Liquidation account funds remain company assets until payment, and sanction requires proper satisfaction of entitlement before release.

Money deposited in a company's liquidation account under section 555 of the Companies Act, 1956 remains an asset of the company until actual payment is made, and does not vest finally in the claimant. A claimant's entitlement is therefore subject to superior claims, including pending income-tax liability. Payment under section 555(7)(b) may be sanctioned only when the Central Government is properly satisfied, on a liquidator's certificate or other reliable material, that the claimant is entitled and no competing court proceeding is pending. In the absence of such satisfaction, the sanction cannot stand and the claimant takes only the balance after tax liability is met.

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Issues: (i) Whether amounts paid into the company's liquidation account under section 555 of the Companies Act, 1956 cease to be assets of the company; (ii) Whether the Central Government could sanction payment under section 555(7)(b) without being satisfied on the basis of a certificate or other reliable material, despite the pending income-tax liability.

Issue (i): Whether amounts paid into the company's liquidation account under section 555 of the Companies Act, 1956 cease to be assets of the company.

Analysis: The statutory scheme under sections 511, 512 and 555 of the Companies Act, 1956, read with rules 3 and 9 of the Company's Liquidation Account Rules, 1965, shows that unclaimed dividends and undistributed assets are to be deposited in the liquidation account, accompanied by a statement identifying the persons entitled and the nature of their claims. The deposit does not divest the company of ownership or characterise the money as finally belonging to the claimant. It remains an asset of the company until actual payment is made, though the claimant may have a prima facie entitlement subject to defeat by superior claims such as arrears of revenue.

Conclusion: The money did not cease to be an asset of the company on deposit in the liquidation account; this issue is decided in favour of the Revenue.

Issue (ii): Whether the Central Government could sanction payment under section 555(7)(b) without being satisfied on the basis of a certificate or other reliable material, despite the pending income-tax liability.

Analysis: Section 555(7)(b) empowers the Central Government to order payment only when it is satisfied, on a liquidator's certificate or otherwise, that the claimant is entitled to the money and that no pending court application exists. Here, the authorities were aware of the pending income-tax proceedings, which directly affected entitlement. In the absence of a certificate and without any material showing how satisfaction was reached otherwise, the sanction order could not stand. The statutory obligation to ascertain entitlement before payment could not be bypassed by treating the requirement as a mere matter of administrative prudence.

Conclusion: The sanction order was invalid and liable to be set aside; this issue is decided in favour of the Revenue.

Final Conclusion: The claimant could take only the balance remaining after meeting the company's income-tax liability, and the impugned sanction of payment was rightly set aside.

Ratio Decidendi: Money deposited in a company's liquidation account under section 555 remains an asset of the company until actual payment is made, and payment can be sanctioned only on proper statutory satisfaction under section 555(7)(b) that the claimant is entitled and competing superior claims have been addressed.

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