1. An important question of limitation arose in this case and that question has been referred to a Full Bench by the Division Bench before which the case came on for hearing at first. The U.P. Oil Mills Company Ltd., was a registered company which came into existence on 25th June 1920 and commenced business in December of that year. Paras Ram and Company were appointed managing agents of this company and, as the Articles of Association show, it seems that there was an agreement between the managing agents and the company that the agents would conduct the business under the supervision of the directors of the company. After carrying on business for a few years the company went into liquidation on 12th May 1927 and Chaudhry Liaqat Husain Khan, the chairman of the Board of Directors was at first appointed as the liquidator. Later on, on application made to the High Court there was an order passed on 5th July 1929 for a compulsory winding up and an official liquidator Mr. Hazari Lal Kapor was appointed by the High Court. On 28th May 1930 the officil liquidator filed an application under Section 235, Companies Act, against the managing agents charging them with various acts of misfeasance, misappropriation, negligence of duty and so on. The question of limitation has arisen in connection with this application.
2. Admittedly the section which is applicable to this case is Section 235, Com-panics Act. This section is a verbatim copy of the provision of Section 276, of the English Act of 1929, with this exception that there is an additional Sub-section (3) in the Indian Act. So far as the main language of the section is concerned, it was copied out in the corresponding Section 214 of Act 6 of 1882 from Section 165 of the English Act of 1862. At one stage there was some doubt whether there was any limitation applicable to applications made under the old Section 214, Companies Act, at all. Such doubt was expressed by this Court in the case of D. Connell v. Himalaya Bank Ltd. (1895) 18 All 12. There was also some doubt expressed by the Madras High Court in the case of Ramaswami v. Streeramuler Chetti (1896) 19 Mad 149. It is possible that with a view to remove all ambiguity, Sub-section (3) was added by the legislature in Act 7 of 1913.
3. Although the only section we have to consider is Section 235, it would be necessary to compare its provisions with those contained in Sections 156 and 186 of the same Act. Perhaps it will be convenient to give first a brief history of the case law in this country. In Bank of Multan Ltd. v. Hukam Chand AIR 1923 Lah 58, the Lahore High Court expressed the opinion that in a case of an application filed against an ex-director under Section 235 to recover compensation in respect of an alleged act of misfeasance or breach of trust, the proper Article applicable was Article 36, Limitation Act, and that the starting point of limitation was the date of the act complained of.
4. In the matter of the Union Bank, Allahabad Ltd. : AIR1925All519 a Bench of this Court, of which one of us was a member, had to consider the proper Article applicable to an application against the directors of the company under Section 235 of the Act, to enforce their liability in respect of a previous negligence. Walsh, J., was inclined to view that Section 235 provides:
a machinery for enforcing claims which exist independently of the section, but so far as a liquidator is authorized by the section to apply, in the interest of creditors and depositors who have lost their money, to enforce a claim against the directors under the section, it seems to me that a new right in him is created.
5. The learned Judge then went on to consider which Article was applicable and applied Article 120. He however observed at p. 697 (of 47 All.) that:
Whatever article of the statute of limitation is applicable, the time begins to run from the date when the liquidation took place, when the liquidator had first had the right vested in him.
6. The other learned Judge Mukerji, J., (pp. 694-695 (of 47 All) did not remark that any new right in any sense was created by the section, but came to the conclusion that neither Article 36 nor Articles 115 or 116 could be applicable but that the proper Article was Article 120, and that the right to sue Tinder that Article would accrue only after the appointment of the liquidator, if not; after he discovers the misapplication of the money. The learned Judges expressly dissented from the view expressed by the Lahore High Court in the case quoted above. The matter again arose in the case of Bhim Singh v. Official Liquidator, Union Bank of India Ltd. AIR 1927 Lah 433 which was also a case of an application under Section 235, Companies Act, in respect of an act of misfeasance complained of against a director. The learned Judges of the Lahore high Court adhered to the opinion previously expressed and held that the section merely provided a summary remedy of enforcing the existing rights which apart from the section might have been vindicated by means of a suit and that the Article applicable was Article 36, Limitation Act, with the starting point from the date of the act of the misfeasance. The question also arose before the Madras High Court in the case of V. Narasimna Ayyangar v. Official Assignee of Madras AIR 1931 Mad 58 which was a case of an application under Section 235 made against the directors of the company by a liquidator seeking to recover money by way of compensation for their acts of misfeasance. It was held that:
Limitation begins to run from the date of the commission of the alleged acts of misfeasance and not from the date of the order directing the winding up of the company.
7. When the same question arose for consideration before the Bombay High Court in the case of Govind Narayan v. Rangnath Gopal AIR 1930 Bom 572 the learned Chief Justice and his learned colleague agreed with the Lahore High Court in so far as they held that Section 235 did not create any new right and that there was not a fresh start for the purposes of limitation as a result of the liquidation proceedings. But they agreed with the view expressed by the Allahabad High Court that neither Article 36 nor Articles 115 or 116 could be applied and that the proper Article applicable was Article 120 only.
8. In another unreported case, namely, that of the official liquidators of the Jaunpur Sugar Factory Mills v. Behari and Co. All Misc case No. 119 of 1924., one of us and Young, J., had to consider the same question again. All the English authorities as well as the Lahore High Court cases were cited before them. After a survey of the case law and an exhaustive examination and careful consideration of the provisions of the different sections, the learned Judges came to the conclusion that the view previously expressed in the decisions of this Court was correct. Their conclusion was that an officer liquidator is an officer of the Court and not a representative of either the body of creditors or of the whole body of contributories or of the company itself; it is only by virtue of his being an officer of the Court that he is allowed to take into his custody the property and the assets of the company. He not being a representative of the company, it did not necessarily follow that if a suit brought by a company against a director or other persons liable would be time barred that a suit by an official liquidator or a director or a contributory would be equally barred. The learned Judges pointed out that the rule of limitation is a mere rule of procedure and that the right to recover a debt is not extinguished by lapse of time but only the remedy to recover it is barred and that accordingly the legislature might well have thought fit to enact that where there would be a bar to a company to recover a just claim, it would not be bar to a director or a contributory. Their conclusion was that Section 235 enables any of the three classes of persons mentioned therein to recover what could not be recovered under the general law. Examining the words of the section the learned Judges came to the conclusion that the right which the section gives is not given to the company but to the persons named in the section. They pointed out that under the Act the legislature has made provisions, for instance, in Section 156 for making the ordinary law of limitation inapplicable by creating a fresh liability and they also relied on the circumstance' that according to the rulings of this Court it had been held that there was a fresh start for the purposes of limitation in the case of an application under Section 186 of the Act.
9. Dealing with the question of the applicability of the particular Article of the Limitation Act, it was pointed out that Article 36 would be inapplicable because it could only apply when the misfeasance would be independent of a contract; whereas in the case of directors, who are governed by the Articles of Association it cannot be said that their misfeasance would be independent of their contractual liability. It was pointed out that Articles 115 or 116 would be inapplicable from the very nature of the case because the remedy is being sought not on account of any breach of a particular contract, as those Articles complete, but on account of a breach of a general duty. Further as Article 120 prescribes a period of limitation starting from the date when the right to sue accrues and the right to sue can accrue only when three things are in existence, namely, (1) the act which gives rise to a suit; (2) the presence of the plaintiff and (3) the presence of the defendant; and all these matters can only come together when the official liquidator is brought into existence, therefore Article 120 applies, but the starting point of limitation must be the date of the liquidation.
10. A similar question arose, not under Section 235 but under Section 186, Companies Act, in an unreported case of this Court which ultimately went up before their Lordships of the Privy Council. Their Lordships' judgment is reported in the case of Hansraj Gupta v. Official Liquidators Mussorrie Electric Tramway Co., Ltd . The Bench of this Court following the pronouncements in the earlier decisions, while dealing with an application under Section 235 of the Act had come to the conclusion that the application made was not barred by time inasmuch as limitation had not begun to run till the liquidation proceedings started. Their Lordships did not agree with this view and dismissed the application. No doubt the decision was under S: 186, Companies Act, and not under Section 235 which we have to consider. But certain principles laid down by their Lordships appear to me to be of equal application. In the first place, their Lordships referred to the English Law and pointed out that the Indian section, which had been borrowed verbatim from the English section, had an ancestral history. In Hansraj Gupta's case their Lordships remarked:
Three features of the section call for notice (1) it is concerned only with moneys due from a. contributory, other than money payable by virtue of a call in pursuance of the Act. A debtor who is not a contributory is untouched by it. Moneys due from him are recoverable only by suit in the company's name : (2) it is a section which creates a special procedure for obtaining payment of moneys; it is not a section which purports to-creat a foundation upon which to base a claim for payment ; and (3) the power of the Court to-order payment is discretionary It may refuse to act under the section, leaving the liquidator to-sue in the name of the company, and it will readily take that course in any case in which it is made apparent that the respondent under this procedure, if continued, would be deprived of some defence or answer open to him in a suit for the same moneys.
