2009 (4) TMI 439 - HC - Companies Law

Company ordered to deposit specified amount pending suit, with investment conditions outlined. Liability acknowledgment under Limitation Act.

The court ordered the company to deposit a specified amount based on the filing of a suit, with conditions for investment and transfer outlined. The ... Whether the letter dated 7-7-2005, read with Annexure-I referred to therein and enclosed therewith constitutes an acknowledgement in writing signed by the party i.e., the company, as required by section 18 of the Limitation Act, 1963? Held that:- In the present case, there is a clear intention on the part of the company to incorporate the contents of the Annexure-I referred to therein in the letter dated 7-7-2005. This intention is clear from paragraph 4 of the letter set out earlier and especially the words 'as seen from the ledger copy enclosed as Annexure-I' (emphasis supplied). Paragraph 4 in effect incorporates the contents of Annexure-I in the letter dated 7-7-2005. If indeed the Petitioner’s case on merits is well founded and the defence of the company regarding the clubbing of the said thirty two accounts is not accepted, this letter read with Annexure-I thereto would constitute an acknowledgement of liability as the annexure is incorporated therein. The acknowledgement therein would, therefore, be one in writing and signed by the company. In the circumstances, the Company is directed to deposit in this Court a sum of ₹ 3,88,462 on or before 31-7-2009. Upon the amount being deposited, the same shall be invested in a nationalized bank initially for a period of one year and, thereafter, for like periods of one year each. In case of failure on the part of the Company to deposit the amount as aforesaid, the Petition shall stand admitted and to be advertised in Free Press Journal, Maharashtra Times and Maharashtra Government Gazette. The Petitioner to deposit an amount of ₹ 10,000 with the Prothonotary and Senior Master of this Court within four weeks from the date of default. Issues:1. Defence of limitation raised by the company regarding transactions in securities.2. Whether the letter dated 7-7-2005, along with Annexure-I, constitutes an acknowledgement of liability within the meaning of section 18 of the Limitation Act, 1963.Analysis:Issue 1: Defence of LimitationThe petition was filed on 3-4-2008, after a period of more than three years from the transactions in securities between 9-2-2005 to 18-3-2005. The company argued that the ledger maintained for the period 1-4-2005 to 31-3-2006 should be considered. The court discussed whether the opening balance in the ledger can be deemed as an open mutual and current account under the Limitation Act, Article 1. The judge assumed that the question of whether an opening balance constitutes 'the last item admitted or proved as entered in the account' is debatable.Issue 2: Acknowledgement of LiabilityThe company claimed that the ledger account enclosed with a letter dated 7-7-2005 constituted an acknowledgement of liability under section 18 of the Limitation Act, 1963. The judge referred to section 18, which states that a fresh period of limitation is computed from the time of acknowledgement of liability in writing. The court analyzed whether the letter, along with Annexure-I, could be considered as an acknowledgement in writing signed by the company as required by the Act.The court explained the concept of incorporation by reference, stating that when a document adopts the contents of another document by reference, it effectively makes those contents its own. It was emphasized that if a document or its contents acknowledging liability are incorporated by reference in a signed document, the latter document meets the requirements of section 18. The judge highlighted that in this case, there was a clear intention on the part of the company to incorporate the contents of Annexure-I in the letter dated 7-7-2005, as evidenced by the language used in the letter.Based on the analysis, the court passed an order directing the company to deposit a specified amount, outlining the conditions for investment and transfer of the amount based on the filing of a suit. The order also specified the consequences of failure to deposit the amount. The judgment concluded that if the Petitioner's case on merits was valid and the company's defence was not accepted, the letter and Annexure-I would constitute an acknowledgement of liability, meeting the requirements of the Limitation Act.