2013 (6) TMI 37 - HC - Companies Law

Court allows recovery claim without leave, grants interest under Rule 156. Refund ordered with penalties.

The Court held that the application under Section 446 of the Companies Act, 1956 was maintainable without the need for leave from the Court. The claim for ... Whether the Respondent was paid in excess as claimed by the OL? - Winding up - Held that:- The facts not in dispute are that the Respondent along with her husband did make as many as twenty investments in the company. From the tabular chart placed on record, it is seen that the deposits which were processed for payment on various dates, the earliest being 23rd April 1990 and the last 27th February 1992. There can be two situations – one where no interest is prescribed as payable on any debt or certain sum by the company. In that event, the creditor would be entitled to interest not exceeding 4% p.a. from the time when the debt or sum was payable up to the date of payment. In the second situation, if there was nothing to indicate from when the debt was payable, then it would be payable from the date when a demand is made and the interest would be calculated from that date till the date of payment. In the instant case, beyond the date of maturity of the deposits, there was no agreement between the Respondent and the company as to the rate of interest that was payable. There was no automatic deemed renewal of the deposit. The compound rate of interest was payable only as long as the deposits had not matured. After the date of maturity and in the absence of any renewal, the Respondent would be entitled to interest not exceeding 4% on the deposit amounts for the period from the date of the maturity till the date of payment. The amount payable to Mrs. Madhu Bala Sharma was Rs. 1,26,701.14. Therefore, clearly, an excess payment was made to her. None of the objections of the Respondent either to the maintainability of the application or to its merits is tenable. The Respondent is directed to refund to the OL the excess amount of Rs. 6,13,408 together with simple interest @ 9% p.a. from 12th May 2006 till the date of payment, which, in any event, cannot be beyond eight weeks from today. If the payment is not made within the time granted, the Respondent will be liable to pay penal simple interest @ 12% p.a. on the said sum for the period of delay. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the Official Liquidator's application to recover excess payments made in winding up is maintainable under Section 446(2)(b) of the Companies Act, 1956. 2. Whether the claim for recovery of excess payment is barred by limitation. 3. Whether the claimant (creditor paid by the Official Liquidator) was entitled to cumulative/compound interest beyond the maturity date up to the date of winding up, or whether Rule 156 of the Companies (Court) Rules, 1959 limits post-maturity interest to simple interest not exceeding 4% per annum. 4. Whether the Official Liquidator was required to frame issues and permit oral evidence and cross-examination (including cross-examination of the Chartered Accountant who re-examined claims) before adjudicating the recovery claim. 5. Whether the excess payment calculation by the Chartered Accountant (resulting in a specified refund amount) is legally sustainable and what remedy/interest should be awarded on the recovered sum. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Maintainability under Section 446(2)(b) Legal framework: Section 446(1)-(2) grants the Court jurisdiction in winding up to entertain or dispose of any claim by or against the company; leave of the Court is required for suits against the company where a winding up order has been made, but Section 446(2)(b) expressly empowers the Court to entertain claims by or against the company. Precedent Treatment: The Court considered the statutory language of Section 446 rather than distinguishing or following particular prior cases; no precedent was treated as overruling this interpretation. Interpretation and reasoning: The Court held that an application by the Official Liquidator to recover sums paid on behalf of the company falls within the wide ambit of 'any claim' under Section 446(2)(b). The requirement for obtaining leave of the Court does not arise where the Official Liquidator brings a claim on behalf of the company before the winding up Court; leave is required only where the company itself (or third parties in other fora) seeks to sue. The expression 'claim' includes a claim for refund of excess payment. Ratio vs. Obiter: Ratio - an OL may file an application under Section 446(2)(b) without separate leave; a refund claim by the OL is maintainable in the winding up proceedings. Conclusion: The application by the Official Liquidator was maintainable under Section 446(2)(b). Issue 2 - Limitation Legal framework: Limitation is determined by when the cause of action accrues; the Court relied on the facts that the OL only discovered the alleged excess payment when the CA's report was submitted. Precedent Treatment: No specific limitation cases were applied to alter the statutory principle; the ruling follows the general accrual-of-rights principle. Interpretation and reasoning: The Court found the cause of action for recovery arose when the OL became aware of the excess payment - namely upon receipt of the CA's report in February 2010 - and not at the date of disbursement. The earlier disbursement did not start the running of limitation because the OL had not knowledge of the excess at that time; the OL's prior administrative