11. The implications of these observations would be considered when I come to consider the provisions of Section 235-It may be pointed out at this stage that their Lordships went on to observe that the old Section 101 of the English Act of 1862 corresponding to Section 186 of the Indian Act had been judicially interpreted and administered in accordance with the views expressed in Stringer's case (1869) 4 Ch 475, namely, that the section is one which provides summary proceedings against contributories to avoid proceedings in different Courts and to permit a single proceeding in the winding Court, but:
In those summary proceedings every objection is just open to the person sought to be charged as it Would have been if a bill had been filed.
12. Their Lordships thought that the position in this respect in India is the same as in England. It may, in this connection, be noted out that Stringer's case (1869) 4 Ch 475, arose out of an application filed against the directors of the company for misfeasance on account of certain improper payments of dividends which had been made by the managing director out of the capital of the company. The case fell both under Section 101 and under Section 165 of the English Act, corresponding to Sections 186 and 235 of the Indian Act. In the course of his observation Sir C.J. Selwyn, L.J., at p. 483 referred to the case of Carpenter v. Weiss 5 De G & Sm 402 in which Sir James Parker in a case, where the directors had employed moneys belonging to the company in purchasing the shares of the company itself and had been proceeded against in a summary way, had allowed the application. Sir C.H. Selwyn, L.J., at p. 484 remarked:
That case appears to mo to be of importance in two respects, first, as showing the clear opinion of so eminent a Judge as Sir James Parker, that in such a case the Master had jurisdiction without any bill being filed and secondly that in those summary proceedings every objection is just as open to the person sought to be charged as it would have been if a bill had been filed.
13. It is this observation which has been quoted by their Lordships of the Privy Council in Hansraj Gupta's case . The observation was made in a case to which Section 165 of the English Act, applied and their Lordships adopted the same principles in a case under Section 186 of the Indian Act, which arose before their Lordships. This alone is sufficient to indicate that the principles intended to be laid down by their Lordships of the Privy Council are not so narrow as to be limited to the provisions of Section 186 only. It is not necessary to examine the cases of the English Courts as we are not really concerned with the opinion which has prevailed in England; but it may be convenient to point out that in the latest English case which has been brought to our notice, namely, in re City Equitable Fire Insurance Co., Ltd. (1925) Ch 407 (at p. 507) the view has been expressed by at] the learned Judges that the English section lays down and prescribes a special procedure and does not create any new right. Pollak, M.R., with reference to Section 215, which corresponds to Section 235 of the Indian Act, remarked:
I desire to say, though this is not the first time that this has been said, that that section deals only with procedure and does not give any new rights. It provides a summary mode of enforcing existing rights.
14. The learned Judge then pointed out that this was abundantly clear from a string of authorities in the English Courts. He also quoted the words of Lord Macnaghten in the case of Cavendish. Bentinek v. Fenn (1888) 12 A. C 652 (at p. 669) that:
that section creates no new offence, and... it gives no new rights, but only provides a summary and efficient remedy in respect of rights-which apart from that section, might have been vindicated either at law or in equity.
15. He did not at all quote the remarks of Lord Herschell in the same case which were somewhat differently worded. Warrington, L.J., at p. 526 observed:
I need not read it (Section 215) again; it has been' read very often, and it has already been accepted as stating, and accurately stating, what was the settled law with regard to the construction of the section corresponding to Section 115 of the present Act,
and he also quoted an extract from the speech of Lord Macnaghten in Cavendish Bentick's case (1888) 12 AC 652. Sargant, L.J., at p. 527 also referred, to Cavendish Bentinck v. Fenn (1888) 12 AC 652 and remarked that:
that conclusively established that Section 215, Companies Act, is a procedure section only, and merely provides a summary remedy for enforcing: such liabilities as might be enforced by the company itself, or by its liquidator, by means of an ordinary action.
16. I take it that this is the view which prevails in England on the section corresponding to Section 235 of the Indian Act. As the language of the two sections are almost identical, I would hesitate very much to depart from the view expressed by such eminent learned Judges in England who have had great' experience of Company Law unless there was something internal in the section itself which would justify its interpretation in a different way. If Section 235 is a procedure section only then the remark of their Lordships of the Privy Council that it is not a section which purports to create a foundation upon which to base a claim for payment would be equally applicable. Similarly the power of the Court to make the order for payment is discretionary and it is in its option to refuse to act. under the section, leaving, the party to sue in the name of the company separately and it may be ready to take such a course if it is convinced that the procedure under the section would. be to deprive the opposite party of some defence or answer open to him in a regular suit. Comparing the language of the other three sections, namely, Sections 156, 186 and 235 one thing is remarkable. Not only the marginal note to Section 156 which shows that the section deals with the liability of contributories, but the language of that section imposes a statutory liability under the Act of contributories and lays down that every person and past member shall be liable to contribute to. the assets of the company, etc., in a certain contingency. As against these Sections 186 and 235, which have the marginal notes 'power to order payment' deal with the power of the Court to make the order, the difference being that although in Section 186 there is no restriction that the order can be made only on the application made by a particular class of persons, Section 235 contains such a restriction. But both these sections empower the Court to make an order against the person complained against and neither of them profess to confer a new right on the person applying. Section 235, merely says:
The Court may, on the application of the liquidator, or of any creditor orcontributory, examine into the conduct of the promotor, director, manager, liquidator or officer and compel him to pay or restore the money, etc.
17. It really gives a discretion to the Court to make the order; but the significance of the expression 'on the application of the liquidator' is to 'restrict the power of the Court so as to prevent it from proceeding suo motu without any application before it. Before the Court should start an investigation, there should be some person before it who would be ultimately responsible for the costs in case the application does not succeed; whereas in a proceeding under Section 186 the contributories are already on the register and it is known how much they have paid and how much they have not paid and an elaborate investigation of the kind required under Section 235 is therefore not called for merely because the section says '' on the application of the liquidator.' I do not construe it to mean that it creates a new right in the liquidator, creditor or contributory. Even if one were to say that such a right is created, the right would be confined to applying to the Court and not to get the relief asked for. Indeed, the application can be made only in the interest of all persons concerned, namely, the entire body of creditors and contributories and must be made in the interest and for the benefit of the entire company and persons interested in it. When the liquidator applies he cannot be applying in his own interest. When a creditor or contributory applies, he cannot hope to get an order in his own favour personally or necessarily to get a share in the amount if realised. The object of the application is to make the person liable to refund, restore or pay the amount due from him, which would go into the common funds and would be available for distribution another the persons entitled, and it may well turn out that the person applying does not get any share out of the amount so realised.
18. The restriction, that the Court should proceed only on an application of the persons named, in my opinion, implies that the Court should not move in the matter of itself. The application is merely for the purpose of inviting the attention of the Court to the alleged wrongful act and to show that there is a prima facie case for inquiry. There is no absolute right in the persons named therein to enforce the liability of the person complained against or to recover anything for themselves. The matter is purely discretionary. If the Court has a discretion to examine into the conduct of the person complained against or not, it would follow that there cannot be any right created by the section in favour of the applicant to get the relief sought for. The application is in the nature of bringing the matter to the notice of the Court and drawing its attention to the irregularities or misconduct.
19. If Sub-section (1) had stood by itself and we had not Sub-section (3) added to this section, the result would have been similar to what was pointed out by their Lordships of the Privy Council in Hansraj Gupta's case which was under Section 186 of the Act. The only matter before the Court being a proceeding arising out of an application the Articles of the Limitation Act which are applicable to suits would have been wholly inapplicable and could not have created any bar. Similarly in view of the course of decisions in India, the applicability of Article 181 would have been equally doubtful. It has been held that in view of the fact that all the preceding articles apply to applications made under the Code of Civil Procedure. Article 181 also applies to other applications under the same Code, i.e. the application contemplated therein is ejusdem generis with the other applications which are specially specified. In this view of the matter even Article 181 would not have applied, and, of course, none of the other special Articles would have been applicable. The result would have been, that there would perhaps be no limitation at all. Then the observation of their Lordships that the well established practice that the Court should not exercise its discretion but readily take the course of leaving the applicant to seek his remedy independently so as not to deprive the opposite party of some defence or answer open to him in a suit, would have applied with full force.
20. The legislature has however expressly added Sub-section (3) which makes the Limitation Act applicable to an application under the section as if such application were a suit. The object obviously is to preserve the right of defence under the Limitation Act and also to make it clear that the Articles of Limitation Act which apply to applications are irrelevant. It seems to me that the Limitation Act continues to be phasizes the view that there is no fresh start for purposes of limitation, but that the Limitation Act continues to be applicable, the only difference being 'that the proceeding must be deemed to have been started as if a suit were filed and not as if a mere application had been presented. No doubt the words 'money due' occurring in Section 186 do not find place in Section 235. But the effect of the addition of Sub-section (3) is to preserve the rules of limitation, and more than counterbalances the omission.
21. It has been contended on behalf of the liquidator by his learned Counsel that this section gives a right to the liquidator to apply and inasmuch as the application is to be treated as a suit, the liquidator must of necessity he considered to be the plaintiff suing In his own right and not on behalf of the company, and that, therefore the appropriate Article of the Limitation Act which would be applicable would be one which would apply to the liquidator suing in his own personal right. But this contention cannot be accepted.
