THE WEST BENGAL NATIONAL UNIVERSITY OF JURIDICAL SCIENCES

KOLKATA, INDIA.

INSOLVENCY LAW PROJECT

TOPIC:

THE ROLE OF OFFICIAL

LIQUIDATOR

Name: ANNAPURNA CHAKRABORTY

I. D. No. : PG21226

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 TABLE OF CONTENTS

1) INTRODUCTION........................................................................................................ 3

2) OFFICIAL LIQUIDATOR: AN ANALYSIS,...........................................................3

3) POWER OF OFFICIAL LIQUIDATOR WITH REFERENCE TO COMPULSORY

WINDING UP OF COMPANIES : AN ANALYSIS.............................................8

4) ROLE OF THE OFFICIAL LIQUIDATOR : AN ANALYTICAL

STUDY....................................................................................................................10.

5) CONCLUSION ..........................................................................................................12

6) BIBLIOGRAPHY...................................................................................................... 13

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 THE ROLE OF OFFICIAL LIQUIDATOR

CHAPTER 1

INTRODUCTION

In general sense, liquidator is a person who conducts the whole process of liquidation. When
a company is about to wind up it is required to realise the assets of the company and it should
be distributed among the “debenture holders”, “creditors” “shareholders” etc. For this
purpose a person is appointed who does all the required things before the company “cease to
exist”. This person is called Liquidator under Company Law. So liquidator comes into scene
in the time of winding up of a company.

The process of winding up can be two types. These are following below:

1. Compulsory winding up

2. Voluntary winding up

Official liquidator is appointed in the time of compulsory winding up. The Official liquidator
is the officer of high court. He is appointed from the date of the order of the winding up. He
has certain duties to perform under the Companies Act and he has to do all the required
things in respect of compulsory winding up of a company according to the instruction of the
high court.

In this project I have discussed the role of official liquidator. I have divided this paper into
five chapters. Chapter1 deals with introduction. I made a detailed study on Official
Liquidator in the second chapter, where I have discussed the provisions regarding official
liquidator in detail.

I have analyzed the powers of official liquidator with reference to compulsory winding up of
companies in the third chapter of this paper. Under this chapter, I, have also discussed the
conflict between sections 457 (2) and 457 (3).

The role of official liquidator will be discussed in the fourth chapter. In that chapter I have
discussed the role of official liquidator in the light of the Madras high court decision. Finally
I made a conclusion in the last part.

Chapter 2

Official liquidator: an analysis:

The term official liquidator is covered under the various provisions of the companies act
1956and also the “Companies (Official Liquidator’s Accounts) Rules”, 1965 framed by the
Central Government as well as there is “the Companies (Court) Rules, 1959” which describe

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the detail procedure of liquidation of a company. Generally at the time of winding up of a
company a officer has been appointed who has certain duties to perform, for example:
realization of the assets and also distributes the same for settlement the debt of the company
among the creditors and the shareholder 1. Official liquidator is appointed in the case of
compulsory winding up of a company. Official liquidator is the officer of the High Court and
he is appointed from the date of order of winding up of the company. He is working for the
welfare of the creditors. Section 448 of the companies acts 1956 deals with the appointment
of the official liquidator.

Appointment of the official liquidator

According to the section 448 of the companies act, 19562 at the time of winding up of
companies (by the court ) central government appointed an official liquidator who shall be
attached to the high court. Official liquidator is a whole time officer but in some cases where
the central government found that there is not enough work for a whole time officer then in
that cases a part time officer can be appointed. Section 448 of the companies act, 1956
further stated that central government can appoint one or more than one deputy or assistant
liquidator to assist the official liquidator 3. Official liquidator works under the supervision of
regional directors, on behalf of central government the regional directors supervise them. 4
When a high court passes an order for winding up a company then the official liquidator
attach with the said High Court take the charge of the assets of the company, books of
account etc. and finally liquidate the company according the order of the high court.
Companies court rules 1959 laid down the detail procedure of liquidation which are approved
by the honourable Supreme Court of India and also notified by the central government.5

THE OFFICIAL LIQUIDATOR, available at http://www.companyliquidator.gov.in/12/aboutus_data.htm (Last

visited on 14.09.2013)

2 See The Companies Act,1956 § 448.

3 Id

4 OFICIAL LIQUIDATORS , available at http://www.mca.gov.in/Ministry/pdf/official_liquidators.pdf (Last

visited on 14.09.2013)

5THE ROLE OF OFFICIAL LIQUIDATOR IN WINDING UP available at

http://www.delhiol.com/databasefile/8ej.pdf (Last visited on 14.09.2013)

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Who are the eligible for appointed as an official liquidator :

The following people are eligible to be appointed as an official liquidator

1. “A member from the panel of the professional firm of

(a) Chartered accountants

(b) Advocates

(c) Company Secretaries

2. Body corporate approved by the central government

3. Whole time and part time officer appointed by the central government”6

Proceeding conducted by the official liquidator

It is the duty of the Official liquidator to conduct proceeding for winding up of a company.
The Tribunal may specify the duty in this regards. [Sec 448 (6)].

