendants 1 to 5 may be ordered to pay into Court, the sums so found due and payable to them.
CONSEQUENTIALLY,
(i) For a decree, directing the sale of the suit shares, in such manner as this Hon'ble Court deems appropriate, paying over the sale proceeds thereof, to the 1st plaintiff, and for a personal decree for money against the defendants 1 to 5, for any balance that may be found due after appropriation of such sale proceeds by the 1st plaintiff;
OR ALTERNATIVELY:
(ii) In the event that such sale of the suit shares cannot be ordered or effected for any reason, for a decree for money for the sums found to be due after such account is taken, against the defendants 1 to 5.
(B) Directing the defendants 1 to 5 to bear the costs of this suit".
4. The 1st defendant/appellant herein had filed an application under Order VII Rule 11 of C.P.C. to reject the plaint by raising two grounds, (1) no cause of action has been made out against the defendants; and (2) the claim made is hopelessly barred by limitation.
5. After hot contest, the application filed by the 1st defendant was rejected by the learned single Judge on the ground that the question of limitation raised by the 1st defendant is a mixed question of fact and law, which cannot be decided at this stage in an application filed under Order VII Rule 11 CPC. Aggrieved over the same, the present appeal has been filed by the 1st defendant company.
6. The Court has paid its anxious consideration on the submissions made by the learned counsel one either side and made a scrutiny of all the materials available.
7. Advancing the arguments on behalf of the appellant/1st defendant, the learned counsel would submit that when the application was taken by the appellant to reject the plaint by raising two grounds, the learned single Judge has failed to consider one of the grounds raised by the appellant that there was no cause of action at all as against defendants 1 to 5. Further, the learned counsel, by inviting the attention of this Court to the agreement dated 09.11.1987, by which the respondents/ plaintiffs have agreed to purchase the shares of M/s.Shaw Wallace Company Limited, which were attached by the Income Tax Department, submitted that at the time of agreement the appellant company had not even come into existence. The appellant company was incorporated much later, i.e., only on 07.03.1989 and hence, absolutely there is no cause of action against the appellant. Further, the learned counsel for the appellant vehemently submitted that on a reading of the averments made in the plaint, it could be seen that the entire transaction now alleged by the respondents is said to have taken place during the period 1987-90. But the suit was filed in the year 2008. The documents filed along with the plaint would show that there was no acknowledgment of liability or part payment evidenced in writing within three years preceding the date of filing of the suit. Only with an intention to cover up the period of limitation, the allegation was made in the plaint as if the money was entrusted in a trust. Therefore, the averment in the plaint that there was a breach of trust on the part of the defendants is not based on any factual statement, but on the contrary, the allegations in the plaint would show that the respondents have paid Rs.380 lakhs directly to the Income Tax Department as an advance to purchase shares in terms of the agreement. Therefore, the theory of trust was conveniently devised by the respondents to get over the limitation. Learned counsel for the appellant further emphatically contended that the present suit is nothing but for recovery of money and it is clearly barred by limitation under Articles 13 and 23 of the Limitation Act. Thus, the contention of the learned counsel for the appellant is that there was no cause of action to maintain the suit and the suit is also hit by limitation.
8. In support of his contention, the learned counsel relied on the judgments reported in ITC LTD ..vs.. DRAT (AIR 1998 SC 634), N.V.SRINIVASA MURTHY ..vs.. MARIAMMA ((2005) 5 SCC 548, HARDESH ORES P.LTD., ..vs.. HEDE & CO., ((2007) 5 MLJ 187 (SC), and NITHAYYA THEVAR ..vs.. SUBRAMANIAM ((1970) 1 MLJ 400 and submitted that though an allegation was made in the plaint that only after getting the shares returned from Vysya Bank on 25.08.2006, they came to know that the duplicate shares have been issued by the 1st defendant, the letter dated 30.01.1995 addressed to the Branch Manager, Vysya Bank by the 1st plaintiff would show that they would have collected the share certificates pledged to the said bank as early as possible in the year 1995 and only with an intention to file the present suit within the period of limitation, after the death of G.Venkateswaran, they would have got endorsement of cancellation on 25.08.2006 from the bank.
9. Per contra, the learned counsel for the respondents contended that so far as the ground of cause of action is concerned, it cannot be decided in the application filed under Order VII Rule 11 CPC. Further he had submitted that the mere reading of the entire averments made in the plaint would show that the respondents were made to believe that defendants 1 to 5 were the lawful owners of the entire 7,80,000 shares of Shaw Wallace Company and believing the words of defendants 1 to 5, the respondents have tendered the amount of Rs.3,80,00,000/- directly to the Income Tax Department on a bona fide expectation that the Income Tax Department would release 7,80,000 shares. Subsequently when the Income Tax Department released only 1,74,399 shares they came to know that a fraud had been played upon them. Though the sum tendered by the plaintiffs was to be treated as consideration for releasing the 7,80,000 shares from the Income Tax Department, it was misapplied and completely utilised for a different purpose alien to the terms agreed and thus, a breach of trust has been committed by the defendants. Therefore, it cannot be said that the allegation made in the plaint has not made out any cause of action on the theory of trust. Further, the question of limitation is a mixed question of fact and law, as found out by the learned single Judge, which question cannot be decided at this stage by an application under Order VII Rule 11 CPC. Therefore, no error could be found out in the order passed by the learned single judge and hence, the appeal has got to be dismissed. In support of his contention, the learned counsel for the respondents has also relied on the judgments reported in PACHAIYAPPA CHETTI ..vs.. SIVAKAMI AMMAL ((1925) 49 MLJ 468, I.P.R.SOCIETY ..vs.. M.P.ASSOCIATION (AIR 1977 SC 1443), BALASARIA CONSTRUCTION P.LTD. ..vs.. HANUMAN SEVA TRUST AND OTHERS ((2006) 5 SCC 658) and KAMALA ..vs.. K.T.ESHWARA SA (AIR 2008 SC 3174).