22. The learned Counsel for the liquidator has argued that Sub-section (3) must mean as if such application were a suit filed by the applicant in his own right. Those words are not in the section, and it is not appropriate to interpolate them. The sub-section does not mean that the application must be in the form of a plaint or that it should be registered as a plaint. All that it says is that when an ordinary application contemplated by that subsection is filed, the law of limitation applicable to it would be the same as If a suit were filed. It does not necessarily mean that such a suit should be filed by the applicant in his own personal right.
23. I think Section 235 must be read consistently with the other provisions in the same Act. Under Section 179 an official liquidator is empowered with the sanction of the Court to institute or defend any suit or prosecution or other legal proceeding, civil or criminal in the name and on behalf of the company. It is also obvious that as no property vests in the official liquidator, he has no personal right to move in the matter. His power to sue in the name and on behalf of the Company is conferred upon by him by Section 179 of the Act. It therefore follows that whatever suit he files or whatever legal proceedings, civil or criminal, he takes, he must take it in the name and on behalf of the company. No doubt the liquidator is an officer of the Court having been appointed by the Court, and he is under the direction and control of the Court. But when a proceeding is started by him that proceeding is not initiated in his personal capacity but in the name and on behalf of the company, and it must be deemed as if the proceeding is being continued not only in the interest of the Company but actually by the Company through its liquidator.
24. The fact that the present liquidator can file an application against a past liquidator also shows that the application must be deemed to be in the interest of and on-be half of the company and not in his personal right or capacity. There is no right in a liquidator as against a previous liquidator who has retired. No doubt under Section 235 persons other than the liquidator, namely, a creditor or a contributory, also can apply. But, in my opinion, similar considerations apply to these applicants as well. There is no right conferred upon them to start a fresh proceeding in their own right and to get any relief for themselves. They merely moved the machinery of the Court by filing an application. The purport of the application is to make persons liable to repay money or restore property to the company, so that it may go into the common fund. It is obviously a representative application filed on behalf of a class of persons. If a creditor files it, it is certainly for the benefit and interest of all the creditors; and similarly if a contributory files it, it is obviously in the interest and for the benefit of the entire body of contributories. None of them seeks to enforce any personal remedy or obtain any exclusive benefit.
25. It has been argued that as there is no independent right in a creditor, or for the matter of that even in a share-holder, to institute a regular suit independently of his right to apply under Section 235, the section must create a new right and confer it upon these persons. But the same argument could be advanced in respect of the provisions of the corresponding section in the English Act. No case has been yet brought to our notice which has expressly laid down that even in exceptional circumstances a share-holder cannot maintain a regular suit. Indeed, it is possible to conceive of cases where there is collusion among directors, and a shareholder may bring a suit against a person responsible against whom the directors are not proceeding. It is more difficult to conceive of cases filed by a creditor. But in the view which I take of this section, I am of opinion that no new right is created in either of these three classes of persons, and the application filed by any of them is filed in the Court for the purpose of drawing its attention to the matter complained against and starting an inquiry in the course of the winding up proceedings. The person against whom a proceeding is started is entitled to set up a defence of limitation and would be protected if he can satisfy the Court that if a regular suit had been instituted against him by the person entitled to sue he would have had a good defence of limitation. He is fully protected in such a case. There would no longer be any option for the Court to make or refuse to make an order against him. The application must be dismissed.
26. The object of the sub-section is apparently to preserve the right of the person against whom an application is made which would be open to him in a regular suit under the Limitation Act. The learned Counsel for the liquidator then argued that even if in one sense no new right be held to have been created by Section 235, nevertheless the section necessarily gives a fresh start to the liquidator, creditor and contributory, because they have a right to file an application under this section and that right cannot be exercised till the liquidation proceedings have started. It seems to me that only when a new right is really created by this section, that there can be a new start for the purposes of limitation. But if no new right has been created at all, and only a summary procedure has been prescribed and a new forum has been created to which recourse may be had, then there is not necessarily a new start for the purposes of limitation. If one were to concede that a new right is created resulting in a new start for purposes of limitation, the result would be that every applicant may have a fresh and a different starting point. For instance there may be thousands of contributories in a Company and if under the Articles of Association the relation of principal and agent is created between all the share-holders on one side and the managing agents or directors on the other, the agency would continue and only terminate with the liquidation proceedings. A suit brought by a shareholder against a director or a managing agent may not well in such a case be one filed under Article 90; Limitation Act, in which case the time would begin to run from the date when the neglect or misconduct complained against became known to the plaintiff. If out. of thousands of contributories some come to know of it on one day and others come to know of it on other days, the starling point of limitation will vary according to the personality of the contributory who applies to the Court. It seems to me that such a view will lead to an impossible result. No doubt in certain special Articles of the Limitation Act the status of the plaintiff as distinct from his personality is. an important factor. But ordinarily the rules of limitation are for the protection of the defendant and they vary according to the nature of the suit, that is instituted and the relief sought against the defendant.
27. Then again, if every contributory has. a new right created in his favour under this Act there would be no bar to successive applications being filed times out of number against the same director by various contributories. No doubt the Court has a discretion to refuse such an application, but each contributory may come forward with the allegation that some evidence which might have been forthcoming was not produced on the previous occasion, and the Court may have to yield and start a fresh inquiry resulting in an unnecessary harassment of the person complained against. Nor would it be unlikely that, when one liquidator has. died, retired or resigned and another liquidator is appointed, he may start a fresh proceeding, although the previous liquidator had failed. It seems to me that the application contemplated in Section 235 is one filed really on behalf of the Company and not in the exercise of any new right conferred upon the applicant. The responsibility for the payment of costs in case of failure would, of course, lie on the person, who moved the Court in the first instance. But the mere fact, that the section requires that the Court can proceed only on application so made, does not necessarily imply that the application made is made in the exercise of the personal right of the applicant. This section allows proceedings to be taken not only against a director, past or present, or manager, but also against officers of the Company. If the view advocated for by the learned Counsel for the liquidator were accepted, a transaction which is many years old may be reopened, and people, who have ceased to have any connection with the Company, may be brought in again and asked to explain their conduct and justify it after the lapse of a large number of years. No doubt in special cases the Court has discretion to refuse to inquire into a stale claim. But if a Court is determined to brush aside all considerations of limitation, there would be nothing to prevent it from calling upon such persons to vindicate their conduct in respect of matters which took place long ago. Had the intention of the legislature been to give a power to the Court, if it so decides to reopen old questions, there would have been no necessity to add Sub-section (3) in it. It would have been quite sufficient to say that the Court may when it considers fit investigate into the conduct of the persons complained against.
28. It may be pointed out that if a new right were created in favour of a liquidator and if it were a personal right and the application made by the liquidator were in his own right and not on behalf of the Company, then it would follow logically that a new liquidator recently appointed would have a fresh start for purposes of limitation and that successive liquidators would have successive starts and, if the Court were determined to reopen an old question, it could ignore all rules of limitation and give a fresh start in favour of the Company by appointing a new liquidator. I do not imagine that such a result could ever have been contemplated by the legislature. There is nothing in the section which compels me to depart from the view which has been taken of the corresponding section in the English cases and nothing which compels me to hold that in essence Section 235 is different from Section 186 and that, although there can be no fresh start for purposes of limitation for an application under Section 186, there is such a fresh start in the case of an application under Section 235.
29. The position then being that the law of limitation remains unaffected by the starting of liquidation proceedings, it follows that once limitation has begun to run against a person it would not cease to run merely because a liquidation order has been passed. The Article of the Limitation Act which would have been applicable to a suit before the liquidation proceedings started would continue to be applicable and the defendant could be entitled to set up a plea of limitation based on that Article.
30. Some stress was laid by Walsh, J., on the impracticability of this view, as in his opinion such a view would render Section 235. almost a nullity. But there seems to be really no practical difficulties. If there is a cause of action against any one other than the Board of Directors, it is the duty of the latter to bring a suit within the prescribed time from the date of such cause of action. If such a director omits to sue, then the decree-holders or creditors cannot claim to have an extended period of limitation, unless the appropriate Article entitles them to count from the date of knowledge or unless fraud concealing the knowledge extends the period. The same remarks apply to acts committed by past managing agents. In the case of the present managing agents it may well be said that their agency does not terminate till the liquidation proceedings are started. It is the duty of the liquidator as well as the share-holders and creditors to act promptly and discover acts of misconduct and seek relief forthwith. If they allow the opportunity to pass away, they have themselves to thank for. Similarly in the case of past directors it is the duty of the present directors to proceed inasmuch as they represent the company. In the case of the present directors, even if they be not considered to be trustees, they may well be agents of the shareholders, and time may not begin to run against them till this agency terminates or knowledge is brought home-to liquidators and share-holders. I do not see that there is any particular hardship or in practicability in holding that the law of limitation has been left altogether unaltered by the provisions of Section 235.
