TaxTMI 
TaxTMI 
2024 (6) TMI 1480
X X X X Extracts X X X X
X X X X Extracts X X X X
....der dated 7.02.2017 in Company Petition No.57/2012, the Official Liquidator attached to this Court has been appointed as a liquidator of the company in terms of Section 449 of the Companies Act, 1956 ['Act' for short]. The Official Liquidator has filed the above application under Section 446(2)(b) seeking for the above reliefs. 3. Smt. Kruthika Raghavan, learned counsel appearing for the Official Liquidator would submit that, 3.1. The Company in liquidation having been ordered to be wound up by order dated 7.02.2017, the company petition having been filed in the year 2012, the statement of affairs was filed by some of the directors on 3.12.2020 indicating the indebtedness of the respondent herein and it is on that basis that the above application is filed for recovery of monies owed by the respondent. 3.2. She submits that in terms of the statement of affairs filed by the ex-directors, respondent No.1 -company is indebted in a sum of Rs. 20,01,43,101/- as on 7.02.2017, the said amount having been advanced by the company in liquidation to respondent No.1. consequent to the winding up order and filing of statement of affairs, a demand notice was issued on 5.02.2021 to respon....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... The Official Liquidator had issued several correspondences to the respondent-company to make payment of the due amounts. The company has accepted the receipt and not having paid the amounts would amount to acceptance of the debt and therefore, filing of the present petition is within time inasmuch as correspondence was issued on 11.11.2021 to respondent No.1. Respondent No.1 appeared before the Official Liquidator, sought for time to submit the agreement between the company in liquidation and respondent No.1, the agreement was not furnished, time was sought for. Again, a notice was issued on 6.05.2022, and a demand was also made that respondent No.1 did not submit the document directed to be submitted to the Official Liquidator. Subsequently, when a meeting was called for, neither the representative nor the director of respondent No.1 appeared before the Official Liquidator. Another letter came to be issued on 4.08.2023 despite which payment was not made. The respondent company is taking advantage of its own wrongs. Respondent No.1, not having furnished the document and not having placed anything on record, cannot now contend that the claim on behalf of the company in liquidation....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sly barred by limitation. 4.5. In this regard, he relies upon the decision of the Hon'ble Apex Court in the case of Karnataka Steel & Wire Products and others (supra1), more particularly para 4 thereof, which is reproduced hereunder for easy reference: 4. On a plain reading of the provisions contained in Section 458-A of the Companies Act, it is crystal clear that the aforesaid provision merely excludes the period during which a company was being wound up by the court from the date of the commencement of the winding up till the order of winding up is made and an additional period of one year immediately following the date of the winding up. In other words, in respect of a legally enforceable claim, which claim could have been made by the company on the date on which the application for winding up is made, could be filed by the official liquidator by taking the benefit of Section 458-A of the Companies Act and getting the period of four years to be excluded from the period of three years, as provided under Article 137 of the Limitation Act. The legislature, by way of an amendment, brought into force the provisions of Section 458-A, so that an official liquidator, who is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder Art. 137 of the Limitation Act, the period of limitation prescribed for an application is three years from the date when the right to apply accrues. Even after giving the benefit of S. 458-A of the Act and taking into account the period of limitation prescribed by Article 137 of the Limitation Act, 1963, the limitation would have expired, even according to the case of the Official Liquidator that the claim is based on open and current account, on 19-9-1969. 4.8. Relying on all three Judgments, he submits that the total period of time which is available to the Official Liquidator to file proceedings under Section 446 is four years and nothing more than that. 4.9. He relies upon the decision of the Bombay High Court in the case of Orkay Industries Ltd. And others -v- State of Maharashtra and others (1998 SCC OnLine Bom 248) more particularly para 48 thereof which is reproduced hereunder for easy reference: 48. For the above reasons, it will have to be held that merely on the presentation of a Petition for winding up the affairs of a Company do not come to an absolute standstill. It will have to be held that merely on the presentation of a Petition for winding up, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... been presented, there would be a "failure to make payment" under section 138 of the Negotiable Instruments Act. 4.10. Relying on the above, he submits with the filing of a company petition for winding up; the operation of the company does not come to a standstill; the company continues its operations as was being done in the present case. The correspondence between the company in liquidation and respondent No.1 has gone on, the communication/request/demand of respondent No.1 has been accepted by the company in liquidation, and the amount advanced by the company in liquidation has been treated as a doubtful debt while the company was functioning before the company was ordered to be wound up. Thus, the Official Liquidator cannot now seek to claim the amount that has already been declared to be bad debt and written off by the company in liquidation. 