2025 (10) TMI 1043 - HC - Companies Law

Appeal dismissed; 20.04.2022 order upheld as Official Liquidator acted bona fide, company estopped from challenging liability

M/s. Connoisseur Buildtech Pvt. Ltd. Through Mr. Anil Sharma Ex Director Versus Official Liquidator (Ol) Of M/s. Connoisseur Buildtech Pvt. Ltd. & Anr.

HC affirmed the impugned order and dismissed the appeal. The court held the Official Liquidator acted bona fide and in compliance with statutory duties ... Liability to make good the expenses incurred bona fide by the Official Liquidator for the preservation of the assets - property belonged to appellant or not - liability of appellant to bear security expenses for a property that never belonged to it but was owned by a distinct legal entity - HELD THAT:- The efficacy and integrity of the liquidation process are wholly dependent on the truth and completeness of such disclosures, for the Official Liquidator cannot discharge his statutory functions of securing, managing, and realizing assets or protecting creditors’ interests unless he is equipped with correct and reliable information. Any failure, suppression, or misrepresentation strikes at the very foundation of the liquidation machinery, prejudices creditors and stakeholders, and exposes the defaulting officers to civil and penal consequences, while also estopping them from subsequently adopting inconsistent or contrary positions - In the present case, the record unequivocally establishes that at no stage prior to the Orders dated 12.12.2017 and 03.10.2018 did Mr. Anil Sharma, in his statements under Rule 130 of the Company Rules, disavow liability for the security expenses of the subject property. The attempt by the Appellant to now repudiate its director’s unequivocal undertakings and to challenge the implications of the unchallenged court Orders is nothing more than a belated and technical objection, which is squarely barred by the well-established principles of estoppel and waiver. The Official Liquidator acted entirely in bona fide reliance on the representations and undertakings of the Appellant, securing what was presented as an asset of the company under liquidation, and did so in strict compliance with the statutory mandate and the directions of the Court - The Appellant’s unexplained delay in raising this objection, only after obligations under binding court Orders had been incurred, fatally undermines the credibility of its present claim. Such a belated plea cannot be allowed to thwart the lawful and bona fide actions of the Official Liquidator, who was executing his statutory duties with diligence and in good faith. Thus, it is clear that the acts undertaken by the Official Liquidator, as affirmed by the Impugned Order, were wholly reasonable and founded on a bona fide belief, which was directly informed by the statements, undertakings, and conduct of the officers of the Appellant Company. The Appeal is wholly devoid of merit and must fail. The Impugned Order dated 20.04.2022 is accordingly affirmed, and the present appeal is dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether a company placed under provisional winding up can be held liable to reimburse security and preservation expenses incurred by the Official Liquidator in respect of a property identified as the company's asset when the company later disputes ownership. 2. Whether statements and undertakings made by a company's director under Rule 130 of the Companies (Court) Rules, 1959 and the statutory statement of affairs under Section 454 of the Companies Act constitute admissible and binding bases for the Official Liquidator to act and for fixing liability on the company. 3. Whether the Official Liquidator's bona fide reliance on director's disclosures and consequent protective measures can be displaced by a belated claim of mistaken identification or by allegations that the director's statements were procured under coercion. 4. Whether failure to challenge court orders that identify an asset as belonging to the company and impose liability for expenses vitiates subsequent contrary pleas by the company (issues of estoppel, waiver, delay, and laches). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Liability of the Company for Liquidator's Security Expenses when Ownership Is Later Disputed Legal framework: The Companies Act and Rules place duties on directors to disclose assets upon appointment of a liquidator; the Official Liquidator has statutory functions to secure and preserve company assets. Judicial orders recalling winding-up can conditionally impose payment of liquidator's expenses. Precedent treatment: No specific precedent was overruled; the Court applied settled principles regarding the duties of directors and the powers of the Official Liquidator, treating prior binding orders as final unless successfully appealed. Interpretation and reasoning: Where a liquidator, acting in bona fide reliance upon available documentary record, director's statements and court direction, takes possession and incurs security expenses for what is represented as a company asset, the company may be held liable to reimburse those expenses. The Court emphasized the reciprocal statutory scheme: directors must make full disclosure under Section 454 and Rule 130, and the liquidator's protective steps taken on that basis are lawful and reasonable. Ratio vs. Obiter: Ratio - A company which, through its officers, represents an asset as belonging to it and accepts liability for liquidator's expenses can be held liable to reimburse bona fide expenses incurred in protecting that asset; a contrary, belated claim of non-ownership is barred where prior statements and unchallenged orders establish the position. Obiter - Observations on the practical impact of complete disclosures on the liquidation process generally. Conclusions: The company was liable to bear the security expenses because the subject property was represented as its asset in the record (including an MoU and undertakings), the