10. Heard the learned counsel for the parties and perused the materials.
11. The main grievance of the appellant is that no cause of action has arisen as against defendants 1 to 5 on the basis of theory of trust. According to the learned counsel for the appellant, it is only a suit for recovery of money, namely, the advance amount paid for sale of shares in terms of the agreement dated 09.11.1987. Only in order to save the limitation period, the theory of trust has been introduced in the plaint. But, on going through the averments in the plaint, as contended by the learned counsel for the respondents, the allegation in the plaint would show that originally there was an assurance by the deceased G.Venkateswaran and defendants 1 to 5 to transfer the entire 7,80,000 shares of Shaw Wallace owned by defendants 1 to 5; but subsequently, after payment of the amount due to the Income Tax Department, only 1,74,399 shares came to be conveyed. So in order to make good the loss sustained by the plaintiffs, the defendants have deposited the suit shares. According to the plaintiffs, during August, 2006, they came to know that even the duplicate shares of suit shares have been issued by the appellant, which had been currently floating in the market. Thus, on those allegations, the suit has been filed by the respondents that there was a breach of trust on the part of defendants 1 to 5.
12. Though a submission was made by the appellant that the suit was based on recovery of advance money paid by the respondents to purchase shares in terms of agreement, a reading of the allegations in the plaint would reveal that a case has been put forth by the plaintiffs on the ground of breach of trust. Therefore, it cannot be said, prima facie, that there was no cause of action against defendants 1 to 6 to reject the plaint summarily.
13. In this regard, a useful reference could be placed on the judgment relied upon by the learned counsel for the respondents reported in (1925)49 MLJ 468 in the case of PACHAIYAPPA CHETTI ..vs.. SIVAKAMI AMMAL. The facts as found in that case would show that the respondent in that case was the daughter of one Ponnambala Chetty, who with his brother Periyambala Chetty, formed an undivided family; they carried on money lending dealings and entrusted those dealings with the brother-in-law Sadayappa Chetty; the said Sadayappa Chetty continued those dealings for some time and maintained accounts for the moneys in his hands; while so, the brothers Ponnambala Chetty and Periyambala Chetty effected a partition and Periyambala Chetty removed his shares of the property from the hands of Sadayappa Chetty; but, however, the said Sadayappa Chetty continued to deal with the property of Ponnambala Chetty till February 1912 and even after the death of Ponnambala Chetty, Sadayappa Chetty remained in possession of all his properties; after the death of Sadayappa Chetty, the respondent, who is the daughter of Ponnambala Chetty, brought the suit against the son of Sadayappa Chetty alleging that all the properties held by the said Sadayappa Chetty was in trust for her; when the theory of trust was denied by the appellant in that case, it was held that Ponnambala Chetty's money were legally vested in Sadayappa Chetty in trust for specific purpose and thus, it has been decided by the Court that application of
Section 10 of the Limitation Act exists in that case and thereby rejected the plea taken by the appellant that the suit was hit by limitation. In the instant case also, from the allegations made out in the plaint, we find that the money was paid for specific purpose, namely, transfer of shares. Therefore, prima facie, the allegations made in the plaint would show that the reliefs are based on the theory of trust. Hence, we are unable to agree with the submission made by the learned counsel for the appellant to reject the plaint even at the threshold.
14. Though the submission made by the learned counsel for the appellant that the return of the shares by the Vysya Bank Limited in August 2006 might not be correct since the letter dated 25.08.2006 would show that the shares would have got back by the plaintiffs in the year 1995 itself, the same cannot be accepted at this stage since it is matter for evidence. Though several decisions were relied upon by the learned counsel for the appellant, on a careful reading of those decisions, we find that the said decisions proceeded on the principle that clever drafting of the plaints creating illusion of cause of action are not permitted in law; but, in our opinion, in the present case, the averments have been made out on certain actual happenings pursuant to the agreement dated 09.11.1987. The only dispute between the appellant and the respondents is, whether the amount paid to the income tax department pursuant to the agreement dated 09.11.1987 would create a trust or not. Under such circumstances, in our considered opinion, the citations relied upon by the learned counsel for the appellant cannot be applied to the facts of the present case.
15. The defence raised by the learned counsel for the respondents with regard to the 1st defendant and also the theory of trust could be gone into only at the time of trial. With regard to the limitation, it is only a mixed question of fact and law, as observed by the learned single Judge. In our view, there is no scope for rejecting the plaint on the point of limitation. In this regard, the decisions relied upon by the respondents are squarely applicable to the instant case, which laid down a principle that the limitation is a mixed question of fact and law and consequently the plaint cannot be held to have been barred by limitation.
In fine, we do not find any infirmity in the order passed by the learned single Judge in dismissing the application taken by the 1st defendant/appellant and resultantly, the order has got to be confirmed. Accordingly, the appeal fails and is dismissed, leaving the parties to bear their respective costs. Consequently, connected M.P.is closed.
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