31. The question what should be the starting point for purposes of limitation would, of course, depend on the particular Article which applies to the facts of that case. It cannot be laid down broadly that no other special Article can ever apply and only Article 120 would apply.
32. Creditors and contributories existed before the Company came into liquidation. The liquidator is, of course, a person who comes into existence after the liquidation. If a suit could have been brought by the Company against the opposite-party, then the Article of limitation, in my opinion, applicable to such a suit would continue to be applicable even if instead of filing a suit the liquidator files an application under Section 235. If a different kind of suit could have been brought by a creditor or contributory, without in any way saying that it can be brought, then the particular Article applicable would continue, in my opinion, to be applicable even before the suit. No change is brought about in consequence of the winding up proceedings. It would follow that if the suit brought in a regular Court was of such a nature as to make Article 36 or Article 90 or even Articles 115 or 116 applicable, then in the face of these special Articles the residuary Article 120 would not apply. But if in such a suit no special Article is applicable, then one will have to fall back on Article 120. Of course, the starting points of limitation under these Articles would be-different. In the case of Article 36, time begins to run when the malfeasance, misfesance or non feasance takes place. Under Article 90 time begins to run when the neglect or misconduct becomes known to the plaintiff; under Articles 115 and 116, when the contract is broken or the breach in respect of which the suit is instituted occurs. Under Article 120, limitation begins to run from the date when the right to sue accrues. In the view that I have taken of Section 235 that there is no new right created in favour of the applicant, the right to sue does not accrue only when the liquidation proceedings start, but the right to sue would accrue when it would have accrued if a regular suit were instituted by the person entitled to institute such suits before the liquidation proceedings began. It is therefore obvious that it does not necessarily follow that the right to sue cannot accrue under Article 120 earlier than the date of the liquidation proceedings.
33. In this connection I must point out that the learned Counsel for the liquidator has laid great stress on the observation of their Lordships of the Privy Council in Hansraj Gupta's case that even if Article 181 does apply to the application under Section 186, the period of limitation prescribed by that Article is three years from the time when the right to. apply accrued which time would not be earlier than the date of the winding up order. That observation is obviously intended to mean that if there were a new right to apply under Art 181, that right, of course, would not have accrued earlier than the date when the person applying could have made the application. It may also be pointed out that out of the Articles in the Limitation Act applicable to application there is none which can apply to art application under Section 186 except Art 181; whereas there are numerous Articles prescribed for suits which may apply to a suit against directors, contributories, managers, etc., contemplated by Section 235, which are other than Article 120.
34. It therefore seems to me that although the recent case decided by their Lordships of the Privy Council was. a case under Section 186 of the Act, the principles laid down therein are of equal application to Section 235, and therefore in one sense it may be said that by implication the cases of this Court have been overruled. But even assuming that those cases have not by implication been overruled, it seems to me that the principles laid down therein compel me to put a similar interpretation on Section 235 as was put. by their Lordships of the Privy Council on Section 186. I must hold that this section does not create any foundation upon which a claim for payment of money can be based and that it creates no new rights and that the power of the Court is discretionary and it may leave the applicant to seek his. remedy by a regular suit, and it would readily take that course in case it is apparent that the procedure under that section as continued would deprive the opposite-party of some defence or answer open to him in a regular suit. I must accordingly hold that there is no fresh start for purposes of limitation necessarily beginning from the date of the liquidation proceedings, but that the appropriate Article applicable to a suit of the nature of the relief claimed in the application would continue to be applicable.
35. I therefore think that in view of the light thrown on the proper interpretation to be put on the sections of the Companies Act by their Lordships of the Privy Council in the recent case, the view of this Court, so far as it laid down that there is a fresh start of limitation, is no longer good law. But the view of this Court in the cases cited above, for the reasons mentioned therein that Articles 36, 115 and 116 were not applicable to the cases before the learned Judges, was perfectly Bound,and in those cases no other Article but Article 120 was applicable. I, of course, do not mean to deny that there cannot be other cases to which special Articles may apply. I am glad to find that this view is in accordance with the opinion expressed by the Bombay High Court in Govind Narayan Kakade v. Rangnath Gopal AIR 1930 Bom. 572. They have agreed with the Lahore High Court so far as not to give the applicants a fresh starting point, but have agreed with this Court as regards the applicability of Article 120 in the cases of the type before them. The above is my answer to the question of limitation referred to us.
36. I have the misfortune to differ from my learned colleagues. This is a reference to a Full Bench, and it has arisen out of an appeal filed by the opposite-party in a misfeasance application initiated against him by the official liquidator of the U.P. Oil Mills Co., Ltd., in liquidation. The learned Company Judge has allowed the application in part and an appeal has been filed by Mr. Shyam Lal, J., Diwan.
37. The point before the Full Bench is one of limitation. The plea of limitation was not urged in the Court below and was not urged as one of the grounds of appeal in this Court. But in view of a certain recent decision of their Lordships of the Privy Council to be noticed later on, a plea of limitation was taken, and the learned Counsel for the appellant has been heard on that plea. In two cases decided in this Court it was held that the misfeasance application under Section 235 is governed by Article 120, Limitation Act, and the starting point of limitation is the appointment of the official liquidator. To both these decisions I happened to be a party. The earlier decision is In the matter of the Union Bank Ltd., Allahabad : AIR1925All518 and the later decision is unreported and will be found in the case of Official Liquidator of Jaunpur Sugar Factory v. Bihari and Co. All Misc case No. 119 of 1924.
38. I have heard the learned Counsel for the appellant at length and had the benefit of discussion on his part of the recent Privy Council judgment in Hansraj Gupta v. Official Liquidators of the Dehra Dun Mussoorie Electric Tramway Co., Ltd . Having regard to certain remarks to be noticed after on, contained in the judgment of the Privy Council, I shall have to-modify my opinion to this extent that the starting of limitation would be not the appointment of the receiver but the date of the winding up order. I will give my reasons later on. Otherwise, I am afraid, I must fully adhere to the opinion I expressed in those two cases. As in the latter case, which is unreported, I have had the advantage of hearing a very eminent counsel, who is now occupying a seat on the Bench of this Court, and as I wrote a longish judgment dealing with all. the English cases and Indian cases, cited before me, I do not propose to go over the same grounds again. What I propose to do is to append as a part of my this judgment an extract from the aforesaid judgment, (see p. 803.) as it is not reported.
39. I will only consider the Privy Council case and such fresh and new arguments as have been adduced before us. I will start with the Privy Council decision. In the case which may shortly be described as Hansraj Gupta's case the official liquidator for the Company in liquidation claimed certain sums of money, which were, undoubtedly, on the findings of the Privy Council itself, due to the Company from a contributory by an application to the Company Judge under Section 186, Companies. Act. The application was heard by two Judges including myself and it was allowed partially. The contributory against whom the application had been, made for notices due to the Company appealed to their Lordships of the Privy Council and their Lordships came to the conclusion that the interpretation put by the Judges of this Court on. Section 186 was not right. Their Lordships of the Privy Council laid down on a construction of the words 'money clue from him (contributory ) to the-Company' meant that the money was due to the Company and could have been recovered by the Company by an. ordinary suit instituted in a Court of ordinary jurisdiction. Their Lordships relied on the interpretation, put in. England on the corresponding English. statute and especially on what is known as the Stringer's case (1869) 4 Ch. 475.
40. I am of opinion that this decision of the Privy Council does not in any way bear on the question which we have to decide. In the Stringer's case (1869) 4 Ch. 475 the main point for decision was whether an application for recovery of money could lie and whether, in a summary way, an order could be passed or recovery of the money. The learn-ed Judge, who heard the application in the first instance, was of opinion that the remedy of the liquidator lay by a suit and not by an application In appeal the question was whether an application was a proper remedy and in deciding that it was, the following] remarks were made:
In those summary proceedings every objection is just as open to the person sought to be charged as it would have been if a bill had been filed.
41. Their Lordships pointed out that if. a suit had been filed on behalf of and in the name of the Company by the official liquidators against Hansraj Gupta, Hansraj Gupta would have had a defence by way of limitation, and therefore the Judges of the High Court were not right in holding that there was no question of limitation after the winding up order had been made pro-vided that the claim was not barred at the date of the winding up order. Beyond this the decision of their Lordships' judgment does not go. It is true that in dealing with the section corresponding to Section 186, Companies Act, their Lordships said that three things were certain, on the decisions given in England, one being that the section created only a special procedure, and it was not a section which purported to create a foundation upon which to base a claim for payment. In other words, it created no new rights. It is argued that similarly Section 235, did not create any new rights.
42. To the question how far any new rights were created by Section 235, Companies Act, and what is the decision of the English Courts on the question of new rights given on the English section, I will not add a single word, because I have dealt with the point at length in the judgment, an extract from which will be appended as a part of this judgment. I have tried to show, that the words 'created no now rights' were used in connection with the particular facts of the cases, and the English cases never considered the language of the section which corresponds to Section 235, Companies Act, in order to decide a question of limitation.
