Skip to content


Sardarni Ram Khetri W/O. S. Sahib Singh and ors. Vs. Hind Iran Bank Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany;Limitation
CourtPunjab and Haryana High Court
Decided On
Case NumberLetter Patent Appeal No. 123 of 1959
Judge
Reported inAIR1962P& H526; [1962]32CompCas470(P& H)
ActsBanking Companies Act - Sections 45(E) and 187
AppellantSardarni Ram Khetri W/O. S. Sahib Singh and ors.
RespondentHind Iran Bank Ltd.
Cases ReferredMohomed Akbar v. Association Banking Corporation of India Ltd.
Excerpt:
.....but not to extinguish the right';mela ram and sons v. this section clearly recognises that the liability of the debtor, in case of time barred debt, is not extinguished, though the debt may not be realizable by means of a suit on account of section 3 of the indian limitation act. 159. it is perfectly true that on a winding up order being made the liability of a contributory to contribute to the assets of the company to the extent set out in s. therefore, it is perfectly correct to say that the liability to pay calls which was a contractual debt as between the shareholders and the company becomes a statutory liability to contribute to the assets of the company when the winding up order was made. therefore, to the extend that the liquidator filed the suit originality in order to..........of winding up proceedings, the official liquidator took the requisite proceedings before the learned company judge, who passed an order in. august, 1957, endorsing the list of contributories and, directing that the entire unpaid amount to shares be called by the official liquidator. the official liquidator is said to have taken the necessary steps calling upon the contributories to pay the unpaid amount. this was followed by an application on behalf of the official liquidator under section 187, indian companies act in december, 1957, for payment order against the contributories which has given rise to the present appeal. i shall now deal with the merits of the contentions raised at the bar.(5) now the indian limitation act, as its preamble suggests, lays down law relating to the.....
Judgment:

Dua, J.

1. These are two connected Letters Patent Appeals, but Letters Patent Appeal No. 215 of 1959 has since been compromised and is, therefore, not being pressed, with the result, that the said appeal is dismissed without any order as to costs.

(2) In so far as Letters Patent Appeal No. 123 of 1959 is concerned, it is necessary to state in brief the salient facts out of which it has arisen. The Hind Iran Bank Limited (in liquidation), is being would up by this Court. The Liquidator applied under section 45(E) of the Banking Companies Act read with Section 187 of the Indian Companies Act, praying for payment orders against some contributories. Several persons contested the liquidator's claim, including the present appellant on various grounds. The learned Liquidation Judge, in a very detailed and exhaustive judgment disposed of the liquidator's application of 19-3-1959. Shrimati Ram Khetri and S. Taranjit Singh were, however, held liable to pay to the Bank a sum of Rs. 17,732/6/- as against Rs. 2,75,000/- claimed by the official liquidator, the balance having been allowed to them as a set-off. The learned Judges repelled the contention that the liquidator's claim was barred by time under Art. 112 of the Indian Limitation Act and also disallowed their prayer for giving them benefit of Section 19(4) of the Displaced Persons Debts Adjustment Act.

In the present appeal, it is only these two points which have been re-agitated before us. In so far as the question of limitation is concerned, it is not disputed that before going into liquidation, the Company made a call on its share-holders which was payable on 7-8-1947. It is also clear that the petition for compulsory winding up of the Company was presented on 1-10-1953. According to the appellants, the period of 3 years prescribed by Art. 112 had long since expired with the result that the appellants, as members of the Company, could not be called upon to pay anything towards the unpaid amount of the call money. The learned Liquidation Judges has, after considering the case-law on the point, come to the conclusion that the liability of a member to contribute under Section 156 of the Indian Companies Act is ex lege and arises by reason of the fact that his name appears on the register of members. This liability, according to the learned Judge, is not ex contractor and has been imposed as a new liability by statute on the share-holders after the company goes into liquidation in respect of unpaid calls made whether before or after the winding up. Such calls can be recovered even though they are barred by limitation when the winding up order was made. In support of this view, the learned Judge placed reliance on the following decisions:

Vaidiswara v. Siva Subramania Mudaliar ILR 31 Mad 66, Mahomed Akbar Abulla v. Official Liquidator, AIR 1950 Bom 217; In re, East Bengal Sugar Mills Ltd., AIR 1941 Cal 143 and Webb v. Whiffen, (1872) 5 HL 711 (717).

