Official Liquidator improperly created Common Pool Fund violating Section 555 Companies Act 1956 deposit requirements

The Bombay HC disposed of an application seeking permission to appoint a Peon (MTS) in liquidation proceedings. The court found that the Official Liquidator had improperly created a "Common Pool Fund" using unpaid amounts from liquidation proceedings, contrary to Section 555 of the Companies Act 1956, which requires such funds to be deposited in the Company Liquidation Account. The court noted that special/additional staff were being paid from this fund but were serving the Official Liquidator's Office rather than specific liquidation proceedings. The court directed that from August 2025, if company paid staff services continue, their expenses shall be borne by the Official Liquidator's Office, Nagpur. The court ordered the Common Pool Fund amount to be deposited in the Company Liquidation Account within 14 working days and recommended the Ministry of Corporate Affairs review the matter.

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ISSUES:

• Whether the appointment of special/additional staff by the Official Liquidator under Rules 308 and 309 of the Companies (Court) Rules, 1959, complies with the requirement of necessity in liquidation proceedings.
• Whether employees appointed under Rule 308 can claim rights to regularization, absorption, or benefits equivalent to permanent government employees.
• Whether the creation and use of a 'common pool fund' for payment of salaries and expenses of company paid staff is permissible under Section 555 of the Companies Act, 1956.
• Whether the continuation of company paid staff for prolonged periods without liquidation completion is justified under the statutory and regulatory framework.
• The scope and limitations on the Official Liquidator's discretion in appointing and continuing special/additional staff in liquidation proceedings.
• The legal consequences of non-compliance with statutory provisions regarding disposal of unpaid monies and management of liquidation proceedings.

RULINGS / HOLDINGS:

• The appointment of special/additional staff must be based on the Official Liquidator's opinion of necessity in a particular liquidation, and such appointments are "on a purely temporary basis" with no entitlement to regularization or permanent benefits, as per the Supreme Court's ruling in Official Liquidator Vs. Dayanand.
• Employees engaged under Rule 308 constitute a separate class paid from funds created for disposal of assets of companies in liquidation and cannot claim rights equivalent to permanent government employees.
• The creation and use of a 'common pool fund' for payment of company paid staff and other expenses is "not permissible" under Section 555 of the Companies Act, 1956, which mandates deposit of unpaid monies into the Companies Liquidation Account.
• The continuation of company paid staff for years, without completion of liquidation or proper justification of necessity, violates the spirit and letter of Rules 308 and 309, and the appointments are effectively for administrative augmentation rather than liquidation needs.
• The Official Liquidator failed to justify the necessity of continuation of company paid staff in specific liquidations, and their services are primarily utilized for the Official Liquidator's Office rather than liquidation proceedings.
• The Official Liquidator is statutorily required to deposit unpaid monies in the Companies Liquidation Account and not in a common pool fund, and failure to do so constitutes illegality.

RATIONALE:

• The Court applied Rules 308 and 309 of the Companies (Court) Rules, 1959, which require the Official Liquidator to form an opinion of necessity before applying for court sanction to appoint special/additional staff, and provide for apportionment of expenses where staff serve multiple liquidations.
• The Supreme Court precedent (Official Liquidator Vs. Dayanand) was relied upon to clarify that company paid staff have no claim to permanent employment benefits and their engagement is temporary and liquidation-specific.
• Section 555 of the Companies Act, 1956, was interpreted strictly to require deposit of unpaid monies into a statutory Companies Liquidation Account, precluding the creation of a 'common pool fund' for staff salaries or miscellaneous expenses.
• The Court identified a doctrinal shift emphasizing strict compliance with statutory provisions and judicial scrutiny over administrative practices that circumvent liquidation timelines and statutory mandates.
• The judgment highlighted systemic lapses including strategic but unjustified appointments, lack of transparency in necessity justification, prolonged pendency of liquidations, and misuse of funds, calling for corrective action by the Ministry of Corporate Affairs.
• The dissent or differing opinion was not recorded; however, the judgment underscored the need for the Ministry to take corrective steps, including possible absorption/regularization of staff considering length of service, but within the statutory framework.

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