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P.T. Gajwani of R.C. Abrol and Company (P) Ltd., (In Liquidation), New Delhi Vs. A.R. Chadha and Co., New Delhi and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtDelhi High Court
Decided On
Case NumberCivil Appeal No. 428 of 1971
Judge
Reported in[1973]43CompCas376(Delhi); ILR1973Delhi752
ActsCompanies Act, 1956 - Sections 446(2); Banking Companies Act - Sections 45B
AppellantP.T. Gajwani of R.C. Abrol and Company (P) Ltd., (In Liquidation), New Delhi
RespondentA.R. Chadha and Co., New Delhi and anr.
Advocates: A.K. Jain and; Vijay Kishan, Advs
Cases ReferredIn Jadeja Kirtsinhji Anand Sinhji v. Patel Kana Vela
Excerpt:
the case focused on the application filed under section 446(2) of the companies act, 1956, by the official liquidator, for recovery of an amount from a customer of the company -it was ruled that only those claims could be made a subject matter of an application under the said provision, which were enforceable in law - it was further held that the provision could not remove the bar of limitation - .....third parties, the third parties can also utilise this provision to press their claims against the company. clause (b) creates a special jurisdiction and a special procedure for obtaining relief, in respect of claims which already exist and are alive in the sense that they are enforceable. i does not remove the bar of limitation and awaken the claims by or against the company, which have lain in repose and rendered incapable of pursuit by the law of limitation. the power of the company court under this clause is discretionary. it may refuse to act under the section, leaving the petitioner free to file a suit; and it may (rather should) take that course in a case where apparently the respondent under this procedure, if mr. jain's contention is accepted, would be deprived of the defense of.....
Judgment:

P.N. Khanna, J.

(1) The only question involved in this case at this stage is, whether an application made by the Company in liquidation under section 446(2)(b) of the Companies Act, 1956, against one of its former customers for recovery of price of goods sold to him before it was ordered to be wound up, is not governed by the Limitation Act:

(2) These proceedings arose during the course of winding up of R. C. Abrol and Company Private Limited, which was ordered to be wound up by an order dated August 19, 1966 of the Circuit Bench of the Punjab High Court at Delhi, on a petition dated March 4, 1966, filed for this purpose. On August 18, 1971 the Official Liquidator filed a petition under clause (b) of sub-section (2) of section 446 and section 543 of the Companies Act, 1956 against A. R. Chadha and Company and four others, one of whom (respondent No. 2), was the Managing Director of the Company before its winding up and the other three (respondents Nos. 3 to 5), were said to have been working directly under his instruction and control. The claim of the Official Liquidator against respondent No. 1 was mentioned in paragraph 8 of the petition, in the following terms :

'THAT respondent No. 1 was one of the customers of the Company for whom the company in liquidation had supplied standard tar felt B. H. water-proofing and roofing etc. etc. and a sum of Rs. 1,078.10 Ps. was due from respondent No. 1 according to the account books of the company in liquidation, (copy whereof is being filed). The company in liquidation was maintaining an open and current account for its customers and whatever payments were received, were duly credited in the account books of the company.' It was stated in the application that to a notice of demand, respondent No. 1, in reply stated that no amount was due from it. From the records of the company a sum of Rs. 1,078.10 was, however, found due and, thereforee, the present petition was filed. Respondents Nos. 2 to 5, it was stated, may have '(a) misapplied, or retained, or become liable or accountable for, any money or property of the company; or (b) been guilty of any misfeasance or breach of trust in relation to the company' in respect of the amount claimed, and, thereforee, were said to be liable for the same. It was also stated that it may be necessary to proceed against them under section 543 of the Companies Act, especially as they had refused to explain the various discrepancies in accounts, when called upon to do so.'

(3) Respondent No. 1 in his reply stated that nothing was due from it. The correctness of the company's accounts was disputed. A preliminary objection was raised that the claim of the company in liquidation at any rate was barred by limitation. The petition against respondent No. 1 was said to be liable to be rejected under Order 7 Rule 11 of the Code of Civil Procedure on this score.

