Official Liquidator :
a. Appointment of Official Liquidator: In order that the debts and obligations of a company in liquidation may be satisfied, and the surplus assets distributed amongst the members according to their right to share in such surplus assets, there must be some person to discharge these duties. The person who does all these is called the liquidator.
For the purpose of the Companies Act and in so far as it relates to the winding- up of a company by the Court, there must be attached to each High Court, an Official Liquidator. He is appointed by the Central Government and is a whole time officer, unless the Central Government thinks that there will not be sufficient work to justify a full-time appointment in which case a part- time officer may be appointed. The Official Receiver attached to a District Court for insolvency purposes, or if there is no such Official Receiver then such person as the Central Government may, by notification in the Official Gazette, appoint for the purpose shall be the Official Liquidator attached to the District Court [Section 448 (1). Also one or more Deputy or Assistant Official Liquidators may be appointed by the Central Government so as to assist the Official Liquidator in discharging his function [Section 448 (1-A)].
On a winding- up order being made in respect of a company, the Official Liquidator shall by virtue of his office, become the liquidator of the company [Section 449].
The legal position of an Official Liquidator is that he is pubic servant and an officer of the Court. Such a position requires him to be honest and impartial and to act in the interests of all concerned [Ripon Press vs. Cheti 55 Mad 180]. He has such powers as are prescribed by Section 457. Section 462 requires him to render account to the Court. In the case of government company, the liquidator shall forward a copy to the Central Government if that Government is a member of the Government company; or to any State Government, if that Government is a member of the Government company or to the Central Government and State Government if both are members, of the Government company.
He is not “trustee‟, in the sense of the term; although he is sometimes described as such [exparte Watkin 1857. I Dh. E. 130]. He stands in fiduciary relationship with the company he is appointed for [Black and Co., 1872, 8 Ch. 254]. He is debarred from making any secret profit. If he abuses his power and betrays his position, he shall be liable to make good any secret profits that he may have made as well as be liable to be removed by the Court. Thus, he is a trustee in the sense that he must act in the interest of the company, the creditors and the contributories. He should not act in his own interest [Silk Stone & Haigh Moor Co. 1900, 1 Ch. 167].
b. Appointment of Provisional Liquidator: After a winding-up petition has been presented, but before a winding-up order has been issued, the Court may appoint the Official Liquidator as the provisional liquidator. But prior to such an appointment being made, the Court is bound to give notice to the company and also a reasonable opportunity to make its representation. The Court may, however, raise this notice for special reasons which must be recorded in writing. The provisional liquidator will be vested with powers of liquidator, unless they are limited or restricted to any extent by the appointing Court. On winding-up order having been made, the Official Liquidator ceases to be provisional liquidator and becomes the liquidator [Section 450].
Generally, a provisional liquidator will not be appointed unless a strong case is made out by showing the necessity for such an appointment and unless it is proved that the property of the company needs be taken possession of immediately [In re-Dry Docks Corporation of London, 1888 39 Ch. D. 309; East Punjab Pictures vs. Jhabar Mal 1940 East Punjab 139]. His appointment is temporary and continues till the appointment of the Official Liquidator. The reason for his temporary appointment is that there must be some persons to take proper custody of the company‟s property so that it debts and obligations are met with equitably and in accordance with the provisions of the Act and fraudulent preference is prevented (In re-Dry Docks Corporation, supra]. A liquidator may be removed and replaced by another, if the Court is satisfied that it is for the general advantage of those interested in the assets of the company [Re Adom Eyton Ltd. (1887) 36 Ch. D. 209].
c. Powers of Liquidator: A liquidator has the following powers which he must exercise with the sanction of the Court;
(i) to institute or defend any suit, prosecution or legal proceeding, civil or criminal, in the name and on behalf of the company
(ii) to carry on the business of the company, so far as may be necessary for its beneficial winding-up,
(iii) to sell movable and immovable property and actionable claims of the company by public auction or private contract in whole or in parcels,
(iv) to raise any money required, on the security of the assets of the company
(v) to do such other things as may be necessary for the winding -up of a company and the distribution of its assets [Section 457 (1)].
