:1: IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY PETITION NO.570 OF 2005 In the matter of M/s. Reunion Electrical Manufacturers Pvt. Ltd. ..Company Uma Kumar, Proprietor, Kandhan Electricals & Engineers ..Petitioner. Mr.S.C.Naidu with Mr.B.H.Gada i/b.M/s.C.R.Naidu & Co. for the Petitioners. Mr.Birendra Saraf i/b.M/s.V.Deshpande & Co. for the Respondents. CORAM : S.J. VAZIFDAR, J. CORAM : S.J. VAZIFDAR, J. CORAM : S.J. VAZIFDAR, J. DATED : 2ND MARCH, 2006 DATED : 2ND MARCH, 2006 DATED : 2ND MARCH, 2006 ORAL JUDGMENT : ORAL JUDGMENT : ORAL JUDGMENT : This is a petition under sections 433 and 434 of the Companies Act, 1956 seeking winding-up of the Respondent Company. 2. According to the Petitioner, the company is indebted to her in the sum of Rs.13,19,853.48 together with interest thereon. The Petitioner carries on business as the sole proprietor in the firm name and style of M/s.Kandhan Electricals & Engineers. The Petitioner’s case is that pursuant to purchase orders placed by the company she :2: supplied goods on the terms and conditions contained in 58 invoices, the details whereof are tabulated in paragraph 8 of the petition. The invoices were issued during the period 9.4.2001 to 3.11.2001. 3. The only defence is that the claims are barred by limitation as the petition was filed on 9th August, 2005. 4(a). By its letter dated 5.11.2001 the company acknowledged its liability in the sum of Rs.6,61,540.27 By a letter dated 22.11.2001 the company assured the Petitioner that it would make payment at the earliest and expressed its gratitude for the co-operation extended by the Petitioner. By a letter dated 19.4.2002 the company assured the Petitioner that it would initiate action shortly to clear all her dues and regretted the inconvenience caused to the Petitioner. (b). These letters however do not save the bar of limitation for the petition was filed on 9.8.2005 i.e. more than three years after the last acknowledgment dated 19.4.2002. 5(a). The Petitioner served a statutory notice by :3: her Advocate’s letter dated 29.4.2005. In reply to the statutory notice, the Company’s Advocate addressed a letter dated 9.6.2005. (b). The reply contained bare denials. The Company has gone to the extent of denying that it had assured the Petitioner that it would make payment of the outstanding amounts. In view of the letters of the Company, referred to above, it is clear that the denials are ex-facie false. The affidavit in reply filed on behalf of the Company is, with good reason, guarded. The denials in the affidavit have not gone to the same extent obviously for fear of being cited for perjury. However, paragraphs 3 and 5 of the letter are important as I have come to the conclusion that the contents thereof constitute an implied promise by the company to pay the amount which may be found due on taking accounts as demanded by the company. Paragraphs 3 and 5 of the letter dated 9.6.2005 read as under : "3. Our clients state that the claim made in the notice under reply is absolutely false and frivolous and without any justification and the same is required to be reconciled. Our clients state that there is nothing due and payable by our :4: clients to your clients as alleged." (emphasis supplied) "5. Our clients state that without admitting the genuineness and correctness of the claim made in the letter under reply, our clients say and submit that the accounts in respect of the transaction between the period 1st April, 2001 and 31st March, 2002 between our clients and your clients is required to be reconciled and thus we hereby call upon your clients to convene a joint meeting for reconciliation of the said accounts by independent expert and thus reserve their right to give detailed and suitable reply to the said notice after reconciliation of the said accounts." (emphasis supplied) (c). The Petitioner by her Advocate’s letter dated 1.7.2005 furnished the documents called for by the Company’s Advocate’s letter dated 9.6.2005 to enable reconciliation of the accounts. It is important to note that even after receipt of these documents the Company did not dispute the quantum of the Petitioner’s claim. 6. Mr.Saraf, the learned counsel appearing on behalf of the Company, submitted that the Petitioner’s dues were barred by limitation. Even :5: the last invoice dated 3.11.2001 would be barred by limitation as the petition was filed only on 9.8.2005. 7. Mr.Naidu, the learned counsel appearing on behalf of the Petitioner, submitted that the bar of limitation was saved on two counts. Firstly, he stated that the Company has issued Forms "C" under the provisions of the Central Sales Tax Act. Secondly, the bar of limitation is saved in view of what was stated on behalf of the Company in paragraphs 3 and 5 of the letter dated 9.6.2005, extracted above. I have come to a conclusion against the Petitioner on the first point but in her favour on the second. 8. Whether the issuance of Forms "C" constitutes an acknowledgment of liability so as to save the bar of limitation in view of section 18 of the Limitation Act, is the first question that falls for consideration. I have come to the conclusion that the execution or issuance of a Form "C" by itself does not save the bar of limitation under section 18. Section 18 of the Limitation Act reads as under: :6: "18. Effect of acknowledgement in 18. Effect of acknowledgement in 18. Effect of acknowledgement in writing.