G.V.Films Limited v. Gayathri Holdings P.Ltd.

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 08.09.2009CORAM:THE HONOURABLE MR.JUSTICE M.CHOCKALINGAMANDTHE HONOURABLE MR.JUSTICE R.SUBBIAHORIGINAL SIDE APPEAL NO.278 OF 2008AND M.P.NO.1 OF 2008G.V.Films Limited, rep.by itsDirector Mr.P.RaghuramanLVR Centre, No.4, Seshadri Road,Alwarpet, Chennai-600 018. ..Appellant (1st Defendant)..vs..1. Gayathri Holdings P.Ltd., New No.22/1, Old No.33, Pasumarthy Street, Kodambakkam, Chennai-600 024.2. K.L.Swamy ..Respondents (Plaintiffs)Original Side Appeal filed under Order XXXVI Rule 11 of OriginalSide Rules read with Clause 15 of Letters Patent, against the orderdated 10.03.2008 passed by a learned single Judge of this Court inA.No.2471 of 2007 in C.S.No.915 of 2006.For Appellant : Mr.K.Ravi for M/s.Rugar & AryaFor Respondents : Mr.R.Krishnasami, Senior Counsel for Mr.Srinath Sridevan JUDGMENT(Judgment of the Court was delivered by R.SUBBIAH, J.,)This appeal is preferred against the order of a learned singleJudge of this Court dated 10.03.2008 in an application filed by theappellant herein under Order VII Rule 11 of C.P.C.for rejecting theplaint filed by the respondents herein on two grounds, namely,(i) the claim as disclosed in the plaint is hopelessly barred bylimitation; and (ii) there is no cause of action at all to file asuit against the defendants. https://hcservices.ecourts.gov.in/hcservices/

2. The facts, which led to file the application under Order VIIRule 11 of C.P.C., are as follows:The appellant herein is the 1st defendant in the suit. The 1strespondent/1st plaintiff is a Private Limited Company and the 2ndrespondent/2nd plaintiff is one of the shareholders of the 1stplaintiff company. Defendants 1 to 5 in the suit are relatedcompanies promoted by one Mr. G.Venkateswaran. The saidG.Venkateswaran was also one of the Directors of the 1st Plaintiffcompany for some time during the period from 1987 to 1990. Defendants1 to 5, along with another related entity, possessed 7,80,000 sharesin M/s.Shaw Wallace Company Limited. The said shares were seized bythe Commissioner of Income Tax in a raid conducted by the Income TaxDepartment in the premises of G.Venkateswaran and his group ofcompanies. Hence, the said Venkateswaran approached the Directors ofthe 1st plaintiff company, stating that defendants 1 to 5 were thelawful owners of 7,80,000 shares of Shaw Wallace Company, which wereseized by the Income Tax Department and the Income Tax Departmentwould sell these seized shares by coercive process unless income taxdue of Rs.380 lakhs was paid by 30.11.1987. Further, the saidVenkateswaran informed the plaintiffs/respondents that such sale bythe Income Tax Department would result only in fire sale value beingrealised and hence, he requested the plaintiffs to buy these sharesat Rs.85/- per share totalling to Rs.663 lakhs approximately. The1st Plaintiff and G.Venkateswaran for himself and on behalf of hisgroup of companies, namely, defendants 1 to 5, discussed the issueand finally it was agreed by the 1st plaintiff that a sum of Rs.380lakhs would be paid for the specific purpose of discharging the claimof the Income Tax Department made against them, so that the saidshares might become freehold and capable of being transferred to the1st plaintiff thereafter. Accordingly, the plaintiffs and the saidVenkateswaran entered into an agreement for sale of shares on09.11.1987, under which 7,80,000 shares of Shaw Wallace CompanyLimited, which were in the seisin of the Income Tax Department, wereagreed to be purchased by the 1st plaintiff for a total considerationof Rs.663 lakhs. Pursuant to the agreement, the 2nd plaintiff/2ndrespondent arranged for funds and paid the amount on 30.l1.1987 byway of pay order in favour of the income tax department for therelease of 7,80,000 Shaw Wallace shares from the custody of theIncome Tax Department for the purpose of proceeding with the transferof the said shares in favour of the plaintiffs. After the payment ofthe said amount only, the plaintiffs came to know that the saidVenkateswaran and his group of companies were lawful owners of only1,74,399 shares, but not of the entire 7,80,000 shares asrepresented by G.Venkateswaran originally. Hence, the grievance ofthe respondents/ plaintiffs is that the