The Court may order that the liquidator can exercise the above powers without the sanction or intervention of the Court. However, in such cases, the liquidator, in exercising the aforementioned powers, will be subject to the control of the Court (Section 458).
The following is a list of powers which he can exercise without the consent of the Court:
(i) do all acts and to execute deeds, receipt and other documents for and on behalf of the company and use for this purpose the company’s seal;
(ii) to inspect the records and returns of the company on the files of the Registrar without payment of any fee;
(iii) to prove rank and claim of the insolvency of any contributory for any balance against his estate and to receive dividends in his insolvency, in respect of that balance, as a separate debt from the insolvent, and rateably with the other separate creditors;
(iv) to draw, accept, make and endorse bills of exchange, hundi or promissory note in the name and on behalf of the company as if these have been drawn, accepted, made or endorsed by or on behalf of the company in the course of its business;
(v) to take out in his official name, letters of administration to any deceased contributory and do any other acts needed for obtaining payment of money due from the contributory or his estate and
(vi) to appoint an agent to do any business which he himself is unable to do [Section 457 (2)].
All the above-mentioned powers, exercisable by the liquidator are subject to the control of the Court. Any contributory or creditor may apply to the Court in regard to the exercise of the powers conferred on the liquidator [Section 457 (2)].
A liquidator in a voluntary winding-up, with the sanction of a special resolution in case of member’s winding-up, and, or Court or Committee of Inspection or (if there is no such committee) of a meeting of the creditors in creditor’s voluntary winding -up, can exercise powers specified under clauses (a) to (d) of Section 457 (1) [i.e., powers (i) to (iv) aforementioned which are exercisable with the sanction of the Court [Section 512 (1) (a)]. The exercise of these powers, however, will be subject to the control of the Court [Section 512 (2)]. The liquidator may
(i) without the sanction referred to in Section 512 (1) (a) exercise any of the other powers given by the Act to the liquidator in a winding-up by the Court;
(ii) exercise the power of the Court, under the Act, of settling a list of contributories which shall be prima facie evidence of the liability of the person named therein to be contributories
(iii) exercise the powers of the Court of making calls:
(iv) call general meetings of the company to obtain the sanction of the company by ordinary or special resolution as the case may require, or for any other purpose he may think fit [Section 512 (1) (b) to (c)].
A liquidator may (a) with the sanction of the Court when the Company is being wound up by or subject to the supervision of the Court and (b) with the sanction of a special resolution of the company in the case of the voluntary winding-up;
(i) pay any class of creditors in full;
(ii) make any compromise or arrangement with creditors or persons claiming to be creditors or having or alleging themselves to have any claim, present or future, certain or contingent; ascertained or sounding only in damages against the company or whereby the company may be rendered liable or
(iii) compromise any call or liability to call, debt and liability capable of resulting in a debt, and all claims, present or future, certain or contingent, subsisting or alleged to subsist between the company and a contributory or alleged contributory or other debtor or person apprehending liability to the company, and all questions in any way concerning or affecting the assets or liabilities or the winding-up on such terms and conditions as may be agreed, and take any security for the discharge of any such call, debts, liability or claim and give a complete discharge in respect thereof.
In the case of voluntary winding-up, the powers aforementioned exercisable by the liquidator are subject to the control of the Court. Any creditor or contributory may apply to the Court with respect to the exercise or proposed exercise of any such power [Section 546 (2) and (3)].
The Supreme Court may make rules under Section 643 as regards the manner in which the liquidator should exercise power under clauses (ii) and (iii) of Section 546 (1) without the sanction of the Court.
d. Duties of Liquidators: The following are the main duties of a liquidator or provisional liquidator, as the case may be, as contemplated by the Act.
(1) To take into custody or under his control, all the property, effects and actionable claims to which the company is or appears to be entitled (Section 456). For this purpose, the liquidator, or provisional liquidator as the case may be, may in writing request the Chief Presidency Magistrate or the District Magistrate within whose jurisdiction such pr operty, effect or actionable claims or any books of account or other documents of the company may be found to take possession thereof. Thereupon, the Chief Presidency Magistrate or the District Magistrate may after having given to any party such notice as he may think fit, take possession of them and deliver the same to the liquidator or the provisional liquidator [Section 456 (1A)].
