Dismissed

Dhl Lemuir Logistics Pvt. Ltd. v. Natural Textiles Pvt. Ltd.

Karnataka HC31 Jul 2015COP/84/2012

Case brief

AI extract

What is this about?

Official Liquidator sought exemption from filing a Section 543 misfeasance application and extension of limitation due to non-filing of books by directors. The court held the application premature as the limitation period had not been fully triggered and directed registry to de-link connected matters.

What did the court decide?

Official Liquidator directed to wait for limitation period expiry or document production before filing application; OLR disposed of; connected matters de-linked.

Dhl Lemuir Logistics Pvt. Ltd. Vs Natural Textiles… — Company and Corporate | Karnataka HC (2015)

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COP No.84/2012 c/w C.A.269/2018, COP 148/2011, COP 23/2012, COP 259/2014 and COP 9/2010

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SSDYJ:

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28.01.2021

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ORDER IN OLR NO.42/2020 (COP 84/2012)

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In OLR No.42/2020 (in COP 84/2012), the

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Official Liquidator has sought for exemption from filing an application under Section 543 of the Companies Act and has also sought for extension of limitation to file misfeasance application till the former Directors submit statement of affairs, books and records to the Official Liquidator.

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The facts that are made out, are that the Company has been ordered to be wound up by order dated 31.07.2015 passed in COP. No.84/2012 connected with 117/2013 and 204/2014. It is submitted that the Official Liquidator had issued notice under Section 454, 456 and 468 of the Act to the Directors of the Company to hand over

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the books and records. It is further submitted that notices were sent to the former Directors of the Company, which have been served and in light of non-filing of statement of affairs, the Official Liquidator had filed a complaint under Section 454 (5) of the Companies Act and in that regard they have filed C.A.No.983/2015, which is pending, further C.A. No.1016/2015 has been filed, in light of default in handing over books and records to the official liquidator which is also pending consideration. It is submitted that the Directors have not filed the statement of affairs nor handed over the books and records to the Official Liquidator, despite several communications to them in that regard.

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At Para no.3 of the said OLR, it is further submitted that the former Director of the Company had filed C.A.No.243/2019 seeking directions to respondent nos.2 and 3 to hand over the books and records available with them in respect of the Company in liquidation, to the first respondent-Official Liquidator and the said application is yet to be decided upon.

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It is submitted that as per Section 543 (1) of the Companies Act, the Official Liquidator apart from the creditor and contributory, may file misfeasance application for the act of misfeasance if any, committed by the Directors within a period of five years from the date of winding up order, if it appears that the persons referred to in Section 543 (1) have misappropriated the assets of the Company. It is specifically asserted at Para 10 that in light of non-filing of statement of affairs and non-handing over of books and records, it is not possible to investigate any misfeasance and that the Official Liquidator may be exempted form initiating any application for misfeasance till the books and records are handed over to the Official Liquidator by the former Directors of the Company in liquidation and to extend the limitation to file necessary application till such time.

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The Court has been assisted by the Amicus Curie, Sri G. Sridhar as regards the legal issues as noticed in order dated 27.01.2021 and drawing up the submissions

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made and also the submission of the learned counsel for the Official Liquidator Sri. Srishail Navalgund, the application is being considered.

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Section 543 of the Companies Act reads as follows:

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543. Power of Tribunal to assess damages against delinquent directors, etc - 1) If in the course of winding up a Company, it appears that any person who has taken part in the promotion or formation of the Company, or any past or present director, managing agent, secretaries and treasurers, manager, liquidator or officer of the Company-

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(a) has misapplied, or retained, or become liable or accountable for, any money or property of the Company; or

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(b) has been guilty of any misfeasance or breach of trust in relation to the Company;

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the Tribunal may, on the application of the Official Liquidator, of the liquidator, or of any creditor or contributory, made within the time specified in that behalf in sub-section (2), examine into the conduct of the person, director, managing agent, secretaries and treasurers, manager, liquidator or officer aforesaid, and compel him to repay or restore the money or property or any part thereof respectively, with interest at such rate as the Court thinks just, or to contribute such sum to the assets of the Company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust, as the Court thinks just.

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Under Section 543, the Official Liquidator apart from others as specified under Section 543 (1) may within the time prescribed under sub-section (2) seek for examination into the conduct of any person, director, past or present manager, liquidator or officer aforesaid and ensure repayment or restoration of money or the property or any part thereof respectively, with interest at such rate as the Tribunal may think just. Further direction may be sought for contribution of such sum to the assets of the Company by way of compensation as a result of the acts of the persons as stipulated, resulting in loss to the companies assets.

