Companies Act Case Law Ajay G. Podar Vs Official Liquidator of J.S. & W.M.

Companies Act Case Law Ajay G. Podar Vs Official Liquidator of J.S. & W.M.

REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4597 of 2008
(Arising out of S.L.P. (C) No.14126 OF 2006)

Ajay G. Podar … Appellant (s)

versus

Official Liquidator of J.S. & W.M. & Ors. …. Respondent (s)
JUDGMENT

S.H. KAPADIA, J.

Leave granted.

2. A short question which arises for determination in this

civil appeal is : whether misfeasance proceedings filed by the

Official Liquidator on 1.12.89 under Section 543(1) of the

Companies Act stood barred by limitation provided for in

Section 543(2) of the said Act.

 

3. The facts of this case lie in a very narrow compass.
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4. On 2.12.83 order of winding up was passed by the High

Court. Official Liquidator (“O.L.”, for short) was appointed on

that day. The period of five years referred to in Section 543(2)

of the Companies Act, 1956 (“companies Act”, for short)

expired on 1.12.1988. As stated above, misfeasance

proceedings were filed by the O.L. on 1.12.89. Therefore,

contention has been raised by the appellant that the said

proceedings filed on 1.12.89 stood filed beyond limitation as

prescribed under Section 543(2) of the said Act. Under the

said section the period is five years from the date of the order

for winding up or of the first appointment of the liquidator in

the winding up.

 

5. Mr. Shyam Divan, learned senior counsel appearing on

behalf of the appellant, submitted at the outset that since

limitation is specifically provided for of five years under

Section 543(2) of the said Act, it was not open to the O.L. to

rely upon and take resort to general limitation provision

contemplated by Section 458A of the said Act. He further

contended that the non-obstante clause in Section 458A refers
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to laws other than the Companies Act and consequently

Sections 543(1) and (2) constituted a separate Code by itself

and, therefore, the said section was not required to be read

with Section 458A. Alternatively, he contended that even if

one is to read harmoniously Section 458A with Section 543(2),

the former is enacted to override the provisions of the

Limitation Act, 1963 (for short, “Limitation Act”) and not the

provision of the Companies Act, 1956. In this connection,

learned counsel submitted that since Section 543(2) of the

Companies Act specifically provides for limitation of five years,

it is not open to read the said section with Section 458A of the

Companies Act so as to extend the period of limitation from

five years to six years by adding one more year to the specific

period of limitation of five years prescribed by Section 543(2).

According to learned counsel Section 543 is a stand-alone

provision as it contemplates a right to recover, a forum locus

and computation of the period of and, therefore, the said

section need not be read with Section 458A and even if it is to

be read harmoniously learned counsel submitted that the two

sections operate in different spheres, inasmuch as for all non-
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misfeasance proceedings Section 458A would apply whereas

for misfeasance proceedings Section 543(2) alone would apply

and if this dichotomy is kept in mind then the period of

limitation under Section 543(2) will remain as five years which

period cannot be extended by invoking Section 458A of the

said Act. In Section 543 there is a reference to other

proceedings but in this case we are concerned with the

question of limitation and its computation qua only the

misfeasance proceedings.

 

6. Learned senior counsel, next contended that Section

458A, in any event, is not applicable as misfeasance

proceedings instituted by the O.L. cannot be said to be

proceeding instituted in the name and on behalf of the

company. In this connection, learned counsel submitted that

the intention of the Parliament in enacting Section 458A is to

keep out Section 543(2) from its ambit. That, the non-

obstante clause in Section 458A refers to a potential conflict

between the provisions of the Companies Act and the

Limitation Act or to a potential conflict between Companies
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Act and any other law for the time being in force. In this

connection, learned counsel invited our attention to Section

408(4) of the Companies Act in support of his contention that

the words “notwithstanding anything contained in the

Companies Act” which find place in the said sub-section do

not find place in Section 458A which indicates the intention of

the Parliament to treat Section 543(2) as a stand-alone

provision applicable to only misfeasance proceedings whereas

Section 458A in the matter of computation of limitation would

apply to all other non-misfeasance proceedings. Therefore,

according to learned counsel, the Parliament did not intend to

override vide Section 458A any other provisions of the

Companies Act. On the contrary, according to learned

counsel, the Parliament vide Section 458A intended to

override potential conflict between the Companies Act and the

Limitation Act on one hand and any other law for the time

being in force.