(4) Mr. Vijay Kishan appearing on behalf of respondent No. 1 contended that the claim of the company in liquidation was for price, the goods alleged to have been sold to respondent No. 1. It. was. thereforee, governed by Article 14 of the Schedule to the Limitation Act, 1963, under which the limitation was three years from the date of the delivery of the goods. Even if the period required to be excluded from computation under section 458A of the Companies Act, is excluded, the claim for the recovery of the amount would be barred by time. The claim against respondent No. 1, thereforee, the counsel submitted, should be rejected.

(5) Mr. A. K. Jain, the learned counsel for the Official Liquidator contended that the present application was not a suit. It was a mere application under the Companies Act, for which no period of limitation was prescribed. The only Article in the Schedule of the Limitation Act, which could be said to apply was Article 137, but in a series of decisions, the view had been expressed that this Article related only to applications under the Code of Civil Procedure. Article 14, relied upon by Mr. Vijay Kishan, according to Mr. Jain, created a bar for a suit and not for an application. No other Article of the Limitation Act, being applicable to an application under section 446 of the Companies Act, there was on bar of limitation at all.

(6) There is no doubt that the application by the Official Liquidator under Section 446(2) is not a suit, which ordinarily is a civil proceedings instituted by the presentation of a plaint. Before the amendment of 1960, the liquidator had to invoke the help of the civil court by means of a suit in the ordinary way for collecting assets or recovering properties from third parties. This led to great delay and expense. The Companies (Amendment) Act, (LXV of 4960.) came into force on December 28, 1960. One of the aims of the amendment was to empower the Company court to entertain and decide all claims made by or against the company and certain other matters, .cheaply and without delay, so that winding up proceedings could be expedited. The Amendment Act has introduced clauses (b), (c) and (d) to sub-section (2) of section 446, which, as amended, reads as follows :-

'446.(1) When a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceedings shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the Court and subject to such terms as the Court may impose. (2) The Court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of- (a) any suit or proceedings by or against the company; (b) any claim made by or against the company (including claims by or against any of its branches in India); (c) any application made under section 391 by or in .respect of the company; (d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up of the company; Whether such suit or proceedings has been instituted or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960. (3) Any suit or proceedings by or against the company which is pending in any Court other than that in which the winding up of the company is proceeding may, notwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that Court. (4) Nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court.'

(7) The jurisdiction given to the Company Court under clause (a) of sub-section (2) is concurrent with the ordinary jurisdiction of the Civil Courts, who may still deal with such suit or proceedings, but only if the Company Court gives leave for this purpose. Clause (b) is entirely different. It does not refer to suits. It refers to 'any claim made by or against the company'. Such a claim, if pursued by a suit, would be covered by clause (a); but it may be pursued under clause (b), which can be done by an application, and which is something different from a suit.

(8) The Amendment of 1960 has brought section 446(2) of the Companies Act in line with section 45-B of the Banking Companies Act, which was also designed to attain the same objective of providing cheap and speedy procedure. Referring to section 45-B of the Banking Companies Act, the Supreme Court in Dhirendra Chandra Pal v. Associated Bank of Tripura, : 1955CriLJ555 , (1)observed :-

'IT appears to us that, consistently with the policy and with the scheme of the Amending Act, where the liquidator. has to approach the Court under Section 45-B for relief in respect of matters legitimately falling within the scope thereof, elaborate proceedings by way of a suit involving time and expense, to the detriment of the ultimate 'interests of the company under liquidation, were not conteimplated.'

(9) The Supreme Court 'ruled that under section 45-B the matter could be raised on a summary application and not necessarily on a suit regularly instituted, unless the Company Court in its discretion, thought fit to direct or the rules provided that a claim of a particular nature had to be pursued by a suit. Even otherwise, an application under section 446(2) of the Companies Act cannot be treated as a suit; for if it were so it may involve payment of heavy Court fees, which the liquidator may not be in a position to pay. This may render the proceeding expensive, which eventuality the amendment of 1960 was designed to avoid. [In this connection also see the Official Liquidator, Majestic Financiers (P) Limited v. Shri Harguchet Singh Kandlla and others, (1969) Delhi 839 The application of the Official Liquidator thereforee, is not a suit.

