P.C.K. Muthiah Chettiar & Ors Vs.
V.E.S. Shanmugham Chettiar & ANR  INSC 165 (26 July 1968)
26/07/1968 BACHAWAT, R.S.
CITATION: 1969 AIR 552 1969 SCR (1) 444
Contract--agreement to sell
shares--non-disclosure of receipt of substantial dividends which purchaser was
under fiduciary duty to disclose- if vitiated by fraud.
Limitation Act, 1908--s. 13--exclusion of
time during which defendant abroad-cause of action arising abroad or defendant
abroad at time of its accrual--if material.
C was the owner of five original shares in a
Rubber Estate in Malacca After his death in December, 1912 his son the first
respondent entered into a compromise agreement in July, 1915 with the
appellant, who was in partnership with C during his lifetime, whereby it was
agreed that out of five sharas, 21/2 would belong to the partnership and the
remaining shares to the first respondent, furthermore, the appellant undertook
recover the 5 shares and account to the first respondent for 21/2 shares and
for the income and dividends arising from them. In January, 1924, while the
appellant and the first respondent were both at Malacca, they entered into
another agreement whereby the first respondent transferred his remaining 21/2
shares to the defendant on receipt of 18,000 dollars as consideration. In
September, 1927 the first respondent instituted a suit against the appellant in
India for a declaration that he was entitled to all the original five shares
and for accounts and consequential relief, as both his agreements with the
appellant were vitiated by fraud and fraudulent concealment.
The Trial Court granted the declaration, but
the High Court, in appeal held that while the arrangement of July, 1915 was
valid, that of January, 1924 was vitiated by fraud and that the appellant was
therefore liable to account for 21/2 shares and dividends amounting to 35,535
dollars with interest. The High Court also rejected a contention raised by the
appellant that the period of his absence from the country could not be taken
into account for determining the period of limitation and that the suit was
therefore barred by limitation.
On appeal to this Court,
HELD: (i) The defendant had concealed the
fact that he had collected 35,535 dollars 'as dividend on the shares and had
the respondent known this, he would not have parted with the shares with all
their accrued benefits for 18,000 dollars. The defendant was under a fiduciary
obligation to disclose the true state of affairs. The two courts had therefore
rightly found that the agreement was vitiated by fraud. [446 F-G] (ii) In
computing the period of limitation prescribed for the suit, "the time
during which the defendant has been absent from India" has to be excluded
under sec. 13. The words of the section are clear and full -effect must be
given to its language. The section makes no exception for cases in which the
cause of action arose in a foreign country or for cases in which the defendant
was in a foreign country at the time of the accrual of the cause of action.
[447 E-F] Atul Kristo Bose v. Lyon & Co.,
(1887) I.L.R. XIV Cal.
457; and Mathukanni v. Andappa, A.I.R. 1955,
referred to and applied.
445 Ruthinu v. Packiriswami, A.I.R. 1928 Mad.
1058; and Subramania Chettiar v. Maruthamuthu, A.I.R. 1944 Mad. 437 disapproved
(iii) On the material on record it was
necessary to revise the basis of valuation of the shares and to modify the
decree passed by the High Court.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 705 of 1965.
Appeal from the judgment and decree dated
November 28, 1958 of the Madras High Court in Appeal No. 756 of 1964.
M.S.K. Sastri and R. Thiagarajan, for the
T.R. Srinivasan and R. Kopalakrishnan, for
respondent No. 2.
The Judgment of the Court was delivered by
Bachawat, J. Subramanian Chettiar was the owner of 5 original shares
subsequently represented by 1250, shares in the Chop Leong Watt Thin Rubber
Estate in Malacca. On December 9, 1912 Subramanian died leaving behind him his
widow and his son the plaintiff Shanmugham. In August 1913 the attorney of
Subramanian's widow took out letters of administration to his estate.
Subramarnian, the defendant and certain others were partners in the P.M.S. Firm
at Malacca. On July 16, 1915 while both Shanmugham and the defendant were at
Malacca they entered into a compromise agreement which is evidenced by Exhibits
A-177 and A-178.
Under this compromise they agreed that out of
the aforesaid original 5 shares in the Shop Leong Watt Hin Rubber Estate 21/2 shares
would belong to the P.M.S. Firm then represented by the defendant as the
managing partner and the remaining 21/2 shares would belong to Shanmugham.
Under this compromise the defendant agreed
and undertook to recover the 5 shares and to account to Shanmugham for the 2-
1/2 shares belonging to him and the income and the dividends arising therefrom.