4.11. He relies upon the decision of the Delhi High Court in the case of Rakman Industries Limited -v- Sumaja Electro Infra Private Ltd. (2022 SCC OnLine Del 3719) more particularly para 17 thereof which is reproduced hereunder for easy reference: 17. It is settled law that mere demand for the repayment of does not extend t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t subsequent to this date would not extend the time of limitation. Hence the maximum period during which this Court could have allowed the appellant's application for appointment of an arbitrator is 3 years from the date on which cause of action arose i.e. 8-2-1986. Similarly, with respect to Arbitration Application No. 28/2003 relating to the work order dated 3-5-1985, the respondent has stated that final bill was handed over and became due on 10-8-1989. This has not been disputed by the appellant. Hence the limitation period ended on 10-8-1992. Since the appellant served notice for appointment of arbitrator in 2002, and requested the appointment of an arbitrator before a court only by the end of 2003, his claim is clearly barred by limitation. 4.13. He relies upon the decision of the Hon'ble Apex Court in the case of BSNL -v- Nortel Networks India Private Limited (2021)5 SCC 738 more particularly para 51 thereof which is reproduced hereunder for easy reference: 51. The period of limitation for issuing notice of arbitration would not get extended by mere exchange of letters, [S.S. Rathore v. State of M.P., (1989) 4 SCC 582 : 1990 SCC (L&S) 50; Union of India v. Har....
X X X X Extracts X X X X
X X X X Extracts X X X X
....isdiction such property, effects or actionable claims or any books of account or other documents of the company may be found, to take possession thereof, and the Chief Presidency Magistrate or the District Magistrate may thereupon after such notice as he may think fit to give to any party, take possession of such property, effects, actionable claims, books of account or other documents and deliver possession thereof to the liquidator or the provisional liquidator. (1B) For the purpose of securing compliance with the provisions of sub-section (1A), the Chief Presidency Magistrate or the District Magistrate may take or cause to be taken such steps and use or cause to be used such force as may in his opinion be necessary. (2) All the property and effects of the company shall be deemed to be in the custody of the 1 [Tribunal] as from the date of the order for the winding up of the company. 4.16. By referring to the above provision, he submits that the liquidator or provisional liquidator, as appointed, shall take into custody or under his control all the property, effects and actionable claims to which the company is or appears to be entitled. Thus, it is for the Official Liquidator....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the ex- directors on 5.01.2021 and 16.2.2022, but their reply and/or rectification thereto is still awaited. 5.8. The Official Liquidator, having waited for the records, filed M.A. No.371/2021 in CBI Special case No.6/2017 for the handover of documents. The said court vide order dated 23.08.2021 allowed the same and few documents have been handed over on 26.10.2021. It is on that basis, the above application has been filed. Therefore, she submits that the application is well within the limitation period under Section 458-A and cannot be said that it is barred by limitation at this stage. 6. Heard Ms. Krutika Raghavan, learned counsel on behalf of Official Liquidator and Sri. Perikal K.Arjun, learned counsel for the respondents. Perused papers. 7. The points that would arise for consideration are: i) When would the limitation period commence in terms of Section 458-A of the Companies Act, 1956, for the Official Liquidator to take action against the company's creditors? ii) Would the limitation period stand extended if an appeal is filed challenging the winding up order and the winding up order is stayed? If so, from when would the limitation period ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ate on which the winding up order was made, both inclusive are excluded. So also, is a period of one year immediately following from the date of winding up order excluded. 9.4. As held by the Hon'ble Apex Court in Karnataka Steel and Wire products case (supra) as also by the Hon'ble Delhi High Court in Dimension and Investment Securities Limited's case and R.C.Abrol and Company (P) Ltd's case, the period of limitation prescribed is three years from the date when the right to sue accrues. 9.5. If the right to sue accrued more than three years prior to the date of filing of the winding up petition, Article 137 of the Limitation Act would apply and the limitation period would have lapsed even as on the date of filing of the winding up petition, and as such, the official liquidator would not have a right to initiate any proceedings. The company in liquidation not having initiated any proceedings during that time, when there was no winding up petition pending. 9.6. If the limitation period commenced less than 3 years prior to the filing of the winding up petition, the time period from the date on which the limitation accrued till the date of filing of the winding up petition wo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r of Companies within two weeks of making the order. Section 444 of the Act is reproduced hereunder for easy reference: 444. ORDER FOR WINDING UP TO BE COMMUNICATED TO OFFICIAL LIQUIDATOR AND REGISTRAR Where the Tribunal makes an order for the winding up of a company, the Tribunal, shall within a period not exceeding two weeks from the date of passing of the order, cause intimation thereof to be sent to the Official Liquidator and the Registrar. 