Official Liquidators and Summary Procedure

In one line

Alongside the Tribunal's winding up there is an administrative one: for a small company of a prescribed class the Central Government may order a summary liquidation conducted by an Official Liquidator, who takes custody at once, sells within sixty days, calls in debts, admits or rejects claims with reasons, and reports for a dissolution order that the Registrar gives effect to by striking the name off.

In exam wording: under section 361(1), where the company to be wound up has assets of book value not exceeding one crore rupees and belongs to such class or classes of companies as may be prescribed, the Central Government may order it to be wound up by summary procedure provided under this Part.

Why the law has this at all

The full winding up procedure is designed for a substantial company: a Tribunal order, an insolvency professional as Company Liquidator, a winding up committee, an advisory committee, quarterly reports, half-yearly audited accounts, and a dissolution application at the end. Applied to a company whose entire assets are worth less than the cost of the process, it consumes the estate and produces nothing for anybody.

Section 361 answers that with a summary procedure, and its design has three features.

An administrative decision instead of a judicial one. The Central Government orders the winding up, appoints the liquidator, hears appeals about claims and orders dissolution.

A public officer instead of a professional. The Official Liquidator, a whole-time officer of the Central Government under s.359, does the work, so the estate does not pay a professional's fee.

And speed instead of process. The timelines are short and cumulative: custody forthwith, a report in thirty days, all assets sold in sixty days, debts called in within thirty days, and claims proved within thirty days of a call made within thirty days of appointment.

But the summary route cannot be allowed to conceal wrongdoing, so s.361(4) requires the liquidator to report whether in his opinion any fraud has been committed in the promotion, formation or management, and s.361(5) and (6) let the Central Government direct a further investigation and, after considering it, order that the winding up proceed under Part I instead.

Sections 359 and 360: the Official Liquidator

359(1): for the purposes of the Act, so far as it relates to the winding up of companies by the Tribunal, the Central Government may appoint as many Official Liquidators, Joint, Deputy or Assistant Official Liquidators as it may consider necessary to discharge the functions of the Official Liquidator.

359(2): they shall be whole-time officers of the Central Government.

359(3): their salary and other allowances shall be paid by the Central Government.