money entrusted withdefendants 1 to 5 and the said G.Venkateswaran were not applied forthe purpose for which they were entrusted, namely, release of theentire 7,80,000 shares but only 1,74,399 shares were released.Therefore, there was a breach of trust committed by G.Venkateswaran https://hcservices.ecourts.gov.in/hcservices/ and his group of companies. Subsequently when G.Venkateswaran wascontacted on 16.09.1989, the parties made an approximate to draw upan account for the breach of trust committed by defendants 1 to 5 andMr.G.Venkateswaran and a sum of Rs.1,800 lakhs was arrived at as asum payable to the 1st plaintiff. However, neither G.Venkateswarannor defendants 1 to 5 made an attempt to make good the benefitillegally gained by their breach of trust. G.Venkateswaran alsoowned up his mistake and agreed on 24.01.1990 by himself and onbehalf of defendants 1 to 5 that they would jointly and severallymake good the loss to the plaintiffs. Consequently, G.Venkateswaranand defendants 1 to 5 deposited with the 1st plaintiff the sharesbelonging to them and also executed share transfer forms as security.Though G.Venkateswaran and defendants 1 to 5 deposited the sharesbelonging to the group of companies with the 1st plaintiff, theyfailed to make good the sum of Rs.380 lakhs to the plaintiffs. Theplaintiffs had no other alternative but to proceed on the basis ofthe pledge. Hence, the plaintiffs have handed over the shares andtransfer forms on 02.12.1992 to Vysya Bank Bangalore, by way ofsecurity in accordance with their rights as pledges. Apart from thedeposit of shares, the said Venkateswaran had also attempted to makegood his dues in part by conveying two of his companies, which heldencumbered lands in Mahabalipuram. But the assets of these companieswere under encumbrance to the Indian Bank, Jaffarkhanpet, in respectof the loan availed by the company for Rs.3 crores. The shares inthese companies were valued by defendants 1 to 5 themselves and theshares were duly conveyed to the 1st plaintiff's nominees. Thatamount was also given credit to by the 1st plaintiff but defendants 1to 5 have not settled the loan with the Indian Bank in respect of theoutstanding amount, in respect of which, a case was pending againstthem before the Debts Recovery Tribunal. The Vysya Bank, to whom theshares were pledged, was also not in a position to transfer theshares since the Income Tax Department made a claim over the saidshares in view of the tax due by G.Venkateswaran and defendants 1 to5. In the meantime, the said Venkateswaran passed away in the year2003 and the plaintiffs were left to deal with the problemspertaining to the pledged suit shares. In view of the attachment bythe Income Tax Department, the Vysya Bank, with whom the shares werepledged, refused to proceed further and called upon the plaintiffs topay them their charges and to take the suit shares. On settlement ofthe outstanding of the Vysya Bank, the Vysya Bank released all oftheir claims on the suit shares and returned the suit shares afterduly cancelling all their endorsements, accompanied with an officialletter dated 25.08.2006. At this juncture, the plaintiffs came toknow that defendants 1 to 5 and Venkateswaran with deliberateintention to prevent the enforcement of the pledge, manipulated theaffairs of the 1st plaintiff as if all those shares which werepledged to the 1st plaintiff had been treated as lost and issuedduplicate shares which are now currently floating in the market. https://hcservices.ecourts.gov.in/hcservices/

3. After getting back the shares from Vysya Bank on 25.08.2006,the 1st plaintiff realized that the management of the 1st defendanthas dishonestly and fraudulently floated duplicate shares of the suitshares in the market. Therefore, the plaintiffs have come forwardwith the present suit as against defendants 1 to 5 on the ground thatdefendants 1 to 5 are jointly and severally liable to make good theloss sustained by the 1st plaintiff on account of the breach of trustcommitted by defendants 1 to 5, by seeking the following reliefs:(A) For a preliminary decree, directing that an account be takenby the Court of the sums misapplied by the defendants 1 to 5 asfrom 30.11.87 and that the monies so found due may be realisedand that defendants 1 to 5 may be ordered to pay into Court, thesums 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 1stplaintiff, and for a personal decree for money against thedefendants 1 to 5, for any balance that may be found dueafter appropriation of such sale proceeds by the 1stplaintiff;OR ALTERNATIVELY:(ii) In the event that such sale of the suit shares cannotbe ordered or effected for any reason, for a decree formoney for the sums found to be due after such account istaken, against the defendants 1 to 5.