On January 7, 1924 while Shanmugham and the defendant were at Mallacca they
entered into an agreement which is recorded in Exhibit B-2. Under this agreement
Shanmugham transferred his remaining 21/2 shares in the Rubber Estate to the
defendant on receipt of 18000 dollars as consideration. On September 14, 1927
Shanmugham instituted a suit against the defendant in the court of the
Subordinate Judge, Devakottai, asking for a declaration that he was entitled to
the original 5 shares in the Rubber Estate, that Exhibitis A-177, A-178 and B-2
were void, and for accounts and consequential reliefs. Shanmugham alleged that
the transactions of July 16, 1915 and January 7, 1924 were vitiated by fraud,
and fraudulent concealment. During the pendency of the suit Shanmugham was
adjudicated an insolvent and thereupon the Official Receiver of Ramanathapuram
L12Sup. C.I/68--14 446 was added as the 2nd plaintiff. After protracted
proceedings which is not necessary to mention now, the Subordinate Judge
granted the declarations claimed by Shanmugham and passed a preliminary decree
The Subordinate Judge accepted the
plaintiff's contentions and held that both the transactions of July 16, 1915
and January 7, 1924 were vitiated by fraud and were liable to be set aside. The
defendant 'filed an appeal in the High Court of Madras. During the pendency of
the appeal the defendant died and his legal representatives were brought on
record. The High Court held that the arrangement dated July 16, 1915 was valid
and was not vitiated by fraud. With regard to the arrangement dated January 7,
1924 the High Court agreed with the Trial Court and held that the transaction
was vitiated by fraud and that the defendant was liable to account for 21/2
shares in the Rubber Estate and dividends amounting to 35535 dollars and 50
cents with interest thereon. The High Court also held that the suit was not
barred by limitation. The High Court assessed the value of 21/2 shares at 31250
dollars and in modification of the decree passed by the Trial Court passed a
final against the defendant for Rs. 2,35,555 and further interest. The present
appeal has been preferred by the defendants after obtaining a certificate from
the High Court.
Mr. M.S.K. Sastri attacked the finding that
the arrangement dated January 7, 1924 was vitiated by fraud. He argued that the
High Court failed to take into account the exception to sec. 19 of the Indian
Contract Act and that assuming that Shanmugham's consent was procured by fraud,
nevertheless the agreement was not voidable as he had the means of discovering
the truth with ordinary diligence.
There is no substance in this contention. The
two courts have concurrently found that the agreement was vitiated by fraud.
The defendant concealed from Shanmugham that he had collected 35535 dollars and
50 cents on account of dividend in respect of the shares. Had Shanmugham known
that this huge amount had been realised by way of dividend he would not have
parted with the shares with all their accrued benefits for the sum of 18000
dollars. The defendant was under a fiduciary obligation to Shanmugham to inform
him of the true state of affairs. In the High Court it was not suggested that Shanmugham
had the means of discovering the truth with ordinary diligence and it is now
too late to raise this contention.
Mr. Sastri next contended that the suit was
barred by limitation. The suit is for obtaining relief on the ground of fraud
and is governed by Art. 95 of the Indian Limitation Act, 1908. The starting
point of limitation is the date when the fraud is known to the party wronged.
The fraud was committed on January 7, 1924. The Subordinate Judge found that
the fraud was discovered on or about April 16, 1924. We accept this finding.
447 It may be noted that this finding was not
challenged in the High Court. The defendant was outside India for several
months in 1924 and 1926. The suit was instituted on September 14, 1927. It is
common case before us that if the period of the defendant's absence from India
is excluded under sec. 13 of the Indian Limitation Act, 1908, the suit is not
barred by limitation. Section 13 reads :-- "In computing the period of
limitation prescribed for any suit, the time during which the defendant has
been absent from India and from the territories beyond India under the
administration of the Central Government shall be excluded." It is to be
noticed that the agreement dated January 7, 1924 was entered into between
Shanmugham and the defendant at Malacca. The cause of action for the suit arose
at Malacca and at the time of the accrual of the cause of action the defendant
was at Malacca. Mr. Sastri argued that in these circumstances sec. 13 has no
application. We are unable to accept this contention.
On the date of the filing of the suit the
defandant was residing at Kothamangalam within the jurisdiction of the court of
the Subordinate Judge, Devakottai. That Court had jurisdiction to entertain and
try the suit and the Indian Limitation Act was applicable to the suit though
the cause of action may have arisen outside India. In computing the period of
limitation prescribed for the suit. "the time during which the defendant
has been absent from India" has to be excluded under sec. 13. The words of
the section are; clear and full effect must be given to its language.
The section makes no exception for cases in
which the cause of action arose in a foreign country or for cases in which the
defendant was in a foreign country at the time of the accrual of the cause of
action. In all such cases the time during which the defendant has been absent
from India must be excluded in computing the period of limitation.