43. All that the case of Hansraj Gupta lays down is that where a defence is open to the defendant, the person against whom the liquidator is proceeding, if a suit had been instituted against him by the Company, those defences should be still open to him in an application to the Court to recover money due to the Company by the official liquidator. A somewhat similar rule has been provided for by the legilature in Section 235 of the Indian Act By Sub-section (3) the Indian Act lays down:
The Limitation Act, 1908, shall apply to an application under this section as if such application were a suit.
44. Though there was no such provision under Section 186 of the Indian Act, their Lordships by their decision laid down that the rule of limitation would still apply. Supposing therefore that the decision of their Lordships of the Privy Council applies, all that can be said is that, in the application out of which this appeal has arisen, the appellant. Shyam Lal should not be deprived of his right to plead limitation. This is conceded on all hands. The only question is 'What would be the result of limitation applicable?' If this view be correct, the decision of their Lordships of the Privy Council does not make the point at all clear, for the simple reason that their Lordships were not dealing with the question of limitation applicable to Section 235, Companies Act. If I have understood the learned Counsel for the appellant clearly, he wants that we should read the following words at the end of Sub-section (3), Section 235, namely, 'and it was a suit in the name and on behalf of the Company.' Thus the entire sub-section, according to the argument of the learned Counsel for the appellant, should be read as follows: viz:
(3) The Limitation Act, 1908, shall apply to an application under this section as if such application were a suit and a suit in the name and on behalf of the company.
45. I will notice his arguments in detail and try to find out whether there can be any justification for such an addition. Ordinarily, I may point out, it is against all cannons of interpretations to read additional words in an enactment of the legislature. The argument of the learned Counsel for the appellant is this: Section 235 is only a provision prescribing a procedure and is a procedure in addition to the remedy which is open to the applicant by way of suit. He argued that it was open to the liquidator to bring a suit and his remedy was not confined to an application under Section 235. This may be the case with the liquidator, but what about the 'creditor' and the 'contribuitory?' Could a creditor independently of Section 235, bring a suit in a Court of ordinary jurisdiction against the present appellant, Shyam Lal, who is alleged to have been one of the partners of the firm of managing agents who, it is said, mismanaged the Company and caused a loss to it? Could, again, a single contributory bring a suit for the same relief? No authority has been produced before us to show that such suits could be maintained on behalf of a creditor or a contributory, It is clear therefore that Section 235 gives special rights to a creditor and to a contributory, which would not exist but for this provision.
46. Again, we have to read the provision of a law in order to find out what the law means. Section 235 begins with these words: 'Where, in the course of winding up a company, it appears.' What has to appear is to appear in the course of winding up. A matter may have 'appeared' to a man who is a contributory in liquidation before the winding up started, but he could not have made the application before the Company Judge and he could not have filed a suit in a Court of ordinary jurisdiction. The condition precedent to the application of Section 235 is that the matter which is to be adjudicated on has to appear in the course of winding up. Again, one of the persons, who may he proceeded against by a misfeasance suit, is a liquidator. The argument of the learned Counsel for the appellant has been that where a suit by the Company would be barred against his client, an application by the liquidator under Section 235 should be held to be barred. But where a subsequent liquidator wants to proceed against an earlier liquidator for misfeasance, can it be said that the Company could have brought a suit for similar relief. There was no liquidator in existence when the Company was in action, and, therefore it is impossible to say that the liquidator proceeded against could plead that the suit would be barred if the suit on behalf of the Company would have been barred.
47. Further, there is a word of great importance in Sub-section (3) which has been overlooked. It is the word 'such.' The sub-section says that the Indian Limitation Act shall apply to an application under this section as if such application were a suit. Now, 'such application' can only mean an application by the 'creditor,' or 'contributory' or 'liquidator.' Therefore the plaintiff, for the purposes of this suit, must be the applicant and not the Company. There may be an application by the creditor; there may be an application by the contributory; there may be an application by the liquidator. In each case it is the creditor or the contributory or the liquidator who is to figure as the plaintiff arid not the company.
48. There is yet another answer to the arguments of the learned Counsel for the appellant. He says that the application is to be deemed to be a suit by or on behalf of the Company. As to the liquidator, it may be suggested that he is allowed to maintain an application or a suit in the name or on behalf of the Company. This is stated in Section 179, Clause (a), Companies Act. But what about the creditor? What about the contributory? Is a creditor entitled to maintain a suit in the name and on behalf of the Company? Is a contributory entitled to maintain a suit in the name and on behalf of the Company? At least I have not been able to find any warrant for such a proposition and none has been placed before us. The argument is that every one of these three is maintaining the application for the benefit of the Company. This is undoubtedly true. But what was the necessity of mentioning the three individuals by name if it was going to be an application on behalf of the Company? The persons vitally interested are allowed to come before the Court and to seek its permission to maintain the application. The maintenance of the application may involve serious liability on the opposite-party, and the legislature thought it fit to give the opposite-party the benefit of the law of limitation. In England, as I have pointed out in my judgment in the unreported case, it was so late as in 1888 that the trustees were allowed the benefit of the law of limitation. From 1623 when the law of limitation was enacted in England the trustees, and among them are included the directors of the Company, were never allowed to plead limitation. Now in England the trustees are in very favourable circumstances, because by the Act of 1888 the period of limitation is six years and the limitation starts from the date of the commitment of breach of trust. The Indian Law unfortunately for the directors and some others, so far as I can see, is different. When the Indian legislature borrowed broadly Section 235, of the Indian Act, from Section 215 of the English Act of 1908, they took care to lay down that the Indian Limitation Act of 1908 would apply. It is possible that the legislature did not care to see what would be the significance of the application of the Indian Limitation Act when it was giving the creditor, the contributory and the liquidator a right to make the application. In England it was not necessary to enact the rule as to applicability of the law of limitation, because the rule of limitation has already been enacted as an independent Act tin 1888. But the English law as to limitation and the Indian law on the same subject are different and it is not open to the Judges to legislate, simply because there may be some hard cases.
49. A good deal of the argument of the learned Counsel for the appellant has been 'based on an alleged hardship on the persons proceeded against. It was argued that suppose the promoter left the Company thirty years ago yet it would be open to the liquidator to proceed against him within six years of his appointment. This may be SOL. if the result of the application of the Limitation Act of 1908 be such. It may be a misfortune of the promoter, but that will not be any reason for our adding the words 'and in the name and on behalf of the Company,' to the Sub-section (3) to Section 235. The legislature believed that it had given relief to the persons to be proceeded against in a misfeasance case by saying that it would be open to him to plead limitation. If, as the result of judgments of the Courts, it is found that the relief is not adequate, it would be open to the legislature to step in and to give further relief.
50. I may point out that it is open to the Court to refuse to proceed where the claim of the official liquidator or the creditor or the contributory is stale. In the instance given by Dr. Katju, namely, where a promoter has left the company 30 years ago, the Court will probably refuse to investigate into the actions of the promoters. When the Company had been in solvent circumstances for twenty years and nobody thought it fit to proceed against the promoters, the Court would be justified in refusing an investigation. Then, Section 281, Companies Act, provides some relief in certain cases. However we cannot interpret the statute law on grounds of mere harshness or hard cases.
51. Then it was argued that if a contributory or a creditor or a liquidator, each comes forward with an application against, say, an ex-director, there may be different rules of limitation for different applicants, unless they are all treated as representing and applying on behalf of the Company. I do not think that any such thing follows. In my own judgment in the unreported case, I have shown why the several special Articles of the Limitation Act do not apply and why Article 120 has to be applied. Now, I want to examine Article 120 being applicable, what would be the starting point of limitation and whether the starting point should necessarily be different in the case of different applicants who according, to my opinion, are to be treated as plaintiffs, in suits, under Sub-section (3), Section 235, Companies Act. Under Article 120 the starting point of limitation is the date 'when the right to sue accrues.' Interpreting very similar words used in Article 181, Limitation Act of 1908, which are. 'when the right to apply accrues,' their Lordships of the Privy Council in Hansraj Gupta's' case remarked as follows:
But even if Article 181 does apply to it, the period of limitation prescribed by that article is three years from the time when the right to apply accrued, which time would be not earlier than the date of the winding up order, 26th March 1926.
52. In the opinion of their Lordships the time when the right to apply accrued could not be a date earlier than the date of the winding up order.
53. After giving my best considerations to the arguments of the learned Counsel for the parties, I have come to the pinion, and this is slightly different from the opinion I expressed in the earlier cases, that the date when the limitation starts is the date of the winding up order and not the date of the appointment of the liquidator. In the two earlier cases already mentioned, In the matter of the Union Bank, Allahabad Ltd : AIR1925All519 and the case of Official Liquidator of Jaunpur Sugar Factory v. Bihari and Co. All Misc case No. 119 of 1924 no arguments were addressed to me and to my brother Judges as to whether the date of the winding up order was the crucial date or the date of the appointment of tire liquidator. The point was not in those cases material either. Why I should think that the date should be the date of the winding up order is this: When. a winding up order is made, it is not necessary for the Court to appoint an. winding up order was the crucial date or may not appoint one (see Section 178, Sub-section (2) Companies Act.) Where the Court does not appoint an official liquidator, it would still be open to a contributory or to a creditor to come and. make an application under Section 235. In Article 120 in Col. 3 the words are 'when the right to sue accrues.' This would not mean the right to sue as.: it accrues to the individual who is suing, but to him or to his predecessor-in-title or to any person generally who would be interested in instituting a suit. A right to sue within the meaning of Section 235, Sub-section (3), Companies Act, would accrue even if there were no liquidators, no creditors and no contributors. If this argument be correct, then the date when the right to sue accrues is definitely fixed for all possible applicants. The argument would thus fail that in the case of successive liquidators the date when the right to sue acrues would be different from the date when the right to sue accrues to a creditor or to a contributory may be different from the date when the right to sue accrues to a liquidator.
