Filing suit to be construed an act of rescission of contract: Calcutta HC

The Calcutta High Court has held that no formal rescission of the contract being done by a party, the filing of a suit is to be taken as an act of rescinding the contract. (State of Rajasthan & Anr. Vs. I. K. Merchants Limited & Ors)

The Division Bench of Justice Md. Nizamuddin, and Justice I.P. Mukerji of Calcutta High Court observed that there was no formal rescission of the contract by the respondents and whether the rescission was made within 3 years of knowledge of the facts and when did the cause of action arises among the parties. The aspect of limitation also to be considered.

Subject matter of the dispute between the parties was related to fixation of valuation of shares.

The single-judge bench had passed preliminary decree against the appellant to appoint any 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 bench of this Court opined that “The learned single judge had some reasons not to accept either of the two valuations. In those circumstances, he directed valuation to be done by an independent valuer to be selected amongst the names proposed by his lordship, by the appellant.”

The Division bench also acknowledged the fact arise during the hearing that at the interlocutory stages of the appeal the appellate court tried to forge a kind of settlement between the parties.

The bench concluded the hearing by stating, “Post 40 years of litigation, it would not be judicious on our part to order a fresh valuation of the shares in 1973. This would not only delay but completely defeat justice. 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, Chartered Accountant. I am minded to accept that valuation and thus put an end to this litigation.”

The Court at instance of 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.

Law on  Limitation – CATEGORICALLY OBSERVED BY THE Division Bench

Under Articles 58 and 59 of the first schedule to the Limitation Act, 1963 time to file a suit to obtain rescission of a contract is three years from the knowledge of the plaintiff about the facts which entitle him to have the contract rescinded.

From the date of knowledge which can be thought of as completeness of the cause of action and accrual of the right to sue, time runs continuously. Under Article 113, the time limit is three years from the time when the right to sue accrues. This accrual of the right to sue has a direct connection with the cause of action.

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