1. The company resists the creditor's petition for having it wound up on the twin grounds of lack of bona fides on the petitioner's part and the claim being barred by the laws of limitation.
2. The company accepts having received the payment from the petitioner though the parties are at variance as to the purpose of payment, a matter more of form than of substance. The petitioner claims that it gave a loan of Rs. 9,99,887.96 to the company in six tranches beginning March, 1994 and April, 1996, the entire sum being repayable on demand with interest at the rate of 18 per cent, per annum. Though the petitioner is unable to produce any document evidencing such agreement, it cites the company having unfailingly acknowledged the liability to the petitioner in its successive balance sheets and relies on the last of such balance sheets for the year ended March 31, 2002 which was signed on the company's behalf on July 6, 2002. The petitioner is unable to establish the exact nature of the transaction, however, as the company acknowledges receipt of such sum on account of advance against property.
3. In December, 2003 the petitioner demanded refund of the money it had allegedly made available to the company by way of loan. The company responded to the demand contained in the statutory notice by its writing of February 5, 2004. It is the nature of the company's defence found in its response to the statutory notice that is the key issue in these proceedings as it is the defence found in such response which has been repeated and amplified in the company's affidavit:
“We object to your letter dated December 5, 2003 received by us on January 24, 2004. You have no authority to represent the company or issue any notice.
As you are aware Carboxy Chemicals Pvt. Ltd. belongs to Sri Vinod Kumar Jain, one of our directors. You have fraudulently purported to show his removal as a director together with his wife. You have also purported to illegally change the share holding. Such wrongful acts are the subject-matter of challenge in C.S No. 249 of 2003 (Vijay Kumar Jain.Plaintiff; v. Sanjay Kumar Jaindefendant.) pending before the Hon'ble High Court, Calcutta. Accordingly the letter, is illegal, without authority, null and void.
It is important in this context that Mr. Vinod Kumar Jain and his family members and supporters enjoy majority shareholding in Carboxy Chemicals Pvt. Ltd.
Without prejudice to the above, we deny that loan was given by Carboxy Chemicals Pvt. Ltd. as alleged. The sum of Rs. 9,99,887.96 was advanced by you for the purpose of purchasing property as you are fully aware. Due to various breaches on your part, the said sum was forfeited of which also you are fully aware.
Accordingly no amount is due or payable by us to you.”
4. According to the company, it is now controlled by one Vinod Kumar Jain. The company claims that Vinod Jain was the principal person in control of the petitioner company and entitled, by virtue of his shareholding therein, to retain control of the petitioner. The company asserts that Pawan, a brother of Vinod, had usurped control of the petitioner and had made the demand on the petitioner's behalf. Vinod's right to control the petitioner has been asserted in the suit filed before this Court and referred to in the company's response to the statutory notice. The underlying insinuation of the company's charge is that it is Vinod's money from one company parked in another Vinod company, that Pawan is now attempting to collect upon removing Vinod from the petitioner company.
5. The company submits that till such time that the disputes as to the control of the petitioner are resolved, these proceedings cannot be taken forward as it would be inequitable for the company being required to pay the petitioner for Pawan to effectively receive the money. The company urges that in the event Vinod succeeds in the suit filed against Pawan before this Court and gets his rightful control of the petitioner, the likeliest result in such proceedings, then Vinod's money would have been lost to him. The company cites similar payments received by it from two other concerns, Ramnath Ispat Pvt. Ltd. and Ramnath Projects Ltd., companies which have also been wrongfully taken control of by ousting Vinod and in the suit arising out of the claims relating whereto, the company's defence is the same.
6. The company also suggests that even if the acknowledgment in its balance-sheet signed on July 6, 2002 is taken into account, by the time these proceedings were instituted in July, 2006, the claim was barred by the laws of limitation. The company submits that the petitioner has been unable to show anything by way of acknowledgment of liability on the company's part at any time after July 6, 2002 that could keep its claim alive till the time this petition was filed. The company refers to the inordinate delay between the issuance of the statutory notice and the institution of these proceedings and submits that the petition and the provisional liquidator's application were filed with oblique purpose to dodge the caveat that had been lodged by the company apprehending the institution of a civil suit in furtherance of the petitioner's mala fide claim.