54. I have already spoken at length and I do not wish to prolong my judgment. I am of opinion that the only Article applicable to an application like the one out of which the appeal before us has arisen is Article 120, Limitation Act.
Extract from my judgment in Official Liquidator of Jaunpar Sugar Factory
Bihari and Co.
Miscellaneous Case No. 119 of 1924.
Decided on 27th June 1930.
55. Limitation.-- The plea of limitation was argued as a preliminary point and it has to be decided before the merits can be gone into.
56. The contention of Mr. Iqbal Ahmad the learned Counsel appearing for Nawab Mohammad Yusuf is that Article 36, Schedule 1, Limitation Act, applies to a claim like this and the starting point of limitation is the date or dates when the malfeasance, misfeasance or nonfeasance took place.' The learned Counsel further argues that if Article 36 did not apply, Article 115 or Article 116, Sch 1, Lim. Act, would apply and in either case, as more than six years have elapsed bet-ween the alleged misappropriation and misapplication, etc., of the company's money, the application is time-barred. The contention for the official liquidator is that Article 120, Schedule 1, Limitation Act, applies and that the starting point of the limitation being, under that article, 'when the right to sue accrues' such right to sue could accrue to the liquidator only on the date of his appointment. It was further urged on behalf of the official liquidator that if this contention be not right, Article 90, Schedule 1 would apply in so far as Behari & Co., were agents of the company and the starting point of limitation would be different dates according to the dates of the knowledge of the liquidator.
57. For the respondent, Nawab Mohammad Yusuf, it has been argued that the liquidator can recover only what the company could recover, that Section 235, Companies Act, 'creates no new rights' and that it only furnishes a summary method of realing what might otherwise; have been realized by means of a suit.. Before we proceed to examine the arguments of the learned Counsel for the respondent, it will be desirable to examine the language of the Act. For, it is the language of the Act and the language alone that should be our sure guide and it will not do to attempt to interpret the language employed by the legislature by running to see what anybody has said in respect of it. Section 235, Companies Act, so far as it is material for our purpose runs as follows:
1. Where, in the ease of winding up a company it appears that any person who has taken a part in the formation or promotion of the company, or any past or present director, manager or liquidator, or any officer of the company, has misapplied, retained or become liable or accountable for any money or property of the company or been guilty of any misfeasance or breach of trust in relation to the company, the Court may, on the application of the liquidator or of any creditor or contributory, examine the conduct of the promoter, director, manager, liquidator or officer and compel him to pay and restore the money or property or any part thereof respectively with interest at such rate as the Court thinks fit or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust as the Court thinks just,
3. The Limitation Act, 1908, shall apply to an application under this section, as if such application were a suit.
58. It will be noticed that in the particular cases mentioned in the section, the liquidator or creditor or a contributory has to make an application to the Court for investigation into the conduct of certain persons connected with the company and the Court may after such investigation as may be called for, compel the persons into whose conduct the Court has held an inquiry, to restore money or property misappropriated or to contribute such sum to the assets of the company by way of compensation as tire Court thinks just. It will be seen that the provision is that the money or property recovered is not to go to the pocket of any particular individual, but is to go to augment the assets of the company. The Court, naturally, has to be moved in the matter by somebody, as, if on an investigation of the conduct of the person who is charged with misconduct, it turns out that the charge was false, somebody should be responsible for an unnecessary investigation. Thus, the provision is that the Court is to examine into the conduct on being moved by any one or more of three persons, namely, the liquidator or a creditor or a contributory. On a plain reading of the section, therefore it ought to be abundantly clear that although the legislature has directed that for the purpose of limitation the application of the liquidator or a creditor or a contributory is to be treated as a. suit, the provision is an extraordinary one and permits not only the liquidator who is an officer of the Court and whose duty, primarily, it is to recover the assets of the company and to distribute the same, but it also authorizes a creditor and a contributory to move the Court.
59. The argument on behalf of the respondent is that in its nature, the application under Section 235 is a suit and therefore if a suit by the company to recover money or property be barred by time, an application by the liquidator or creditor or contributory should also be deemed to be barred by time. There does not seem to be any warrant in the language of the Act to suggest that the three persons mentioned can recover only where the company could recover and not otherwise. It goes without saying that a creditor or a contributory is not a. representative of the company. An application therefore by either of these cannot be called an application (or a suit) by a representative of the company. On an examination of the provisions of the Companies Act, it will be found to be abundantly clear that a liquidator is in no sense a representative of the company. Section 175 of the Act says as follows:
For the purpose of conducting the proceedings in winding up a company and performing such duties in reference thereto as the Court may impose, the Court may appoint a person or persons called an official liquidator or official liquidators.
60. If this rule of law defines the position of an official liquidator, it is impossible to say that he is a representative of the company. Primarily, an official liquidator is an officer of the Court. The object of his appointment is the conduct of the proceedings in winding up and further doing such duties with reference to the winding up as the Court may impose. Where does then, the representative character of the liquidator for the company come in The liquidator looks after the interest of the company and it looks after the interest of the creditors of the company. Such a person can in no sense be called a representative of the company. If he might be called a representative of the company, he might with equal truth be described as a representative of the creditors of the company. Where no liquidator is appointed [see Section 178(2)] or during any vacancies of such appointment, all the property of the company shall be deemed to be in the custody of the Court. It will be seen therefore that, primarily, it is the Court in whose custody the property of a company under liquidation comes and it is only by virtue of his being an officer of the Court that the official liquidator is allowed to take into his custody all the property and effects, etc., of the company (Section 178, Clause (1)). It will be noticed that there is a vast contract between the position of an official liquidator and the position of a receiver in insolvency. In the receiver in insolvency, the property of the insolvent is vested (see Section 28, Provincial Insolvency Act, 1920). But there is no similar provision in the Companies Act by which the property of a company in liquidation may be vested into the official liquidator. It would therefore be wrong to say that the official liquidator is a representative of the company. No authority would be needed to support this view of the law, but it is interesting to find that as early as in, 1870, Lord Chancellor Hatherley, speaking of the English Act from which our Indian Act has been copied said as follows with respect to the position of the official liquidator:
The official liquidator, who, in that capacity, is bound to collect all the assets of the company and distribute them by the direction of the Court among the creditors is, in a position in which he may assert rights as against the company and assume a position against the members of the company which the company itself possibly might not be in a position to assert ' : see Water-house v. Jameson (1870-75) 2 LRS and D Appeals 32.
61. It is true that at p. 38 of the said report, Lord Westerbury quoted briefly a dictum of Lord Cairns: In re Duckworth (1867) 2 Ch 578, namely:
The liquidator represents the creditors only because he represents the company, and through the company the rights of the creditors are to be enforced.
62. But this statement, will all respect, is a loose one and is not supported, if we take the language strictly, by the provisions of the Companies Act, either English or Indian. A creditor's interest is vastly different from the interest of the debtor and indeed they are antagonistic. To say that the liquidator represents the creditors is to state only a partial truth. Again, to say that the official liquidator represents the company is only a partial truth. The fact of the matter is that from the very definition of an official liquidator, he is neither a representative of the company nor a representative of the creditors. He is merely an officer of the Court appointed by it for the purpose of 'effectually' conducting the proceedings in winding up (Section 175, Companies Act, 1913). The official liquidator has, by the very definition, to perform such duties as the Court may impose and although he has been given some powers, he can exercise many important powers only with the sanction of the Court and not otherwise (see Section 179, Companies Act). If the official liquidator were a representative of the company, surely he would not stand in need of the Court's sanction to institute suits on behalf of the company or to defend suits on behalf of the company.
63. Thus we find that none of the three persons who has been authorised by Section 235, Companies Act, to move the Court is a representative of the company. It would follow therefore without further reasoning, that if a suit by the company be time-barred, it should not necessarily follow that a suit by the official liquidator or a creditor or a contributory should necessarily be time-barred. The rule of limitation is a rule of procedure, a branch of the adjective law, and does not either create1 or extinguish rights, except in the case of acquisition of title to immovable property by prescription. Thus, where the recovery of a debt is barred by lapse of time the right to the debt is not extinguished, and if the debtor, without being aware of the bar of time pays up, he cannot sue the creditor to refund the money to him, on the ground that a claim for recovery of the debt had become time-barred. Thus, the liability to pay the debt being there, in particular cases, the legislature may think it fit to enact that what would be a bar to the company to recover a just debt would not be a bar to the liquidator, or the creditor or to the contributory, in what has been styled, for the sake of brevity, 'misfeasance proceedings.' Lord Halsbury in his Laws of England, (Vol. 19, p. 37, Article 50), says the same thing about the character of the Rules of limitation and says that they should be interpreted leniently.