Under section 448 (6) tribunal can do the following three things in respect to official
liquidator:

 The court may transfer the work from one official liquidator to another official
liquidator and the reason why the court doing this should be recorded in
writing.

 The court may remove the official liquidator if there is a sufficient cause to
doing so.

 The court may start a proceeding against the official liquidator on the ground
of professional misconduct.7

Section 449 speaks about “official liquidator to be liquidator”. It stated that when a company
get an order of winding up then the official liquidator become the liquidator of that company.8

6 id

7 See The Companies Act,1956 § 448(6)

8 See The Companies Act,1956 § 449

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Section 450 explained “the appointment and powers of official liquidator”.

According to section 450

 The court may appoint the official liquidator as provisional after the winding up
petition being made and before the winding order being made.9

 The court shall give notice to the company before appointing a provisional liquidator
so that the company can get a fair opportunity to make its representation.10

 The court can impose certain restrictions and limitation on the powers of provisional
liquidator at the time of his/her appointment. This restriction can be imposed
subsequently also.11

 The provisional liquidator has finally become the liquidator of the company as soon
as the winding up order is made.12

Section 454 of the companies act 1956 speaks about “statement of affairs to be made to
official liquidator”.

According to section 454 of the companies act 1956 :

A statement of affairs of the company shall be “made out” and submitted to the official
liquidator in the prescribed form and it should be verified by an affidavit. There should be
certain particulars to be mentioned. These are:

 The total asset of the company. The amount of cash balance in hand and in bank.

 The debts of the company

9 See The Companies Act,1956 § 450(1)

10 See The Companies Act,1956 § 450 (2)

11 See The Companies Act,1956 § 450(3)

12 See The Companies Act,1956 § 450(4)

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  The details of the creditors, i.e. name, residence, occupation etc.13

The statement of affairs should be submitted and also verified by one or more than one
person who was at that time posted as a director and manager or any other chief officer of the
company.14

Following are the duties of the official liquidator:

Report submitted by the official liquidator under Sec 455:

After receiving the statement of affairs the official liquidator has a duty to submit a
preliminary report to the court as soon as possible but within the 6 month after receiving the
statement of affairs.

Custody of companies property under Section 456 :

After the winding order is made the official liquidator takes the custody and charge of the all
the property of the company.

Keeping books by liquidator under Sec 461

The liquidator shall keep a proper book. Any contributor or creditor can inspect this book by
personally or by his agents but it is the subject to the control of the court.

Section 462 of the companies act, 1956 speaks about procedure of audit of liquidator’s
account.

In companies act 1956 there are various provisions relating to official liquidator. These are

following below:

“Appointment of official liquidator”

Section 448

13 See The Companies Act,1956 §454

14 See The Companies Act,1956 § 454(2)

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 “Official liquidator to be liquidator”
Section 449

“Statement of affairs to be made to official liquidator”

Section 454

Section 455 “Report by official liquidator”

“Custody of company’s property”

Section 456

“Powers of liquidator”
Section 457

“Discretion of liquidator”
Section 458

“Exclusion of certain time in computing periods of

Section 458A limitation”

“Provision for legal assistance to liquidator”

Section 459

“Exercise and control of liquidator power”

Section 460
“Book to keep by liquidator”
Section 461
“Audit of liquidators account”
Section 462

“Control of central government over liquidator”

Section 463

The provision dealing with the role of official liquidator under the companies’ act 2013

Section 359 “Appointment of official liquidator”

Section 360 “Power and function of official liquidator”

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Section 361 “Summary procedure for liquidation”

Section 362 “Sale of assets and recovery of debt due to

company”
Section 363 “Settlement claims of creditors by official
liquidator”
Section 364 “Appeal by Creditor”

Section 365 “Order of dissolution of company”

So from the above study it can be said that an official liquidator is appointed in the time of
compulsory winding up of a company for take care of the “wind up” affairs of the company
and after that the company is ceased to exist.