actions and judicial directions to re-examine claims (orders in Sept. 2009 and Jan. 2010) further linked the claim to the period after those orders. Ratio vs. Obiter: Ratio - limitation is measured from the date OL acquired knowledge of the excess (receipt of CA report), not necessarily from the date of payment. Conclusion: The recovery application was not time-barred. Issue 3 - Entitlement to compound interest beyond maturity vs. Rule 156 Legal framework: Rule 156 of the Companies (Court) Rules, 1959 governs interest on debts/sums where no rate is reserved or agreed and which are overdue at the date of winding up; it permits interest not exceeding 4% p.a. up to the date of winding up from the time when the debt was payable (if payable by written instrument at a certain time) or from date of demand if otherwise. Precedent Treatment: Decisions concerning interest in other statutory contexts or civil awards (e.g., general civil interest principles) were distinguished as not being in point where Rule 156 applies; the Court rejected reliance on authorities addressing interest in ordinary civil judgments or tax cases because they did not construe Rule 156. Interpretation and reasoning: The Court analysed the contracts and documentary terms: the deposits carried contractual compound/cumulative rates only up to their contractual maturity; there was no automatic renewal or agreement as to interest beyond maturity. After maturity, in the absence of renewal, Rule 156 becomes operative and limits post-maturity interest to simple interest not exceeding 4% p.a. The claimant's computation which compounded interest beyond maturity up to the date of winding up was therefore contrary to Rule 156. The latter part of Rule 156 (relating to demand and period when payable) did not assist the claimant because here the debts were payable at fixed maturity dates, so interest runs from maturity and is capped by the rule. Ratio vs. Obiter: Ratio - where contractual deposit matures without renewal, and no agreed post-maturity rate exists, Rule 156 restricts interest after maturity to simple interest not exceeding 4% p.a.; compound/cumulative interest cannot be claimed beyond maturity up to winding up. Conclusion: The claimant was not entitled to compound interest beyond the maturity dates up to the date of winding up; the payments made in excess (based on claimant's cumulative calculations) were correctly identified as excessive. Issue 4 - Need for framing issues and oral evidence/cross-examination Legal framework: Winding up proceedings and applications under Section 446 permit the Court to adopt summary procedures where appropriate; whether to direct oral evidence and cross-examination depends on the complexity and contested nature of the facts and law. Precedent Treatment: The Court distinguished a prior case where framing issues and oral evidence were necessary because the nature of that dispute required it; it held that such procedure is not universally required. Interpretation and reasoning: The Court considered the instant dispute to be essentially a question of arithmetic calculation guided by settled legal principles (interpretation of Rule 156 and documentary maturity dates). Affidavits were filed by both sides and the CA's report spelled out the method and basis of computation. Given the limited, non-complicated nature of the dispute, permitting cross-examination was not necessary and would not prevent prejudice to the claimant. Ratio vs. Obiter: Ratio - the Court may decide recovery applications based on documentary evidence and expert reports without framing issues or permitting oral evidence where the matter is a straightforward arithmetical/legal determination. Conclusion: No requirement to frame issues or permit cross-examination in this case; summary adjudication on affidavits and CA report was appropriate. Issue 5 - Validity of CA calculation and remedy with interest Legal framework: The CA re-examination considered principal amounts, documentary maturity dates, and applied Rule 156 to compute entitlement; the OL sought refund of excess based on that re-calculation; the Court also exercised equitable discretion to award interest on the refunded sum. Precedent Treatment: The Court relied on factual analysis and statutory rule rather than on precedent to validate the CA's arithmetic application of Rule 156; prior cases on interest under different statutes were distinguished. Interpretation and reasoning: The CA's calculations were grounded in documentary maturity dates and demonstrated that deposits were not renewed; claimant's larger figure resulted from compounding beyond maturity to the date of winding up. Applying Rule 156 produced a much smaller interest amount; consequently the OL's demand for refund of the excess was sustained. The Court directed refund of the quantified excess and awarded simple interest at 9% p.a. from date of disbursement until payment, with penal interest of 12% p.a. for delay beyond the time allowed. Ratio vs. Obiter: Ratio - where excess payment is established by documentary evidence and correct application of Rule 156, the OL is entitled to recovery and the Court may award interest on the recovered sum; CA expert computation based on documents can suffice to establish excess. Conclusion: The CA's computation was legally sustainable; the respondent must refund the specified excess amount with simple interest at 9% p.a. from the date of disbursement until payment (and penal interest thereafter for delay); the application for recovery was allowed, with no order as to costs.