In Atul Kristo Bose v. Lyon & Co.(1) the
defendants were foreigners and they never came to India on or after the date of
the accrual of the cause of action. The Calcutta High Court held that sec. 13
applied and that the suit was not barred by limitation. The Court was not
impressed with the argument that according to this construction a defendant who
was in England when a cause of action against him accrued, and has remained
there ever since might be liable after an indefinite time to be sued in a
In Mathukanni v. Andappa(2) the plaintiff and
the defendant who were residents of Mannargudi in India had gone to :
(1)  I.L.R. XIV Cal. 457.
(2) A.I.R. 1955 Madras 96.
448 Kaula Lampur to earn their livelihood,
and while there the defendant executed a promissory note to the plaintiff on
November 16, 1921. In 1925 the plaintiff brought a suit on the promissory note
in the District Munsif's Court of Mannargudi. The cause of action in the suit
arose outside India. A Full Bench of the Madras High Court held that- 'the
plaintiff was entitled to the benefit of sec. 13 and in computing the period of
limitation he was entitled to exclude like time during which the defendant was
absent in Kaula Lainput. We agree with this decision. The Full Bench rightly
overruled the earlier decisions in Rathinu v. Packiriswami(1) and Subramania
Chettiar v. Maruthamuthu(2).
We hold that the suit is not barred by
Mr. Sastri argued that the .suit is bad for
non-joinder of the other partners of the P.M.S. Firm. The point was not taken
in the courts below. It is not open to the appellant to take this point 'at
this late stage.
The High Court valued 625 shares representing
the original shares in the Rubber Estate at 31250 dollars on 'the footing that
the value of each share on January 7, 1924 was 50 dollars. There is force in Counsel's
criticism that this valuation ,is erroneous. The Trial Court did not record any
finding as to the value. The High Court said that in 1930 the value of the
shares was 31250 dollars, and as there was a boom in the post-war period and a
slump had set in since 1921, the value on January 7, 1924 would be 31250
The parties relied on the 'testimony of Tan
Siew Giab. He proved Exhibit A-74, a list of transfers of shares in the Rubber
Estate between June 29, 1920 and September 14, 1931.
From the list it appears that the price per
share on June 29, 1920 was between 23 and 20 dollars; on March 29, 1923,20
dollars; on September 5, 1923, 10 dollars; on April 11, 1924, 20 dollars; on
August 10, 1925, 10 dollars and on January 22, 1930 and February 28, 1930, 50
dollars. The price of the shares went up in 1930. But it is common case that
the shares should be ,valued as on January 7, 1924.
On the material on the record we assess the
value of a share on that date to be 20 dollars. The value of 625 shares would
therefore be 12500 dollars. Having regard to this finding the decree passed by
the High Court requires modification.
The High Court held that the defendants were
liable to pay (1) 35535 dollars and 50 cents on account of dividend, (2)
interest thereon at 6% per annum from the date of their receipt till November
28, 1958, (3) 10250 dollars after deducting from the value of the shares
amounting to 31250 dollars the sum of 18000 dollars received by the plaintiff
on January 7, 1924 and another sum of 3000 dollars given up by the plaintiff.
Having regard to our finding the defendants are liable to be debited under (1)
A.I.R. 1928 Mad. 1058.
(2) A.I.R. 1944 Mad. 437.
449 the last head with 12500 dollars and are
entitled to be credited with 18000 dollars and 3000 dollars. Thus under the
last head the defendants are entitled to a net credit of 8500 dollars. The
result is that the defendants are liable to pay 35535 dollars 50 cents minus
8500 dollars, that is to say, 27035 dollars 50 cents and interest thereon at 6%
per annum. From the material on the record it is not possible to find out the
precise dates of receipt of the dividends.
Counsel on both sides are agreed that we
should allow interest on 27035 dollars and 50 cents at 6% per annum from
January 7, 1924 upto November 28, 1958 and further interest at 6% per annum
from November 28, 1958 until payment. The agreed rate of exchange is Rs. 156
per 100 dollars.
Counsel on both sides have worked out the
figures and on that basis the defendants are liable to pay Rs. 42174 and 60
paises for principal and Rs. 88292 and 49 paises for interest upto November 28,
1958 aggregating to Rs. 130467 and interest on Rs. 42174 and 60 paises at 6%
per annum from November 28, 1958 until payment.
The appeal is allowed in part. The decree
passed by the High Court is reduced to Rs. 130467 with interest at 6% per annum
on Rs. 42174 and 60 paises from November 28, 1958 until payment. Directions II,
III, IV, V and VI incorporated in the High Court decree are affirmed. The
parties will pay and bear their own costs in this Court. The second respondent
will be at liberty to retain his costs out of the estate of the first
respondent in his hand.
R.K.P.S. Appeal allowed in part.