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Section 543 (2) provides that an application shall be made within five years from the date of the order for winding up, or of the first appointment of the liquidator in the winding up, or of the misapplication, retainer, misfeasance or breach of trust , as the case may be, whichever is longer.

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As to whether at this point of time, a specific order requires to be passed exempting filing of an application under Section 543 and to extend limitation to file the misfeasance application till such time as sought for in the application requires to be answered.

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Insofar as the period available under Section 543 (2) is concerned, it is to be noted that the Apex Court in the case of Ajay G. Podar v. Official Liquidator of J.S. & W.M. and Others reported in [ (2008) 14 SCC 17] has specifically concluded that Section 458A of the Companies Act dealing with computation of period of limitation has to be read into Section 543 (2) of the Act while calculating the period of limitation prescribed. In effect, the period of limitation under Section 543 (2) is to be construed as a period of five years and in calculating such period, the period of one year immediately following the date of the winding up order as provided for under Section 458A, is to be excluded.

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It is often noticed, as is contended in the present

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case that statement of affairs and relevant books and records have not been furnished. The period of limitation as per Section 543 (2) of the Companies Act, as regards the present factual matrix would commence on the date of winding up order i.e., on 31.07.2015, and as on 31.07.2020 though period of five years has lapsed, the period of one year would still be available in light of Section 458A and this would be an interpretation in terms of the judgment of the Apex Court in the case of Ajay G. Podar (supra).

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In light of the said decision the relevant examination as sought for in the present case is premature and it is only if it is within the period of five years from the date of winding up order after excluding the period of one year as contemplated in Section 458A, if still information is not available with the Official Liquidator so as to initiate proceedings, would the question as to whether the proposed action of the Liquidator is within time arise for consideration.

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Another question that may also arise is as to whether Section 5 and Section 17 of the Limitation Act, 1963 ("the Act", for short) would also apply.

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For availing the benefit of the extended period of limitation by recourse to the different period of limitation prescribed under the special or local law which is to be read as the period prescribed in the schedule, as well as seek benefit as contained in Sections 4 to 24 (inclusive) of the Limitation Act, in terms of Section 29 of the Limitation Act there are two conditions to be satisfied which are -

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(a) The period of limitation prescribed under the special law or local law is different from the period prescribed under the schedule.

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(b) The applicability of Sections 4 to 24 is not expressly excluded.

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Section 29 of the Limitation Act, reads as follows:-

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"29. Savings.—

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(1) Nothing in this Act shall affect section 25 of the Indian Contract Act, 1872 (9 of 1872).

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(2) Where any special or local law prescribes for any suit, appeal or application a period of limitation different from the period prescribed by the Schedule, the provisions of section 3 shall apply as if such period were the period prescribed by the Schedule and for the purpose of determining any period of limitation prescribed for any suit, appeal or application by any special or local law, the provisions contained in sections 4 to 24 (inclusive) shall apply only in so far as, and to the extent to which, they are not expressly excluded by such special or local law.

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(3) Save as otherwise provided in any law for the time being in force with respect to marriage and divorce, nothing in this Act shall apply to any suit or other proceeding under any such law.

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(4) Sections 25 and 26 and the definition of “easement” in section 2 shall not apply to cases arising in the territories to which the Indian Easements Act, 1882 (5 of 1882), may for the time being extend."

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It must be noted that the time prescribed under

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the Limitation Act for filing of the applications could be traced to Article 137 as no specific period is otherwise provided for under the Limitation Act. As per Section 543

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(2) of the Companies Act, 1956, which is the special law in the present case, the period prescribed is five years as stipulated, which is in contra distinction to the period of three years from when the right to sue arises for the purpose of filing an application as provided under Article 137. The first requirement of applicability of Section 29 (2) stands satisfied insofar as the period of limitation prescribed under Section 543 (2) is different from that as stipulated under Article 137 of the Schedule of the Limitation Act.

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As regards the second requirement noticed as (b)

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supra, in the present case, Section 543 (2) has not expressly excluded the applicability of sections 4 to 24. Accordingly, the benefit of deferred starting point of limitation, condonation of delay and exclusion as encapsulated in the provisions of Sections 4 to 24 could be had recourse to as provided for under Section 29(2) of the Limitation Act.

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By Virtue of the applicability of Sections 4 to 24, Section 17 of the Act which is of relevance in the present factual matrix would be applicable.