7. The company's response to the statutory notice, according to it, is no acknowledgment of liability within the meaning of Section 18 of the Limitation Act, 1963. The company urges that for a writing to be deemed to be an acknowledgment of liability, there must be intention on the debtor's part to acknowledge such liability and there is nothing of such kind that can be gleaned from the company's reply of February 5, 2004. According to the company, in such reply the company had bona fide acknowledged having received the sum of Rs. 9,99,887.96 but had asserted that prior to the issuance of the statutory notice, the money had been forfeited by the company and the petitioner was aware of such position. Far less than intent to acknowledge a liability, the company asserts, it had completely denied it and such letter cannot be relied upon by the petitioner for a fresh period of three years to begin running therefrom so as to suggest that the petitioner's was a live claim when this petition was filed.
8. Section 18 of the Limitation Act, 1963, the material part whereof is in pari materia with Section 19(1) of the 1908 Act, provides as follows:
“18. Effect of acknowledgment in writing.— (1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.
(2) Where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received.
Explanation.— For the purposes of this section,—
(a) an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set-off, or is addressed to a person other than a person entitled to the property or right;
(b) the word “signed” means signed either personally or by an agent duly authorised in this behalf; and
(c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right.”
9. The company refers to the judgment of a Single Judge of this Court reported at AIR 1974 Calcutta 170 (In re: Pandam Tea Co. Ltd.) and places the following passage therefrom:
“2. ……The petitioner had relied on the alleged acknowledgment made in the balance-sheet for the year 1968 which was signed on 20th July, 1970. The previous balance-sheet for the year 1967 had been signed on 3rd June, 1968. The balance-sheet which was signed by the Directors on the 20th July, 1970 contained an acknowledgment as required under Section 18 of the Limitation Act, 1963, which is in similar terms with Section 19 of the Indian Limitation Act, 1908. Therefore, it is necessary to determine whether the statement contained in the balance-sheet for the year 1968 signed on the 20th July, 1970 amounts to an acknowledgment of liability under Section 18 of the present Limitation Act. In the case of Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, AIR 1962 Cal 115, there was a balance-sheet which showed the amount claimed in that suit as “debt owing by the company to the plaintiff under the liabilities of the Company and it was relied on by the plaintiff in that suit as acknowledgment. It was contended that it was not a sufficient acknowledgment within Section 19 of the Limitation Act of 1908 because it had been prepared under compulsion of statute and of the Articles of Association of the Company and it did not contain admissions of liability existing on the date on which admission was made and it was not signed by the person duly authorised on behalf of the Company to make an acknowledgment of liability to the plaintiff. It was held by the Division Bench that though there was a compulsion upon the managing agents to prepare the document under the Companies Act and the Articles of Association there was no compulsion upon them to make any particular admission. An admission though made in discharge of their duty was nevertheless conscious and voluntary admission. A document was not taken out of the purview of Section 19 merely on the ground that it was made under compulsion of law. It was further held an admission of indebtedness in a balance-sheet was a sufficient acknowledgment under Section 19 of the Limitation Act of 1908. In this case it appears that at page 12 of the balance-sheet for the year ending 31st December, 1968 the entry against the claim of the petitioning creditor appears as follows, as it is shown as the liabilities of the company.
“Raghunath and Son Private Ltd. (Partly secured by deposit of the Company's own debentures as per contra) (Unconfirmed).”
Rs. 1,49,110
It would be noted that against the said entry there is a statement ‘unconfirmed’. It appears that similar entry was there in the case of Darjeeling Commercial Co. Ltd. v. Pandam Tea Co. Ltd. which was the subject-matter of the judgment delivered by Ghose, J. referred to hereinbefore. This aspect of the matter had also been considered and it was held by the learned Judge that this made no difference in making the acknowledgment. But apart from the said statement the Director's report in this case contained the following statement:
Your Directors are of the opinion that the liabilities shown in Schedules ‘A’ and ‘B’ of the Balance-Sheet excepting those of United Bank of India, Goenka and Co. Private Ltd. and Caritt, Moran and Co. Pvt. Ltd. are barred by limitations, hence these liabilities are not confirmed by your Directors.”