That these decisions support the view of the learned Liquidation Judge is not disputed. It has, however, been strongly urged that these decisions do not lay down the law correctly. The counsel has emphasized that in section 156(1)(iv), the liability of a contributory is limited to the amount unpaid on the shares in respect which he is liable as a present or a past member, it is argued that the expression 'is liable' has not been noticed in the authorities mentioned above. Therefore, they do not lay down good law. It is urged that if a call has been made by a Company and the call money has remained unpaid for more than 3 years, it becomes barred by time and the member cannot be considered to be liable to pay that amount.

(3) This contention raises the question, which has frequently been agitated in Courts of law, of the effect of expiry of the period of limitation prescribed by the Indian Limitation Act on the right for the enforcement of which the period is prescribed. In the case before us, if the expiry of the prescribed period for enforcing the call made by the Company completely extinguished or discharges the liability itself, then there may be something to be said in justification of the contention, but if the liability is not destroyed, then the argument would obviously be lacking in merit.

(4) Before entering on the discussion of the legal position and consideration of the decided cases cited, it would be desirable here to give some dates. The Banking Company in question is stated to have made a call of 50, per cent of share money payable on or before 7-8-1947. On 15-8-1947, the country was partitioned and the Banking, Company in question was brought to India. In July, 1948, this Company was sought to be would up voluntarily, but the legality of the proceedings to be illegal and Letters Patent appeal against his decision was dismissed in August, 1953. Then started proceedings for official winding up. In October, 1953, resulting in the winding up order of 9-4-1954. During the course of winding up proceedings, the Official Liquidator took the requisite proceedings before the learned Company Judge, who passed an order in. August, 1957, endorsing the list of contributories and, directing that the entire unpaid amount to shares be called by the Official Liquidator. The Official liquidator is said to have taken the necessary steps calling upon the contributories to pay the unpaid amount. This was followed by an application on behalf of the Official Liquidator under Section 187, Indian Companies Act in December, 1957, for payment order against the contributories which has given rise to the present appeal. I shall now deal with the merits of the contentions raised at the Bar.

(5) Now the Indian Limitation Act, as its preamble suggests, lays down law relating to the limitation of suits, appeals and certain applicants to Courts and also provides rules for acquiring by possession the ownership of easement and other property. In so far as acquisition of ownership of by possession is concerned, the relevant provisions are contained in part IV of the Act. Sections 26 and 27 deal with acquisition of right of easement and section 28 provides for extinguishment of right of property. According to the last mentioned section at the determination of the period limited by this Act to any person for instituting a suit for possession of any property his right to such property only and, therefore, it would scarcely be permissible to extend its underlying principle to applications of the kind with which we are concerned in the present case. The provisions of this Act are, as has often been observed, to be strictly construed and Courts are not entitled under the clock of interpretation to make them more stringent and extend them to cases not clearly included in those terms, by importing the words not found in it either expressly or by necessary implication.

(6) In so far as other suits not covered by Part IV of the Act and in particular applications like the one in hand are concerned, it is well to remember that rules of limitation pertain to the domain of adjective law and that they operate only to bar the remedy but not to extinguish the right'; Mela Ram and Sons v. Commissioner of Income-tax, Punjab, (S) AIR 1956 SC 367. Even prior to this decision, this was the prevailing view; Dalip Singh v. Sikh Gurdwara Prabandhak Committee, Amristar, AIR 1931 Lah 668, Ram Sarup v. Ram Chander AIR 1949 EP 29; Mohesh Lal v. Busunt Kumaree, ILR 6 Cal 340; Surat Borough Municipality v. Sarifa Karunnissa, AIR 1939 Bom 494 and Nithoor Thimmanna Bhat v. Aithappa Adyanthaya AIR 1940 Mad 908. The same view has been taken by Tek Chand J. in First National Bank Ltd. v. Seth Sant Lal, AIR 1959 Punj 328.