- writing.- writing.-(1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgement 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 acknowledgement was so signed. (2) Where the writing containing the acknowledgement 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 purpose of this section,- (a) an acknowledgement 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 :7: 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. Before dealing with the nature of a Form "C", it would be useful to consider the ambit of section 18 of the Limitation Act. The principles, atleast, while considering the nature of a Form "C" qua the question of limitation, are clear from two judgments of the Supreme Court. In S.F.Mazda v. Durga Prasad, AIR 1961, Supreme Court, 1236, the Supreme Court held :- "(6) It is thus clear that acknowledgment as prescribed by S. 19 merely renews debt; it does not create a new right of action. It is a mere acknowledgment of the liability in respect of the right in question; it need not be accompanied by a promise to pay either expressly or even by implication. The statement on which a plea of acknowledgment is based must relate to a present subsisting liability though the exact nature or the specific character of the said liability may not be indicated in words. Words used in the acknowledgment must, however, indicate the :8: existence of jural relationship between the parties such as that of debtor and creditor, and it must appear that the statement is made with the intention to admit such jural relationship. Such intention can be inferred by implication from the nature of the admission, and need not be expressed in words. If the statement is fairly clear then the intention to admit jural relationship may be implied from it. The admission in question need not be express but must be made in circumstances and in words from which the court can reasonably infer that the person making the admission intended to refer to a subsisting liability as at the date of the statement. In construing words used in the statements made in writing on which a plea of acknowledgment rests oral evidence has been expressly excluded but surrounding circumstances can always be considered. Stated generally courts lean in favour of a liberal construction of such statements though it does not mean that where no admission is made one should be inferred, or where a statement was made clearly without intending to admit the existence of jural relationship such intention could be fastened on the maker of the statement by an involved or far-fetched process of reasoning. Broadly stated that is the effect of the relevant provisions contained in S. 19, and there is really no substantial difference between the parties as to the true legal position in this matter." (emphasis supplied) In Tilak Ram & Ors. v. Nathu & Ors, AIR 1967 :9: Supreme Court, 935, the Supreme Court held as under: "(9) It is not, however, necessary to go into the details of these decisions or to decide which of the two views is correct as this Court in Shapur Fredoom Mazda v. Durga Praasad, (1962) 1 SCR 140: (AIR 1961 SC 1236), has examined the contents and the scope of S.19. After first stating the ingredients of the section, this Court stated that an acknowledgment may be sufficient by reason of explanation 1 even if it omits to specify the exact nature of the right. Nevertheless, the statement on which a plea of acknowledgment is based must relate to a subsisting liability. The words used in the acknowledgment must indicate the jural relationship between the parties and it must appear that such a statement is made with the intention of admitting that jural relationship. Such an intention, no doubt, can be inferred by implication from the nature of the admission and need not be in express words. It was then observed :- "If the statement is fairly clear then the intention to admit the jural relationship may be implied from it. The admission in question need not be express but must be made in circumstances and in words from which the Court can reasonably infer that the person making the admission intended to refer to a subsisting liability as at the date of the statement." The Court also observed that stated generally the Courts :10: leaned in favour of a liberal construction of such statements though that would not mean that where no admission was made one should be inferred or where a statement was made clearly without intending to admit the existence of jural relationship such as intention would be fastened on the maker of the statement by an involved or a far-fetched process of reasoning. Similarly, while dealing with an admission of a debt, Fry L. J. in Green v. Humphreys, (1884) 26 Ch D 474 at p. 481, observed that an acknowledgment would be an admission by the writer that there was a debt owing by him either to the receiver of the letter or to some other person on whose behalf the letter was received but that was not enough that he referred to a debt as being due from somebody. In order to take the case out of the statute there must, upon a fair construction of the letter read by the light of the surrounding circumstances, be an admission that the writer owed the debt. (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 :11: far-fetched process of reasoning." (emphasis supplied) 10. While considering the nature of a Form ‘C’, it is necessary first to note the provisions of section 8 of the Central Sales Tax Act, which read as under : "8. Rates of tax on sales in the 8. Rates of tax on sales in the 8. Rates of tax on sales in the course in inter-State trade or course in inter-State trade or course in inter-State trade or commerce.