The Calcutta High court recently comprising of a bench of Justices I.P. Mukerji and Md. Nizamuddin while dealing with a matter of erroneous valuation of shares observed in the matter of share value, if any litigation has been dragged on for over a very long period then a fresh order of valuation of such shares contravenes principles of good equity. (State of Rajasthan v I.K. Merchants Ltd.)
Facts of the Case
The company, for its operation, increasingly became dependent on the appellant No.1/defendant no.1 (the appellant) for loans, advances and other forms of assistance. The latter accommodated them but insisted that it should have more control over it and that it should become a public sector undertaking. It informed the shareholders of the company about its intention to buy their shares.
The subject matter of dispute between the parties in this proceeding is with regard to the valuation of those shares. The appellant declared that these shares had been valued at Rs.11.50/- per share. Only the difference between Rs.11.50 and the face value of Rs.10/- per share was payable. This valuation, on its finalization, was communicated to them on 8th July, 1975, according to the respondents.
The Case was decided by the learned single judge in 2012. All issues including the one relating to limitation were tried together by him. He pronounced a preliminary judgment and decree on 14th August, 2012.
The issue of limitation was discussed and decided by his lordship in the following manner:
“…….As far as the question of limitation is concerned, on a combined reading of all the relevant letters exchanged between the parties, namely dated 2 January 1975, 17 January 1975, 10 April 1975, 4 August 1975, 15 January 1977, 25 January 1977 and also the relevant provisions of the Limitation Act in particular Section 19 thereof, I do not think that it can at all be said that the claim or claims made by the plaintiffs were barred by limitation on the date of the institution of the suit at all. Since I am not at all impressed with the plea of limitation raised by or rather on behalf of the defendants on a plain reading of the letters exchanged between the parties, I do not think it necessary to spend time for ascertaining whether the claims made by the plaintiffs, or rather the suit of the plaintiffs was barred on the date of its institution.”
The court did not accept the valuation of the respondents/plaintiffs at Rs.795.60/- per share. It neither concurred with the valuation made by the appellant. It decreed the suit by passing a preliminary decree directing the appellant to appoint anyone of the three firms of Chartered Accountants, Price Waterhouse, Ray & Ray, Lodha & Company as valuer for the purpose of determining the value of the shares.
Thereafter, the respondents/plaintiffs were given the liberty to apply in the suit for a final decree for the amount found due on such enquiry. The appellants were dissatisfied with this decree and preferred the instant appeal.
Contention of the Parties
The learned Advocate argued the point of limitation. He began his argument by stating that shares were considered as goods under Section 2(7) of the Sale of Goods Act, 1930. He referred to Section 9(2) of the Act which states that in a contract of sale, where the price is not determined the seller could only claim a reasonable price. The dispute between the parties in this case arose out of sale of shares and the price thereof. Therefore, there was no application of Section 73 of the Indian Contract Act, 1872, relating to damages.
The relief sought by the respondents/plaintiffs in claim (d) of the plaint was in the nature of rescission of the contract and restitution of the respondents/plaintiffs to their original position. Under Article 59 of the Limitation Act, 1963 the period of limitation prescribed to institute a suit for rescinding a contract was three years from the date the respondents/plaintiffs came to know the facts which entitled them to seek such rescission.
The period of limitation expired on 18th December, 1977 whereas this suit was instituted on 5th July, 1978 much beyond the period of limitation. The time to seek a declaration to this effect is also three years from the date of accrual of the right to sue, under Article 58 of the Limitation Act, 1963. The respondents/plaintiffs could not seek the declaration. On 8th July, 1975 the difference between the amount determined by the Chartered Accountant and the amount already paid at the time of transfer of shares was paid to the respondents. The suit was filed on 5th July, 1978.
According to him this did not save limitation under Section 19 of the Limitation Act, 1963, because on payment of the differential amount the entire debt stood paid. This section was attracted when payment of debt without fully discharging it was made before expiration of the period of limitation, so that a fresh period of limitation ran for that debt. Since, the entire liability of the appellant had been discharged, a fresh period of limitation did not run from 8th July, 1975.
Courts Observation & Judgment
The court on the issue of limitation referred to the case of State of Punjab & Ors. Vs. Ashok Kumar (1991) 4 SCC 1 wherein the expression “right to sue” was interpreted. The words “right to sue” ordinarily mean the right to seek relief by means of legal proceedings. Generally, the right to sue accrues only when the cause of action arises, that is, the right to prosecute to obtain relief by legal means. The cause of action, in the present case, attained finality and the right to sue accrued to the respondents on 8th July, 1975. Time started running from that date. The respondents instituted the suit on 5th July, 1978 within three years. Hence, it was within the period of limitation.
The division bench earlier at the invitation of the parties had appointed one of the valuers proposed by the learned single judge, M/s. Ray and Ray, who valued the shares at Rs.640/- per share. Considering the circumstances discussed above, after 40 years of litigation, the court considered that it would not be judicious on their part to order a fresh valuation of the shares in 1973. This would not only delay but completely defeat justice and produce futile consequences. Rs.640/- per share is much lower than the claim with regard to valuation made in the plaint and the valuation made by Mr. Lakhotia, a CA produced as witness for cross-examination.
The bench dismissing the appeal remarked, “This appeal and cross-objection are disposed of by declaring that the respondents/plaintiffs are entitled to Rs.640/- per share sold by them to the appellant and directing that each of the respondents/plaintiffs be paid by the appellant no. 1 Rs.640/- per share of Bikaner Gypsums Ltd. (subsequently Rajasthan State Mines and Minerals Ltd.) sold by him to the appellant no.1 as valued by M/s. Ray and Ray less Rs.11.50/- per share already received by him/her within eight weeks of communication of this order.Considering the appellant is the government of Rajasthan, the respondents/plaintiffs shall only be entitled to interest at the rate of 5% simple interest per annum without yearly rests on the said amount from 8th July, 1975 till the date of payment.”
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