 

7. Mr. Puneet Jain, learned counsel appearing on behalf of

the Official Liquidator, submitted that Section 458A of the
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Companies Act supplements Part III of the Limitation Act. He

submitted that Section 458A does not extend the period of

limitation of five years mentioned in Section 543(2). Learned

counsel submitted that on the contrary Section 458A only

provides for exclusion in the matter of computation of a period

of five years limitation under Section 543(2). Learned counsel

submitted as and by way of illustration that if a contributor

moves an application in his own name and not in the name of

the company and on behalf of the company then Section 458A

is not applicable and in such a situation what would apply is

Part III alone of the Limitation Act. Therefore, according to

learned counsel, there is no merit in the argument advanced

on behalf of the appellant that if Section 458A is read with

Section 543(2) we are extending the period of limitation from

five years to six years. In support of his contention,

mentioned hereinabove, learned counsel placed reliance on

Sections 3 and 29(2) of the Limitation Act.

 

8. Before dealing with the arguments advanced on both

sides it would be necessary for us to quote hereinbelow the
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relevant provisions of the Companies Act, 1956 as it stood at

the relevant time which reads as under :

“Powers of liquidator

457. (1) The liquidator in a winding up by the
Court shall have power, with the sanction of
the Court, —

(a) to institute or defend any suit, prosecution, or
other legal proceeding, civil or criminal, in the
name and on behalf of the company;

(b) to (d) xxx xxx xxx

(e) to do all such other things as may be
necessary for winding up the affairs of the
company and distributing its assets.

 

Exclusion of certain time in computing periods
of limitation.

458A.Notwithstanding anything in the Indian
Limitation Act, 1908 (9 of 1908) or in any
other law for the time being in force, in
computing the period of limitation prescribed
for any suit or application in the name and on
behalf of a company which is being wound up
by the Court, the period from the date of
commencement of the winding up of the
company to the date on which the winding up
order is made (both inclusive) and a period of
one year immediately following the date of the
winding up order shall be excluded.
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Power of Court to assess damages against
delinquent directors, etc.

543.(1) If in the course of winding up a company,
it appears that any person who has taken part
in the promotion or formation of the company,
or any past or present director, managing
agent, secretaries and treasurers, manager,
liquidator or officer of the company–

(a) has misapplied, or retained, or become
liable or accountable for, any money or
property of the company; or

(b) has been guilty of any misfeasance or
breach of trust in relation to the
company;

the Court may, on the application of the
Official Liquidator, of the liquidator, or of any
creditor or contributory, made within the time
specified in that behalf in sub-section (2),
examine into the conduct of the person,
director, managing agent, secretaries and
treasurers, manager, liquidator or officer
aforesaid, and compel him to repay or restore
the money or property or any part thereof
respectively, with interest at such rate as the
Court thinks just, 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.

(2) An application under sub-section (1) shall be
made within five years from the date of the
order for winding up, or of the first
appointment of the liquidator in the winding
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up, or of the misapplication, retainer,
misfeasance or breach of trust, as the case
may be, whichever is longer.”

 

9. On reading the provisions of Section 458A and Section

543(2) of the Limitation Act, we find that there is a clear

dichotomy between the concept of the “period of limitation” on

one hand and the concept of “computation of that period”.

Section 543(2) limits the time after which misfeasance or

breach of trust proceedings, retainer proceedings and

misapplication proceedings becomes time barred. This

dichotomy finds place not only in the above provisions of the

Companies Act but also under the provisions of Limitation

Act. Under Section 2(f) of the Limitation Act, the period of

limitation is required to be computed in accordance with the

provisions of that Act. Further, the Limitation Act not only

prescribes the period of limitation for different types of suits

and applications but it also further provides for computation.

If any period of limitation is to be excluded from the

prescribed period of limitation the party has to satisfy any of

the appropriate provisions in Sections 4 to 24 of the Limitation
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Act. The law of limitation is a procedural law. It is addressed

to the commencement of a proceeding.

 

10. In the case of Kosana Ranganayakamma vs. Pasupulati

Subbamma – AIR 1967 AP 208, it has been held that though

the schedule to the Limitation Act did not prescribe any period

of limitation for an application under Section 417(3) Cr.P.C.

1898 and even though Section 417(4) of that Code prescribed

a different limitation within the meaning of Section 29(2) of the

Limitation Act still by virtue of Section 3, the other Sections 4

to 24 of the Limitation Act applied to all applications under

Section 417(3) of the 1898 Code.