Official Liquidator acted bona fide in securing the property, and the relevant court orders imposed liability which remained unchallenged. Issue 2 - Binding Effect of Rule 130 Statements and Section 454 Statement of Affairs Legal framework: Section 454 mandates submission of a verified statement of affairs by directors/officers; Rule 130 permits recording of statements by directors. Statutory scheme contemplates reliance upon such disclosures to enable the liquidator to perform duties. Precedent treatment: The Court followed established statutory import of Section 454 and Rule 130; no authority was distinguished or overruled; reliance on directors' verified statements is treated as legitimate foundation for liquidator's actions. Interpretation and reasoning: Statements and undertakings made under Rule 130 and the statutory statement under Section 454 are obligatory, expected to be full and accurate, and may constitute binding admissions for purposes of liquidation. A clear and unqualified undertaking to bear official liquidator's expenses is a binding acknowledgment that can support an order directing payment by the company. Ratio vs. Obiter: Ratio - Unqualified undertakings and statutory statements made by directors under the Companies Act/Rules can be treated as binding and as a legitimate basis for the Official Liquidator's actions and for fixing liability. Obiter - Comments that suppression or misrepresentation in such statements may attract civil and penal consequences. Conclusions: The director's handwritten undertaking and Rule 130 statements constituted a valid basis for the Official Liquidator to act and for the court to impose liability on the company; the company could not escape that liability by later contradicting those statements without timely challenge. Issue 3 - Bona Fide Reliance by Official Liquidator and Effect of Allegations of Negligence or Coercion Legal framework: Official Liquidator's duty to secure assets and reliance on available verified disclosures; duties of directors not to mislead; requirement that coercion allegations be particularized and supported by evidence to undermine prior statements. Precedent treatment: The Court applied the standard that bona fide actions taken by the liquidator on the basis of director-provided information are protected unless adequate proof of coercion or mala fide action is established. Interpretation and reasoning: The Official Liquidator's engagement of security services and incurring of expenses were reasonably grounded in the director's statements and the MoU. Allegations that Rule 130 statements were procured under coercion were unparticularized and unsupported; absence of contemporaneous objection or appeal negated their efficacy. The liquidator is not required to perform independent title adjudication in the first instance when statutory disclosures purport to show ownership. Ratio vs. Obiter: Ratio - Where the Official Liquidator reasonably and bona fide relies on director's statements and documentary indications of ownership, the liquidator's protective expenditures are validly chargeable to the company unless and until the company promptly establishes otherwise with evidence. Obiter - Remarks on the impracticality of imposing on the Official Liquidator a primary duty to verify every asserted asset where statutory statements have been made. Conclusions: The Official Liquidator acted in good faith; unsupported and belated coercion claims failed; negligence by the Official Liquidator was not established as a basis to absolve the company from liability, given the directors' statutory obligations and representations. Issue 4 - Finality of Court Orders, Estoppel, Waiver, Delay and Laches Legal framework: Courts' orders attain finality absent timely challenge; doctrines of estoppel and waiver prevent parties from adopting inconsistent positions after acquiescence; delay and laches bar belated contentions that prejudice bona fide action taken in reliance on the prior position. Precedent treatment: The Court applied general equitable principles of estoppel, waiver and finality of judicial orders to the facts, treating unchallenged orders imposing liability as binding. Interpretation and reasoning: The company had opportunity to object or appeal the orders of 12.12.2017 and 03.10.2018 which identified the plot as company asset and required payment of security expenses; no challenge was made. The director's subsequent contradictory claim was first raised only after liability had crystallised, constituting a belated change of stance barred by estoppel and waiver. Delay undermined the credibility of the new claim and prejudiced the Official Liquidator who had acted on the earlier position. Ratio vs. Obiter: Ratio - Failure to challenge express court orders which declare an asset to be that of the company and fix liability for expenses precludes later contradictory claims; estoppel and waiver apply to prevent reneging on prior accepted positions. Obiter - Observations on impact of unexplained delay on credibility and the protection of bona fide third-party reliance. Conclusions: The company's present attempt to repudiate prior undertakings and unchallenged court positions is barred by estoppel, waiver, and laches; the orders treating the property as the company's asset attained finality and justify affirmance of liability for security expenses. Overall Disposition (Ratio of the Judgment) The Court affirmed that where (i) directors/officers have statutory obligations under Section 454 and Rule 130 and make clear undertakings regarding liquidation expenses, (ii) the Official Liquidator acts bona fide on those representations to secure an asset identified as belonging to the company, and (iii) the company fails to timely challenge judicial directions treating the asset as company property, the company is liable to reimburse the Official Liquidator's bona fide expenses; belated, unsupported assertions of non-ownership or coercion do not displace that liability.