Andhra HC (Pre-Telangana)
T.J. Swamy And Ors. vs The Official Liquidator, High Court Of ... on 19 August, 1991
Equivalent citations: 1992(1)ALT467
JUDGMENT Upendralal Waghray, J.
1. This appeal under Clause 15 of the Letters Patent by six individuals, who were either the Directors or Officers at the relevant time of Sri Jaya Investment Private Limited, is filed, against the order of the Company Judge dated 5-3-1991 in C.A. No. 312/1987 in C.P. No. 5/1981. The said Company Application is filed by the Official Liquidator impleading ten persons as respondents. Out of the said ten respondents, respondents 4 and 6 were reported to have died and respondent No. 3 was set exparte. This appeal is filed by respondents 1, 2, 5 and 8 to 10 in the said application. In this appeal, the Liquidator is impleaded as respondent No. 1 and respondents 3, 7, 4 and 6 in the Company Application are impleaded as respondents 2 to 5.
2. The Company Petition No. 5/1981 was presented to this court on 20-7-1981 by a creditor for winding up of M/s. Jaya Investment Private Limited (hereinafter called the company). By an order dt.28-8-1981 the said Company was ordered to be wound up. Thereafter the Official Liquidator has presented the Company Application No. 312/1987 on 5-10-1987 under Section 543 of the Companies Act. The section reads as follows:
"Section 543. Power of Court 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, manager, liquidator or officer of the company-
(a) has misapplied, or retained, or become liable or accountable for any money or property of the company; or
(b) has been guilty of any misfeasence or breach of trust in relation to the company;
the Court may, on the application of the Official Liquidator, or 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, 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 of to contribute such sum to the assets of the company by way of compensation in respect of the mis-application, retainer, misfeasance or breach of trust, as the court thinks fit.
(2) An application under Sub-section (1) shall be made within five years from the date of the order for winding up, or of the first appointment of the liquidator in winding up; or of the misapplication, retainer, misfeasance or breach of trust, as the case may be, which ever is longer.
(3) This section shall apply notwithstanding that the matter is one for which the person concerned may be criminally liable."
3. In the said application it is stated by the Official Liquidator that the respondents in the Company Application were liable to be proceeded against for the alleged acts of misfeasance etc., during the period they were Directors or Officers of the Company and the Court issued notices to the respondents in the prescribed form. The appellants have resisted the said application on various grounds including the plea that the application is beyond time of five years as contemplated by Sub-section (2) of Section 543 and ought to be rejected. By the impugned order, the learned Company Judge has overruled the preliminary objection about limitation holding that the application is in time after giving benefit of the exclusion of the period as contemplated by Section 458-A of the Act. It is useful to extract Section 458-A:
"S.458-A. Exclusion of certain time in computing periods of limitation:
Notwithstanding anything in the Indian Limitation Act. 1908 (IX of 1908) or in any other law for the time being in force, in computing the period of limitation prescribed for any suit or application in the name and on behalf of a company which is being wound up by the court, the period from the date of commencement of the winding up of the company to the date on which the winding up order is made (both inclusive) and a period of one year immediately following the date of the winding up order shall be excluded."
4. We have heard the counsel for the appellants and also Mr. S. Ravi, learned counsel appearing for the Official Liquidator at some length at the stage of admission as the controversy relates to a preliminary objection in an old proceeding.
5. It is not in dispute that the present application is beyond five years as contemplated by Section 543(2) and if the benefit of Section 458-A is given, it will be within time. Though, before the learned company Judge a controversy was raised whether an application by Official Liquidator can be on behalf of the Company for the purpose of Section 458-A this was not pressed before us, and it is not disputed that an application by the Official Liquidatbr in winding up proceedings is on behalf of the Company.
6. According to the learned counsel for the appellants the provisions of Section 458-A of the Act cannot be invoked for the purpose of extending the period contemplated by Section 543(2). It is pointed out that Section 458-A is found in Chapter-II of Part VII in a group of Sections under the heading "Official Liquidators", while Section 543 is found in Chapter V of Part VII. The argument runs: Section 458-A does not apply to the proceedings contemplated by Section 543, which is in Chapter V and it will lead to anomalous results. An application under Section 543(1) may be made either by the Official Liquidator or a creditor or a contributory; while Section 458-A applies only to applications on behalf of the Company. This according to the counsel for the appellants would lead to a discriminatory treatment against the persons other than the Official Liquidator, who could make an application under Section 543. The counsel, however, stated that there is no decision in support of his contention.
