2011 (4) TMI 1207 - HC - Companies Law

Court permits official liquidator to amend application under Companies Act, 1956

The court allowed C.A. No. 782 of 2010, permitting the official liquidator to delete specific paragraphs and insert new prayers in C.A. No. 130 of 2010. ... Exclusion of time in computing periods of limitation - Computation of limitation under section 543(2) - Misfeasance proceedings instituted by the official liquidator - Application of section 458A to suits and applications in the name and on behalf of a company - Exclusion and not extension of limitation period by section 458AComputation of limitation under section 543(2) - Exclusion of time in computing periods of limitation - Misfeasance proceedings instituted by the official liquidator - Application of section 458A to suits and applications in the name and on behalf of a company - Whether the application under section 543(1) read with section 543(2) is time barred, and whether the exclusion in section 458A applies to misfeasance proceedings instituted by the official liquidator. - HELD THAT: - The court held that section 543(2) prescribes a five year limitation for applications to assess damages against delinquent directors, to be computed from the longest of the dates specified therein. Section 458A, which contains a non obstante clause, provides for exclusion of the period from commencement of winding up to the date of the winding up order and a further period of one year immediately following the winding up order. A combined reading of section 543(2) and section 458A shows that the latter operates as an exclusion (and not an extension) in computing the five year period under section 543(2). The court accepted the ratio in Ajay G. Podar that misfeasance proceedings instituted by the official liquidator, when filed in the name of and on behalf of the company pursuant to the liquidator's statutory authority, fall within section 458A. Applying these principles, the official liquidator's application (filed on March 1, 2010) falls within the period of limitation when section 458A's exclusion is applied to the computation under section 543(2). Consequently, the amendment sought by the official liquidator is not time barred and is allowable. [Paras 6, 10, 11, 12, 13]Application under section 543(1) read with section 543(2) is not time barred because section 458A's exclusion applies to misfeasance proceedings instituted by the official liquidator; amendment is allowed.Final Conclusion: The official liquidator's application for amendment was held to be within time by application of section 458A's exclusion to the five year period under section 543(2); the amendment is permitted and C.A. No. 782 of 2010 is allowed. Issues Involved:1. Deletion of specific paragraphs from the points of claims and prayer column in C.A. No. 130 of 2010.2. Insertion of new prayers in the prayer column of C.A. No. 130 of 2010.3. Determination of whether the application is time-barred under section 543(2) of the Companies Act, 1956, and the applicability of section 458A for exclusion of time in computing the period of limitation.Issue-wise Detailed Analysis:1. Deletion of Specific Paragraphs from Points of Claims and Prayer Column in C.A. No. 130 of 2010:The official liquidator filed an application under Order 6, rule 17 of the Code of Civil Procedure, 1908, read with rules 6 and 7 of the Companies (Court) Rules, 1959, seeking to delete certain paragraphs from the points of claims and prayer column in C.A. No. 130 of 2010. The paragraphs sought to be deleted are 9(a), (b), (d), (e), and (f) in the points of claims, and paragraphs 10, 11, and 12 in the points of claims, as well as paragraphs 3, 5, 6, 7, and 8 in the prayer column.2. Insertion of New Prayers in the Prayer Column of C.A. No. 130 of 2010:The official liquidator also sought to insert new paragraphs in the prayer column after prayer (8) in C.A. No. 130 of 2010. These new prayers included directions for the ex-directors to make good specific amounts of money, jointly or severally, to the official liquidator with interest at 18% per annum or any other rate as the court may fix from the date of winding up.3. Determination of Whether the Application is Time-Barred Under Section 543(2) of the Companies Act, 1956, and the Applicability of Section 458A for Exclusion of Time in Computing the Period of Limitation:The core issue was whether the application filed by the official liquidator had become time-barred by virtue of section 543(2) of the Companies Act, 1956, and whether the official liquidator could invoke section 458A for exclusion of time in computing the period of limitation.The respondents contended that the amendments sought were barred by limitation and thus impermissible. They argued that section 543(2) is a self-contained code prescribing a five-year limitation period for filing an application for misfeasance or breach of trust, and section 458A's exclusion clause could not be applied to extend this period.Conversely, the official liquidator argued that section 458A should be read in conjunction with section 543, allowing for the exclusion of one year from the date of the winding-up order in computing the limitation period.Legal Provisions and Judicial Precedents:Sections 446, 458A, and 543(1) and (2) of the Companies Act were examined. Section 543(2) provides a five-year limitation period for filing an application for misfeasance or breach of trust, commencing from the date of the winding-up order, the first appointment of the liquidator, or the misapplication, retainer, misfeasance, or breach of trust, whichever is longer. Section 458A, which starts with a non obstante clause, excludes the period from the date of commencement of winding up to the date of the winding-up order and an additional year from the date of the winding-up order in computing the period of limitation.The court referred to the Supreme Court judgments in *Karnataka Steel & Wire Products v. Kohinoor Rolling Shutters & Engg. Works* and *Ajay G. Podar v. Official Liquidator, J.S. & W.M.*, which clarified that section 458A excludes specific periods in computing the limitation period for applications filed in the name and on behalf of the company in liquidation.Court's Conclusion:The court concluded that the application filed by the official liquidator on March 1, 2010, was within the five-year limitation period prescribed under section 543(2), considering the exclusion period provided under section 458A. The official liquidator's application for amendments, based on the chartered accountant's report dated September 17, 2010, was filed within the period of limitation. Thus, the application for amendments was allowed.Order:1. C.A. No. 782 of 2010 was allowed.2. The official liquidator was directed to make necessary endorsements in the original application C.A. 130 of 2010 by filing the amended application.3. The respondents were granted liberty to file an additional written statement to the amended application.