(B) Directing the defendants 1 to 5 to bear the costs of thissuit".4. The 1st defendant/appellant herein had filed an applicationunder Order VII Rule 11 of C.P.C. to reject the plaint by raisingtwo grounds, (1) no cause of action has been made out against thedefendants; and (2) the claim made is hopelessly barred bylimitation. 5. After hot contest, the application filed by the 1st defendantwas rejected by the learned single Judge on the ground that thequestion of limitation raised by the 1st defendant is a mixedquestion of fact and law, which cannot be decided at this stage in anapplication filed under Order VII Rule 11 CPC. Aggrieved over thesame, the present appeal has been filed by the 1st defendant company.6. The Court has paid its anxious consideration on thesubmissions made by the learned counsel one either side and made ascrutiny of all the materials available. https://hcservices.ecourts.gov.in/hcservices/

7. Advancing the arguments on behalf of the appellant/1stdefendant, the learned counsel would submit that when the applicationwas taken by the appellant to reject the plaint by raising twogrounds, the learned single Judge has failed to consider one of thegrounds raised by the appellant that there was no cause of action atall as against defendants 1 to 5. Further, the learned counsel, byinviting the attention of this Court to the agreement dated09.11.1987, by which the respondents/ plaintiffs have agreed topurchase the shares of M/s.Shaw Wallace Company Limited, which wereattached by the Income Tax Department, submitted that at the time ofagreement the appellant company had not even come into existence.The appellant company was incorporated much later, i.e., only on07.03.1989 and hence, absolutely there is no cause of action againstthe appellant. Further, the learned counsel for the appellantvehemently submitted that on a reading of the averments made in theplaint, it could be seen that the entire transaction now alleged bythe respondents is said to have taken place during the period 1987-90. But the suit was filed in the year 2008. The documents filedalong with the plaint would show that there was no acknowledgment ofliability or part payment evidenced in writing within three yearspreceding the date of filing of the suit. Only with an intention tocover up the period of limitation, the allegation was made in theplaint as if the money was entrusted in a trust. Therefore, theaverment in the plaint that there was a breach of trust on the partof the defendants is not based on any factual statement, but on thecontrary, the allegations in the plaint would show that therespondents have paid Rs.380 lakhs directly to the Income TaxDepartment as an advance to purchase shares in terms of theagreement. Therefore, the theory of trust was conveniently devised bythe respondents to get over the limitation. Learned counsel for theappellant further emphatically contended that the present suit isnothing but for recovery of money and it is clearly barred bylimitation under Articles 13 and 23 of the Limitation Act. Thus, thecontention of the learned counsel for the appellant is that there wasno cause of action to maintain the suit and the suit is also hit bylimitation. 