Now the question is whether the statements, which are contained in the profits and loss accounts and the assets and liabilities side indicating the liability of the petitioning creditor along with the statement of the Directors made to the shareholders as Directors' report should be read together and if so whether reading these two statements together these amount to an acknowledgment as contemplated under Section 18 of the Limitation Act, 1963 or Section 19 of the Limitation Act, 1908. In my opinion, both these statements have to be read together. The balance-sheet is meant to be presented and passed by the share-holders and is generally accompanied by the Directors' report to the shareholders. Therefore, in understanding the balance-sheets and in explaining the statements in the balance-sheets, the balance sheets together with the Directors' report must be taken together to find out the true meaning and purport of the statements……”
10. According to the company, such decision was based on an earlier reading of the Supreme Court of the same provisions in the judgment reported at AIR 1967 SC 935, Tilak Ram v. Nathu The company asserts that as to whether there was acknowledgment of liability with intent to acknowledge, had to be gathered from the document itself as no evidence as to intent can be received. The company relies on the following paragraphs from the Supreme Court judgment:
“(4) The period of limitation for redemption of the said mortgages being sixty years the period in respect of the last of them expired as early as 1929 but the appellants relied on certain statements in the said four documents alleging that they constituted acknowledgments by the predecessors-in-title of the respondents and which gave them a fresh period of limitation saving their suit from being time barred. The contention urged on behalf of the appellants in the Courts below and repeated by Mr. Mishra before us was that an admission of jural relationship of a mortgagor and a mortgagee was by itself sufficient to constitute an acknowledgment. It was urged that an admission by a party that he holds a property as a mortgagee or that what he is disposing of are his mortgage rights therein postulates that there is a subsisting mortgage, that his interest in the property is as a mortgagee and he acknowledges by such a statement his liability to being redeemed by the mortgagor subject of course to the mortgagor paying the mortgage debt. This contention was seriously contested by Mr. Menon who argued that a statement as to jural relationship would at best be a mere description of the rights dealt with by such a party and that a statement to fall within S. 19 has to be a conscious and deliberate admission of the right of the mortgagor or his successor-in-title to redeem and the corresponding liability of the maker of the statement to be redeemed. It is such a statement only which gives a fresh period of limitation.
(5) Before we proceed to consider these contentions we may mention that none of the statements relied on by the appellants expressly admitted the appellants' right to redeem or the liability of the respondents and their predecessors-in-title to be redeemed. What these statements did was only to mention without anything more the fact of jural relationship of mortgagor and mortgagee. But Mr. Mishra's contention was that a mere admission of such jural relationship was sufficient for the purposes of S. 19 and that the statement relied on need not in express words be an admission of the liability to be redeemed or of the right of redemption. Such a statement necessarily Implies a subsisting mortgage and, therefore, of the right of redemption and the liability to be redeemed thereunder.
(6) Section 19(1) provides as under:—
“Where, before the expiration of the period prescribed for a suit or application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by some person through whom he derives title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was signed.”
Explanation 1 to the section inter alia provides that
“For the purposes of this section an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right …….or is addressed to a person other than the person entitled to the property or right.”
(7) The section requires (i) an admission or acknowledgment (ii) that such acknowledgment must be in respect of a liability in respect of a property or right, (iii) that it must be made before the expiry of the period of limitation, and (iv) that it should be in writing and signed by the party against whom such property or right is claimed. Under the Explanation such an acknowledgment need not specify the exact nature of the property or the right claimed. It is manifest that the statement relied on must amount to an admission or acknowledgment and that acknowledgment must be in respect of the property or right claimed by the party relying on such a statement.”
(10) The right of redemption no doubt is of the essence of and inherent in a transaction of mortgage. But the statement in question must relate to the subsisting liability or the right claimed. Where the statement is relied on as expressing jural relationship it must show that it was made with the intention of admitting such jural relationship subsisting at the time when it was made. It follows that where a statement setting out jural relationship is made clearly without intending to admit its existence an intention to admit cannot be imposed on its maker by an involved or a far-fetched process of reasoning.”