CHAPTER 3

Power of official liquidator with reference to compulsory winding up of companies : an

analysis

The power of official liquidator in compulsory winding up of companies covered under

section 457 of the companies act 1956. Section 457 of the companies act 1956 empowered
certain power to the official liquidator. These can be classified into two categories :

1. “With the sanction of the court”15

2. “Without the sanction of the court”16

On the other and Section 457 (3) of the companies act 1956 states that the court should
control the power exercise by the official liquidator in the time of winding up of a company.
And it also further stated that creditors and contributors can apply to the court regarding “any
of the power conferred by this section”.

So we can see that there is a contradiction between 457 (2) and 457 (3). In 457 (2)
specifically mentioned about certain power of the official liquidator which he can exercise
without the sanction of the court but on the other hand section 457 (3) speaks about any
15 See The Companies Act,1956 § 457(1)

16 A.K. MAJUMDAR & G.K. KAPOOR, COMPANY LAW AND PRACTICE (2010)

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power exercise by the official liquidator in the time of compulsory winding up is subject to
“control of the court”. This is the problematic section regarding the role of official liquidator.

Now I will analyze what are those powers which comes under the purview of 457 (2) i.e.
power exercise by the official liquidator “without the sanction of the court”. These powers
are following below:

 The official liquidator has a power to do and execute all acts in the name of the
company and also he can exercise this power on behalf of the company and he can
also use the company’s seal when it is necessary.

 He has a power to verify the “records” and “return” of the company on the registrar
files and it can be done without the payment of any fee.

 On the behalf of the company and in the name of the company the official liquidator
can accept, draw, make and “endorse” any bill of exchange, promissory note or hundi.

 He has a power to appoint an agent for doing any business which he is not able to do.

In the famous case Vishwa Nath Agrawal V State Of U.P17 it was held that if an official
liquidator sale any property of a company which is in the process of winding up by high court
(compulsory winding up) then it is a “sale by the official liquidator” not a “sale by the court”.
The reason behind it that the court neither executes the process of the sale nor the negotiation
of the sale is taking place before the court. All these things which are required for sale are
happened between the buyer of the property and the official liquidator. The court does not
play any role regarding this matter this is the reason that it is the “sale by official liquidator”
not “sale by the court”.

The official liquidator can issue a sale certificate earlier which can be used as evidence. But
now the official liquidator does not have any power to issue a sale certificate.18

17 Vishwa Nath Agrawal vs State Of U.P. And Ors. available at http://www.indiankanoon.org/doc/65047/

(Last Visited on 24TH September, 2013)

18 CRITICS ON THE POWERS OF OFFICIAL LIQUIDATOR WITH REFERENCE TO COMPULSORY

WINDING UP OF COMPANIES, available at http://jurisonline.in/?p=2789 (Last Visited on 24TH September,
2013)

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In the VISHWA NATH AGRAWAL V STATE OF U.P 19 it was also held that the deed
executed by the official liquidator come under the purview of section 457 (2) which speaks
about power which can be exercised by the official liquidator without the sanction of the
court.

From here the main conflict arises. In the above said case it was held that “the sale of a
property by an official liquidator is a sale by official liquidator not by the court”. And also
section 457 subsections 2 of the companies act 1956 speaks about the powers enjoy by the
official liquidator “without the sanction of the court”. But section 457 subsections 1 state that
in case of sale of immovable property sanction of the court is required.

So it can be said that section 457 (2) and the section 457 (3) are not clear. Because if any act
done by the official liquidator which is covered under section 457 (2) was challenged then he
can refer section 457 (3) and can say that all act perform by the liquidator is subject to the
control of the court. So this is the main problem of this section. Therefore the language of the
section 457 subsection 3 should be more clear and specific. It should be clearly explained
those powers (exercised by the official liquidator) which are subject to the control of the
court. So that there will be no confusion between 457 (2) and 457 (3).

Present situation

The recently enacted companies act, 2013 changed the situation. Section 360 of the
companies Act 2013 deals with “power and function of official liquidator”. Section 360 (2)
(a) says that the official liquidator may exercise “all” or “any” of the power exercised by the
company liquidator. Now what is the power of company liquidator? Section 290 of the new
act speaks about the “power and duties of the company liquidator”. Section 290 (1) of the
companies act 2013 containing sub clause (a) to (m) which explain the different power of the
company liquidator. Further Section 290 (2) of the Companies Act 2013clearly stated that all
the power (exercised by the company liquidator) stated in sub section 1of section 290 are
subject to the “overall control of the tribunal”.20

CHAPTER 4

Role of the official liquidator : An analytical study :

In this chapter I will discuss the role of the official liquidator on the light of madras high
court decision.