64. It is conceded that the Companies Act has provided for recovery by the liquidator of calls which could not be enforced by the company for lapse of time and that a liquidator may recover from contributories debts payable by them to the company, although if the company attempted to recover the same, it would be successfully met with a plea of limitation, (see Sections 156 and 186, Companies Act). Thus, it cannot be said that the Companies Act did not contemplate making provisions for recovery of moneys which could not be recovered by the company if it made an attempt to do so. On a plain reading therefore of the language of Section 235 the official liquidator's contention would seem to be fully supported by it, namely, the application (or suit) by the official liquidator or creditor or contributory is entirely independent of considerations which might affect a suit brought by the company itself. This would dispose of the first two contentions of the learned Counsel for the respondent, namely, the liquidator is a successor in title of the company and he can recover only what the company itself could recover.
65. The next contention of the learned Counsel for the respondent is that Section 235 'creates no new rights.' The words put into a pair of inverted commas have been quoted from several case's in which they have been used and to appreciate those words, one must look into the cases themselves in which they found expression. Three English cases in which these words occur, have been laid before us and on an examination of these cases it will be found that none of these use the words in the sense in which the learned Counsel for the respondent would want them to be interpreted. The learned Counsel for the respondent would read the words, 'S. 235 creates no new rights' in the sense that the liquidator and others can enforce their claims under Section 235 only as a representative of the company and not by the virtue of their being official liquidators or creditors or contributories. As I have said, an examination of these cases will amply show that the words have been used in the English cases only in this sense and this sense alone, namely, Section 235 (English Section 165 of the Act of 1862 and Section 215 of the Act of 1908), does not enable any of the applicants (official liquidator or creditor or contributory) to recover what could not be recovered under the general law. In other words, where there is an act which creates a liability in a director or a promoter or a manager and others enumerated in Section 235, under the general rule of law, there alone can the official liquidator or a creditor or a contributory recover. For example, where an act of a director is innocent and his act does not make him liable to make any compensation, that director does not become liable simply because Section 235, Companies Act, enables a liquidator or a creditor or a contributory to make an application under that section. By way of illustration, we may give this case. Suppose a director of a company has built a house for himself. The act of the director is entirely innocent and does not make him liable for any compensation to the company or to contribute to the assets of the company. A liquidator cannot apply under Section 235 to the Court for an investigation into the director's conduct and to recover from him any compensation. The simple reason is that by the act mentioned above, the director incurred no liability and Section 235 does not create a liability where one did not exist from before The words 'create no new rights' were never meant to be used in the scrise in which the learned Counsel for the respondent wants to utilise them for his own purposes as described above.
66. Now we proceed to examine those three English cases in which the words have been used. The first case in order of time is that of In re Canadian Land Reclaiming and Colonising Co. (1880) 14 Ch D 660. In this case two gentlemen were appointed directors and although the number of qualification shares for a director was 100, neither of them subscribed for any shares. The directors acted throughout honestly and it was not proved that their acts led to any loss to the company, Jessel, M.R., who tried the case in the first instance, at p. 670 found that the two directors were liable to contribute 500 each, being the value of one hundred shares, to the company, because, in his opinion, they were bound to have subscribed for shares of that value. On appeal, the learned Master of the Rolls was reversed. James, L.J., observed:
It might be very right for the legislature to declare that where there is a qualification prescribed for the office of a director, every person acting as a director should be held to have taken the number of shares constituting his qualification, but the legislature has not done so.
67. Having said so, the appellate Court-proceeded to see whether any such liability was created by Section 165 (English Act of 1862). Then James, L.J., remarked as follows:
I am of opinion that that section does not create any new liability or any new right, but only provides a summary mode of enforcing right which must otherwise have been enforced by the ordinary procedure of the Courts.
68. These words, namely, 'S. 165 does not create any new liability or any new right' must be read with facts in connexion with which, they have been used and it would be fraught: with the greatest danger to take the words out of the context and treat them as if they are of universal application, capable of being applied to any set of facts whatsoever. As we already stated, the learned Judges of the appellate Court found that the fact that the directors had not ' subscribed to any shares did not entail on them any liability to pay for those shares. Baguley, L.J., at p. 762, said:
The circumstances under which these gentlemen accepted office as and acted as directors did not involve them in any contract whatever to take shares.
69. Bramwell, L.J., at p. 673, said: 'To my mind, the liquidator has failed to show any damage at all.' This case therefore is no authority for the contention of the learned Counsel for the respondent. The next case is Bentinck v. Thomas Fenn (1888) 12 AC 652. This was a case in which, speaking briefly, one of the directors sold his interest in a property to the company. When the company went into liquidation, the liquidator sought to recover damages from the vendor for having sold the property without having disclosed that he was the owner thereof. On the facts it was found that it had not been proved that the defendant (Fenn) had not disclosed that he was the owner of the property and it was also not proved that the price paid was in any way unfair. It was held that the defendant was not liable. It was in connexion with these facts that it was stated by Lord Macnaghten at p. 669 that Section 165, Companies Act of 1862 (English)
gives no new rights but only provides a summary and efficient remedy in respect of the rights which apart from that section might have been vindicated either in law or equity.
70. If we read in this very case, the judgment of Lord Herschel at p. 662, we shall at once see what was the point under consideration and what was held by the House of Lords. His Lordship stated:
In an action nominal damages may be recovered wherever a breach of duty is shown, but I certainly do not think that any such doctrine can be applied to Section 165. The right which Section 165 gives is not given to the company or the representative of the company with whom there is a contract or as towards whom there is a duty or as regards whom there is a breach of duty; but the right under Section 165 is given to any liquidator or any creditor or contributory to the company. Now there is no duty or breach of duty to the company in respect of which a creditor or contributory can maintain an action, but ha has a right to this extent: that if owing to a misfeasance or breach of duty the funds of the company in which he is interested have been diminished, those funds shall again be made good and the assets of the company shall be recouped the loss which they have sustained.
71. Then His Lordship remarked:
Under Section 165 such application could only succeed where it could be shown that breach of duty resulted in loss to the funds and assets of the company.
72. Throughout the judgments of the four Lord Justices who took part in, the case, no suggestion has been made that a liquidator or creditor or contributory cannot recover if a suit by the company happen, to be barred by time. This case also therefore does not support the contention of the respondent. On the other hand the remarks of Lord Her-shell at p. 662 establishes that a claim under Section 165 (English, 1862), is different from a claim by the company. The last case on the point quoted to us is the case of In re City Equitable Fire Insurance Co., Ltd. (1925) Ch. 407. The learned Counsel for the respondent quoted the following words from p. 507 in support of his argument:
I desire to say, though this is not the first time that it has been said, that that section (Section 215, English Act of 1908) deals only with procedure and does not give any now rights.
73. As in the other two cases already discussed, the sentence relied on, if taken without regard to the facts of the case in connexion with which they have been spoken, any use whatsoever might be made of them. Pollock, M.R., who used those words was considering whether one Mr. Lepine was acting honestly or was acting fraudulantly. His Lordship says at p. 506:
No such chart was available to Mr. Lepine and we have to take the books singly which were before him, and the books be it remembered, of the City Equitable Company only. It is not right to treat the evidence which is now before us and its significance as being plain in the years 1919, 1920 and 1921 to Mr. Lepine.
74. In the result, his Lordship exhone-rated Mr. Lepine from, liability, on the ground of his acting honestly. By the words quoted, his Lordship meant what has been said in the earlier cases (which are quoted by his Lordship) that where there was no liability apart from Section 215, English Act, no liability existed if that section were applied. Thus we have seen that the three cases quoted on behalf of the learned Counsel for the respondent do not support his contention. The next contention of Mr. Iqbal Ahmad, the learned Counsel for the respondent was that the English cases do not support the view of this Court taken in the case of In the matter of the Indian Bank of Allahabad Ltd : AIR1925All519 , a view which is supported by the counsel for the official liquidator, that the limitation runs from the appointment of the liquidator. The point of limitation has not been discussed in any of the English cases cited before us by Mr. Iqbal Ahmad. But he produces two cases and wants to support his argument by way of inference from them. The earlier case is Leeds State Building and Investigating Co. v. Shep herd (1888) 36 Ch D 787. In this case, the company under liquidation made no profits, but the directors in every year from 1870 declared dividends at 5 per cent and upwards. The case was against the directors and the auditor, one Mr. Locking. The claim was decreed against the directors who were held to have acted with an amount of care which had fallen short of the standard of care which they ought to have applied to the affairs of the company. As regards the auditor, he was allowed to plead the Statute of Limitation (1888), and the claim was decreed against him in respect of two years only, viz., 1878 to 1880. It was argued by Mr. Iqbal Ahmad that it was never pleaded on behalf of the official liquidator, before the English Court that limitation began to run from the date of the appointment of the liquidator and as the liquidation had been ordered in 1885, the-claim for the earlier year also was within time. We will discuss the question of limitation in England after having stated the facts of the second case relied on by the learned Counsel for the respondent. This case is In re Lands Allotment Co. (1894) 1 Ch D 616. In this case there was a company by the name of the Land Allotment Co., which was not allowed by its articles to invest its money in the shares of other companies. Under certain circumstances however and in good faith, the directors accepted the shares of another company in lieu of a debt owing to their own company. When the Land Allotment Co., went into liquidation, compensation was claimed from the directors who had allowed the investment. The directors pleaded the Statute of Limitations of 1888.
