Ajay G. Podar Vs.
Official Liquidator of J.S. & W.M. & Ors. [2008] INSC 1200 (22 July
2008)
Judgment
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)
S.H. KAPADIA, J.
1.
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.
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 3 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- 4 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 5 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 6 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 here in below the 7 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.
8 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 9 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 1 0 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 1 1 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 1 2 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.
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 1 4 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 1 5 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 1 6 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 1 7 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.
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) Comp Cas 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 1 9 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) Comp Cas 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 afore stated
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.
2 0 (B. Sudershan Reddy)
New
Delhi;
July
22, 2008.
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