Official Liquidators, Records and the Close of a Winding Up

Section 342(5). When a prosecution is instituted, it is the duty of the liquidator and of every person who is or has been an officer or agent of the company to give all assistance he is reasonably able to give. The Explanation provides that "agent" includes any banker or legal adviser of the company and any person employed by the company as auditor.

Section 343(1): three things needing the Tribunal's sanction. The Company Liquidator may, with the sanction of the Tribunal:

• (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 any claim present or future, certain or contingent, 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 any claim subsisting or alleged between the company and a contributory or alleged contributory or other debtor or person apprehending liability, and all questions relating to the assets or liabilities or the winding up, on such terms as may be agreed, taking security for the discharge and giving a complete discharge.

Section 343(2). The Central Government may make rules allowing the liquidator to exercise the compromise powers without the Tribunal's sanction in prescribed circumstances and subject to prescribed conditions.

Section 343(3). Any creditor or contributory may apply to the Tribunal about any exercise or proposed exercise of these powers, and the Tribunal, after giving a reasonable opportunity to the applicant and the liquidator, may pass such orders as it thinks fit.

Telling the world: section 344

Section 344(1). Where a company is being wound up, every invoice, order for goods or business letter issued by or on behalf of the company, the Company Liquidator, or a receiver or manager of its property, being a document on or in which the name of the company appears, shall contain a statement that the company is being wound up.

Section 344(2). Contravention makes the company, every officer, the Company Liquidator and any receiver or manager who wilfully authorises or permits it punishable with fine of not less than fifty thousand rupees extending to three lakh rupees.

Note the words "wilfully authorises or permits" for the officers and liquidator; the company's liability is not so qualified.

Books and papers: sections 345, 346 and 347

Section 345. All books and papers of the company and of the Company Liquidator shall, as between the contributories, be prima facie evidence of the truth of all matters purporting to be recorded in them.

Note the limit: "as between the contributories". The presumption does not run against strangers.

Section 346. After a winding up order, any creditor or contributory may inspect the books and papers only in accordance with, and subject to, such rules as may be prescribed; and nothing in that restricts rights conferred by any law on the Central or a State Government, any authority or officer of theirs, or a person acting under their authority.

Section 347(1). When the affairs have been completely wound up and the company is about to be dissolved, the books and papers of the company and of the Company Liquidator may be disposed of as the Tribunal directs.

Section 347(2). After five years from the dissolution, no responsibility devolves on the company, the liquidator, or a custodian, by reason of any book or paper not being forthcoming to a person claiming to be interested in it.

Section 347(3) and (4). The Central Government may make rules preventing destruction of such books and papers for such period as it thinks proper, and enabling a creditor or contributory to make representations and to appeal to the Tribunal against its order; contravention of such a rule or order is punishable with fine up to fifty thousand rupees.

Reporting a long liquidation: section 348

Section 348(1). If the winding up is not concluded within one year after its commencement, the Company Liquidator shall, unless exempted wholly or in part by the Central Government, within two months of the expiry of that year and thereafter at intervals of not more than one year until it is concluded, file with the Tribunal a statement in the prescribed form, duly audited by a person qualified to act as auditor of the company, on the proceedings in and position of the liquidation. Proviso: no such audit is necessary where section 294 applies.

Section 348(2), (3) and (4). A copy is filed simultaneously with the Registrar and kept with the company's records; for a Government company a copy goes to the Central Government, the State Government, or both, according to which is a member; and any person stating himself in writing to be a creditor or contributory may, himself or by his agent, at all reasonable times and on payment of the prescribed fee, inspect the statement and receive a copy or extract.

Section 348(5). A person fraudulently stating himself to be a creditor or contributory is deemed guilty of an offence under section 182 of the Indian Penal Code, 1860 and, on the application of the Company Liquidator, punishable accordingly.

Section 348(6). Where a Company Liquidator who is an insolvency professional registered under the Insolvency and Bankruptcy Code, 2016 defaults under the section, the default is deemed a contravention of that Code and its rules and regulations for the purposes of proceedings under Chapter VI of Part IV of it.

That last sub-section is the modern link. The liquidator's discipline follows him from one statute to the other.

Where the money goes: sections 349 to 352

Section 349. Every Official Liquidator shall pay the monies received by him into the public account of India in the Reserve Bank of India, in the prescribed manner and at the prescribed times.

Section 350(1). Every Company Liquidator shall deposit the monies received by him in a scheduled bank to the credit of a special bank account opened by him; proviso, the Tribunal may permit an account in another bank it specifies if that is advantageous for the creditors, contributories or the company.