75. It will be remembered that under that statute, a trustee who is not acting fraudulently is allowed to plead limitation. It was held in this case that the directors were 'trustees' within the meaning of the statute of the limitations and they would be supported by the rule of limitation if their act was not fraudulent. It was found that their act was not fraudulent and therefore they were found not to be liable for the investment. In respect however of another matter, one of the directors, Mr. Brock was held liable for a certain sum of money. It was argued that if limitation began to run only after the appointment of the official liquidator, there could be no question of limitation in the case. This argument leads us to consider the English law of limitation. The main Act of Limitation is that of 1623 and provides for only a few cases. Before the Statute of Limitation of 1888 was passed, trustees were not allowed to plead limitation at all. It will be noticed in passing, that in India trustees, unless they come within the provisions of Section 10, Limitation Act, are allowed to plead limitation. In enacting the statute of limitation, the Parliament had to provide for a starting point of the limitation. It laid down by Clause (b), Section 8:
As a bar to such action or other proceedings in the like manner and to the like extent as if the claim had been against him in an action of debt for money had and received....
76. Thus a starting point of limitation was provided by the Act. For an action for money had and received under the general statute, the period of limitation is six years and the starting point is the date of receiving the money. It has accordingly been held in England that the date from which limitation begins to run against a trustee is the date of the breach of the trust committed by the trustee. The cases are summarized in the text-books on the subject and at p. 260, Edn. 2, Derby & Bosanquet's 'Statutes of Limitation' the result is put down as laying down the starting point to be the date of the date of the breach of the trust, where a breach of the trust occurred, in the case of negligent investment, from the date of negligence, and not from the date when the loss occurred to the cestuiqui trust. In Lord Halsbury's Laws of England, Vol. 19, at p. 162, in Article 333 the state of the law is mentioned to be the same. In this state of law, the period from which limitation is to start being fixed, it mattered little who the plaintiff was, the period of limitation remained the same as also the starting point of limitation.
77. We cannot apply the English law of limitation to cases in India which possesses a complete Act of her own. It has been laid down in Quin v. Lea-them (1901) AC 495 at p. 506, that a case is an authority only for what it actually decides and is not an authority for the proposition which may seem to follow from the decision. On the question of limitation therefore the two cases just quoted, namely, Leeds State Building and Investigating Co. v. Shepherd (1888) 36 Ch. D 787 and In re Lands Allotment Co. (1894) 1 Ch. D 616, are no authorities, inasmuch as they do not profess to deal with the point of limitation. If the point of limitation had been discussed, we would have known on what ground the decision went. It is therefore not permissible :: to draw an inference only from the fact that the argument was not pressed that the starting point of limitation was the appointment of the liquidator. Before we leave this point, we may mention a case decided by their Lordships of the Privy Council. This case is Ranodip Singh v. Parmeshar Prasad . In this case, the father made an alienation in 1893 and plaintiff 4, being the youngest son of the alience, was not born at the date of the alienation. It was held by their Lordships of the Privy Council that Article 126, Limitation Act, was the article that applied to the case, being meant to be applied to a suit
by a Hindu governed by the law of Mitakshara to set aside his father's alienation of ancestral property.
78. According to Col. 3, Article 126, the time from which the period begins to run is 'when the alience takes possession of the property.' This date was taken to be the date of the alienation and their Lordships of the Privy Council said at p. 178:
The fourth plaintiff's subsequent birth on 80th November 1900 did not create a fresh cause of action or a new starting point from which limitation should be reckoned.
79. Thus the date for the start of the period of limitation being fixed and unalterable, although the fourth son had a right to sue for setting aside the father's alienation, he had no remedy, as it was already barred to him, on the expiry of 12 years of the start; and this was the case, although the plaintiff did not come into existence till seven years after alienation. Mr. Iqbal Ahmad relied on some Indian cases also and they are two cases decided by the Lahore High Court. One is Bank of Multan Ltd. v. Hukum Chand AIR 1923 Lah. 58 and Bhim Singh v. Official Liquidator, Union Bank of India Ltd. AIR 1927 Lah 433. The learned Judges of the Lahore High Court in deciding these cases re-lied on the English cases already discussed by me, namely, In re Lands Allotment Co. (1894) 1 Ch. D 616 and In re City Equitable Fire Insurance Co. Ltd. (1925) Ch. 407 at p. 507 in which the ramark occurs that S 165 of 1862 or Section 215 of 1908 did not create any new rights. We have tried to show how dangerous it is to rely on a remark taken apart from the facts which led to them. Their Lord-ships of the Lahore High Court also relied on an Indian case, namely, Kumarpuran v. Pestonji (1903) 5 Bom LR 683. There, Jenkins, C.J., quoted the expression that the misfeasance section (to call it shortly) did mot give new rights, but simply provided a summary mode of enforcing rights which, must otherwise have been enforced by a suit. The ob-serration read in connexion with the facts of the cases, in which it was made, is unexceptionable and so it was in the Bombay case. Jenkins, C.J., quoted the expression only to see whether the application before him disclosed a case for investigation or not. In the result, the appellant before the Court was held to be not liable and the claim against him was dismissed.
80. Having disposed of the authorities relied on on behalf of the respondent, let us see what is the article of the Limitation Act which we can apply. In order to see the suitable article out of the 183 articles provided by the Indian Act we have to see which is the most applicable. Before Sub-section 3, Section 235, Companies Act, 1913, was enacted, on the use of the word 'application' in the first sub-section, it appears to have been held in D. Connell v. Himalaya Bank Ltd. (1895) 18 All 12, that no rule of limitation applied. On the other hand, in Ramasamy v. Streeramelu (1896) 19 Mad. 149, it was held that the application was one which fell under the heading of 'applications' in Schedule 1, Limitation Act:, and not under the heading of 'suit.' This was a Letters Patent appeal and the learned Single Judge had dismissed the application on the ground that it was barred by Article 36, Limitation Act. It was pointed out that it was an 'application' that was before the Court and not a suit. It was probably owing to these decisions that the legislature declared that although what the liquidator, creditor and contributory produced before the Court was in the shape of an application, it was to be treated as a suit and not as an application. In our opinion the third sub-section of Section 235 has no significance beyond this. Before leaving this point, we may point out that in the Allahabad case just quoted, viz., D. Connell v. Himalaya Bank Ltd. (1895) 18 All 12, it was held that to the special proceeding provided by Section 214 Companies Act, 1882, Article 36, Limitation Act, was not applicable.
81. Now, coming to consider what is the-most suitable article for what may be. described as the 'liquidator's suit.'' Article 36, Schedule 1, Limitation Act, cannot possibly have any application to such a suit. The reason is that the liquidator was not in existence at the date of the; alleged misfeasance or malfeasance. Further it would seem that the directors and the managing agents were acting under contracts and their acts which are being complained of are in the nature of breach of trust and not in the nature of torts independent of contract-Art. 90, Limitation Act, which was applied in Lahore in Daulat Ram v. Bharat National Bank AIR 1924 Lah 435, and which was explained away in the later case in. Bhim Singh v. Official Liquidator Union-Bank of India Ltd. AIR 1927 Lah. 433 does not apply. The liquidator does not stand in the-relation of a principal towards either the directors or the managing agents. Article 115 or Article 116 does not apply because from the very nature of the case, the remedy is being sought not on account of the breach of any particular contract as those articles contemplate. We may note here that if Article 115 were applicable at all, Article 116 would have applied inasmuch as the 'Articles of Association' is a 'registered' document. There being no-particular article which is applicable to the facts of the present case, the residuary Article 120 is applicable. 'To suits for which no period of limitation is provided elsewhere in this schedule,' the period of limitation is six years and the time from which the period begins to run is, 'when the right to sue accrues.' The right to sue can accrue only when three things are simultaneously in existence, namely, the act which gives rise to the right of suit, the presence of a plaintiff and the presence of a defendant. All the three-matters come together when the official liquidator is brought into existence. In our opinion therefore Article 120 applies to this case as was held in In re Union, Bank Ltd : AIR1925All519 .
82. I agree to the conclusions arrived at by the Hon'ble Chief Justice substantially for the same reasons and have nothing to add.
83. Our answer to the question referred to us is that the winding up order does not give a fresh start either to a liquidator, contributory or creditor for the purposes of limitation and that the relevant article of the Limitation Act, which would be appropriate according to the relief sought |would be applicable as if it were a suit brought for seeking the same relief on behalf of the company.