For securing compliance with the provisions of Section 456 (1A), the Magistrate aforementioned may take or cause to be taken such steps and use or cause to be used such force as he considers necessary [Section 456 (1B) ]. All the property and the effects of the company shall be deemed to be in the custody of the Court as from the date of the winding-up [Section 456 (2)].
(2) To submit a preliminary report to the Court giving the particulars mentioned in Section 455.
(3) To keep, in the manner prescribed, proper books in which he shall cause entries or minutes to be made of proceedings at meeting and of such mat ters as may be prescribed (Section 461).
(4) To summon meeting of the creditors and contributories in the manner hereinafter stated under the head “Committee of Inspection” [Section 464].
(5) To pay the moneys, received by him as liquidator, or any company into the Public Account of India in the Reserve Bank of India (Section 552) and not into his private bank account (Section 554). But the voluntary liquidator is to pay the moneys into a scheduled bank to the credit of “Liquidation Account of X & Co. Ltd./X & Co. Private Ltd/X & Co.” (Section 553).
(6) To pay forthwith dividends payable to creditors, which had remained unpaid for 6 months after the date on which they were declared and assets refundable to any contributory , which have remained undistributed for six months after the date on which they become refundable into the Public Account of India Companies Liquidation Account in the Reserve Bank of India in a separate account called “Company’s Liquidation Account” [Section 555 (1)].
(7) To summon meetings at such times as the contributories, by resolution, direct, or whenever requested to do so by not less than one-tenth in value of creditors or contributories, as the case may be [Section 460 (3) (b)].
(8) To obey directions given by resolutions of creditors or contributories or by the Committee of Inspection in the administration of the assets of the company and the distribution thereof among its creditors [Section 460 (1)]. Note that any directions given by the creditors or contributories at any general meeting shall in case of conflict, be deemed to override any direction given by the committee of inspection [Section 460 (2)].
(9) To submit the accounts for inspection to Committee of Inspection [Section 465 (2)].
(10) To account for secret profit made by him.
(11) To be impartial between creditors, members, etc.
(12) To obey the directions of the Court with regard to disposal of books of the company (Section 550).
(13) To file periodical report with the Court (Section 551).
(14) To notify on invoices that the company is in liquidation (Section 547)
(15) To duly observe all the requirements of the Act [Section 463 (1)].
(16) The Ministry of Corporate Affairs have been reported by the Official Liquidator s that they are facing problem in e-filing of Income Tax Returns in compliance as they are required to mention PAN No. of the person who files the return, representing the company in liquidation. The Ministry has proposed following steps to be taken by Official Liquidators (OL) vide General Circular No. 41/2011 dated 6th July, 2011:
(i) To check whether the company which has come in liquidation has a PAN and takes possession along with other records.
(ii) If PAN is not available in the records, the PAN No. of the company shall be obtained from concerned ITO.
(iii) There are cases where no certificate of Registration and/or Article of Association/ Memorandum of Association are available. For this following action be taken:
(a) If the company has no assets, it must be got liquidated and there is no need to apply for PAN.
(b) If the company has assets, the concerned ROC be requested to send documents about the company for applying to concerned ITO for obtaining PAN.
(iv) In the verification column of the ITR, OL will mention his personal PAN as this is only for the purpose of Verification Number obtained in official designation.
(v) As Representative Assessee, (OL) official address should be given in Part AGeneral Information under column No.(b).i.e. address of Official Liquidator‟s office would be mentioned as the address of the company under Liquidation.
(vi) Since this is a regular activity, following actions be taken:
(a) Staff be trained to prepare and file application for PAN with outsourced agencies of CBDT namely NSDL and UTI;
(b) All IT Returns filing is now on-line. Hence staff be trained to do the same. No CA firms/consultants be employed for above tasks.
(17) To participate in public examination of directors, etc. (Section 481).