- commerce.- commerce.- [(1) Every dealer, who in the course of inter-State trade or commerce- (a) sells to the Government any goods; or (b) sells to a registered dealer other than the Government goods of the description referred to in sub-section (3); shall be liable to pay tax under this Act, which shall be [four per cent.] of his turnover.] [(2) ...................... ................................. [(3) ...................... ................................. [(4) The provisions of sub-section (1) shall not apply to any sale in the course of inter-State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner- :12: (a) a declaration duly filled and signed by the registered dealer to whom the goods are sold containing the prescribed particulars in a prescribed form obtained from the prescribed authority; or (b) if the goods are sold to the Government, not being a registered dealer, a certificate in the prescribed form duly filled and signed by a duly authorised officer of the Government:] [Provided that the declaration referred to in clause (a) is furnished within the prescribed time or within such further time as that authority may, for sufficient cause, permit.]" 11. The form prescribed under section 8(4)(a) is in Form "C" which, in turn, is prescribed under Rule 12(1) of the Central Sales Tax (Registration and Turnover) Rules, 1967, which provides that the declaration and the certificate referred to in Sub-clause 4 of section 8 shall be in forms "C" and "D" respectively. 12. It is now necessary to see the contents of a Form "C". Form "C" is a declaration issued by the :13: purchaser in order to enable the seller to avail of the reduced rate of Central Sales Tax. In the absence of a Form "C" the seller would be required to pay the higher rate specified in section 6 of the Central Sales Tax Act. A Form "C" requires details such as the name of the issuing State, the office of issue, the date of issue, the name of the purchasing dealer, his registration certificate number and the date from which the registration was valid. It also requires an endorsement to the seller certifying that the goods ordered in the purchase order and supplied as per the bill/cash memo/Challan No. are for resale/use in manufacture/processing of goods for sale/use in mining/use in generation/distribution of power/packing of goods for sale/resale, as the case may be and that the same are covered under the purchase registration certificate, issued under the Central Sales Tax Act. The form also certifies that the purchaser is not registered under section 7 of the Act in the State in which the goods are to be delivered. The form further requires the name and address of the purchasing dealer. The form is to be signed, declaring that the statements therein are to the best of the knowledge and belief of the person signing the same. :14: 13. The primary purpose for the issuance of a Form "C" is to enable the seller to avail of the reduced rate of the sales tax under section 8(1). There is no other purpose for which the form is issued. A Form "C" was admittedly issued by the Respondent. 14. A Form ‘C’, no doubt, is evidence of a contract of sale having been entered into. The form may, in conjunction with other facts and circumstances, evidence that the goods were, in fact, sold and delivered by the seller to the purchaser and the price at which the goods were sold and delivered. In substance, therefore, the form would evidence the fact/existence of an agreement to sell as well as the price at which the goods were agreed to be sold. 15. However, neither section 8 nor Rule 12 or even Form "C" for that matter, require the purchaser to declare expressly that he has paid the price of the goods in respect of which Form "C" is issued. Thus, it is not possible to infer that the execution and issuance of Form "C" by a purchaser impliedly reflects on the question of payment by the purchaser to the seller in respect of the transactions referred to therein. :15: 16. Form "C" does not contain expressly or even by implication, the acknowledgment of liability in praesenti in respect of the transactions referred to therein. The execution and issuance of Form "C" does not, to use the words in S.F. Mazda’s case, relate to a present subsisting liability. Nor does the execution and issuance of Form "C" indicate that the statements therein were made with an intention to admit a subsisting liability. In other words, though, a Form ‘C’ certainly indicates the existence of a jural relationship at some point of time, of seller and purchaser, it does not acknowledge the existence, in praesenti of a debtor-creditor relationship or the existence of a liability on the date of the making/execution of the Form "C". 