8. In support of his contention, the learned counsel relied onthe judgments reported in ITC LTD ..vs.. DRAT (AIR 1998 SC 634),N.V.SRINIVASA MURTHY ..vs.. MARIAMMA ((2005) 5 SCC 548, HARDESH ORESP.LTD., ..vs.. HEDE & CO., ((2007) 5 MLJ 187 (SC), and NITHAYYATHEVAR ..vs.. SUBRAMANIAM ((1970) 1 MLJ 400 and submitted that thoughan allegation was made in the plaint that only after getting theshares returned from Vysya Bank on 25.08.2006, they came to know thatthe duplicate shares have been issued by the 1st defendant, theletter dated 30.01.1995 addressed to the Branch Manager, Vysya Bankby the 1st plaintiff would show that they would have collected theshare certificates pledged to the said bank as early as possible inthe year 1995 and only with an intention to file the present suitwithin the period of limitation, after the death of G.Venkateswaran, https://hcservices.ecourts.gov.in/hcservices/ they would have got endorsement of cancellation on 25.08.2006 fromthe bank.9. Per contra, the learned counsel for the respondents contendedthat so far as the ground of cause of action is concerned, it cannotbe decided in the application filed under Order VII Rule 11 CPC.Further he had submitted that the mere reading of the entireaverments made in the plaint would show that the respondents weremade to believe that defendants 1 to 5 were the lawful owners of theentire 7,80,000 shares of Shaw Wallace Company and believing thewords of defendants 1 to 5, the respondents have tendered the amountof Rs.3,80,00,000/- directly to the Income Tax Department on a bonafide expectation that the Income Tax Department would release7,80,000 shares. Subsequently when the Income Tax Department releasedonly 1,74,399 shares they came to know that a fraud had been playedupon them. Though the sum tendered by the plaintiffs was to betreated as consideration for releasing the 7,80,000 shares from theIncome Tax Department, it was misapplied and completely utilised fora different purpose alien to the terms agreed and thus, a breach oftrust has been committed by the defendants. Therefore, it cannot besaid that the allegation made in the plaint has not made out anycause of action on the theory of trust. Further, the question oflimitation is a mixed question of fact and law, as found out by thelearned single Judge, which question cannot be decided at this stageby an application under Order VII Rule 11 CPC. Therefore, no errorcould be found out in the order passed by the learned single judgeand hence, the appeal has got to be dismissed. In support of hiscontention, the learned counsel for the respondents has also reliedon the judgments reported in PACHAIYAPPA CHETTI ..vs.. SIVAKAMIAMMAL ((1925) 49 MLJ 468, I.P.R.SOCIETY ..vs.. M.P.ASSOCIATION (AIR1977 SC 1443), BALASARIA CONSTRUCTION P.LTD. ..vs.. HANUMAN SEVATRUST 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 thematerials.11. The main grievance of the appellant is that no cause ofaction has arisen as against defendants 1 to 5 on the basis of theoryof trust. According to the learned counsel for the appellant, it isonly a suit for recovery of money, namely, the advance amount paidfor sale of shares in terms of the agreement dated 09.11.1987. Onlyin order to save the limitation period, the theory of trust has beenintroduced in the plaint. But, on going through the averments in theplaint, as contended by the learned counsel for the respondents, theallegation in the plaint would show that originally there was anassurance by the deceased G.Venkateswaran and defendants 1 to 5 totransfer the entire 7,80,000 shares of Shaw Wallace owned bydefendants 1 to 5; but subsequently, after payment of the amount dueto the Income Tax Department, only 1,74,399 shares came to beconveyed. So in order to make good the loss sustained by the https://hcservices.ecourts.gov.in/hcservices/ plaintiffs, the defendants have deposited the suit shares. Accordingto the plaintiffs, during August, 2006, they came to know that eventhe duplicate shares of suit shares have been issued by theappellant, which had been currently floating in the market. Thus, onthose allegations, the suit has been filed by the respondents thatthere was a breach of trust on the part of defendants 1 to 5. 12. Though a submission was made by the appellant that the suitwas based on recovery of advance money paid by the respondents topurchase shares in terms of agreement, a reading of the allegationsin the plaint would reveal that a case has been put forth by theplaintiffs on the ground of breach of trust. Therefore, it cannot besaid, prima facie, that there was no cause of action againstdefendants 1 to 6 to reject the plaint summarily. 