Section 350(2): keeping cash back. If he retains for more than ten days a sum exceeding five thousand rupees, or such other amount as the Tribunal authorises, then unless he explains the retention to the Tribunal's satisfaction he shall (a) pay interest on the excess at twelve per cent per annum and such penalty as the Tribunal determines; (b) be liable for any expenses occasioned by his default; and (c) be liable to have all or part of his remuneration disallowed, or to be removed from office.

Section 351. Neither the Official Liquidator nor the Company Liquidator shall deposit any monies received in his capacity as such into any private banking account.

Section 352(1) and (2): the special account. Where the liquidator holds money representing (a) dividends payable to a creditor unpaid for six months after they were declared, or (b) assets refundable to a contributory undistributed for six months after they became refundable, he shall forthwith deposit it in a separate special account in a scheduled bank called the Company Liquidation Dividend and Undistributed Assets Account; and on the dissolution he shall pay into that account any such money in his hands at that date.

Section 352(3) and (4). With the payment he shall furnish the Registrar a statement in the prescribed form giving the nature of the sums, the names and last known addresses of the persons entitled, the amount to which each is entitled and the nature of his claim; and the bank's receipt is an effectual discharge.

Section 352(5). In a voluntary winding up the liquidator shall, when filing the section 348 statement, indicate the sum payable under sub-sections (1) and (2) during the preceding six months, and within fourteen days of filing pay it into the account.

Section 352(6): claiming it back. Any person claiming to be entitled may apply to the Registrar, who may pay him if satisfied; and the Registrar shall settle the claim within sixty days, failing which he shall report to the Regional Director giving reasons.

Section 352(7). Money remaining unclaimed for fifteen years is transferred to the general revenue account of the Central Government, but a claim may still be preferred under sub-section (6) and dealt with as if the transfer had not been made, an order for payment being treated as an order for refund of revenue.

Section 352(8): retaining what should have been paid in. The liquidator shall pay interest at twelve per cent per annum and such penalty as the Registrar determines, the Central Government being able to remit the interest in whole or in part in a proper case; shall be liable for expenses occasioned by his default; and, in a Tribunal winding up, is liable to have his remuneration disallowed and to be removed from office.

Compelling returns, and ascertaining wishes: sections 353 and 354

Section 353. Where a Company Liquidator has defaulted in filing, delivering or making any return, account or other document, or in giving any notice, and fails to make good the default within fourteen days after service of a notice requiring him to do so, the Tribunal may, on the application of any contributory or creditor or the Registrar, order him to make good the default within a specified time; the order may direct that all costs of and incidental to the application be borne by him; and nothing in the section prejudices any enactment imposing penalties for such a default.

Section 354. In all matters relating to a winding up the Tribunal may (a) have regard to the wishes of creditors or contributories as proved by sufficient evidence, (b) direct meetings to be called, held and conducted as it directs to ascertain those wishes, and (c) appoint a chairman to report the result. In ascertaining the wishes of creditors, regard is had to the value of each debt; of contributories, to the number of votes each may cast.

Affidavits: section 355

An affidavit for the purposes of the Chapter may be sworn in India before any court, tribunal, judge or person lawfully authorised to take affidavits, and in any other country before any court, judge or person lawfully authorised there, or before an Indian diplomatic or consular officer; and all tribunals, judges, Justices, commissioners and persons acting judicially in India shall take judicial notice of the seal, stamp or signature of any such authority on such an affidavit or document.

Undoing a dissolution: section 356

Section 356(1). Where a company has been dissolved, whether under this Chapter or section 232 or otherwise, the Tribunal may, at any time within two years of the date of dissolution, on the application of the Company Liquidator or any other person who appears to be interested, declare the dissolution void on such terms as it thinks fit; thereupon such proceedings may be taken as if the company had not been dissolved.

Section 356(2). The Tribunal shall forward a copy of the order to the Registrar within thirty days, who shall record it, and shall direct the Company Liquidator or the applicant to file a certified copy with the Registrar within thirty days or such further period as the Tribunal allows, and the Registrar shall record that too.

Two years is the whole of the section's difficulty. After that the dissolution stands.

Commencement: section 357

The winding up of a company by the Tribunal under this Act shall be deemed to commence at the time of the presentation of the petition for the winding up.

Everything else in the winding up chapters is measured from this date, and it is not the date of the order. The floating charge in section 332 looks back twelve months from this date; the past member's year in section 285(3)(a) runs to this date; the void dispositions in section 334 begin from this date.