 

11. Coming to the provisions of the Companies Act, we find

that although Section 543(1) & (2) provides for locus and

forum, there is no provision for computation of the period of

limitation. We are proceeding on the basis that Section 543(2)

provides for a different limitation than the limitation

prescribed under Article 137 of the Limitation Act. However,

Section 543(2) does not rule out the applicability of Sections
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12 to 24 in Part III of the Limitation Act. Part II of the

Limitation Act deals with limitation of suits, appeals and

applications whereas Part III deals with the computation of

period of limitation. Similarly, in our view Section 543(2)

deals with limitation for applications/claims mentioned in

Section 543(1) which includes misfeasance proceedings

whereas the computation of the period of five years is

contemplated by Section 458A of the Companies Act.

 

12. In our view, there is no merit in the contention advanced

on behalf of the appellant that by virtue of Section 458A the

period of limitation is extended by one year. Part III of the

Limitation Act excludes certain circumstances mentioned in

Sections 12 to 24 for computation of the period of limitation.

Similarly, Section 458A provides for an additional

circumstance which is not there in the Limitation Act which is

required to be taken into account as an item of exclusion in

the matter of computation of the period of Limitation of five

years prescribed by Section 543(2). That circumstance is a

period spent between the date of commencement of winding
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up of the company and the date on which the winding up

order is passed plus one year therefrom. If this period of

limitation is to stand excluded it is only by virtue of Section

458A which circumstance is not contemplated by Sections 12

to 24 of the Limitation Act. Just as a different period of

limitation is prescribed for misfeasance proceedings vide

Section 543(2) so also vide Section 458A a special

circumstance is indicated as an item of exclusion of certain

time in computing the period of limitation. Therefore, there is

no conflict between Section 458A and Section 543(2) of the

Companies Act. If so read, there is no extension of the period

of limitation of five years as contended on behalf of the

appellant. In our view, Section 458A excludes the period

between the date of commencement of winding up of the

company and the date on which the winding up order is

passed plus one year therefrom. Therefore, it is a case of

exclusion and not extension of the period of limitation of five

years prescribed under Section 543(2) of the Companies Act.
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13. Learned counsel for the appellant placed heavy reliance

on the judgment of the Karnataka High Court in the case of

Kabini Papers Ltd. vs. M.D. Shivananjappa and others –

1999 (98) CompCas 675, in which it has been held that the

period of five years, prescribed under Section 543(2) of the

Companies Act for initiation of proceedings by O.L., cannot be

extended by adding periods mentioned in Section 458A. In

our view, the judgment of the Karnataka High Court, with

respect, is not correct. It has failed to take into account the

dichotomy between the two concepts, namely, “the period of

limitation” and “its computation”. Moreover, as stated above,

Section 458A provides for exclusion of the period between the

commencement of winding up proceedings and the date when

the winding up order is passed plus one year therefrom. This

is the circumstance of exclusion. Therefore, as stated above,

there is no question of extension of the period of limitation of

five years as prescribed by Section 543(2).

 

14. In the case of Fabrimats (Madras) P. Ltd. (In

Liquidation), In re./Official Liquidator vs. Best and
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Crompton Engineering Ltd. – 1982 (52) CompCas 501, it

has been held by the Madras High Court that Section 458A of

the Companies Act is of universal application and does not

contemplate any qualification or exception to the calculation

indicated therein regarding exclusion of the aggregate of two

periods mentioned therein, namely, the period from the date of

commencement of winding up proceedings to the date of the

order of winding up and one year immediately following such

date of order of winding up. We are in agreement with the

view expressed by the Madras High Court in the said

judgment.

 

15. One of the contentions advanced on behalf of the

appellant is that Section 458A is not applicable to misfeasance

proceedings instituted by the O.L. as such proceedings are not

in the name and on behalf of a company which is being wound

up by the Court. In this connection, reliance is placed on

Section 458A which prescribes the mode of computation of the

period of limitation for any suit or an application in the name

and on behalf of a company which is being wound up by the
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Court. Therefore, it is sought to be argued that misfeasance

