High Court Affirms Appellant’s Liability to Bear Official Liquidator’s Security Expenses in Company Winding-Up
- REEDLAW
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REEDLAW Legal News Network reports: In a significant ruling on corporate winding-up, the High Court held that directors of a company under liquidation are bound by their verified statements and unequivocal undertakings. The Court clarified that the Official Liquidator is entitled to act in bona fide reliance on these representations, and the company itself is liable to bear all expenses incurred for securing its assets.
The Delhi High Court Division Bench comprising Justice Anil Kshetarpal and Justice Harish Vaidyanathan Shankar, while adjudicating a batch of Appeal and miscellaneous Applications, held that directors of a company under winding up are bound by their verified statements and unequivocal undertakings. The Court further observed that the Official Liquidator is entitled to act in bona fide reliance on these representations, making the company liable to bear all expenses for securing its assets.
The High Court, in the present appeal under Section 483 of the Companies Act, 1956, dismissed the challenge to the Single Judge’s order directing the Appellant Company to bear the expenses incurred by the Official Liquidator for securing a property identified as belonging to the Appellant. The Court observed that the Appellant had been placed under provisional winding up by an earlier order, pursuant to which the Official Liquidator had taken possession of several assets, including the subject property, and had engaged a private security agency, thereby incurring substantial costs. A subsequent settlement between the parties had led to the conditional recall of the winding-up order, subject to the Appellant depositing a stipulated sum together with any additional security expenses incurred thereafter. Despite repeated reminders, the Appellant failed to comply, prompting applications by the Official Liquidator and the security agency to recover the expenses.
The Appellant contended that the subject property did not belong to it but to a separate legal entity and argued that the Official Liquidator had acted negligently in assuming ownership without verification. The Court, however, relied on the statutory framework under Section 454 of the Companies Act and Rule 130 of the Companies (Court) Rules, which impose a mandatory duty on directors to submit full, accurate, and verified statements of affairs. The Court noted that the ex-director of the Appellant had submitted unqualified statements and a handwritten undertaking agreeing to bear all Official Liquidator expenses, which formed the basis of the Single Judge’s orders. The High Court held that the Appellant’s failure to challenge earlier orders, coupled with its unequivocal undertakings, estopped it from disputing liability at a belated stage, invoking the principles of estoppel and waiver.
The Court further emphasised that the Official Liquidator acted bona fide, relying on the representations made by the Appellant’s officers, and that any assertion of coercion or misrepresentation in the Rule 130 statements was unsubstantiated and unparticularized. The High Court concluded that the acts undertaken by the Official Liquidator were reasonable and lawful, affirmed the Impugned Order, directed the Appellant to pay the security expenses within four weeks, and dismissed the appeal.
Mr. Ashok Kumar Juneja and Mr. Mithlesh Kumar Singh, Advocates, represented the Appellant.
Ms. Ruchi Sindhwani, SSC, with Ms. Megha Bharara, Advocate, appeared for the Respondent No. 1/Official Liquidator.
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