OFFICIAL LIQUIDATOR v. KADIR — 1976 DIGILAW 278 (KER)

Judgment :- 1. The claim is for recovery of Rs 6,505.95 with future interest on the principal sum of Rs. 3,699.50. In a kuri conducted by the company with chit amount of Rs 5,000/- the 1st respondent was a subscriber. He bid the kuri at the 6th instalment and received the prize amount on 3111970 on executing a pro-note for Rs 4,125/- along with respondents 2 and 3 as collateral security for the payment of the future subscriptions. Thereafter only a sum of Rs. 332.50 was paid as future subscriptions. In spite of demand made by the Liquidator the balance was not paid and hence the claim is filed by the Liquidator for a payment order to recover the above-mentioned sum with future interest. The 3rd respondent alone contested the claim and the only contention is that the claim is barred by limitation. Therefore the question for consideration is whether it is bared. 2. Under S.446 (2) of the Companies Act the Company Court is given special jurisdiction to entertain or dispose of any suit or proceeding by or against the company, any claim made by or against the company, any application made under S.391 of the Companies Act and 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 The purpose and object of giving jurisdiction under the above section is to decide such matters as mentioned in S.446 (2) in a speedy and cheap way because the companies in liquidation are generally unable to pay the heavy expenditure of liquidation. When a winding up order has been made or a provisional liquidator is appointed, all the property and effects of the company shall be deemed to be in the custody of the Court as from the date of the order for the winding up of the company, and the order for winding up operates in favour of all the creditors and all the contributories of the company. A winding up order operates as notice of discharge of the officers and employees of the company, and the Official Liquidator by virtue of his office becomes the Liquidator of the company. He has the statutory duty to conduct the proceedings in the winding up of the company to realise the assets and to distribute them to the creditors. A winding up order operates as notice of discharge of the officers and employees of the company, and the Official Liquidator by virtue of his office becomes the Liquidator of the company. He has the statutory duty to conduct the proceedings in the winding up of the company to realise the assets and to distribute them to the creditors. That is why with the sanction of the Court he has got power to institute or defend any suit, prosecution or other legal proceeding in the name of and on behalf of the company. He may also apply to the court for any directions in relation to any particular matter arising in the winding up. S.446(2) of the Act and sub-clause (b) of R.11 of the Companies Rules enable the High Court to entertain an application and grant relief to the Liquidator. In this connection the following passage from the judgment of the Gujarat High Court reported in Rajratna Naranbhai v. Mills New Quality Bobbin Works ((1973) 43 Company Case 13 at 143), with respect, states the principle correctly: "Whenever power is conferred and duty is cast on the liquidator to do certain things in discharge of his duty as liquidator, in course of winding-up proceedings, it is not necessary that specific provision should be made that an application for certain relief could be made to the court. It would be implicit in the provisions casting duty on the liquidator along with the provisions by which jurisdiction is conferred on the High Court that proceedings of a certain nature in a winding up can be taken up before the High Court and that exactly has been done in this case." Generally all claims in which complicated questions of fact and/or law do not arise can properly be disposed of by way of claims. When there are number of debtors of the company from whom amounts, small or large, are due to the company, the Liquidator will be acting reasonably and properly in taking action against them by filing claims before the Company Court. This right to file claims instead of suits is similar to the right conferred on the Official Liquidator under S.45 (B) of the Banking Companies Act. While considering that provision, in Dhirendra Chandra v. Associated Bank of Tripura (AIR. 1955 SC. This right to file claims instead of suits is similar to the right conferred on the Official Liquidator under S.45 (B) of the Banking Companies Act. While considering that provision, in Dhirendra Chandra v. Associated Bank of Tripura (AIR. 1955 SC. 213) the Supreme Court referring to the provisions of the Companies Act, 1913, stated thus at page 214: "Under various sections thereof the liquidator, after an order for winding up of a company is made can approach a Company Court for exercising certain powers in aid of and to expedite the process of liquidation. The procedure normally adopted for the purpose is by way of application. But the scope of matters in respect of which the liquidator can obtain the help of the Company-Court by summary procedure is rather limited. In respect of other matters and particularly in the matter of collecting assets or recovering properties from third parties, (not covered by S.185 and 186) the liquidator has to invoke the help of the appropriate Court in the ordinary way. This as is well-known leads to a great deal of inevitable delay and expense. When in 1949 special legislation in respect of Banking Companies was taken up, it was one of the stated objects, to provide a machinery by which proceedings in liquidation of Banking Companies could be expedited and speedily terminated. It was found, however, that the Act of 1949, as originally enacted, was inadequate to achieve that purpose. It is in this situation that the Amending Act of 1950 introduced into the Ace of 1949 an entire Chapter, Part III A, consisting of Ss 45 A to 45 H under the heading "Special provisions for speedy disposal of winding up proceedings." It appears to us that, consistently with this policy and with the scheme of the Amending Act, where the liquidator has to approach the Court under S.