proceedings instituted by the O.L. is neither a suit nor an

application in the name and on behalf of a company which is

being wound up by the Court. We find no merit in this

argument. If book-debt is assigned by the company to a bank

which fails to file a suit for recovery of money within the time

prescribed under the Limitation Act, it would not be open to

O.L. to institute the suit under Section 458A because in that

event the O.L. is said to have filed a suit not on behalf of the

company but on behalf of the bank. It is to such cases that

Section 458A will not apply. In the present case, the O.L. was

authorized to take steps to recover assets both financial and

other assets by the company court under the winding up

order. It is pursuant to that authority that the O.L. has

instituted the misfeasance proceedings for recovery on

1.12.89. The said proceedings have been initiated in the

name of the company and on behalf of the company to be

wound up. The name of the applicant, indicated at page

no.27 of the appeal paper book, shows that the O.L. has filed

misfeasance proceedings in the name of the company and on
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behalf of the company. Therefore, in our view, Section 458A is

squarely applicable to misfeasance proceedings instituted by

the O.L. in the name of the company and on behalf of the

company in liquidation. Once an application is made in the

name and on behalf of the company, Section 458A would

become applicable. On this aspect more provision needs to be

mentioned. Section 457 deals with powers of liquidator.

Under Section 457(1) the liquidator, in a winding up by the

Court, has the power with the sanction of the Court to

institute any suit prosecution or legal proceedings in the name

and on behalf of the company. In the present case the

winding up order indicates that the company court had

granted such a sanction and the misfeasance proceedings

have been instituted by the O.L. in terms of Section 457(1)(a)

of the Limitation Act. The claim on behalf of a company (in

liquidation) filed by the O.L. is in the form of application

though it is really a plaint and hence it cannot be stated that

the misfeasance proceedings are proceedings instituted by the

O.L. in his own independent right. Once it is held that the

said application is in the nature of a plaint then Section 457 of
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the Companies Act would apply. Section 458A of the

Companies Act is intended to extend the limitation period for

the benefit of the company (in liquidation) and the O.L.

appointed to carry on its winding up process by collecting the

assets and distributing the same among those entitled to the

same. The underlying object in extending the limitation is to

enable the O.L. to take charge of the affairs of the company, to

examine the records, account books, to study the annual

statements and accordingly proceed to recover and collect the

assets. He has also to find resources for conducting the

proceedings. The proceedings initiated by him by way of

judge’s summons or suit for enforcement of the recoveries,

cannot but be on behalf of the company having regard to his

source of authority, viz., the provisions of the Companies Act

and the statutory obligation in discharge of which he has to

act in this behalf. The said Act does not contemplate his

acting in the matter of recoveries excepting as O.L. and

excepting on behalf of the company.
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16. Before concluding, we may state that learned counsel for

the appellant placed reliance on the judgment of the Orissa

High Court in the case of B. Pattnaik Mines (Pvt.) Ltd. vs.

Bijoyananda Pattnaik and others – 1994 (80) CompCas

237, in which it has been held that when the liquidator or a

creditor or a contributory makes an application under Section

543 he does not do so as representing the company but in his

own independent right. As against this judgment, learned

counsel for the respondents (O.L.) cited before us the

judgment of the Bombay High Court in the case of Gleitlargor

(India) P. Ltd. and H.S. Kamlani, Official Liquidator vs.

Mazagaon Dock Ltd. and others – 1985 (57) CompCas 742,

which has taken the view that the proceedings initiated by the

O.L. for recovery cannot but be on behalf of the company and

that the Companies Act does not contemplate his acting in the

matter of recoveries excepting as O.L. and excepting on behalf

of the company. In our view, in the light of what is stated

above we approve the judgment of the Bombay High Court in

the case of Gleitlargor (India) P. Ltd. (supra) and we further

hold that the judgment of the Orissa High Court in the case of
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B. Pattnaik Mines (Pvt.) Ltd. (supra) is not correct. We may

further state that the view taken by the Bombay High Court

also finds support in the case of Official Liquidator vs. T.J.

Swamy and others – 1992 (73) CompCas 583 in which the

Andhra Pradesh High Court has held that misfeasance

proceedings are proceedings initiated by the O.L. in the name

of and on behalf of the company (in liquidation).

 

17. Therefore, in our view, Section 458A of the Companies

Act, dealing with computation of the period of limitation, has

to be read with Section 543(2) of that Act.

 

18. For the aforestated reasons, we find no merit in this civil

appeal and the same is accordingly dismissed with no order as

to costs.
……………………………J.
(S.H. Kapadia)

 

……………………………J.
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(B. Sudershan Reddy)

New Delhi;
July 22, 2008.

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