(10) But, I am unable to persuade myself to accept the anomalous position that clause (b) of sub-section (2) of section 446 of the Companies Act has reopened and made enforceable claims which have been quietened by lapse of time and rendered unenforceable by the bar of limitation under the Limitation Act. Clause (b) gives to the Company Court jurisdiction to entertain or dispose of claims made by or against the Company. It acts both ways. If the company can pursue its claim under this provision against third parties, the third parties can also utilise this provision to press their claims against the company. Clause (b) creates a special jurisdiction and a special procedure for obtaining relief, in respect of claims which already exist and are alive in the sense that they are enforceable. I does not remove the bar of limitation and awaken the claims by or against the company, which have lain in repose and rendered incapable of pursuit by the law of limitation. The power of the Company Court under this clause is discretionary. It may refuse to act under the section, leaving the petitioner free to file a suit; and it may (rather should) take that course in a case where apparently the respondent under this procedure, if Mr. Jain's contention is accepted, would be deprived of the defense of limitation open to him in a regular suit. Looking at the scheme of the section and the language used, thereforee, there is no doubt that the word 'claim' in clause (b) means a claim enforceable at law. Unless, thereforee, the claim is legally enforceable, it cannot be entertained by or against the company under clause (b) of sub-section (2) of section 446 of the Companies Act.

(11) I also find that this conclusion is in line with the views which have prevailed while interpreting similar expressions used in similar circumstances in various enactments. In Hans Raj Gupta v. Dehra Dun Mussorie Electric Tramway Co. Ltd. , the words money due in section 186 of Indian Companies Act, 1913, were construed to be confined to 'money due and recoverable in a suit and not moneys, which at the date of the application could not have been so recovered. In Hafizuddin Mandal and others v. Mahim Chandra Ghosh : AIR1945Cal399 , a judgment debtor's application before the Debt Settlement Board under the Bengal Agricultural Debtors Act was being considered. It was held that as soon as the debtor and his creditor are brought face to face, the Board has to determination question of the existence of the debt and that implies the determination of the further question whether it is barred. In Raoji Bapuchand Pendharkar v. K. L. Bavachekar, : AIR1950Bom399 , Chagala C. J. speaking for the Bench held that by reason of receiver making an application under section 4 of the Provincial Insolvancy Act, 1920, rather than filing a suit, the party against whom the application was made could not be deprived of his right to plead the statute of limitation. The Court was bound to consider all the defenses open to the party in a suit. In Malabar Petroleum Co. v. Continental Oil Co. Ltd. Madras, : AIR1963Mad307 , the expression 'any money due' in section 469 of the Companies Act, 1956 was held to mean the amount due, which could not be said to be due if under the law of limitation the claim would be barred. In Jadeja Kirtsinhji Anand Sinhji v. Patel Kana Vela, : AIR1964Guj122 , the word liability in the definition of 'debt' in section 2(5) of Saurashtra Agricultural Debtors' Relief Act was held to mean a civil liability and a liability which would be enforced by civil Court.

(12) There is thus no manner of doubt that the claim, which is contemplated to be pursued under clause (b) of sub-section (2) of section 446 of the Companies's Act, has to be one which is enforceable at law. A claim, which is not legally enforceable, cannot be pursued under this provision. No Jurisdiction has been created in the Company Court to revive claims lapsed by time. As the petitioner's claim against respondent No. 1 is barred by time, it is unenforceable under clause (b) of section 446(2). The petitioner's application is, thereforee, rejected against respondent No. 1. The parties, in the circumstances of the case, however, are left to bear their own costs.

(13) The application of the Official Liquidator against respondents Nos. 2 to 5, however, shall now come up for further consideration on Sept. 4,1972.


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