2014 (2) TMI 826 - HC - Companies Law

Winding up of company - Bar of limitation - Whether the issuance of C Form under the Central Sales Tax Act constitutes an acknowledgment of the subsisting liabilities as well as the jural relationship giving fresh life of limitation under Section 18 of the Limitation Act - Held that - though, a Form C certainly indicates the existence of jural relationship at some point of time, of seller and purchaser, it does not acknowledge the existence, in praesenti of a debtorcreditor relationship or the existence of a liability on the date of the making/execution of the Form C - where the Transfer of Property Act was not in force, and this Court had affirmed the judgment of the Punjab High Court determining the claim of the redeeming co-mortgagor for contribution against the non-redeeming co-mortgagors on principles of justice, equity and good conscience. The plea of limitation is one of the defence available to the other side which is well-recognized in law. Section 18 can be pressed when there is a valid acknowledgment of the subsisting liability and not the past liability. The words used in the acknowledgment must sufficiently indicate the circumstances of the jural relationship as that of her debtor and creditor and there must be a manifest intention to admit such jural relationship. The object behind the issuance of the Sales Tax Declaration Form is to avail of the reduce rate of sales tax. The Declaration Form does not require to contain the statements relating to the payments already made or to be made but can at best be a best piece of evidence relating to the contract of sale and the goods being sold and delivered at a price agreed upon. The letter which contains the Declaration Form does not indicate the acknowledgment of the liability as well as the admission of the existence of a jural relationship. There is no express intention of the Company to acknowledge the liability in a letter containing the Declaration Form. The present matter can be viewed from another angle as well. The petitioning creditor have grossly suppressed the fact that subsequently an agreement was entered into between the parties whereunder it was agreed that a sum of ₹ 29 lakhs, if paid by the Company, would satisfy the outstanding dues. Admittedly, the said sum of ₹ 29 lakhs had been paid by the Company - Court, therefore, does not find that the Company should be wound up and, therefore, orders that the Company Petition shall remain permanently stayed - Stay granted.

Issues Involved:
1. Whether the issuance of 'C' Form under the Central Sales Tax Act constitutes an acknowledgment of the subsisting liabilities and jural relationship, giving fresh life of limitation under Section 18 of the Limitation Act.
2. Whether the fourth purchase order can be linked with the earlier three purchase orders to avoid the provision of the Limitation Act.
3. Whether the petitioning creditor suppressed material facts regarding the agreement and payments made in terms thereof.

Issue-wise Detailed Analysis:

1. Issuance of 'C' Form and Acknowledgment of Liability:
The core issue in this case was whether the issuance of 'C' Form under the Central Sales Tax Act constitutes an acknowledgment of the subsisting liabilities and establishes a jural relationship, thereby giving fresh life to the limitation period under Section 18 of the Limitation Act. The petitioner argued that the submission of 'C' Form acknowledges the transaction and the liability to pay, thus extending the limitation period. They relied on a judgment from the Andhra Pradesh High Court (M/s. Electro Flame Ltd. vs. M/s. Mittal Iron Foundry Pvt. Ltd.) which supported this view.

Conversely, the Company contended that the 'C' Form is issued to fulfill a statutory obligation to enable the seller to avail the reduced rate of Central Sales Tax and does not acknowledge the liability to pay the price indicated in the tax invoices. The Company cited judgments from the Delhi High Court, Bombay High Court, and other cases to support their stance that 'C' Forms do not extend the limitation period as they do not acknowledge a present and subsisting liability.

The Court concluded that the issuance of 'C' Forms does not constitute an acknowledgment of the subsisting liability or establish a jural relationship of debtor and creditor. The primary purpose of 'C' Forms is to enable the seller to avail of the reduced rate of sales tax and not to acknowledge any liability.

2. Linking of Fourth Purchase Order with Earlier Orders:
The petitioner attempted to link the fourth purchase order with the earlier three to overcome the limitation hurdle, arguing that the payment made under the fourth purchase order should be considered in relation to the earlier ones. The Company argued that the fourth purchase order was distinct and independent, with payments made separately, and should not be correlated with the earlier orders.

The Court found that the fourth purchase order was indeed independent and distinct from the earlier three. The payment made under the fourth purchase order did not constitute an acknowledgment or confirmation of liability regarding the earlier orders. Therefore, the claims related to the earlier three purchase orders were time-barred.

3. Suppression of Material Facts:
The Company argued that the petitioning creditor suppressed material facts regarding an agreement dated 28th October 2009, where it was agreed that a sum of Rs. 29 lakhs would be paid towards the outstanding dues, and Rs. 8.5 lakhs would be withheld pending successful commissioning of the system. The petitioning creditor did not disclose this agreement in the winding-up petition.

The Court noted that the winding-up petition lacked any mention of the agreement and payments made in terms thereof. The suppression of these material facts was significant. The Court emphasized that the issue of whether the withheld amount was illegal is a matter of evidence and cannot be resolved in a winding-up proceeding.

Conclusion:
The Court concluded that the issuance of 'C' Forms does not amount to an acknowledgment of liability or establish a jural relationship of debtor and creditor. The fourth purchase order was distinct and independent, and the claims related to the earlier three purchase orders were time-barred. Additionally, the petitioning creditor's suppression of material facts regarding the agreement and payments made in terms thereof was noted. Consequently, the Court ordered that the Company Petition shall remain permanently stayed, with no order as to costs.

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