Appointment of Independent Person as Liquidator of a Company

Appointment of independent person as liquidator

An independent person or a third party cannot be appointed as an Official liquidator in liquidation proceedings under supervision of the court. But a suitable person can be appointed as an assistant or deputy liquidator for the precise purpose of functioning under control and supervision of the High Court and act for the purpose of supplementing the functioning of the official liquidators. This precedent will not be applicable under section 275 of the 2013 Act. Section 275 (2) of the 2013 act provides for the appointment of provisional liquidator or Company liquidator from the panel maintained by the Central Government consisting of professionals or a combination of professionals.

Appointment of Official liquidator

The appointment of Official liquidators is made by the Central Government and, therefore, the High Court has no power to ask him to furnish some security as a condition of his appointment. In the matter of the winding up of a bank, the liquidators need not be the official liquidator. Section 448 of the 1956 Act provides for appointment under the 1956 Act only. The appointments made under the 1956 Act do not affect the appointments made under the Act of 1913 in any way.  A company was ordered to be wound up on the recommendation of the Board for industrial and financial reconstruction. The court appointed the Official Liquidators attached to the court as the provisional liquidators. The operative agency was the industrial credit and investment corporation of India (ICICI). The company prayed that the Official liquidators was over burdened with work and, therefore, an officer of ICICI should be appointed as liquidators. ICICI did not want to shoulder the burden. The court rejected the application. Reference may be had to section 275 of the 2013 Act which prescribes the procedure for appointment of Company Liquidators. Pending company petition, the respondent was appointed as Official Liquidators. After expiry of his term, the appellant was appointed as an Official Liquidator. Invoking the power under rule 9 of the Companies (Court) Rules, single judge allowed the respondent to continue with work entrusted to him. It was held that since the respondent was not able to show a subsisting right, rule 9 could not be invoked. This case will not be applicable under section 275 of the 2013 Act. The Central Government has appointed the Official Liquidators at Indore, Allahabad and Patna as Official Liquidators for the liquidation of companies under the Act in the three states of Chhattisgarh, Uttaranchal and Jharkhand respectively. Section 449 of the 1956 Act provides that the Official Liquidator will, by virtue of the office be the liquidators of the Company. The court has no option in the choice of the liquidators as it used to have under the Companies Act of 1913.

Liquidators likely to be affected by conflict of interests

Where liquidators had to be appointed by two companies, the question arose whether the court had the discretion to appoint the same person for both the companies particularly when there was a conflict of interest in the two companies. Their lordships of the Privy Council noted that it was not usual to do so, but refused to interfere in the approval to the appointment granted by the Cayman Islands Judge. The Lordships said: The appointment of liquidators was a matter of discretion and it was not unusual for the same liquidators to be appointed to related companies to save the expense of different liquidator’s investigation the same transactions, even though inter-company dealings might give rise to a conflict of interest. The appropriate method of resolving any conflict of interest was for the liquidators to apply to the court for directions. Since the exercise of discretion by the Cayman Islands judge had been upheld by the local court of appeal the Privy Council would not interfere with the judge’s decision to appoint the liquidators of the respondents as liquidators of the appellant.

Official liquidator is principal officer under income-tax act

A Division bench of the Andhra high Court reversing that the official liquidator is a principal officer of a company within the meeting of section 2(35) of the Income-tax Act, so as to be liable to make returns in pursuance to a notice issued by the Income-tax Officer. The expenses incurred by the liquidator as per the orders of the court are deductible from the income in the winding up administration of the company in liquidation.

Fee payable to central Government

The fees for appointing the Official Liquidator is payable to the Central Government. The payment has to be made out of the assets of the company. Payment becomes due when the Official Liquidator acts as the liquidator of the company. This is so whether the secured creditor who is trying to realize the assets stays within winding-up or outside it.

Banking Companies                                                                                                     

Section 449 of the 1956 Act does not apply to banking companies, since they are governed by the banking regulation act. The court may appoint the official liquidator as a liquidator of the banking company when no ‘court liquidator’ for banking companies has been appointed and the Reserve Bank does not wish to be appointed as a liquidator. The court will however attach due weight to the recommendation of a suitable liquidator by the Reserve Bank.

Notice to Assessing officer

Every liquidator of a company which is being wound up, whether he is official liquidator, provisional liquidator must, within thirty days of his becoming liquidator, give notice of his appointment to the Assessing Officer who is entitle to assess the income of the company. Failure to give notice will make him personally liable for the payment of the tax which the company will be liable to pay.

Section 450 of the Companies Act, 1956

The power of appointment of a provisional liquidation for the company that was in section 450 of the 1956 Act is now in section 273(1) (c) and the second provision to section 273(1) of the 2013 Act. Under section 275(2) of the 2013 Act, to a provisional liquidator can be appointed from a panel maintained by the Central Government for this purpose. Cases relating to the court’s power to appoint a provision liquidators are covered in the Notes under section 273 of the 2013 Act.

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