That the mere fact of a debt having become barred by time does not by itself extinguish it also finds support from the language of section 25 of the Contract Act which says that a written promise signed by a person to be charged with a promise to pay wholly or in part a debt payment of which might have been enforced but, for the law of limitation, is not considered void for want of consideration. This section clearly recognises that the liability of the debtor, in case of time barred debt, is not extinguished, though the debt may not be realizable by means of a suit on account of Section 3 of the Indian Limitation Act. Recognition of the existence of the liability is also implicit in secs. 60 and 61, Indian Contract Act. In the light of the foregoing discussion, I do not find it possible to uphold the contention that the liability of the appellant was extinguished on the expiry of the period of limitation for enforcing the call made by the Company before liquidation. This conclusion, in my view furnishes a complete answer to the appellant's contention. I have considered it inadvisable to refer to some cases dealing with equitable set-off because such a set-off seems to be founded on a different rule of equity and also for want of uniformity of judicial opinion.

(7) Support has, however, been sought by the appellant's counsel for his contention from a decision of the Privy Council in Hans Raj Gupta v. Dehra Dun Mussoori Electric Transport Co. Ltd., ILR 54 All 1067: (AIR 1933 PC 63) and particular emphasis has been laid on the following passage:

'The learned Judges, in the present case, took the erroneous view that once the winding up commenced, there could be no further application of the rule of limitation in regard to any debt due to the company and not then already time-barred. Their Lordships know of no justification for this view. In this respect there is no analogy between the petition of a debtor to, and a creditor of, a company in liquidation.'

The learned counsel has, in his submission, fallen in the common error of taking a passage out of the context and of utilizing it as if it was a statutory provision. This approach is based on a misconception as to the effect and utility of the doctrine of precedents, for the value of a past decision can be determined only by considering the whole of the judgment is the background of the facts confronting the Court and the principle of law which emerges from it. Looked at in this light, it is clear that the passage relied upon taken out of and isolated from its context, is apt to mislead rather than help in correctly grasping the real ration decidendi. In Hans Raj's case, ILR 54 All 1067: (AIR 1933 PC 63), the dispute had nothing to do with the liability of a member of share-holder of a Company on account of unpaid share money. This would be clear if the judgment in an earlier decision of the judicial Committee between the time parties Hans Raj Gupta v. N. P. Asthana, AIR 1932 PC 240, is read along with later judgment. Reading the whole of the later judgment also, its ration appears to me to be fairly clear, admitting of no reasonable doubt and I find it exceedingly difficult to sustain the appellant's contention based on the above passage.

The position is made almost crystal clear when Lord Russel of Killowen, who spoke for the Board distinguished the decision of the Lahore High Court in Sri Narain v. Union Bank of India, ILR 4 Lah 109: (AIR 1924 Lah 53), from that of the Allahabad High Court in Jagannath Prasad v. U. P. Flour and Oil Mill Co. Ltd., ILR 38 All 347. AIR 1916 All 317, and observed that it was a misconception to treat those two cases to be in conflict with each other. The Allahabad case was held by the Privy Council to have no relation to section 186, Indian Companies Act, whereas the Lahore case was concerned with the power of the Companies contained in this section. In the case before us, we are concerned with Secs. 187 and 156 of the Companies Act and not with Section 186. The Privy Council decision thus does not support the appellant's contention. The point canvassed before us is also the subject-matter of discussion in a Bench decision of the Bombay High Court in Mohomed Akbar v. Association Banking Corporation of India Ltd., AIR 1950 Bom 385. Chagla C. J., who prepared the judgment of the Division Bench, stated the position thus:

