1978 (4) TMI 207 - HC - Companies Law

Winding up Definition of contributory, Exclusion of certain time in computing periods of limitation

Issues Involved:

1. Nature of the chit fund transaction and whether the amount advanced to the successful prize bidder constitutes a debt.
2. Maintainability of the petition under the Companies Act for recovery of the prize amount without conducting the chit for the full period.
3. Whether the successful prize bidder is a "contributory" within the meaning of the Companies Act.
4. Whether the petition is within the prescribed limitation period.

Detailed Analysis:

Point 1: Nature of the Chit Fund Transaction and Debt

The court examined the nature of the chit fund transaction, specifically Chit Fund No. 16 of M.C.I. group, valued at Rs. 5,000, where each subscriber paid Rs. 125 per month for 40 months. The successful prize bidder received the prize amount after offering the highest discount and was obligated to continue paying the monthly instalments. The liability to pay these instalments was secured by a promissory note and surety bonds. The court concluded that the transaction was not a loan but more akin to a sale, where the prize bidder purchased the prize amount and incurred a liability to repay it through monthly instalments. The court held that this liability could not be enforced independently of the chit fund scheme, which required the chit to run its full course of 40 months. Therefore, the liability under the promissory note and surety bonds could not be enforced without conducting the chit for the full period.

Point 2: Maintainability of the Petition

The court determined that the liability of the successful prize bidder could not be enforced without conducting the chit for the full period. The mutual obligations between the company and the successful prize bidders were interdependent, and the liability under the promissory note and surety bonds could not be considered in isolation. The court held that the petition for recovery of the prize amount was not maintainable without fulfilling the chit fund scheme's terms.

Point 3: Contributory Status

The court analyzed whether the successful prize bidder was a "contributory" under section 428 of the Companies Act. A "contributory" is defined as a person liable to contribute to the assets of a company in the event of its winding up. The court noted that a contributory must be liable to contribute to the company's assets, which typically includes unpaid share capital. The court concluded that a mere debtor of the company, such as a successful prize bidder, does not qualify as a contributory. The liability of the prize bidder was to repay the prize amount, which did not constitute a contribution to the company's assets. Therefore, the successful prize bidder was not a contributory within the meaning of the Companies Act.

Point 4: Limitation Period

The court considered whether the petition was filed within the prescribed limitation period. The promissory note executed by the prize bidder was dated September 7, 1971, and the last instalment under the chit was due on July 16, 1973. The company went into liquidation on July 1, 1974, and the present petition was filed on February 22, 1977. The court held that the petition was barred by limitation, as it was filed beyond three years from the date the last instalment became due. The court rejected the argument that the limitation period began from the date of the call made by the liquidator, as the prize bidder was not a contributory.

Conclusion:

The court dismissed the petition, holding that the liability of the successful prize bidder could not be enforced without conducting the chit for the full period. The successful prize bidder was not a contributory within the meaning of the Companies Act, and the petition was barred by limitation.

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