Komtech Plastic Technologies India Pvt. Ltd. v. Zrii Technologies Inc.

What happened

The plaintiff said Komtech Inc., a Canadian company, remitted USD 224,996.81 to the appellant in 2008 for equipment and materials that were not supplied and that the appellant, unable to refund, issued 3,90,682 shares for USD 125,039.81 and owed the balance of USD 99,957 plus USD 14,080 on an invoice of 9 November 2008, in all USD 114,041. These rights moved by an asset purchase agreement of 18 April 2011 to Komtech Enterprises Ltd., which went into receivership in Ontario (order of 18 September 2013), then by an assignment of 11 March 2016 to Mrs. Niti Mathur, and by an assignment of 6 June 2016 to the plaintiff, of which she is the sole shareholder. The plaintiff relied on emails from August and September 2016 as acknowledgments of debt and sued on 23 November 2018. The appellant said it received money for services and invoices, admitted receiving USD 30,000 and USD 61,546.81 for equity (share certificate of 3 September 2009), and pleaded limitation and its Articles. The Commercial Court held the suit within limitation under Article 58 from the date of assignment, decreed the money claim with 9% pendente lite and 18% future interest, and declared the plaintiff owner of the shares but left rectification of the register to the NCLT.

Questions before the court

• Was the money claim within limitation, and can the assignee have its name entered for the shares?

Why the court ruled this way

Article 58, which applies to declarations, did not apply to a claim for recovery of money, and time could not run from the date of the assignment, as limitation cannot be extended by assignment of receivables (paragraphs 24 and 32). Even on the plaintiff's own case, the refund fell due by 3 September 2009 when shares were issued for part of the amount, so limitation expired before 2 September 2012 (paragraphs 27, 29 and 30). The 2016 emails did not acknowledge any debt and, even if they did, were made after limitation expired, so section 18(1) of the Limitation Act did not help, and section 15(3) applies only to receivers or liquidators suing in that capacity, which the plaintiff was not (paragraphs 28, 33 to 35). On merits, the foreign remittance certificates showed only two remittances as advance receipts for equity share capital, equal to ₹39,06,829 for 3,90,682 shares of ₹10 each, and there was no material that other sums were repayable; one remittance came from a different entity, and the plaintiff's witness admitted that no audited records showed a debt (paragraphs 36 to 39). The shares were validly allotted to Komtech and passed to the plaintiff through related-party assignments, but under Article 4, shares must first be offered to members at a price fixed by the board, so the plaintiff cannot seek rectification of the register, though it is entitled to the original share certificate (paragraphs 40 to 45).

Controlling point

The money claim was barred and the plaintiff's ownership of the shares was subject to the Articles.

Order and next steps

The decree directing payment of USD 114,041 or ₹1,21,91,900 with interest was set aside. The declaration of absolute ownership was modified: the plaintiff may claim transfer of the shares subject to the Articles, and the appellant must hand over the original share certificate (No. 009 dated 3 September 2009) or a duplicate so the plaintiff can seek transfer, which will be made in accordance with the Companies Act, 2013 and the Articles. The appeal was allowed in these terms.

Practical implications

A claimant by assignment must count limitation from the original creditor's entitlement, and a shareholder or assignee of a private company must check the Articles' pre-emption clause before expecting registration of a transfer.

Limits of this ruling

• The Court did not decide the plaintiff's separate claim for dividends or benefits on the shares, and did not order registration of the transfer; it left the transfer to be sought under the Articles.