Limitation: section 358

Notwithstanding the Limitation Act, 1963 or any other law, in computing the period of limitation for any suit or application in the name and on behalf of a company being wound up by the Tribunal, the period from the date of commencement of the winding up to one year immediately following the date of the winding up order shall be excluded.

The reason is practical. A company being wound up has nobody to sue on its behalf until the liquidator is appointed and has found out what claims exist, and the section gives him a clear year after the order.

The Official Liquidator: sections 359 and 360

Section 359. For winding up by the Tribunal, the Central Government may appoint as many Official Liquidators and Joint, Deputy or Assistant Official Liquidators as it considers necessary; they are whole-time officers of the Central Government, and their salary and allowances are paid by it.

Section 360. The Official Liquidator shall exercise such powers and perform such duties as the Central Government may prescribe; and, without prejudice to that, he may exercise all or any of the powers of a Company Liquidator and conduct inquiries or investigations if directed by the Tribunal or the Central Government in respect of matters arising out of winding up proceedings.

The summary procedure: sections 361 to 365

Section 361(1) and (2): who qualifies. Where the company to be wound up has assets of book value not exceeding one crore rupees and belongs to such class or classes as may be prescribed, the Central Government may order it to be wound up by summary procedure, and shall appoint the Official Liquidator as the liquidator.

Both conditions are required, and the decision is the Central Government's, not the Tribunal's.

Section 361(3) to (6). The Official Liquidator shall forthwith take into custody or control all assets, effects and actionable claims; shall, within thirty days of his appointment, report to the Central Government, including his opinion whether any fraud has been committed in the promotion, formation or management of the company; on that report, if satisfied that fraud has been committed by the promoters, directors or any other officer, the Central Government may direct further investigation with a report within a specified time; and after considering it may order that the winding up proceed under Part I of the Chapter or under this Part.

Section 362: realisation, and its two thirty-day and sixty-day clocks. The Official Liquidator shall dispose of all the assets, movable or immovable, within sixty days of his appointment; shall within thirty days of his appointment serve notice on the debtors and contributories to deposit within thirty days the amount payable; where a debtor does not, the Central Government may, on the Official Liquidator's application, pass such orders as it thinks fit; and the amounts recovered are deposited under section 349, that is into the public account of India.

Section 363: the creditors. He shall, within thirty days of his appointment, call upon the creditors to prove their claims within thirty days of receiving the call; shall prepare a list of claims in the prescribed manner; and shall communicate to each creditor whether his claim is accepted or rejected, with reasons recorded in writing.

Section 364: appeal. A creditor aggrieved by that decision may appeal to the Central Government within thirty days; the Central Government, after calling for the Official Liquidator's report, may dismiss the appeal or modify the decision; the Official Liquidator shall pay the creditors whose claims have been accepted; and the Central Government may at any stage refer the matter to the Tribunal for necessary orders.

Section 365: the end. When satisfied that the company is finally wound up, the Official Liquidator submits a final report to the Central Government where no reference was made to the Tribunal under section 364(4), and to the Central Government and the Tribunal in any other case; the Central Government or the Tribunal shall order that the company be dissolved; and the Registrar shall strike the company's name off the register and publish a notification.

A worked example

Panvel Fasteners Limited, whose assets have a book value of eighty lakh rupees, is to be wound up.

Which track? Its assets are not more than one crore, so if it also belongs to a prescribed class, the Central Government may order a summary winding up and appoint the Official Liquidator: section 361.

The clocks. The Official Liquidator takes custody of all assets, effects and actionable claims forthwith; within thirty days he reports to the Central Government, saying whether in his opinion fraud was committed in the promotion, formation or management; within thirty days he notices the debtors and contributories to deposit within thirty days; within sixty days he disposes of all the assets; and within thirty days he calls on the creditors to prove within thirty days. What he recovers goes into the public account of India in the Reserve Bank: sections 349 and 362(4).

A rejected claim. A supplier's claim is rejected with reasons recorded in writing. He may appeal to the Central Government within thirty days, which, after calling for the Official Liquidator's report, may dismiss the appeal or modify the decision, or refer the matter to the Tribunal: sections 363 and 364.

Fraud. The report says stock was diverted before the petition. The Central Government may direct further investigation and, on the investigation report, order that the winding up proceed under Part I, that is before the Tribunal, instead of summarily: section 361(5) and (6).

The end. On the final report the Central Government orders dissolution, and the Registrar strikes the name off the register and publishes a notification: section 365.