9.11. Any suits filed against the company in liquidation would stand stayed in terms of Section 446(1) of the Companies Act. In terms of Section 446A, the director and other officers of the company shall ensure that the company's books of accounts are completed and audited up to the date of the winding-up order and submitted to the liquidator at the cost of the company. Section 446 is reproduced hereunder for easy reference: 446. SUITS STAYED ON WINDING UP ORDER- (1) When a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, aga....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the persons from whom they are due and the amount likely to be realised on account thereof ; (e) such further or other information as may be prescribed, or as the Official Liquidator may require. (2) The statement shall be submitted and verified by one or more of the persons who are at the relevant date the directors and by the person who is at that date the manager, secretary or other chief officer of the company, or by such of the persons hereinafter in this sub-section mentioned, as the Official Liquidator, subject to the direction of the Tribunal, may require to submit and verify the statement, that is to say, persons- (a) who are or have been officers of the company ; (b) who have taken part in the formation of the company at any time within one year before the relevant date ; (c) who are in the employment of the company, or have been in the employment of the company within the said year, and are, in the opinion of the Official Liquidator, capable of giving the information required ; (d) who are or have been within the said year officers of, or in the employment of, a company which is, or within the said year was, an of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to the company, which shall be filed within a period of 21 days in terms of Sub- section (3) Section 454. In terms of Section 455, the official liquidator is required to submit a report as soon as practical after the receipt of the statement submitted under Section 454 regarding the matter contained under Section 455. Section 455 is reproduced hereunder for easy reference: 455. REPORT BY OFFICIAL LIQUIDATOR (1) In a case where a winding up order is made, the Official Liquidator shall, as soon as practicable after receipt of the statement to be submitted under section 454 and not later than six months from the date of the order or such extended period as may be allowed by the Tribunal, or in a case where the Tribunal orders that no statement need be submitted, as soon as practicable after the date of the order, submit a preliminary report to the Tribunal - (a) as to the amount of capital issued, subscribed, and paid-up, and the estimated amount of assets and liabilities, giving separately, under the heading of assets, particulars of (i) cash and negotiable securities; (ii) debts due from contributories; (iii) debts due to the company and securities, if any....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of such property, effects, actionable claims, books of account or other documents and deliver possession thereof to the liquidator or the provisional liquidator. (1B) For the purpose of securing compliance with the provisions of sub-section (1A), the Chief Presidency Magistrate or the District Magistrate may take or cause to be taken such steps and use or cause to be used such force as may in his opinion be necessary. (2) All the property and effects of the company shall be deemed to be in the custody of the 1[Tribunal] as from the date of the order for the winding up of the company. 9.15. In this regard, by way of amendment in the year 1960, Sub-sections 1(a) and 1(b) were introduced whereunder the official liquidator was permitted to send a request to the Chief Presidency Magistrate or District Magistrate for taking such possession. Vide sub-section (2) of Section 456, it is made clear that the property and effects of the company shall be deemed to be in the custody of the Tribunal/Court from the date of the order of the winding up. 9.16. Reading of all the above provisions together would give the reason why a period of one year is excluded from the date....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thereafter takes such action. If either of them is not available, then the official liquidator would not have any knowledge of the creditors of the company to initiate any proceedings. 9.21. It is trite law that the period of limitation is to be calculated from the date of knowledge; if the Official Liquidator has no knowledge of the Debtor, he cannot be expected to initiate proceedings. Looked at from another angle, the Law of Limitation is a fetter on a person initiating proceedings; if not done within the period of limitation, it does not wipe out the claim or obligation/debt; it only makes a person disentitled to a remedy through a court of law. For this reason, also, the period of limitation would have to be considered from the date the Official Liquidator came to know the amount due and the person from whom it is due. 9.22. In the present case, the statement of affairs by the ex-directors was filed only on 3.12.2020 and part of the books were handed over to the official liquidator only on 26.10.2021. The earlier of the two dates, being 3.12.2020, the exclusionary period under section 458 would have to be taken into calculation from the date on which the statement of aff....
