Companies Act Section 358

Companies Act, Section 358: Exclusion of Time in Limitation Period for Winding-Up Proceedings 

Section 358 of the Companies Act, 2013 provides for a specific exclusion of time from the period of limitation when calculating the time allowed for filing any suit or application on behalf of a company that is undergoing winding-up by the Tribunal. This provision is a statutory exception to the general rules of limitation set out under the Limitation Act, 1963, and is crucial to ensure that companies in liquidation are not unfairly prejudiced due to procedural delays caused by the winding-up process.

Purpose and Scope of Section 358

When a company enters into the process of winding up by order of the National Company Law Tribunal (NCLT), various administrative, legal, and operational limitations come into play. The liquidator, who is now tasked with managing the affairs of the company, may need to initiate legal proceedings or file applications in the name and on behalf of the company for example, to recover debts, enforce rights, or set aside fraudulent transactions.

Section 358 recognizes that such actions may be delayed during the initial phase of the winding-up process due to the complexity and scale of liquidation activities. Therefore, this section provides relief from the strict application of limitation periods.

Key Elements Explained

1. Overriding Effect

The section opens with the phrase “Notwithstanding anything”, giving it an overriding effect over:
The Limitation Act, 1963, which generally governs time limits for filing legal proceedings in India, and any other law for the time being in force that prescribes limitation periods.
This means that even if the Limitation Act or any other applicable law prescribes a shorter time period for filing a suit or application, the benefit provided under Section 358 will supersede that requirement for companies being wound up by the Tribunal.

2. Applicability to Suits and Applications

The benefit of exclusion applies to any suit or application that is:
Filed in the name and on behalf of the company, and the company must be undergoing winding-up by the Tribunal. This includes, but is not limited to:

Suits for recovery of money from debtors, Applications to reclaim company assets, Proceedings to reverse fraudulent preferences or transactions under Sections 328 to 336 of the Companies Act.
3. Period of Exclusion

The excluded period begins from the date of commencement of the winding-up proceedings (as per Section 357 of the Act i.e., the date of presentation of the petition for winding up).
It continues until one year after the date of the winding-up order passed by the Tribunal.
Thus, when computing the limitation period, the entire duration between the commencement date and the expiry of one year from the actual order is ignored or excluded from the calculation.

Example:

If the limitation period to file a recovery suit is three years, and the petition for winding-up was filed on 1st January 2022 and the order of winding-up was passed on 1st June 2022, then the time period from 1st January 2022 to 1st June 2023 (one year after the order) will be excluded when computing the three-year limitation period for filing the suit.

Rationale Behind the Provision

Administrative Delay: The liquidator may require time to collect and assess the company's financial records and legal claims.
Due Diligence: Legal actions should be pursued based on verified facts. The liquidator may need legal advice or time to investigate fraudulent transactions.
Protection of Stakeholders' Interests: Creditors, workmen, and contributories may suffer losses if the company is barred by limitation from asserting its claims due to time constraints not under its control.
Ensuring Fairness: The law prevents penalizing companies under winding-up merely because procedural complexities delayed the filing of suits or applications.