'The next contention that is urged is that the plaintiff is realising a debt which is not a contractual debt but which has become a statutory debt and which he is entitled to recover and realise independently of S. 159. It is perfectly true that on a winding up order being made the liability of a contributory to contribute to the assets of the company to the extent set out in S. 156 becomes an absolute liability which arises by reason of statute and not by reason of contract. Therefore, it is perfectly correct to say that the liability to pay calls which was a contractual debt as between the shareholders and the company becomes a statutory liability to contribute to the assets of the company when the winding up order was made. But it must be noted that that liability was not confined to the amount of the calls made and which were not paid. The liability extended in the case of the defendant, who is a shareholder of a company limited by shares, to the unpaid amount of the shares, but the question that we have to consider is whether this liability of the defendant can be recovered in any offer manner except by the procedure laid down in S. 187. Mr. Seervai says that if there is a statutory liability under S. 156, there is no reason why the liquidator must approach the Court to make a call under S. 187. He is entitled to file a suit to recover the debt just as he is entitled to recover any other debt due to the company. Now a clear distinction must be made between debts due to the company which are contractual debts and debts due to the company which are statutory debts by reason of S. 156, Companies Act. A liquidator is under no obligation to follow any particular procedure or to obtain the sanction of the Court in order to realise a contractual debt. Therefore, to the extend that the liquidator filed the suit originality in order to recover the contractual debt due by the defendant in respect of unpaid calls, he was perfectly within his right, but it the liquidator wants to recover a debt which is a statutory debt created by reason it by any other method except by the mode laid down in S. 187, and the reason for this distinction will be apparent. Contractual debts constitute the assets of the company, and the assets of the company have got to be realised by the liquidator on the company being wound up. The statutory liability of a contributory under S. 155 is entirely a different matter. It is not to be realised in the ordinary course, but it is only to be realised after the Court has applied its mind to various considerations laid down in S. 187. It is only when the Court is satisfied that a contributory should be called upon to discharge his statutory liability that the Court may make a call and ask him to pay the liability.'

A little lower down, the learned C. J. continued:

'xxxxxx

an order under Section 186 can only be made in respect of contractual debts due by the contributory to the company. Section 186 has no reference whatever to the statutory liability created by S. 156. It is only those debts which a liqiudator can realise by means of a suit that can be ordered to be paid by the Court under S. 186. As I said before, the liquidator, instead of having to institute a suit against a contributory, is allowed to come to Court and obtain a pay order under Section 186. Therefore, if the plaintiff's claim is barred by limitation in respect of a contractual debt due by the defendant he cannot obtain an order under S. 186. The Privy Council laid this down in 35 Bom LR 319: AIR 1933 PC 63.'

And still lower down:

'Mr. Seervai has tried to distinguish this case by stating that these observations only apply when the debt due by the contributory is other than a debt in respect of a call. Mr. Seervai's contention is that the debt in respect of a call stands on a different footing because such a debt becomes a statutory debt under S. 156. That contention is obviously erroneous, because ILR 38 All 347: AIR 1916 All 317 was cited before their Lordships and their Lordships apparently approved of that decision and pointed out that that case had no relation to S. 186 and went on to say that it was a case relating to money due on the shares in the company which was in liquidation, the liability for which on a winding up became a statutory liability under S. 156, Companies Act, 1913.

Turning to that case, it is clear on the facts of that case, that the contributory was called upon to pay the unpaid call by means of a call made by the Court under Section 187, and in the judgment the Court is at pains to point out, referring to S. 151, which corresponds to the present Section 187, what powers that section gives, and at P. 350, that is what is stated in the judgment.'

(8) No convincing argument has been advanced at the Bar inducting me to differ from the view expressed in the above observations. I would, therefore, as at present advised, in agreement with this view, affirm the decision of the learned Single Judge on this point.

(9) This brings me to the next contention, namely, that the claim is barred by limitation under Art. 112, Indian Limitation Act. The liquidator claims that the relevant article applicable is the residuary Art. 120. Article 112 prescribes a period of 3 years for a suit for a call by a Company registered under any Statute or Act and terminus a quo is the date when the call is payable. This article has, obviously, a reference to the calls made by the Company when it is a going concern and after the expiry of 3 years from the date when the call is payable, the Company may not, in the absence of any permissible extension of time, be able to enforce payment of such a call by means of a suit. We are, however, not concerned with such a contingency in the instance case. It must be remembered that law of limitation has to be strictly construed in favour of the right to proceed and unless a provision depriving a suitor or a litigant of his right to claim relief is clearly and unambiguously attracted the Courts in this country should not refuse to adjudicate upon the merits of the controversy on account of time bar.

