1957 (4) TMI 31 - HC - Companies Law

Court Rules No Security Required for Liquidators under Companies Act, 1956

The court ruled that under the Companies Act, 1956, and the Banking Companies Act, the court no longer has the authority to demand security from court ... Winding up – Appointment of official liquidator Issues:Review of the practice of requiring security from court liquidators under the Companies Act, 1956, and the Banking Companies Act.Analysis:The judgment addresses the application by the current court liquidator seeking clarification on the necessity of furnishing security, the amount of security, and the payment of premiums from funds. The historical practice of ordering security for liquidators under the old Companies Act of 1913 is examined, highlighting the authority granted to the court to determine the security to be provided. Rules under the old Act empowered the judge to rescind orders if security was not furnished, indicating the significance of security in liquidation proceedings. However, the judgment emphasizes the changes brought about by the Companies Act, 1956, and the Banking Companies Act, which have removed the statutory provision for ordering security from court liquidators. The judgment concludes that the court no longer has the power to demand security from the court liquidator based on the current legal framework.The judgment discusses the roles of official liquidators appointed by the Central Government under the Companies Act, 1956, and the Banking Companies Act, highlighting the automatic appointment of the official liquidator upon a winding-up order. It notes the absence of a requirement for security in the appointment terms set by the Central Government for official liquidators. The judgment underscores the potential liabilities faced by court liquidators due to the significant assets and funds they manage, emphasizing the need for provisions similar to those in the Calcutta Official Receivers Act, 1938, to protect against personal liabilities.Moreover, the judgment acknowledges the court liquidator's willingness to comply if directed to furnish security but ultimately concludes that the court lacks the authority to impose such a requirement under current legislation. It suggests reporting the matter to the Government of India for consideration of introducing provisions for security for court liquidators and ensuring the protection of public revenues in case of liabilities. The judgment, therefore, directs that the present court liquidator is not required to furnish security and highlights the importance of potential statutory changes for fairness, prudence, and safety in liquidation proceedings.