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2025 (7) TMI 472 - HC - Indian LawsDismissal of suit on the ground that the Suit is barred by limitation - seeking recovery of money which is due and payable to it by the Defendants/Respondents on account of work done by it - period of limitation will start from the date of denial of payment which is the date of reply to the legal notice or otherwise? - HELD THAT - In the opinion of this Court Article 113 of the Limitation Act has no application to the present case as the present case falls squarely within Article 18 of the Limitation Act. Article 113 which is only a residuary clause would not apply to the present case. Time would start running from the date of invoice and the suit has been filed beyond three years. As rightly contended by the learned Counsel for the Respondents the winding up proceedings and the recovery proceedings operate in two entirely different spheres. The winding up proceedings are initiated to wind up a company which is unable to pay its debts and it is now settled law that winding up proceedings are not in the nature of recovery proceedings. Deposit of TDS is a payment by the Defendants to the Income Tax Authorities on account of a debt which the Defendants owe to the Plaintiff/Appellant as affirmed by the Division Bench of this Court in Samyak Projects 2024 (5) TMI 1026 - DELHI HIGH COURT . Undoubtedly TDS certificate dated 24.09.2015 for deposit of TDS of Rs. 48, 450/- against the invoices No. 370 371 would extend the period of limitation and a fresh cause of action would arise from 24.09.2015. The Suit was filed by the Plaintiff/Appellant on 13.09.2018 and therefore the claim qua invoices No. 370 371 is within the period of limitation. As far as other invoices are concerned their TDS was deducted before 24.09.2015 and therefore they are barred by limitation - The learned District Judge has held that the Defendants owed money to the Plaintiff/Appellant herein however the right of the Appellant to recover money is not enforceable because of limitation. The Defendants have not filed any cross appeal/cross objection challenging the said finding which has attained finality. This Court is of the opinion that the invoices No. 370 371 for Rs. 14, 52, 000/- and Rs. 9, 75, 000/- respectively are not barred by limitation. The Defendants/Respondents herein are liable to pay Rs. 24, 27, 000/- to the Appellant for which TDS of Rs. 48, 450/- has already been deposited by the Defendants/Respondents. The Appellant is also entitled to interest on Rs. 24, 27, 000/- from the date of invoice till the payment of money at rate of 6% per annum - the appeal is allowed in part.
The core legal questions considered by the Court in this matter are:
1. Whether the suit for recovery of money based on invoices raised between July 2014 and November 2014 is barred by limitation under the Limitation Act, 1963. 2. Whether the period of limitation can be extended by applying Article 113 of the Limitation Act, i.e., from the date of denial of payment, rather than the date of the invoices. 3. Whether the time spent in winding up proceedings initiated by the plaintiff against the defendant company can be excluded from the limitation period under Section 14 of the Limitation Act. 4. Whether the deduction and deposit of Tax Deducted at Source (TDS) by the defendants amounts to an acknowledgment of debt under Section 18 or Section 19 of the Limitation Act, thereby extending the limitation period. 5. The applicability of relevant legal precedents and interpretation of the Limitation Act provisions in the context of the facts. Issue-wise Detailed Analysis: 1. Limitation Period Applicable to Recovery Suit (Articles 18 and 113 of the Limitation Act) Legal Framework and Precedents: Article 18 of the Limitation Act prescribes a three-year limitation period for suits for the price of work done where no fixed time for payment is stipulated. Article 113 is a residuary provision applicable when no other provision applies. The plaintiff contended that Article 113 applies, starting limitation from the date of denial of payment (reply to legal notice), relying on a Supreme Court precedent. Court's Interpretation and Reasoning: The Court rejected the applicability of Article 113, holding that the suit clearly falls under Article 18 as it concerns recovery for work done without a fixed payment date. The Court emphasized that limitation starts running from the date of invoice, not from the date of denial of payment. The residuary clause (Article 113) cannot override the specific provision (Article 18). Application of Law to Facts: Since the invoices were raised between July and November 2014, and the suit was filed in September 2018, the suit is beyond the three-year limitation period prescribed under Article 18. Conclusion: The suit, except for certain invoices discussed later, is barred by limitation under Article 18. 