7. The learned counsel for the Official Liquidator has supported the order of the learned Company Judge and has also relied upon two judgments of single Judges - one of this court and another of Madras High Court - where it has been held that the benefits of Section 458-A will be available for applications under Section 543 of the Act These two decisions are reported in the same volume of Company Cases viz., Arkey Chit and Commercial trading Co. P. Ltd., In Re, (1982) Comp. Cas. 175 (A.P.) and Fabrimats (Madras) P. Ltd., In re, (1982) 52 Comp. Cas. 501 (Madras) According to him, assuming that Official Liquidator is given a separate treatment it cannot be said to be in any way discriminatory because the classification between the persons in management earlier and the Official Liquidator for giving the benefit of Section 458-A is on a relevant basis.
8. According to the counsel for the appellants in the said two decisions the question of any discriminatory treatment in favour of the Official Liquidator and the circumstances of these two provisions occurring in different Chapters of the Act and meant for different situations was not examined.
9. The appellants' complaint about any discrimination has to be considered in the background that the validity of any provision of the Companies Act is not in question and could not be questioned in the proceedings before the Company Judge or in this appeal arising out of a proceeding before a Company Judge. If at all it may be considered for interpreting the provisions to resolve any doubt about their applicability. The complaint of discrimination is apparently based on the circumstances that the benefit of Section 458-A is available only for any suit or application in the name and on behalf of a Company which is being wound up by the court, while the proceedings under Section 543(1) could be initiated on the application of the Official Liquidator or the Liquidator or any creditor or contributory made to the Company Court Section 543 contemplates action against any persons, who have taken part in connection with the management of the Company in the capacity of a Director, Officer or Liquidator of the Company. This makes it clear that, if any person functioning as a Liquidator has been guilty of the acts mentioned in the said section, he can also be proceeded with. The action under Section 543 is only against 'a person' and not against the office of the Official Liquidator. During the period of winding up generally, the Official Liquidator will be managing the affairs of the company under the supervision of the Court. If any individual functioning as Official Liquidator is to be proceeded against under Section 543, it will not be impossible for an application being filed for removal of the Liquidator or appointing any other person for the purposes of taking the benefit of the provisions of Section 458-A. Even if assuming that the benefit of Section 458-A is given only to the Official Liquidators as be acts on behalf of the Company it cannot be doubted that he forms a separate class apart from creditors and contributories for extending the benefit of Section 458-A, nor can it be said that there is no relevant basis for such separate treatment. Probably, it was advisedly done, as otherwise, every creditor or contributory could make an application even after a lapse of the period mentioned in Section 543 which may amount to defeating the object of providing a period of limitation. Such an exclusion is given only in cases on behalf of the Companies and it will, normally, be by the Official Liquidator in the winding up and cannot be said to be in any way discriminatory. The appellants who are persons being proceeded against, cannot legitimately raise such a grievance in the face of the clear provisions of Section 458-A.
10. The present Companies Act contains more than 560 Sections which are divided into 13 parts. Each part contains separate Chapters and also sub-headings for grouping of sections. Part-VII provides for winding up of the Companies and comprises of Sections 425 to 560, which are divided into five Chapters. Under each chapter, sections are grouped under Headings. What importance is to be given to the circumstances that these two section's are in different Chapters of the same part VII dealing with winding up has to be examined with reference to the scheme of winding up.
During winding up proceedings after Liquidator or Official Liquidator takes over, he acts on behalf of the Company and has to file suits or applications to enforce the rights of the Company, based on contract, statutory provisions of torts. Sections 543 confers jurisdiction on the Company Court to decide and enforce the liabilities against the persons mentioned in it. It is well known that even after the order of -winding up it takes considerable time for the Official Liquidator to get the necessary information, particulars and material about the existence of any such rights of the Company. Till the previous management files a statement of affairs and delivers all the relevant books of account and record, it may not be possible for the Official Liquidator to take any action in this behalf. Apparently for this reason, Section 458-A has been enacted and introduced by the Amendment Act 65 of 1960 to provide for exclusion of period from any provisions prescribing a limitation. Sections 531 to 537 (in part VII) provide for avoidance of liabilities or transfers of property incurred or made prior to the winding up by the earlier management on an application filed to the Company Court. Sections 538 to 542, Section 545 provide for penal consequences including prosecution. It is to be noticed that, Section 458-A extends the period of limitation only for the purposes of suit or application and may not be applicable to a prosecution in a criminal court. Section 458-A contains a non-obstinate clause and extends the period not only in respect of period for a suit or application fixed by Limitation Act but even by any other law and is not confined to Civil Courts. This will take in any application under the Companies Act including one under Section 543. The Section, therefore, has to be interpreted in a manner to advance the object of scheme of winding up under the Act.
11. In view of the aforesaid decision, we are of the opinion that the benefit of Section 458-A will be applicable for an application by Official Liquidator under Section 543 of the Act. The two decisions cited by the counsel for the respondents have also held that the benefit of this Section is available for proceedings under Section 543 of the Act. The appellants' counsel has not brought to our notice any decision taking a contrary view.
12. In the result, the order of the learned Company Judge is confirmed and the appeal is dismissed with costs.