C^tAn ilex Washing Plants (Pvt) Ltd. Vs.21
G. D. S. Chemicals (Pvt) Ltd. and Another
ANITEX WASHING PLANTS (PVT) LTDVSD. S. CHEMICALS (PVT) LTD AND ANOTHER•COURT OF APPEAL.
SOMAWANSA, J. (P/CA) ANDBASNAYAKE, J.
CALA 4/2004 (LG).
D. C. PANADURA – Winding up Application No. 2890/Spl.MARCH 7, 2005.
Companies Act, No. 17 of 1982 – Winding up – Debts owed – Action instituted bya creditor for winding up – Prescription Ordinance, section 8 – Does thePrescription Ordinance apply?
Winding up proceedings were filed against the respondent petitioner as therespondent petitioner was not able to pay the respondent company a certaindebt. Preliminary objection was taken' that the petitioner respondent’s claimwas time-barred. The trial judge overruled the objection on the ground that theapplication to wind up a company was for non-payment of debts and not anaction to recover a debt; thus the Prescription Ordinance will not apply. Therespondent petitioner sought leave to appeal.
The petitioner respondent sought a winding up order, and also soughtrecovery of his money. A creditor – petitioner does not petition for thesatisfaction of seeking the demise of his company debtor but rather inthe hope of recovering part at any rate of his debt. Thus the petitioner isseeking to recover a sum.
No liability could be attached to a prescribed debt. The provisions of thePrescription Ordinance do apply.
PER ERIC BASNAYAKE J.:
It is a starling proposition to suggest that in a due course of administration ina voluntary winding up the liquidator is entitled to pay statute barred creditors.
APPLICATION for leave to appeal from an order of the District Court of Panadura,with leave being granted.
Sri Lanka Law Reports
(2005) 3 Sri L R.
Cases referred to:
Re. Karnes Property Co. Ltd.
In re. Fleedwood and District Electric Light and Power Syndicate – (1915)I Ch. 486
In re Art Reproduction Co. Ltd – 1952 Ch. 89
Shamil Perera with Lahiru Abeyasekara for respondent petitioner.
M. Inthikab M. Idroos with Charuni Gunawardena for respondent.
September 14, 2005.
ERIC BASNAYAKE, J.In this case winding up proceedings were filed in the District Court ofPanadura on 09.07.2003 against the respondent – petitioner (petitioner) interms of the Companies Act, No. 17 of 1982,and the Winding up Rules1939 as the petitioner was not able to pay the petitioner – respondent(respondent) a debt amounting to a sum or Rs.234,774.37. The said sumis made up of the goods sold and delivered as per the details given below:
When this case was taken up for inquiry in the District Court on
a preliminary objection was taken that the respondent’s claimwas time barred and therefore the court has no jurisdiction to entertain thepetition. The learned District Judge overruled the said objection on theground that this being an application to wind up a company for non paymentof dues and not an action to recover a debt, the provisions of the PrescriptionOrdinance has no application.
'C AAnitex Washing Plants (Pvt) Ltd. Vs.
G. D. S. Chemicals (Pvt) Ltd. and Another (Basnayake, J. )
The petitioner filed this case seeking leave to appeal against the orderof the learned District Judge of Panadura, dated 19.01.2004. On
leave was granted on the following question namely
“Whether the Respondent Company is entitled to seek a winding up ofthe Petitioner Company on the basis of a prescribed debt of the PetitionerCompany”. Written submissions have been tendered by both parties toresolve this question. The learned counsel for the respondent submits thatthis is an application filed in terms of the Companies Act, No. 17 of 1982and not an action as defined by the Civil Procedure Code. The CompaniesAct refers to an application and not an action. An action has to be either inregular or summary form. An action is defined as proceedings for theprevention or redress of a wrong, and a cause of action is a wrong for theprevention and redress of which an action may be brought.”
The learned counsel submits that on the contrary the petitioner hasonly prayed for a winding up order on a company. Section 8 of thePrescription Ordinance states that “No action shall be maintainable for orin respect of any goods sold and delivered…. unless the same shall bebrought within one year after the debt shall have become due”. The learnedcounsel submits that he did not plead a cause of action nor prayed for therecovery of any debt in the prayer and hence the Prescription Ordinancehas no application.
The facts in Re Karnos Property Co Ltd.(,) cited by the learned counselfor the petitioner is I think to the point. In this case a local authority serveda statutory demand on a company for non-payment of rates. The companypaid part of the sum due, the balance remaining unpaid representing ratesdue more than six years before the issue of the petition. The issue beforethe court was whether the claim for the unpaid rates was time barredunder the Limitation Act 1939 and therefore that no debt was due from thecompany that could constitute the basis for a winding up order.
Mervyn Davies J. having referred to section 2(1) read with section 31(1)of the Limitation Act 1939 said “looking at those enactments it is plainthat a petition in the Companies Court is an action within section 2(1).One then asks whether it is an action to recover any sum. One may saythat a petition is an action seeking not to recover a sum but to secure thewinding up of a company. Certainly the petitioner seeks a winding uporder, but as well as the petitioner (who is a creditor) also seeks recovery
Sri Lanka Law Reports
(2005) 3 Sri L R.
of his money or such parts of it as may become his by virtue of a dividend.A creditor petitioner does not petition for the satisfaction of seeking thedemise of his company debtor but rather in the hope of recovering part atany rate of his debt by way of dividend. A petition therefore, in my view,seeks to recover a sum”.
Again in the case of In re. Fleetwood and District Electric Light andPower Syndicate the Court held that it was improper to pay statutorybarred creditors when objected to by the shareholders. In this case thequestion was whether a liquidator having surplus assets available fordistribution was at liberty to pay statute barred creditors. Astbury J said “itseems a starling proposition to suggest that in a due course of administationin a voluntary winding – up the liquidator in entitled to pay statute barredcreditors”.
In the case of In re. Art Reproduction Co. Ltd, Wynn Parry J afterholding that in a voluntary winding up of a solvent company, statute barreddebts cannot be paid unless the contributories consent said "It wascontended on behalf of the applicant that, even if both parts of the claimwere statute barred, nevertheless there is jurisdiction to authorize theliquidator to pay the claims; and that in the circumstances of this case,the court ought to exercise that jurisdiction. Both the liquidator and theregistrar, it is clear, had considerable sympathy for the applicant; and I donot differ from either of them ; but the question being one of jurisdiction, inthe first place, the matter has to be considered strictly”.
The learned counsel for the respondent submits that the above caseshave no relevance due to the reason that section 31 (1) of the LimitationAct applies to all the proceedings in a court of law whereas there is nosuch provision in the Prescription Ordinance. I am not in agreement withthe above submission. Considering the above authorities it is clear that noliability could be attached to a prescribed debt and therefore that thepetitioner should succeed in this application. Hence I set aside the orderof the learned District Judge dated 19.01.2004 and dimiss the petition forwinding up with costs fixed at Rs. 10,000.
SOMAWANSA J. -1 agree
Winding up application dismissed