Facts of the Case

The matter concerned a company undergoing liquidation, which owned a property situated at Agathavarappadu Village, Mangalagiri Road, Guntur District. The property had been occupied by a sister concern and remained under the custody of the CBCID, preventing the Official Liquidator from taking possession earlier. Subsequently, the Inspector of Police, CID, Guntur, informed the Official Liquidator that the property was ready to be handed over. The Official Liquidator accordingly took possession of the property on 07.01.2022. To safeguard the company's asset, a security agency was immediately appointed for watch and ward duties. Thereafter, an application was filed seeking ratification of the appointment and approval for payment of security charges.

Issues Involved

  1. Whether the appointment of a security service agency by the Official Liquidator for safeguarding the company's property should be ratified.
  2. Whether payment of watch and ward charges from the liquidation funds should be permitted until realization of the company's assets.

Petitioner’s Arguments

  • The Official Liquidator submitted that the property had only recently come into his possession after being released by the CID authorities.
  • Immediate security arrangements were necessary to prevent encroachment, damage, or loss of the company's assets.
  • The appointment of the security agency was made in the interest of protecting the estate of the company in liquidation.
  • Permission was sought to pay watch and ward charges at the rate of ₹5,000 per month per security guard, along with applicable GST, effective from 07.01.2022.

Respondent’s Arguments

No specific objections or contrary submissions were recorded against the application. The matter primarily involved judicial approval of the Official Liquidator's administrative action for preservation of the company's assets.

Court Order / Findings

The High Court observed that safeguarding the assets of a company in liquidation is an essential responsibility of the Official Liquidator. Since the property had already been taken into possession and security arrangements had been made solely for its protection, the Court found the action to be justified.

Accordingly, the Court:

  • Ratified the appointment of the security service agency made by the Official Liquidator.
  • Permitted payment of watch and ward charges at the rate of ₹5,000 per month per security guard along with applicable GST.
  • Directed that such payments shall be made from the Estate and Establishment Fund Account.
  • Further directed that the expenditure shall be recouped upon the sale of the company's assets.
  • Allowed the Company Application without any order as to costs.

Important Clarification

  • The Official Liquidator is empowered to take immediate protective measures for preserving assets of a company in liquidation where circumstances demand urgent action.
  • Expenses incurred for safeguarding company assets may be paid from liquidation funds with the approval of the Company Court.
  • Such expenditure is recoverable from the proceeds realized upon disposal of the company's assets.
  • Judicial ratification validates administrative actions taken by the Official Liquidator for preservation of the liquidation estate.

Sections Involved

  • Companies Act provisions relating to winding up and powers of the Official Liquidator.
  • Provisions governing preservation, protection, and administration of assets of a company in liquidation.

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1784889337_1964compressed.pdf

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