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Section 17 of the Act, reads as under:

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" 17. Effect of fraud or mistake.—

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(1) Where, in the case of any suit or application for which a period of limitation is prescribed by this Act,—

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(a) the suit or application is based upon the fraud of the defendant or respondent or his agent; or

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(b) the knowledge of the right or title on which a suit or application is founded is concealed by the fraud of any such person as aforesaid; or

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(c) the suit or application is for relief from the consequences of a mistake; or

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(d) where any document necessary to establish the right of the plaintiff or applicant has been fraudulently concealed from him,

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the period of limitation shall not begin to run until plaintiff or applicant has discovered the fraud or the mistake or could, with reasonable diligence, have discovered it; or in the case of a concealed document, until the plaintiff or the applicant first had the means of

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producing the concealed document or compelling its production."

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The Gujrat High Court in the case of Phirojshah Pestonji v. Ramnath Janarda and Ors. reported in [ (1965) 2 Comp LJ 16 (Guj)] dealing with the provisions under the previous Limitation Act, 1908 (at paras 2 and 7) (Section substantially similar to Section 543 of the Companies act, 1956), Section 18 of the Limitation Act, 1908 (Substantially similar to Section 17 of the Limitation Act, 1963) has in effect concluded that as regards proceedings under Section 235 of the Companies Act, 1913, Section 18 of the Limitation Act could be invoked. That Section 17 of the Limitation Act, 1963 could be invoked which inference can also be drawn from the observations of Para 13 of from the case of Ajay G. Podar (supra) which reads as hereunder -

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"13. Coming to the provisions of the Companies Act, we find that although Sections 543(1) and (2) provide for locus and forum, there

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is no provision for computation of the period of limitation. We are proceeding on the basis that Section 543(2) provides for a different limitation than the limitation prescribed under Article 137 of the Limitation Act. However, Section 543(2) does not rule out the applicability of Sections 12 to 24 in Part III of the Limitation Act. Part II of the Limitation Act deals with limitation of suits, appeals and applications whereas Part III deals with the computation of period of limitation. Similarly, in our view Section 543(2) deals with limitation for applications/claims mentioned in Section 543(1) which includes misfeasance proceedings whereas the computation of the period of five years is contemplated by Section 458-A of the Companies Act."

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In light of Section 17 (1) (b) and (d) "the period of limitation shall not begin to run until plaintiff or applicant has discovered the fraud or the mistake or could, with reasonable diligence, have discovered it; or in the case of a concealed document, until the plaintiff or the applicant first had the means of producing the concealed document or compelling its production." The applicant could have

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recourse to benefit as regards the starting point of limitation.

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Hence, in the present case, the Official Liquidator is to wait till conclusion of five years after excluding one year as per Section 458-A or till the production of documents as noticed supra and if it is made out that the application seeking initiation of proceedings is being made within a period of five years in terms of Section 543 read with 458-A, taking note of the starting point of time under Section 17, then in such an event, even the question of filing an application for condonation of delay would not arise and an application could be directly made under Section 543 stating how the application is made within the period of limitation prescribed.

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It would also be necessary to observe that even

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after the period of five years, if it is found that the period of five years (after taking note of Section 458-A) that has commenced in terms of Section 17 has expired, or in any other case, where within the period of time prescribed

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under Section 543 proceedings cannot be initiated, recourse can still be had to Section 5 of the Limitation Act and in such cases, application under Section 5 of the Limitation Act could be filed in light of applicability of sections 4 to 24 in terms of Section 29 of the Limitation Act.

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Such a view finds support in the judgment of the Andhra Pradesh High Court in the case of The Official Liquidator, High Court of A.P. v. Chepur Ratnakar Rao and Another reported in [(1995) 84 Comp Cases 465] (which at Para 8) has recorded a clear finding that Section 5 of the Limitation Act could be invoked in light of stipulation under Section 29 (2) of the Limitation Act as regards proceedings under Section 543 of the Act.

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Hence, the present application is found to be premature and will have to be rejected, subject to the observations made above.

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Accordingly, OLR 42/2020 is disposed of.

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In view of disposal of OLR 42/2020, Registry is directed to de-link other connected matters and list them separately for passing necessary orders.

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We place on record the pain staking assistance of the Amicus Curiae Sri. G. Sridhar and the effective assistance of learned counsel for the Official Liquidator Sri. Srishail Navalgund.

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Sd/JUDGE

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Np/-

Dhl Lemuir Logistics Pvt. Ltd. v. Natural Textiles Pvt. Ltd.

Case brief

What is this about?

What did the court decide?

Dhl Lemuir Logistics Pvt. Ltd. v. Natural Textiles Pvt. Ltd.

Case brief

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What did the court decide?

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