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 contemplated. In the absence of any specific provision in this behalf in the Act itself and in the absence of any rules framed by the High Court concerned under S.45-G, the procedure must be taken to be one left to the judgment and discretion of the Court, having regard to the nature of the claim and of the questions therein involved" Again, at page 215 referring to S.45 B their Lordships observed thus: 'The question is not whether S.45-B permitted summary proceedings but the question is whether the section prescribed definitely a particular method of proceeding and whether consistently with the policy of the Act it was not to be presumed that a speedy and cheap remedy was to be available to the Liquidator, unless the Court in its discretion thought fit to direct or the rules of the High Court provided that a claim of a particular nature had to be pursued by a suit. It is to be remembered that S.45-B is not confined to claims for recovery of money or recovery of property, moveable or immoveable, but comprehends all sorts of claims which relate to or arise in the course of winding up. Obviously the normal proceeding that the section contemplated must be taken to be a summary proceeding by way of application. This change in respect of the Banking companies was adopted in the case of other companies also when the new Companies Act was passed, and S.446(2) added by the amending Act of 1960 corresponds to S 45(B)(1) of the Banking Companies Act. The summary procedural remedy available to the banking companies in respect of debts is made applicable to the realisation of the assets of other companies in liquidation also. Therefore, the normal procedure for the realisation of the assets due to the companies in liquidation by order of court is by resorting to the summary proceeding by way of claim application. 3. From the above conclusion it follows that a right to resort to the summary procedure by way of an application accrues to the Liquidator representing the company only on the commencement of the winding up. Till then this is not a right available to the company. The Limitation Act has prescribed periods of limitation to file suit and applications. A claim application is not a suit. Till then this is not a right available to the company. The Limitation Act has prescribed periods of limitation to file suit and applications. A claim application is not a suit. In Bank of Deccan Ltd. (in liquidation) v. EX John & others this Court had occasion to consider whether a claim is in the nature of a suit or a suit and it was held that it is not. That was in connection with the interpretation of S.3 of Act 30 of 1975. The same principle applies to the expression'suit' used in the Limitation Act. In Hansaraj v. Dehra Dun M. E. T. Co. (AIR. 1933 P. C. 63) their Lordships of the Privy Council had occasion to consider whether the periods of limitation provided for suits in the Limitation Act will apply to the applications made by the Liquidator under the Companies Act and their Lordships held that the Liquidator's application to realise an asset due to the company is not a suit. I respectfully agree with the principle laid down therein and applying it I hold that the periods of limitation prescribed by the Limitation Act for suits do not apply to the claim applications filed by the Liquidator. 4. Though in the above Privy Council case it was also held that the applications filed by the Liquidator being not applications under the Civil Procedure Code, the periods of limitation prescribed by the Limitation Act for making applications do not apply, in the light of the recent decision of the Supreme Court is Kerala State Electricity Board v. T P. K (1976 KLT. 810). Art.137 of the Limitation Act will apply to the applications filed by the Liquidator to realise the assets. In this decision the earlier decisions of the Supreme Court that Art.181 of the Limitation Act, 1908, will apply only to applications filed under the Code of Civil Procedure have been considered and the change effected in the new Limitation Act have been taken into account to come to the conclusion that Art.137 of the new Act will apply to all applications made to a court. The period for an application coming under Art.137 is three years and the period begins to run from the date the right to apply accrues. The question is therefore when can the Liquidator's right to apply accrue. The period for an application coming under Art.137 is three years and the period begins to run from the date the right to apply accrues. The question is therefore when can the Liquidator's right to apply accrue. This right to apply accrues to him when the winding up order was passed or when a provisional liquidator is appointed. Previously the company's remedy was only by way of a suit. A new remedy to make a claim application accrued only when the company is wound up. If on that day there was an enforceable right to the company that can be put in action by the Liquidator within three years of the winding up order. It on the date of the commencement of the winding up there was no enforceable right to the company on account of the lapse of the period of limitation prescribed for suits under the Limitation Act that will not be revived by