13. In this regard, a useful reference could be placed on thejudgment relied upon by the learned counsel for the respondentsreported in (1925)49 MLJ 468 in the case of PACHAIYAPPA CHETTI ..vs.. SIVAKAMI AMMAL. The facts as found in that case would show thatthe respondent in that case was the daughter of one PonnambalaChetty, who with his brother Periyambala Chetty, formed an undividedfamily; they carried on money lending dealings and entrusted thosedealings with the brother-in-law Sadayappa Chetty; the said SadayappaChetty continued those dealings for some time and maintainedaccounts for the moneys in his hands; while so, the brothersPonnambala Chetty and Periyambala Chetty effected a partition andPeriyambala Chetty removed his shares of the property from the handsof Sadayappa Chetty; but, however, the said Sadayappa Chettycontinued to deal with the property of Ponnambala Chetty tillFebruary 1912 and even after the death of Ponnambala Chetty,Sadayappa Chetty remained in possession of all his properties; afterthe death of Sadayappa Chetty, the respondent, who is the daughter ofPonnambala Chetty, brought the suit against the son of SadayappaChetty alleging that all the properties held by the said SadayappaChetty was in trust for her; when the theory of trust was denied bythe appellant in that case, it was held that Ponnambala Chetty'smoney were legally vested in Sadayappa Chetty in trust forspecific purpose and thus, it has been decided by the Court thatapplication of Section 10 of the Limitation Act exists in that caseand thereby rejected the plea taken by the appellant that the suitwas hit by limitation. In the instant case also, from theallegations made out in the plaint, we find that the money was paidfor specific purpose, namely, transfer of shares. Therefore, primafacie, the allegations made in the plaint would show that the reliefsare based on the theory of trust. Hence, we are unable to agree withthe submission made by the learned counsel for the appellant toreject the plaint even at the threshold. 14. Though the submission made by the learned counsel for theappellant that the return of the shares by the Vysya Bank Limited inAugust 2006 might not be correct since the letter dated 25.08.2006 https://hcservices.ecourts.gov.in/hcservices/ would show that the shares would have got back by the plaintiffs inthe year 1995 itself, the same cannot be accepted at this stage sinceit is matter for evidence. Though several decisions were relied uponby the learned counsel for the appellant, on a careful reading ofthose decisions, we find that the said decisions proceeded on theprinciple that clever drafting of the plaints creating illusion ofcause of action are not permitted in law; but, in our opinion, in thepresent case, the averments have been made out on certain actualhappenings pursuant to the agreement dated 09.11.1987. The onlydispute between the appellant and the respondents is, whether theamount paid to the income tax department pursuant to the agreementdated 09.11.1987 would create a trust or not. Under suchcircumstances, in our considered opinion, the citations relied uponby the learned counsel for the appellant cannot be applied to thefacts of the present case. 15. The defence raised by the learned counsel for therespondents with regard to the 1st defendant and also the theory oftrust could be gone into only at the time of trial. With regard tothe limitation, it is only a mixed question of fact and law, asobserved by the learned single Judge. In our view, there is no scopefor rejecting the plaint on the point of limitation. In this regard,the decisions relied upon by the respondents are squarely applicableto the instant case, which laid down a principle that the limitationis a mixed question of fact and law and consequently the plaintcannot be held to have been barred by limitation.In fine, we do not find any infirmity in the order passed by thelearned single Judge in dismissing the application taken by the 1stdefendant/appellant and resultantly, the order has got to beconfirmed. Accordingly, the appeal fails and is dismissed, leavingthe parties to bear their respective costs. Consequently, connectedM.P.is closed.Sd/Asst.Registrar/true copy/Sub Asst.RegistrarglTo1. The Sub Assistant Registrar, Original Side, High Court, Madras.2. The Section Officer, V.R. Section, High Court, Madras.+ 1 c.c. to M/s. Srinath Sridevan, Advocate. S.R.No.45005.+ 1 c.c. to M/s. Rugan & Arya, Advocate. S.R.No.45014. Judgment in O.S.A.No.278 of 2008BV (CO)GSK 24.09.2009.