A larger company, on the ordinary track. Take instead Kalamboli Castings Limited, wound up by the Tribunal on a petition presented on 10 January.

When did the winding up commence? On 10 January, the date of presentation of the petition, not the date of the order: section 357. Every clawback period is measured from that date.

Its letters. From then, every invoice, order for goods and business letter issued by the company, the liquidator or a receiver must state that the company is being wound up; failure exposes the company, every officer, the liquidator and any receiver who wilfully authorises or permits it to a fine of fifty thousand to three lakh rupees: section 344.

The money. The Company Liquidator deposits everything in a special account in a scheduled bank, and never in a private account: sections 350 and 351. He holds eighty thousand rupees in cash for a fortnight without explanation, so he must pay interest at twelve per cent and such penalty as the Tribunal determines, bear the expenses occasioned, and may have his remuneration disallowed or be removed: section 350(2).

A compromise. He wishes to settle a disputed call with a contributory and to pay the workmen in full at once. Both need the Tribunal's sanction under section 343(1), and any creditor or contributory may apply to the Tribunal about that exercise of power.

A delinquent officer. It appears that a former director falsified the stock records. The Tribunal may, on the application of any person interested or of its own motion, direct the liquidator to prosecute him or refer the matter to the Registrar; and the liquidator, the officers and the company's bankers, legal advisers and auditors must give all reasonable assistance to the prosecution: section 342.

A liquidation that drags. The winding up is not concluded by the following January. Within two months of that anniversary, and every year thereafter, the liquidator must file with the Tribunal an audited statement on the position of the liquidation, with a copy to the Registrar; a person stating himself in writing to be a creditor or contributory may inspect it and take a copy on the prescribed fee, and one who does so fraudulently is punishable under section 182 of the Indian Penal Code, 1860: section 348.

Unclaimed money. Dividends declared for a creditor who cannot be found remain unpaid for six months, so they go into the Company Liquidation Dividend and Undistributed Assets Account in a scheduled bank, with a statement to the Registrar of the names, last known addresses and amounts. The creditor's heir may later apply to the Registrar, who must settle the claim within sixty days or report to the Regional Director. If nobody claims for fifteen years, the money goes to the general revenue account of the Central Government, though a claim may still be made and is treated as a refund of revenue: section 352.

A suit for the company. A debt owed to the company was already three years old when the petition was presented. In computing limitation for a suit in the company's name, the period from 10 January to one year after the winding up order is excluded: section 358.

After dissolution. Eighteen months after the company is dissolved, a bank account in its name comes to light. A person interested may apply, and the Tribunal may declare the dissolution void, after which proceedings may be taken as if the company had never been dissolved; a copy goes to the Registrar within thirty days, and the applicant must file a certified copy within thirty days: section 356. Had thirty months passed, nothing could be done.

The books. When the affairs are completely wound up, the books and papers are disposed of as the Tribunal directs; and five years after the dissolution no responsibility attaches to anybody for a book that cannot be produced: section 347.

Distinctions that carry marks

What this does NOT mean

It does not mean the winding up commences with the order. Section 357 deems it to commence at the presentation of the petition.

It does not mean a dissolution can be reopened at any time. The application must be made within two years of the date of dissolution.

It does not mean the liquidator may compromise freely. Paying a class of creditors in full, and compromising claims and calls, need the Tribunal's sanction, subject to rules the Central Government may make.

It does not mean he may hold cash. More than five thousand rupees for more than ten days costs him twelve per cent interest, a penalty, the expenses and possibly his remuneration or his office.

It does not mean unclaimed money is lost after fifteen years. It goes to the general revenue account, but a claim may still be preferred and is treated as a refund of revenue.

It does not mean the books are prima facie evidence against everybody. They are so as between the contributories.

It does not mean the summary procedure is available for any small company. The assets must be of book value not exceeding one crore rupees and the company must belong to a prescribed class.