2. Exclusion of Time Spent in Winding Up Proceedings under Section 14 of the Limitation Act Legal Framework and Precedents: Section 14 allows exclusion of time spent prosecuting bona fide civil proceedings in a court without jurisdiction relating to the same matter. The Court referred to authoritative precedents including a Supreme Court decision and a Nagpur High Court ruling which clarified that winding up proceedings are distinct from recovery proceedings. Court's Interpretation and Reasoning: The Court held that winding up proceedings and recovery suits operate in separate legal spheres. Winding up petitions are filed to declare a company unable to pay debts and to wind it up, not to recover specific debts. The cause of action and issues in winding up differ fundamentally from recovery suits. Therefore, Section 14 cannot be invoked to exclude the time spent in winding up proceedings. Application of Law to Facts: The plaintiff's winding up petition was bona fide but unrelated in nature to the recovery suit. Hence, the limitation period is not extended by the pendency of the winding up petition. Conclusion: Time spent in winding up proceedings is not excluded from limitation calculation under Section 14. 3. Effect of Deduction and Deposit of TDS on Limitation Period under Section 19 of the Limitation Act Legal Framework and Precedents: Section 19 provides that payment on account of a debt before expiry of the limitation period restarts limitation from the date of payment. The payment must be acknowledged in writing by the payer. The Court examined recent judgments of coordinate benches of this Court which held that deposit of TDS, being a payment on account of debt, can extend limitation under Section 19, even if it is not an admission of liability under Section 18. Court's Interpretation and Reasoning: The Court distinguished cases where TDS deduction was held not to amount to acknowledgment of debt under Section 18. Here, the deposit of TDS with the tax authorities pursuant to statutory obligation constitutes a payment on account of debt under Section 19, triggering a fresh limitation period. The TDS certificate issued by the defendants satisfies the requirement of written acknowledgment. Key Evidence and Findings: The defendants deposited TDS amounting to Rs. 48,450/- on 24.09.2015 against invoices Nos. 370 and 371. This deposit was accepted as payment on account of debt, restarting limitation from that date. Application of Law to Facts: The suit filed on 13.09.2018 is within three years from the TDS deposit date for invoices 370 and 371. For other invoices, TDS was deducted before 24.09.2015, so those claims remain barred by limitation. Treatment of Competing Arguments: The defendants argued that TDS certificates only evidence tax deduction, not debt acknowledgment. The Court rejected this argument based on recent precedents holding that TDS deposit is a payment on account of debt for limitation purposes. Conclusion: The limitation period for invoices 370 and 371 is extended by Section 19 due to TDS deposit, making those claims maintainable. 4. Acknowledgment of Debt and Effect of Legal Notice Legal Framework: The plaintiff argued that the legal notice dated 20.08.2015 and the defendants' reply dated 05.09.2015 (received on 12.09.2015) constituted acknowledgment or denial of debt, affecting limitation under Article 113. Court's Reasoning: The Court held that acknowledgment must be in writing signed by the debtor and relate to the debt itself. The legal notice and reply do not amount to acknowledgment extending limitation under Article 18 or 113. The Court reiterated that Article 113 does not apply here. Conclusion: The legal notice and reply do not affect the limitation period. 5. Overall Findings and Application of Limitation Law The Court found that except for invoices 370 and 371, all other claims are barred by limitation. The defendants owed the plaintiff money, but the right to recover is time-barred except for the two invoices whose limitation was extended by TDS deposit. The winding up petition does not extend limitation. The legal notice and denial do not affect limitation. The TDS deposit constitutes a payment on account of debt restarting limitation for the relevant invoices. Significant Holdings: "The contention of the learned Counsel for the Appellant that the period of limitation will start from the date of denial of payment, which is the date of reply to the legal notice, i.e. 12.09.2015, cannot be accepted. In the opinion of this Court, Article 113 of the Limitation Act has no application to the present case as the present case falls squarely within Article 18 of the Limitation Act." "Since both - the winding up proceedings and the recovery proceedings operate in entirely different spheres, Section 14 of the Limitation Act cannot be made use of." "Deposit of TDS is a payment by the Defendants to the Income Tax Authorities on account of a debt which the Defendants owe to the Plaintiff/Appellant... TDS certificate dated 24.09.2015 for deposit of TDS of Rs. 48,450/- against the invoices No. 370 & 371, would extend the period of limitation and a fresh cause of action would arise from 24.09.2015." "The learned District Judge has held that the Defendants owed money to the Plaintiff/Appellant herein, however, the right of the Appellant to recover money is not enforceable because of limitation... This Court is of the opinion that the invoices No. 370 & 371 for Rs. 14,52,000/- and Rs. 9,75,000/- respectively, are not barred by limitation." Core principles established include:
Final determinations:
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