11. The petitioner submits that the company's argument is based without regard to the explanation found in Section 18 of the Limitation Act. Merely because a debtor refuses to pay or counter-claims, would, not rob the document of its value. If a debtor acknowledged receiving payment but chose to amuse itself by denying liability, the document would still be one that would keep the claim alive within the meaning of Section 18 of the Limitation Act. The company claims that the document cannot be said to ben admission of liability nor was it intended so to be. The document merely recorded that the payment as claimed by the petitioner had been made, though not on account of any loan. By such document, the company had repelled the petitioner's contention that there was liability on its part. It is urged that mere acceptance of the petitioner having paid money would not elevate such document to the status of one recognised under Section 18 of the Act, if the admission of receipt of money was coupled with a denial of liability.
12. The company's response has to be looked into for two purposes. First, it is to be seen whether such document can keep the petitioner's claim alive for a period of three years therefrom under Section 18 of the Limitation Act. If the document can be read to be such as would keep the petitioner's claim alive, it has to be seen whether the defence urged therein is adequate to resist these proceedings.
13. The company suggests that once the; alleged debtor claims in a document that he is not liable to pay, such document can never be an acknowledgment of liability within the meaning of Section 18. It is possible that an absurd reason may be attributed for the alleged debtor disowning liability and it is only in such case that the absurd reason may be looked into. In short, the reason proffered for not paying, has to be demurrable for the document to be accepted as an acknowledgment of liability within the meaning of Section 18.
14. Clause (a) of the Explanation to Section 18 makes it clear that the refusal to pay would not affect the claim. In this case, the company accepts that it received payment but merely asserts that the money stood forfeited. There is acknowledgment of receipt of payment and the denial of liability on some ground. The denial is the Justification for non-payment and mere denial, in the face of Explanation (a) to the section, will not take much sheen off a document that can otherwise be read as an acknowledgment of liability.
15. In the Pandam case, AIR 1974 Cal 170, there was a clear disclaimer by the directors who did not confirm the liability, the recording whereof in the balance sheet was being sought to be used as an acknowledgment of liability. In the Tilak Ram case, AIR 1967 SC 935, the appellants relied on documents by which the mortgagee disposed of the mortgage right thereunder specifying that it was mortgage rights that were being disposed of. The appellants in that case contended that for a statement to fall within Section 19 of the old Act, it had to be a conscious and deliberate admission of the right of the mortgagor or his successor-in-title to redeem. It was found that the documents merely described the rights had been dealt with by the party and no intention could be gathered therefrom where any right of the mortgagor was being preserved. The documents merely traced the rights of the vendor without any consciousness or intention to admit the jural relationship between the vendors and the appellants or to admit any subsisting right of the mortgagors or their successors-in-title.
16. In the present case, the company acknowledged receiving the payment but claimed, without any reason in support thereof, that the money stood forfeited in the company's hands. No attempt has been made to justify such forfeiture or to rely on any notice that is ordinarily required to be issued prior to forfeiture of any form. The company has not relied on any automatic forfeiture by law. It may as well have suggested that it chose not to pay because the sun shone outside.
17. The company's ground that the petitioner lacks of bona fides is without basis. It is the petitioner which gave the money to the company. Such fact remains undisputed. Who is in control of the petitioner or who is in control of the company is irrelevant once the petitioner is established as the creditor and the company the debtor.
18. Counsel for the petitioner offers, without prejudice to the arguments that the petition could not be admitted, that the order of injunction in respect of the Camac Street property passed in C.A No. 472 of 2006 may be continued if this Court was of the view that the company's defence was moonshine. It is urged that the value of such property would be more than enough to meet the petitioner's claim and it is submitted on behalf of the company that in the event the company chose to deal with the Camac Street property, it would first furnish cash security of at least Rs. 10,000/- to secure the petitioner's claim.
19. The company's defence is completely without basis. But since a fair offer for security has been made, the same is accepted. The order of injunction subsisting in the application for appointment of provisional liquidator will continue till the disposal of the suit that the petitioner may institute in respect of its claim being the subject-matter of these proceedings, provided such suit is instituted within six weeks from date.
20. The petitioner's claim stands relegated to a suit on such terms. The company will have no liberty to sell its Camac Street property without first obtaining the leave of the Court which receives the petitioner's suit in pursuance of such claim.
21. Both the petition and the application are disposed of without any order as to costs.
22. Urgent photostat certified copies of this judgment, if applied for, be issued to the parties upon compliance with requisite formalities.
Order accordingly.