Karnataka High Court Sets Aside $114,041 Decree, Says Time-Barred Claims Cannot Be Revived By Assignment

The Karnataka High Court has recently set aside a Commercial Court order directing Komtech Plastic Technologies India Pvt. Ltd. to pay USD 114,041 to Zrii Technologies Inc., holding that a time-barred claim cannot be revived through assignment of receivables, while modifying relief granted on equity shares.

A Division Bench of Chief Justice Vibhu Bakhru and Justice C.M. Poonacha held that the Commercial Court had erred in treating the dispute as a declaratory suit and in concluding that the claim was within limitation.

“The said conclusion is ex facie erroneous. Insofar as the claim for money is concerned, the suit was clearly for recovery of the amount paid by Komtech along with interest and therefore could not be considered a suit for declaration. Article 58 of the Schedule to the Limitation Act is clearly inapplicable to the claim,” the Court said.

The dispute arose from remittances made in 2008 by Komtech Inc. to the appellant company for purchase of equipment. Zrii Technologies claimed that the amounts were neither refunded nor fully adjusted, and that while 3,90,682 shares were issued in part satisfaction, a balance of USD 114,041 remained due.

It contended that the receivables and shares were later assigned to it in 2016, bringing the suit within limitation, and relied on emails exchanged in 2016 as acknowledgment of liability.

The appellant, however, argued that the remittances were towards services rendered, that no amount was repayable, and that the claim, arising at the latest in 2009 when shares were issued, was barred by limitation.

The bench held that limitation must be computed from the date the money became due, not from the date of assignment in 2016. On the plaintiff's own case, the amount became payable at the latest on September 3, 2009, when shares were issued for part of the remittance. The limitation period thus expired by September 2012, rendering the 2018 suit time-barred.

Rejecting the contention that assignment revived the claim, the court observed that limitation “cannot be extended by assignment of receivables.”

The court also found that emails relied upon by the plaintiff did not constitute any acknowledgment of liability and, in any event, were sent after the expiry of the limitation period.

On merits, the bench held that there was no material to establish that the remittances were repayable, noting that records indicated part of the amounts were treated as advance receipts towards equity.

However, the court found that the plaintiff had acquired rights in respect of 3,90,682 equity shares through a chain of assignments. It clarified that such shares cannot be transferred in the plaintiff's name except in accordance with the Articles of Association of the company, which require that they first be offered to existing shareholders.

The bench further held that no direction could be issued to rectify the register of members. It directed the company to hand over the original share certificate, or issue a duplicate if unavailable, to enable the plaintiff to seek a transfer in accordance with law.

Accordingly, the High Court set aside the monetary decree and modified the declaration on share ownership, making any transfer subject to the company's Articles of Association.

For Appellant: Advocate Poornima Hatti, 

For Respondent: Advocate S.R. Kamalacharan, Pradeep S. Sawkar,