17. The Courts are entitled to look at the surrounding circumstances, as held by the Supreme Court in S.F.Mazda’s case. I am however unable to find any circumstances surrounding the issuance of the Form "C" which would indicate that the same was issued by the Company with the intention expressly or impliedly to admit a subsisting liability present at the time of the issuance thereof. :16: 18. Mr.Naidu relied upon a letter dated 19.9.2003 addressed by the company to the Petitioners merely referring to the issuance of the Form "C" and the details of the bills in respect whereof it was issued. The bills referred to are of the aggregate value of Rs.3,26,530.27. The company also requested the Petitioners to issue E-1 Forms. 19. The letter does not carry the Petitioner’s case further. It does not say anything more than what was stated in the Form "C". The letter does not any more than the Form "C" itself, indicate the existence of a liability present and subsisting as on the date of the letter. 20. In the circumstances, though much I was inclined initially to lean in favour of a liberal construction holding the execution of a Form "C" to be an acknowledgment of liability, upon further reflection, I am not inclined to do so. If I were to lean any further despite what I have observed above, I would fall into the error warned against by the Supreme Court in the above cases. 21. There is yet another difficulty in the Petitioner’s way in so far as her case is based on :17: the "C" Forms. As Mr.Saraf rightly pointed out not only have the "C" Forms not been annexed but even the dates of the "C" Forms have not been mentioned. 22. This brings me to the second ground on which the bar of limitation is said to be saved. It is based on paragraphs 3 and 5 of the letter dated 9.6.2005 which I have extracted earlier. The letter cannot be of any assistance to the Petitioner as a mere acknowledgment of liability under section 18 of the Limitation Act for it was executed even after the extended period of limitation. Prior thereto, the last acknowledgment on record is the one contained in the letter dated 19.4.2002 by which the Company informed the Petitioner that it would initiate action shortly to clear her outstanding dues. 23. However, to my mind, the letter dated 9.6.2005 and in particular, paragraphs 3 and 5 thereof, constituted a promise albeit an implied promise by the Company to pay the Petitioner the amounts, if any, that may be found due upon the account being reconciled. It is crucial to note that the Company did not really deny its liability totally. It denied that it was liable in the sum of :18: Rs.7,67,646.21 demanded by the Petitioner. The Company however did not stop there. The Company then expressly stated that the account in respect of the transactions during the relevant period "is required to be reconciled". The letter goes a step further and calls upon the Petitioner "to convene a meeting for reconciliation of the said accounts by independent expert." And further still did it go stating that the Company reserved "their right to give detailed and suitable reply to the said notice after reconciliation of the said accounts." 24. The question that first comes to mind is - Why did the Company call upon the Petitioner to reconcile the accounts ? The obvious answer is, - to arrive at the amount that the Petitioner was actually entitled to. The question that then comes to mind is - Why did the Company want the correct amount to be arrived at ? The logical answer is that the Company impliedly thereby agreed to pay only that amount which was found to be due and payable on a reconciliation of the account. 25. I did not hear Mr.Saraf to suggest that there was any other reason for what the Company stated in paragraphs 3 and 5 of the letter. Indeed, there :19: cannot be any other reason on a fair reading of the letter itself. The letter does not deny the fact of the transactions having been entered into. The letter does not state that upon a reconciliation of the accounts, no amount will be found due and payable. If, according to the Company, upon reconciliation, no amount would be due and payable, it would not have reserved to itself a right to give a suitable answer after an examination of the account. 26. The letter dated 9.6.2005 therefore on a fair and correct reading, contained an implied promise on the part of the Company to pay the amount, if any, found due upon reconciliation of the account. If this conclusion is correct, the Petitioner’s claim even if barred by limitation is saved under section 25(3) of the Indian Contract Act, 1872, which reads as under : "25. Agreement without 25. Agreement without 25. Agreement without consideration, void, unless it is consideration, void, unless it is consideration, void, unless it is in writing and registered, or is in writing and registered, or is in writing and registered, or is a promise to compensate for a promise to compensate for a promise to compensate for something done, or is a promise something done, or is a promise something done, or is a promise to pay a debt barred by to pay a debt barred by to pay a debt barred by limitation law.- limitation law.- limitation law.-An agreement made without consideration is void, unless- :20: (1) ............................ (2) ............................ (3) It is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits. In any of these cases, such an agreement is a contract." 27. I believe the approach adopted and