(18) To forward dissolution order to Registrar within 30 days from the date thereof [Section 481 (2)].
(19) The Ministry of Corporate Affairs has noticed that certain courts have not allowed fees to be paid to the Chartered Accountants from Common Pool Fund in cases where petitions are filed in respect of companies under liquidation having no assets.
The Ministry vide General Circular No. 42/2011 dated 7th July, 2011 has decided that in all such cases following steps be taken:
(i) OL will take permission of Court to appoint a Chartered Accountant.
(ii) OL will appoint Chartered Accountants for issuing necessary certificate.
(iii) The terms and conditions of payment of fees to the CAs in such cases will be decided by a Committee consisting of concerned Ol and ROC, chaired by the RD.
(iv) Each OL will maintain a list of local CAs/CA firms and selection should be done from them only.
The payment of fees to CAs in this respect will be made out of the Budget Head “Office Expenses”.
(20) Pro-active action in case of winding up petitions- The Ministry of Corporate Affairs has noticed that winding up petitions are filed by creditors, stake holders and management before Hon‟ble High courts without providing full information. This leads to waste of valuable time of Hon‟ble Court and also delays completion of winding up process as well. In order to speed up the winding up process and to introduce best international practices the winding up process, the Ministry vide General Circular No. 54/2011 dated 26th July, 2011 has decided that following actions will be taken by concerned OL:-
(a) OLs shall post one of the staff members to the Company Court to keep track of all cases where applications have been filed for winding up, but orders for winding up are yet to be issued by the Court.
(b) For all cases pending till date and in future as well, information shall be obtained by OL from “institution register” maintained in High Court and action as below must be taken in all cases.
(c) In each case the OL will file an application praying to the Court to direct the management of the company to submit following information duly verified by a chartered accountant:/ a Company Secretary/ a Cost Accountant in practice-
(i) The current addresses of the Directors, Company Secretary and Statutory Auditor of the company;
(ii) Location and physical details of each immovable asset of the company along with its current valuation;
(iii) The details of all the debtors and creditors with their complete addresses and occupations;
(iv) The details of each movable asset of the company along with value;
(v) The details of workmen/employees and any amount outstanding to them;
(vi) The details of all movable and immovable assets held in the personal names of director by providing its location, value, dates of acquisition and nature of right, title and interest therein;
(vii) Copies of last three years audited balance sheet of the company; and
(viii)The details of location of the registered office of the company.
(d) RDs will ensure that in all pending cases, the applications are moved by OL before the Court before the next date of hearing and in all new cases, these are filed before the Hon’ble Court before the second hearing of the case.
(e) RDs will ensure that a standard draft is prepared by them after taking legal advice and the same is used in all cases by OLs.
(21) Scrutiny inspection and investigation in all winding up cases- The Ministry of Corporate Affairs has noticed that winding up petitions are being filed by management after having committed major violations under the Companies Act, 1956 as well as misappropriation of funds of the company. Winding up of such companies are also being filed by creditors. In order to curb such malpractices, Ministry vide General Circular No. 55/2011 dated 26th July, 2011 has decided that following procedure may be followed in all such cases:-
(a) The moment winding up petition is filed before the Court, Official Liquidator (OL) will obtain a copy of petition and forward the same to the Registrar of Companies (ROC) concerned.
(b) ROC will have a scrutiny of the details/documents available in respect of the company in MCA21 registry and will submit a preliminary report to the Ministry within a week time for inspection or investigation, if so required, containing following information for the past five years of the date of filing of petition: –
(i) History of the company, viz incorporation, maintenance of registered office, main object and present business activities;
(ii) Management pattern, including details of directors/nominee directors and their directorship in other companies;
(iii) Capital structure and shareholding pattern;
(iv) Financial position and working results;
(v) Comments on filing position and compliances of Schedule VI read with Accounting Standards;
(vi) Nature of complaints registered on MCA-21, their nature and any noticeable findings;
(vii) Whether any complaint was received alleging that the company is involved in fraudulent activities, siphoning of funds etc. If so, the details thereof.