A plain reading of Art. 112 does not attract its applicability to the instant case. I must, therefore, repel the argument of time bar under this article. Whether Art. 120 or some other article should apply to this case, does mot call for determination, as on behalf of the appellant, it has not been suggested that the present petition is otherwise barred under any other article of the Limitation Act. We are also not called upon, on the present occasion, to express any well-considered opinion whether or not the liquidator can by himself, by a suit, enforce payment of calls made by the Company prior to the commencement of winding up proceedings after the expiry of 3 years, as provided by Art. 112. This point undountedly arose in Mohammed Akbar's case, AIR 1950 Bom 386, but it is unnecessary to say anything on this precise point in the case in hand. It is enough for out present purpose to state that I agree with the line of reasoning adopted by Chagla C. J., with respect to the scope and effect of secs. 156, 186 and 187, Indian Companies Act. Beyond this, I need not go.

(10) One more argument remains to be noticed. It is contended that the appellant should have been granted relief available to displaced persons under Section 19, Displaced Persons (Debts Adjustment) Act LXX of 1951. It is not denied and is, indeed, admitted that this section was no longer in force on the date when the appellant filed the present petition nor even on the date of the call which is being enforced by the Liquidator. As laid down in sub-section (6) of Section 19, the provisions of this section were to have effect only for a period of 10 years from the 15th day of August, 1947; thereafter thus section has to cease to have effect except as respects things done or omitted to be done. I may here mention that even the order of the learned Liquidation Judge dated 30-8-1957 for making call and its payment to the official Liquidator was also made after this section had ceased to have effect. The argument pressed by the counsel for the appellant is that his clients are entitled to claim the benefit of the exception contained in sub-section (6), as there was omission on their part to claim the benefit of Section 19 before 15-8-1957. Reference has been made to certain passages in Maxwell on interpretation of Statutes in support of the submission that if it was impossible for a suitor to make a petition for a certain relief, then the Courts are, in the absence of any supervening factor, inclined to dispense with making of applications.

The argument, though ingenious, is devoid or merit and appears to me to be based on a misconception as to the true scope and meaning of the expression 'except as respects things done or omitted to be done', contained in the above sub-section. Section 19, as perhaps also Section 20, of Act LXX of 1951, appear to me to have been intended to save the consequences of acts done or omitted to have been done under these two sections. May be that even in the absence of these sections legal position would perhaps have been the same and these saving clauses have been added by way of abundant caution, a point on which I need express no considered opinion. The position, however, seems to me to be clear that the exception on which the appellant has relied could not have been intended to enable Displaced Persons to apply for the benefit of Section 19 after the expiry of the life of this section. To accede to the appellant's contention would really amount to deletion of sub-section (6) from Section 19 altogether.

This sub-section seems to mean that where an action has been taken or omitted under Section 19, for example when a displaced person's partly paid up shares have been converted into smaller number of fully paid up shares or interest has not been charged from him in pursuance of this section, then, by virtue of the exception contained in sub-section (6), even after the expiry of the period of 10 years, as respects the conversion of shares and the omission to charge interest, the section would not cease to have effect. Omission on the part of the appellant to avail of the benefit of section 19 during the 10 years of its life is not the omission contemplated by the exception, for that would make the limit of 10 years contained in this section wholly meaningless and inoperative. The constriction sought to be placed by the appellant's counsel is, in my opinion, justified neither by any sound reason or principle nor on the plain meaning of the sub-section in question.

(11) The appellant's counsel has emphasised that his client could not with certainly know whether the present case was covered by Section 19, and, this uncertainty, according to him, was due to the chequered history of the Banking Company before us. The counsel claims that his client was entitled to a period of 10 years for seeking relief under Section 19 after the position was clarified or at least some reasonable period after the clarification of the position should, in equally, have been afforded to the appellant. I regret my inability to sustain this contention. It is not for this Court under the cloak of interpretation to legislate and to prolong the life of Section 19 beyond 10 years from 15-8-1947, when the Parliament has, in its wisdom, fixed in unambiguous terms its life to 10 years, and the appellant's argument amounts to no more than a prayer to extend the life of this section. But then it is urged that the present is a very hard case. This may be so, but as is well known, hard cases make bad laws, and Courts are not empowered to misinterpret or unduly extend the provisions of law for giving relief in cases which it may consider to be hard.

(12) For the foregoing reasons, this appeal is dismissed, and the decision of the learned Single Judge affirmed. In the peculiar circumstances of the case, however, there will be no order as to costs of this appeal.

Dulat, J.

(13) I agree.

HF/N/V.B.B.

(13) Appeal dismissed.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //