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Diwan Chand Kapoor Vs. the New Rialto Cinema Pvt. Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtDelhi High Court
Decided On
Case NumberCompany Petition Nos. 60 of 1981 and 15, 102 and 117 of 1983 and 47, 59 and 84 of 1984
Judge
Reported in[1987]62CompCas810(Delhi); 28(1985)DLT310
ActsCompanies Act, 1956 - Sections 434; Limitation Act, 1963 - Sections 14
AppellantDiwan Chand Kapoor
RespondentThe New Rialto Cinema Pvt. Ltd.
Advocates: Satish Chander,; Sarat Chandra and; D.S. Narula, Advs
Excerpt:
.....and section 14 limitation act, 1963 - enforcement of barred claim for money through petition - claim barred at time of institution of suit or permitted to be barred after institution of suit - such claim cannot be enforced by following procedure contemplated under act of 1956. - - (3) the distinct terms 'right' and the 'remedy' to enforce it are conceptually, as well as qualitatively, different. the word 'due' in section 434 of the companies act must be reasonably construed to mean a debt which is due, as well as recoverable in law. the other conditions of section 14(1) with regard to 'difficulty of jurisdiction' or 'other cause of a like nature' would also not be satisfied. in any event, the defense of the company that the claim became barred by time during the pendency of the..........debts, forming subject-matter of the petitions, raise a common question, if a claim which became barred by time during the pendency of a petition at the show cause stage, could be a legitimate basis for winding up proceedings, even if it was within time when the petition was filed. (2) during the hearings of the matter on the aforesaid common question, some of the learned counsel, appearing for the creditors or the companies concerned, did not maintain the distinction between 'maintainability' of a petition, the 'locus standi''of a creditor and the extinction of the remedy on the claim becoming out of time. it is, thereforee, necessary at the outset to clear the ground for a proper consideration of the common question. (3) the distinct terms 'right' and the 'remedy' to enforce it are.....
Judgment:

H.L. Anand, J.

(1) These petitions, being C .P. 60/81, C.P. 15/8 3, C P. 102/83, C.P. 117/83, C.P. 47/84, C.P, 59/84 and C.P. 84/84, by different creditors, seeking to wind up several companies, on the ground of their deemed inability to pay the debts, forming subject-matter of the petitions, raise a common question, if a claim which became barred by time during the pendency of a petition at the show cause stage, could be a legitimate basis for winding up proceedings, even if it was within time when the petition was filed.

(2) During the hearings of the matter on the aforesaid common question, some of the learned Counsel, appearing for the creditors or the companies concerned, did not maintain the distinction between 'maintainability' of a petition, the 'locus standi''of a creditor and the extinction of the remedy on the claim becoming out of time. It is, thereforee, necessary at the outset to clear the ground for a proper consideration of the common question.

(3) The distinct terms 'right' and the 'remedy' to enforce it are conceptually, as well as qualitatively, different. When a claim becomes barred by time under the law of limitation, the remedy is extinguished but the right survives such extinction. The only exception is provided by Section 27 of the Limitation Act, where the extinction of the remedy also extinguishes the right itself. Where, thereforee, a claim against a Company becomes barred by time, the claimant does not cease to be the creditor of the company, and a petition by such a creditor to wind up the company is maintainable, and such a creditor would have the necessary locus standi to move the court for a winding up order as also to seek to prove his debt before the Official Liquidator in the course of winding up. This is so because notwithstanding the bar of limitation, he continues to be a creditor and there is nothing to prevent either a creditor to claim the debt or the company to pay it, even after it has become barred by time. But such a creditor must have a legitimate basis for the winding up order and a justifiable reason for the winding up proceedings. If he has such a basis and the reason or ground for the order and the proceedings, he would be entitled to lay the petition and seek a winding up order.

(4) But can a creditor seek a winding up order on the basis of the company's deemed inability to pay the debt which is barred by time The answer to this question has to be in the negative. The debt could be a valid basis for the petition and the winding up order only if the debt that remains unpaid, notwithstanding statutory notice, is both 'due' and recoverable. The word 'due' in Section 434 of the Companies Act must be reasonably construed to mean a debt which is due, as well as recoverable in law. To hold to the contrary would lead to the anamolous result that the creditors of a joint stock company would be immune from the bar of limitation and have a preferential right as compared to an ordinary creditor. This was also not seriously disputed on behalf of the various petitioners.

(5) It was, however, contended that the claims in each of these cases were within time when the petitions were instituted and the deemed inability of the Company to pay the debts as on the aforesaid dates would not be affected merely because the claims became barred by time during the pendency of the proceedings. It was further urged that once the petitions were filed, the limitation in relation to the claim ceased to run as if the Suit on the basis of the claim had been filed. The crucial date according to the petitioners was the date of the filing of the petitions and this was sought to be reinforced with reference to the provisions of Section 441(2) of the Companies Act, according to which, once a winding up order is made, the winding up fo a company shall be deemed to commence at the time of the presentation of the petition for the winding up. This provision, it was urged, embodied the principle of 'relation back' of a winding up order to the date of presentation of the petition for it. Some of the Counsel also sought to seek support from the provisions of Section 14 of the Limitation Act on the ground that the petitioners would be entitled to exclusion of time spent during the present proceedings in computing the period of limitation for a Suit on the basis of the claim.

(6) True, Section 441 embodies the principle of 'relation back', but I am unable to see how the theory of 'relation back, is of any assistance to the petitioners, who seek a winding up order or continuance of proceedings for winding up merely on the basis of a claim, which, after the petition was filed, has become barred by time. The filing of a petition for winding up cannot be equated with the institution of a Suit. Once a Suit has been filed within a period of limitation, there is no question of the claim being hit by the law of limitation. The action for which there is limitation has already been taken before the expiry of the period provided by the Limitation Act. The filing of a winding up petition is not analogous to filing a Suit. Section 14 of the Limitation Act would also be of no assistance to the petitioners because the petitions for winding up and the eventual suit for which the exclusion may be claimed could not be said to 'relate to the same matter in issue' The object of winding up petition is to have the Company wound up. Winding up petition is not a forum for the adjudication of disputes between the parties nor is it an ordinary mode of recovery of money. The only question with which the winding up court is concerned is if the Company is liable to be wound up. The other conditions of Section 14(1) with regard to 'difficulty of jurisdiction' or 'other cause of a like nature' would also not be satisfied. Section 14 would, thereforee, be inapplicable in deciding the question if the claim has become barred by time. There is no other provision in the Limitation Act which is of any assistance to the petitioners in the present situation. Section 458-A of the Companies Act provides for exclusion of certain time in computing periods of limitation where a winding up order has been made, but the benefit of the Section is confined to proceeding 'in the name and on behalf of a company which is being wound up by the Court.' It is not available against the Company being wound up. It is only available to the company which is being wound up. Moreover, it is not sufficient that the claim was within time when the petitions were filed because the liability of the Company to be would up is to be considered by the Court when it makes the winding up order, even though the question whether a petition should be admitted or not has to be decided at an earlier stage. In the present cases, the claims became barred by time before either of the two stages because they became barred by time during the pendency of the proceedings on show cause notices. In any event, the defense of the Company that the claim became barred by time during the pendency of the petition would, on any reckoning, be bona fide, as well as, substantial so as to render the petitions liable to be dismissed on that ground alone.

(7) A winding up petition, solely based on a claim, which was barred by time at its inception, or which was allowed to be barred during its pendency, would be a gross abuse of the process of this court, and would be a misuse of the special jurisdiction under the Companies Act created for an entirely different purpose. This forum is already sufficiently misused by creditors of the corporate sector to enforce claims of doubtful validity partly because the proceedings are not as time consuming and dilatory as the regular civil action for recovery, and partly because the forum provides a comparatively cheaper legal remedy to the creditor as compared to the illogical, inequitable and almost senseless provisions of the Court fees Act, which levy an exhorbitant entry fee, as it were, for a claimant irrespective of the outcome of proceedings. To compel an aggrieved person to make advance payment for relief is a virtual denial of justice and the practice puts a premium on the inability or unwillingness of a debtor to honour his legal obligation.

(8) Learned Counsel for the parties relied on a number of decisions : AIR1963All284 , but unfortunately, none of these cases dealt with the question before me. It is, thereforee, unnecessary to dilate on these cases.

(9) The petitions are, by and large, based on the ground of deemed inability of the Companies to pay the claims which became barred by time during the pendency of the petitions even though in one or two petitions there is the additional ground of 'commercial insolvency' but the additional ground in no case goes beyond the use of that expression and it was not seriously disputed that the real ground on which the Company was sought to be wound up was the deemed inability to pay the claims which have, during the petitions, become barred by time.

(10) In the result, the petitions fail and are hereby dismissed leaving the parties to bear their respective costs.


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