19 Supra 17

20 See The Companies Act,2013 § 290

11

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 In the famous case Tci Distribution Centers v. Official Liquidator21, the Madras High Court
explains about the role of official liquidator. In this case what happened was that the official
liquidator conducting an auction for sells certain properties. The purchaser of the property
later found that the property is not the same as it is described in the advertisement of sale.
Therefore the purchaser makes an application before court for set aside the sale. But this plea
got rejected and the Madras high court describes the official liquidator’s duties and liabilities.

The court explained the section 456 of the companies act, 1956. The interpretation of
section 456 is that in the time of winding up process the official liquidator take the custody of
all the properties of the company. In an earlier case MAHARASHTRA STATE FINANCIAL
CORPORATION V. OFFICIAL LIQUIDATOR 22 Bombay High Court explained that the
property of the company does not “vest” in the official liquidator it remain the property of the
company. Another earlier case UNITED BANK OF INDIA V. OFFICIAL LIQUIDATOR23 it
was held that when sells of any property of the company executed by the official liquidator
then he/she offers “no warranty of title”

But in the present cast i.e. Tci Distribution Centers v. Official Liquidator , the Madras high
court explained the duty of official liquidator. It was held that the official liquidator should
not commit “deceit” and also should not commit “the tort of negligence and misstatement”
and also pointed out that if any “deceit” or “negligence and misstatement” is found on the
part of official liquidator then the sale of the property become voidable according to the
contract law of misrepresentation or fraud.

The burden of proof lies on the purchaser. It is difficult for the purchaser to prove that deceit
has been committed. The reason behind it is that, under the Common Law to commit a deceit
specific mens rea is required.24 On the other hand to prove negligence or the misstatement

21 TCI Distribution Centres Ltd vs The Official Liquidator , available at

http://www.indiankanoon.org/doc/1141243/ (Last Visited on 24TH September, 2013)

22 Maharashtra State Financial vs Official Liquidator , available at

http://www.indiankanoon.org/doc/1038125/ (Last Visited on 24TH September, 2013)

23 UNITED BANK OF INDIA V. OFFICIAL LIQUIDATOR , available at

http://indiankanoon.org/doc/135119/ (Last Visited on 24TH September, 2013)

24 DUTIES OF THE OFFICIAL LIQUIDATOR: MADRAS HC DECISION , available at

http://indiacorplaw.blogspot.in/2009/06/duties-of-official-liquidator-madras-hc.html (Last Visited on
24TH September, 2013)

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special relationship is required wherein one party has a special duty to take reasonable care.
But in the case of official liquidator there is hardly any special relationship exist.25

REMUPIPES V IFCI26 in this case it was held that the in the time of winding up also the
company remains the owner of its property and assets and “by the legal fiction the assets are
vested in the court”. An official liquidator has been appointed as the “custodian” of the
company’s property.

CHAPTER 5

CONCLUSION

From the above study it can be said that Official Liquidator plays an important role in the
time of winding up of a company. He is appointed from the date of the order of the winding
up and takes “custody” of the company’s property. He works as an officer of the court and
plays a major role to “realise” and “distribute” the assets of the company (which is about to
wind up) among the “creditors” and “debenture holders”; after that if something is left then it
is distributed among the “shareholders”. So it can be said that the official liquidator works for
creditors’ welfare. They neglect Shareholders’ welfare but it should also be taken into
account.

25 Id.

26 REMUPIPES V IFCI, available at http://www.indiankanoon.org/doc/1580209/ (Last Visited on 24TH

September, 2013)

13

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 BIBLIOGRAPHY

REFERRED BOOKS

1. A.K. MAJUMDAR & G.K. KAPOOR, COMPANY LAW AND PRACTICE (2010)

2. DEREK FRENCH, APPLICATIONS TO WIND UP COMPANIES (2007)

3. AVTAR SINGH, COMPANY LAW (2009)

4. R.K.BANGIA, COMPANY LAW (2008)

5. DEREK FRENCH & RYAN, COMPANY LAW(2011)

ARTICLES

1. CRITICS ON THE POWERS OF OFFICIAL LIQUIDATOR WITH REFERENCE

TO COMPULSORY WINDING UP OF COMPANIES, available at
http://jurisonline.in/?p=2789 (Last Visited on 24TH September, 2013)

2. THE ROLE OF OFFICIAL LIQUIDATOR IN WINDING UP, available at

http://www.delhiol.com/databasefile/8ej.pdf (Last Visited on 24TH September, 2013)

WEBSITES

1. http://www.companyliquidator.gov.in/12/windingup_data.htm

2. http://www.mca.gov.in/Ministry/pdf/official_liquidators.pdf

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 15

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