(viii) Whether any scrutiny/inspection was carried out, if so, the details thereof;
(ix) Whether the company is having any holding or subsidiary company, if so, details thereof;
(x) Whether company has raised funds through IPO, if so, the utilization of amount collected, compliance of provisions of the Act for deviation from the object stated in Prospectus/Offer Document; transactions with related parties;
(xi) In case of public company, whether it has accepted public deposit. If so, whether the payment of matured amount including interest was made as per schedule. In case any amount is still pending, the details of amount and interest thereon.
(xii) The quantum of unsecured loan amount and related party transactions thereto.
(xiii) Secretarial reports and qualifications made by the auditors on accounts of the company;
(xiv) Whether company or its members/creditors have requested for investigation into the affairs of the company, if so, the details thereof.
(c) MCA will take a final view in the matter within a period of 15 days from the date of receipt of preliminary report from ROC. If any inspection under Section 209A and/or investigation under Section 235/237 of the Act are ordered, the same will be completed by the ROC and forwarded to the OL within 30 days.
(d) The OL will place the report before the Hon‟ble High Courts for seeking appropriate order/action under Section 539 to 544 and other relevant provisions of the Act. Simultaneously, necessary action as per law will be initiated against the director, ex-director and key management of the company for any violation of law/ Companies Act, 1956.
(e) These cases will be monitored in the monthly staff meeting of Regional Directors.
e. Information as to pending liquidations: Section 551 (1) prescribes that when the winding-up of a company is not concluded within one year after its commencement the liquidator shall, unless exempted from so doing by the Central Government / Regional Directors, within two months of the expiry of such year and thereafter, until the winding-up is concluded, at intervals of not more than one year or at such shorter interval, if any, as may be prescribed. The statement shall contain necessary particulars and be audited by a Chartered Accountant. These particulars must be with respect to the proceedings in and position of the liquidation. In the case of a winding-up being carried on by or under the supervision of the Court, the aforesaid statement is to be filed in the Court but in the case of a voluntary windingup, it is to be filed with the Registrar. But an audit is not necessary in case of winding -up by
the Court, where provisions of Section 462 apply.
Simultaneously with the filing of a copy of the statements of account in the Court, a copy shall be filed with a Registrar [Section 551 (2)]. In the case of a government company, the copy of the Statement of account shall be filed with the Central Government if that Government i s a member, or to the State Government if that Government is a member or to the Central Government and any State Government if both are members of the Government Company [551 (2A)]. Any person stating himself in writing to be a creditor or contributory is entitled all reasonable times on payment of the prescribed fee to inspect the foregoing statements of account and to receive a copy thereof or an extract there from [Section 551 (3)].
f. Audit of Liquidator’s Accounts: As has been stated earlier, Section 462 (1) prescribes that the liquidator shall, during his tenure of office, present to the Court an account of his receipts and payments.
Section 462 (3) prescribes that the Court shall cause the accounts to be audited as it thinks fit. A copy of the accounts must be filed and kept by the Court and the same be open to inspection by any creditor, contributory or any person interested [Section 462 (4)]. In the case of a government company, the liquidator shall forward a copy to the Central Government if that Government is a member of the Government company or to any State Government if that Government is a member or to the Central Government and State Government if both are members of the Government company [462 (4A)]. Section 462 (5) provides that the liquidator shall cause the account when audited, or summary thereof to be printed and shall send a printed copy of the accounts or summary by post to every creditor or to every contr ibutory. But the Court is empowered to dispense with the compliance of this provision.
g. Control exercisable by Central Government over Liquidator: The Central Government, according to the provisions contained in Section 463, is empowered to take cognisance of the conduct of the liquidator of companies which are being wound-up by the Court. If, on the application of any creditor or contributory, it is found that a liquidator is not faithfully performing the duties and fully observing the requirements imposed on him by the Act, rules or otherwise the Central Government must enquire into the matter and take such action as it may think expedient. Also, the Central Government may at any time (a) require any liquidator to answer any enquiry in relation to any winding-up in which he is engaged; or (b) direct a local investigation to be made into the books and vouchers of the liquidator; or (c) apply to the Court to have him examined on oath concerning the winding-up.