800 Days Delay in Filing Statement of Affairs: Karnataka HC Holds Official Liquidator’s Recovery Application Barred By Limitation [Read Order]

The Karnataka High Court in a recent judgment held that delay over 800 days in filing statement of affairs by ex-directors of a company in liquidation cannot be used to extend statutory limitation period and recovery application filed by Official Liquidator based on such delay is barred by limitation.

Benetton India Private Limited and its Managing Director filed an appeal challenging the order passed by the Company Judge which allowed recovery application filed by Official Liquidator of Natural Textiles Private Limited (in liquidation). The Official Liquidator sought recovery of Rs. 6,48,42,813 from Benetton India based on an old demand notice dated 19 December 2011.

Natural Textiles Private Limited was wound up by common order date 31 July 2015 in multiple winding-up petitions, and Official Liquidator was appointed. Under Companies Act, ex-directors are required to file a statement of affairs within prescribed time. But the statement of affairs filed was only on 1 July 2022, after a delay of more than 800 days. Relying on statement of affairs and old demand notice, the Official Liquidator file recovery application under Section 446(2)(b) of Companies Act on 19 April 2023.

Benetton India opposed the application and raised a plea of limitation. The Company Judge rejected objection and held that application within limitation by applying Section 458A of Companies Act. The company’s counsel argued that the Company Judge wrongly extended the limitation period, which is not allowed under law. They argued that Sections 454(3) and 458A give specific timelines that must be followed strictly and cannot be enlarged by the Court.

On the other hand, counsel for the Official Liquidator argued that right to sue comes only after a statement of affairs was received and a recovery application filed within the exclusion period under Section 458A.

The Division Bench with Justice Jayant Banerji and Justice T.M. Nadaf observed that statutory requirements under Section 454(3) for filing statements of affairs must be complied with strictly.

The court explained that Section 458A gives only limited exclusion of time and cannot be used to extend limitation forever. The court pointed out that neither Tribunal nor Court have power to extend limitations beyond what statute says clearly. The appeal was allowed.

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