the company going into liquidation. In such a case since there was no enforceable right to the company on the date of the winding up, the Liquidator's right to move the company court by a claim application will also be not available. The respondent's counsel referred to the Privy Council case mentioned earlier and also the decision of the Supreme Court in New Delhi Municipal Committee v. Kalu Ram (1976 (3) S.C.C. 407) and contended that if on the application date the right to recover the amount by way of a suit is barred the Liquidator will not get a new right to enable him to file an application. I have tried to show earlier that to a live claim a new remedy by way of making an application to a company court has accrued to the Liquidator in the matter of the realisation of the assets of a company which has gone into liquidation. The change made in the new Companies Act by the introduction of S.446 (2) read with S.457 and 460 takes the case out of the principle of the decision of the Privy Council case. In the Supreme Court case it was only laid down that the right given to an officer to claim the rent payable in respect of a building is available only if the recovery of the rent by way of a suit was not barred. In the Supreme Court case it was only laid down that the right given to an officer to claim the rent payable in respect of a building is available only if the recovery of the rent by way of a suit was not barred. In the light of the provisions of the Companies Act which F have referred to above this decision, with respect, has no application to the tacts of this case. Therefore, I hold that the Liquidator's right to make a claim application arises with the order for winding up of the company and applications made wit in three years of that are not barred if the right to claim the amount was not barred on the date of the winding up order The decision of the Bombay High Court in Mohd. Akbar v. Associated Banking Corporation of India (AIR. 1950 Bombay 386) does not apply to the facts of this case because of the changes made in the new Companies Act. 5. Coming to the facts of this case, in the light of the principles stated above, we have to consider whether the debt due from the respondents was barred on the date of the winding up order. The winding up order was passed on 20121973 The amount due is by way of defaulted subscriptions in a kuri Though a promissory note was executed by respondents 1 to 3 for the future instalments, payable in the kuri, we have to look into the nature of the transaction to find out whether the cause of action arose on the date of the execution of the promissory note or only later. The promissory note and the kuri transaction haver to be considered together to find out the nature of the right of the company and to find out the period of Limitation. In Chatlanatha v. Central Bank of India (AIR 1967 SC 1856) the Supreme Court had occasion to consider whether a promissory note or a bond executed by a person makes him a surety or only a co¬obligent. Their Lordships construing the documents relating to the transaction held that the co-obligent is only a surety and his liability will arise only on the default of the principal debtor. That principle applies in this case. Their Lordships construing the documents relating to the transaction held that the co-obligent is only a surety and his liability will arise only on the default of the principal debtor. That principle applies in this case. The last payment in the kuri was made only on 8 31971 and the company got a right to recover the future subscriptions only thereafter That right accrued within 3 years preceding the date of winding up. Therefore, on the date of the winding up no portion of the claim was barred and the claim application filed by the Liquidator within 3 years from the date of the winding up order is not barred. In this case in the light of this it is not necessary to rely on S.458A of the Companies Act. Even without relying on that provision the claim filed in 1975 is within time. If the time allowed under S.458A is excluded there will be time still further. Therefore, there is no limitation to recover the amount covered by the claim. 6. In this case even if the period of limitation prescribed for a suit is taken the application will not be barred. As stated earlier, the 1st respondent is liable to pay the kuri subscriptions only in instalments. The default occurred only on 8 31971 and before the expiry of 3 years of that date as provided for in Art.37 of the Limitation Act the company was ordered to be wound up on 20121973. The winding up commenced on 1101973 and under S.458 A of the Companies Act in computing the period of limitation prescribed for any suit or application in the name and on behalf on the Company the period from the date of the commencement of the winding up to the date of the winding up order was made and a further period of one year can be excluded. In this case that period covers one year and 81 days and excluding this period in reckoning the time available to file a suit, a suit filed on or before 29 51975 will be within time. The claim petition was filed on 26 51975 and hence there is no scope for any bar of limitation. 7. In the result, the claim is decreed as prayed for in the claim application with interest at 18% on the principal sum, namely Rs. 3,699.50. The claim petition was filed on 26 51975 and hence there is no scope for any bar of limitation. 7. In the result, the claim is decreed as prayed for in the claim application with interest at 18% on the principal sum, namely Rs. 3,699.50. Interest will accrue only from 14 51971 till the date of the claim and thereafter at 6% till recovery. The claimant is entitled to be paid his costs.