X X X X Extracts X X X X
X X X X Extracts X X X X
....counts were made available to the Liquidator, irrespective of whether the statement of affairs has been filed or not. 10. ANSWER TO POINT NO.2: Would the limitation period stand extended if an appeal is filed challenging the winding up order and the winding up order is stayed? If so, from when would the limitation period have to be calculated? 10.1. An appeal is a continuation of the original proceedings. When an appeal is filed, there is a possibility of the order passed in the original proceeding being stayed or the appellate proceeding continuing without such a stay. Needless to say, when the order/judgment in original proceedings is stayed, the same cannot be implemented or executed. Furthermore, there is a possibility that the Appellate Court may vary or modify the order passed in the Original Proceedings by the Court of First Instance. Thus, depending on what happens in the appellate proceedings, there could be a further impact on the limitation period of implementing the order/judgment passed in the appellate court. 10.2. In so far as winding proceedings are concerned, as dealt with in answer to point No.1, the limitation period under Section 458A is firstly extende....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 10.7.1. In the event of an appeal being filed challenging the winding up order and there is a stay granted by the Appellate Court, the extended period of limitation contemplated under Section 458A would only commence from the date on which the order of stay is vacated. 10.7.2. In the event of no stay having been granted by the Appellate Court in the appellate proceedings, the extension of the limitation period as contemplated under Section 458A would commence as per my answer to Point No.1. 11. ANSWER TO POINT NO.3: Is the Official Liquidator expected to conduct an investigation, ascertain the creditors, and initiate action against such creditors on his own? 11.1. Sri. Perikal Arjun, learned counsel for the respondents, has contended that there is a deeming fiction regarding all assets and liabilities, including all books of the company in liquidation, being vested with the Official Liquidator from and on the date of the winding up order. On that basis, his further submission is that the Official Liquidator, having deemed possession of all the above, is deemed to have knowledge of the dues from each and every creditor, requiring the Official Liquidator to take action ag....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the statement of affairs indicating the creditors and debtors of the company filed by the ex-directors. It is, however, made clear that once the Books of accounts are made available to the liquidator and or the statement of affairs filed, a duty is cast on the liquidator to get the same examined and take necessary steps as answered by me to point No. 1 above. 12. ANSWER TO POINT NO.4: In the present matter, can the application filed by the Official Liquidator under Section 446(2) of the Act be said to be barred by law of limitation and dismissed in limine at this stage? 12.1. In the present matter, the Company Petition in COP No.57/2012 was filed on 26.03.2012 and the order of winding up was passed on 7.02.2017. 12.2. The transaction in question was entered into on 16.04.2013, and the transfer of monies by the company in liquidation to respondent No.1 was made on 16.04.2013. Thus, the transaction is during the pendency of the winding-up proceedings. 12.3. There is no allegation made as regards fraud or fraudulent transfer, if the transaction is taken to be bonafide, the transaction having occurred during the pendency of the winding up proceedings, the time from that dat....