Quick revision

• 342 and 343: the Tribunal may, suo motu or on application, direct the liquidator to prosecute a delinquent officer or member or refer the matter to the Registrar, everyone including the banker, legal adviser and auditor giving assistance; and the liquidator needs the Tribunal's sanction to pay a class of creditors in full or to compromise claims, calls and liabilities, subject to rules dispensing with sanction, any creditor or contributory being able to apply about it.
• 344 to 347: every invoice, order and business letter must say the company is being wound up, on pain of fifty thousand to three lakh rupees; the books are prima facie evidence as between contributories; inspection by creditors and contributories is only as prescribed, Government rights being unaffected; and on dissolution the books are disposed of as the Tribunal directs, with no responsibility after five years and rules preventing destruction, contravention costing up to fifty thousand rupees.
• 348: a winding up not concluded within one year requires an audited statement filed with the Tribunal within two months of that year's expiry and yearly thereafter, a copy to the Registrar, copies to the Central or State Government for a Government company, inspection by creditors and contributories on a fee, section 182 of the Indian Penal Code, 1860 for a false claim to be one, and a deemed contravention of the Insolvency and Bankruptcy Code by a liquidator registered under it.
• 349 to 352: the Official Liquidator pays into the public account of India in the Reserve Bank; the Company Liquidator into a special account in a scheduled bank, never a private account; retaining more than five thousand rupees for over ten days without explanation costs twelve per cent interest, penalty, expenses, and disallowance of remuneration or removal; dividends unpaid and assets undistributed for six months, and everything left at dissolution, go into the Company Liquidation Dividend and Undistributed Assets Account with a statement to the Registrar; claims are settled by the Registrar within sixty days; and money unclaimed for fifteen years passes to the general revenue account, still claimable as a refund of revenue.
• 353 to 355: default in returns not made good within fourteen days of notice may be met by a Tribunal order with costs; the Tribunal may ascertain the wishes of creditors by value and of contributories by votes, directing meetings and a chairman; and affidavits may be sworn in India or abroad, judicial notice being taken of the seal or signature.
• 356 to 358: a dissolution may be declared void within two years on the application of the liquidator or any interested person, copies going to the Registrar within thirty days; a winding up by the Tribunal commences at the presentation of the petition; and in computing limitation for a suit by the company, the period from commencement to one year after the winding up order is excluded.
• 359 and 360: the Central Government appoints Official Liquidators and Joint, Deputy and Assistant Official Liquidators as whole-time officers paid by it; they exercise prescribed powers, all or any of a Company Liquidator's powers, and inquiries or investigations directed by the Tribunal or the Central Government.
• 361 to 365, the summary procedure: available where assets are of book value not exceeding one crore rupees and the company is of a prescribed class; the Central Government orders it and appoints the Official Liquidator, who takes custody forthwith, reports within thirty days including on fraud, notices debtors and contributories within thirty days to pay within thirty days, disposes of all assets within sixty days, calls on creditors within thirty days to prove within thirty days, and communicates acceptance or rejection with reasons; a creditor may appeal to the Central Government within thirty days, which may dismiss, modify or refer to the Tribunal; and on the final report the Central Government or the Tribunal orders dissolution and the Registrar strikes the name off and publishes a notification.

Test yourself

1. When does a winding up by the Tribunal commence? It is deemed to commence at the time of the presentation of the petition for winding up: section 357. Every period measured from the commencement, such as the twelve months for a floating charge under section 332, runs from that date.

2. Can a dissolved company be revived? Yes, within limits. The Tribunal may, at any time within two years of the date of dissolution, on the application of the Company Liquidator or any other person who appears to be interested, declare the dissolution void, whereupon proceedings may be taken as if the company had not been dissolved: section 356.

3. What happens to dividends nobody claims? Dividends unpaid for six months after declaration, and assets undistributed for six months after becoming refundable, are deposited forthwith in the Company Liquidation Dividend and Undistributed Assets Account in a scheduled bank, with a statement to the Registrar; a claimant may apply to the Registrar, who must settle within sixty days; and money unclaimed for fifteen years goes to the general revenue account of the Central Government, though a claim may still be made and treated as a refund of revenue: section 352.

4. How much cash may a Company Liquidator retain? Not more than five thousand rupees, or such other amount as the Tribunal authorises, for more than ten days. Otherwise, unless he explains it to the Tribunal's satisfaction, he must pay interest at twelve per cent per annum and such penalty as the Tribunal determines, bear any expenses occasioned, and may have his remuneration disallowed or be removed from office: section 350(2).

5. Which companies may be wound up by the summary procedure, and who conducts it? A company with assets of book value not exceeding one crore rupees which belongs to such class or classes as may be prescribed. The Central Government orders it and appoints the Official Liquidator as liquidator: section 361.

6. What must be stated on the company's letters during a winding up? Every invoice, order for goods or business letter issued by or on behalf of the company, the Company Liquidator, or a receiver or manager, on which the company's name appears, must contain a statement that the company is being wound up; contravention costs the company, every officer, the liquidator and any receiver or manager who wilfully authorises or permits it a fine of not less than fifty thousand rupees extending to three lakh rupees: section 344.