2023 (12) TMI 1372 - HC - Companies Law

Official Liquidator's recovery application under Section 446 dismissed as time-barred despite Section 458A provisions

Delhi HC dismissed Official Liquidator's application for recovery under Section 446 of Companies Act, 1956 as time-barred. Court held that Section 458A ... Recovery of amount u/s 446 of the Companies Act, 1956 against a debtor of the company in liquidation - time limitation u/s 458A of the Act - HELD THAT:- A careful perusal of the Section 458A of the Companies Act, 1956 would show that it has overriding effect over the provisions of the Limitation Act and in proceedings under the Act, the period of limitation would commence from the date of passing of order on winding up and excluding a period of one year immediately following the date of winding up order. The Supreme Court in the case of KARNATAKA STEEL & WIRE PRODUCTS VERSUS KOHINOOR ROLLING SHUTTERS & ENGG. WORKS [2002 (11) TMI 355 - SUPREME COURT] held that 'The legislature, by way of an amendment, brought into force the provisions of Section 458-A, so that an official liquidator, who is supposed to be in custody of the assets and liabilities of the company, would be able to file a claim on behalf of the company, which was legally enforceable on the date of the winding up, after excluding the period, indicated under Section 458-A of the Companies Act, so that the company or its shareholders will not suffer any loss. But by no stretch of imagination, the said provisions contained in Section 458-A can be construed to mean that even a barred date (sic debt) or a claim which was not enforceable on the date of the winding up, would stand revived, once a winding-up application is filed and order is made by virtue of Section 458-A of the Companies Act.' Reverting to the instant matter, evidently, the order for winding up was passed by this court on 03.06.2011, whereby an OL was appointed as Provisional Liquidator. It is uncontroverted that the payment was made to the respondent company on 10.04.2008, and therefore, the initial period of limitation for re-claiming the amount was three years i.e., 10.04.2011, which of course was before the order of winding up was passed. On a careful perusal of Section 458A of the Act, subsequent to the Provisional Liquidator being appointed and taking over the charge, the period of limitation for claiming the recovery of such amount commenced on 03.06.2011 and extended by another year, eventually, by all means expired on 03.06.2015. It is also borne out from the record that the present application by the OL has been filed on 26.10.2017. Ex-facie, the application moved on behalf of the applicant / OL for recovery of the amount claimed alongwith interest is barred by limitation in terms of Section 458A of the Act. The instant application moved by the OL is hereby dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether an application by the Official Liquidator to recover an advance payment made by a company prior to winding up is barred by limitation under Section 458A of the Companies Act, 1956. 2. The legal effect and temporal application of Section 458A of the Companies Act, 1956 on the computation of limitation for claims enforceable by an Official Liquidator when the underlying cause of action arose before the winding up order. 3. Whether Section 458A can revive or validate claims which were statute-barred prior to the winding up order. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether the recovery application by the Official Liquidator is barred by limitation under Section 458A. Legal framework: Section 458A excludes from computation of limitation the period from commencement of winding up to the date of the winding up order (both inclusive) and one year immediately following the winding up order, notwithstanding the Limitation Act. Precedent treatment: The Court treated the authoritative exposition that Section 458A allows the Official Liquidator to exclude the winding-up period and one year thereafter from the computation of limitation for claims that were legally enforceable on the date of the winding up order; however, it does not revive claims already statute-barred before the winding up order. Interpretation and reasoning: The payment in question was made on 10.04.2008, giving an original three-year limitation period that expired on 10.04.2011-prior to the winding up order dated 03.06.2011. The Court applied Section 458A by treating limitation as commencing on the date of the winding up order (03.06.2011) and extending one year thereafter, so that the permissible window for the Official Liquidator to sue expired on 03.06.2015. The application was filed on 26.10.2017, which is beyond the excluded/extended period, and therefore time-barred under Section 458A. Ratio vs. Obiter: Ratio - Section 458A cannot be used to resurrect a claim that had already become time-barred before the winding up order; limitation is to be computed so that, for claims enforceable on the date of winding up, the excluded period applies but it does not operate retroactively to revive already barred claims. Conclusion: The recovery application by the Official Liquidator is barred by limitation under Section 458A and must be dismissed. Issue 2 - Temporal effect of Section 458A on claims arising before the winding up order. Legal framework: Section 458A has overriding effect on the Limitation Act for suits or applications in the name and on behalf of a company being wound up by the Tribunal/Court, by excluding the winding up duration and one subsequent year from limitation calculation. Precedent treatment: The Court relied upon established authority that construes Section 458A as providing relief to the Official Liquidator for claims that were legally enforceable on the date of the winding up order by excluding the specified period, thereby effectively extending the time to initiate proceedings for such claims. Interpretation and reasoning: The Court emphasized that the legislative purpose of Section 458A is to permit the Official Liquidator to prosecute claims which were enforceable at the time of winding up without prejudice to the beneficiaries; however, this statutory exclusion cannot be stretched to mean restoration of claims which had already lapsed under the Limitation Act before the winding up order was passed. Ratio vs. Obiter: Ratio - Section 458A is prospective in effect with respect to exclusion of time; it operates to protect enforceable claims at the date of winding up but does not revive previously extinguished claims. Conclusion: For claims arising prior to the winding up order, limitation is assessed by determining whether the claim was enforceable on the date of winding up; if it was already barred before that date, Section 458A does not enlarge the Official Liquidator's right to sue. Issue 3 - Whether Section 458A revives claims already statute-barred before the winding up order. Legal framework: The plain language of Section 458A and its stated overriding effect over the Limitation Act must be read in the context of whether the claim was legally enforceable at the date of the winding up order. Precedent treatment: The Court followed authority holding that Section 458A cannot be construed to revive a claim that was not enforceable on the date of winding up; the provision is intended to prevent loss to the company or its shareholders by allowing the Official Liquidator to pursue claims that would otherwise be defeated by the passage of time during the winding up process. Interpretation and reasoning: Applying the legal test, the Court observed the claim's limitation had expired before the winding up order was passed; therefore, the statutory exclusion could not be used to resuscitate the claim. The Court contrasted claims enforceable at the winding up date (which benefit from exclusion) with claims already time-barred (which do not). Ratio vs. Obiter: Ratio - Section 458A does not operate as a remedial device to revive claims already extinguished by limitation prior to the winding up order; this is a core conclusion determining the result in the case. Conclusion: Section 458A cannot revive a pre-winding-up statute-barred claim; accordingly, the application to recover the advance payment, being filed after the excluded/extended period, was not maintainable. Disposition and Direction The application for recovery filed by the Official Liquidator was dismissed as barred by limitation in terms of Section 458A of the Companies Act, 1956; the Court's conclusion rests on the finding that the cause of action became time-barred prior to the winding up order and Section 458A does not revive such a claim.