Indian bureaucracy is the most inefficient in the World. They are a power centers in their own
right at every levels, and are extremely
resistant to reform that affects them or the way they go about their
duties. Bureaucracy has vested interest to take the Country backwards. Much has to do with the fact the most of them come from poor families who do not even had food security. It is the insecurity within them which makes them resistant to reforms. Nothing can amplify their conduct more than the following. The working of office of official Liquidator.
1. The Hon’ble Company Judge, Punjab
& Haryana High Court, Chandigarh.
2. Official Liquidator, Punjab & Haryana
High Court,Chandigarh
3. Secretary, Ministry of Corporate affairs,
Shastri Bhawan, New Delhi
4. Regional Director,
Ministry of Corporate affairs, Noida.
In the matter of Rule 273 of Companies court Rules, 1959
In the matter of CP 220 of 2005,
Order dt March 16, 2006
Reg: Terms and conditions of sale.
In the matter of Section 456(2)
of the Companies Act 1956.
Reg: Deemed possession of the Court.
In the matter of Section 481 of the
Companies Act 1956
Reg: Dissolution of the Companies.
In the matter of Section 551 of the
Companies Act 1956
Reg: One year for Dissolution of Companies.
Sir,
1. The object of passing ‘Winding Up order’ is to dissolve the said Company. Winding up Order is passed for the reasons stated in section 433 principally being that Company is insolvent. The Order of winding up will fail if the Company cannot be dissolved. 2. In terms of Section 551 of the Companies Act, Companies are to be dissolved within 1 year from the date of winding Up Order. However since 1955, no company has been dissolved because successive liquidators either don’t know the company law procedure or because of vested interest of deriving pecuniary advantage they don’t dissolve the companies. Dissolution involves:-
A. Sale of assets.
B. Declaration of dividend u/s 529/530 of the Act
C. Filing dissolution report.
Ai. Sale of assets available as per records of ROC or Statement of affairs whichever is available. Under section 454 (4), expenses of preparing statement of affairs are to be borne by OL either out of common pool funds or out of company account. As long as OL does not pay the expenses of preparation of statement of affairs, no Ex-director is prepared to make statement of affairs. OL never submits the statement of affairs as available with ROC. ii. Terms and conditions of sale were got approved from this court vide order Dt March 16, 2006 in Company petition 220 of 2005. These terms and conditions are defective and contain several lacuna to give pecuniary advantage to OLs. Another specialized Court dealing with sale of assets of insolvent persons is DRT (Debts recovery Tribunal) which conducts the proceedings as per 2nd schedule of Income TaxAct. In DRT, Recovery officers conduct the sale and distribute the proceeds within 8 months whereas OLs take more than 50 years to do the same work. Comparative chart of methodology of possession, terms and conditions of sale conducted by OL and as per 2nd secedule of Income Tax are as below;-
I. OL takes physical possession. High Court asks banks to pay for security. OL appoints security agency of his choice. No. of guards are fixed by OL. (Prior to Order Dt 7.8.09 in CA 1-2/09, Security agency had 500% profit margins. Out of which rumored commission went to OL). Hence security agencies are kept on and on for years and no efforts are ever made to sell the properties since any sale of property will curtail the commission of OL. In some cases Bills of security agency have exceeded the value of assets/sale proceeds like in case of BRD Textiles. High Court is responsible for making payment to security agencies.
As per 2nd schedule of IT Act.
Court asks Local commissioner (an advocate) to take possession on behalf of the Court which is then handed over to banks for safe keeping. Thus Secured creditors take possession on behalf of the Court. Assets are custodia legus. Banks appoint own security. Court has no responsibility to make payment to security agency. It is done by banks who deploys it.
Remarks;-
1 In both the cases actual custody is with security agency.
2 In both the cases, security agency is paid by the banks.
3 Security agency can also be appointed by rotation / seriatim as in case of CAs.
4 No discretion should be left to OL.
5 In terms of section 456(2) Court is to be only in deemed possession. i.e. custodia legus.
6 High Court need not be responsible for making payment to security agency.
II. At the time of possession, OL does not make inventory. Hence there are cases of large scale thefts by O/O OL and security agencies. High court has been lodging FIRs in all such cases but in none of the Companies, property has ever been recovered leaving severe gaps in security provided by High Court. See proof Here.
As per 2nd schedule IT Act.
Local commissioner (advocate) is appointed who prepares a CD of entire proceedings. Inventory is prepared. CD is deposited in court with copies to all concerned. Since security is provided by banks to whom assets are charged they ensure there is no theft of their security. There is lack of transparency in proceedings by High Court since at the time of physical possession, there is no inventory or any CD showing physical state of property at the time of possession.
III OL gets the valuation done. High Court is responsible for payments to valuers. Valuer is paid % of valuation whereby fee is in excess of 1.00 lacs. There is rumored commission to OL on excess amount paid. Since fee is % basis, hence to increase fees, Valuers do valuation on replacement system or cost system. Hence OL conceals valuation.
As per 2nd schedule IT Act.
Creditors are asked to submit valuation. Banks pay Valuer fixed amount ranging from 5000-10,000. Valuations is done on present market / distress sale value system. Court has no responsibility to pay for valuation. It invites objections on valuations
Remarks;-
1. There is lack of transparency in valuation done by High Court as valuation is concealed. Court should invite objections on valuations, there should be full transparency in the matter.
2. Reserve price is fixed on the basis of valuation which is lacking in the case of valuations got done by High Court.
3. The methodology of valuation is also defective
4. Valuer can be appointed by rotation as in case of CAs
IV. Since valuations are either based on replacement or cost system, the valuation is concealed. No reserve price is fixed. Thus there is ample scope for deriving pecuniary benefit by selling the property at much lesser price than its market value as there is no reserve price. OL in its proclamation does not mention reserve price Whereas High Court approved terms & Conditions of sale with reserve price vide order dt 16.3.06 in CP 220/05.
As per 2nd schedule IT Act.
Reserve price is fixed based on actual market valuation. Other claimants are also invited to file objections / claims.
Remarks;-
1. There is lack of transparency in sales conducted by high Court. OL has been issuing sale advertisement without mentioning reserve price. Hence property is sold below the market price giving pecuniary benefit to OL.
2. Most of the bidders are known to / are put up by O/O OL.
3. In one case, when the undersigned put up his friend as a prospective bidder (dummy), he was asked :- “Who are you ? “
V OL gives advertisement. High Court is responsible to make the payment to advertising agency. High Court asks Banks to pay for advertisement. There is scope for commission to OL. Hence excess advertisements are given In one case (PMCL) Bill of advertiser was of Rs 47 lacs whereas sale proceeds were about Rs 17 lacs apart from other sale expenses.
As per 2nd schedule IT Act;-
Banks are asked to advertise for sale. Format of advertisement of sale is given by Court. Court has no responsibility to pay for advertisement charges or hiring advertising agencies.
Remarks;-
1. Since OL engages advertiser, there are allegations of excess payment.
2. In both the cases cost of advertising is borne by Banks.
3. Cost of advertising is kept much lower than valuation.
VI 25% of bid amount is deposited within 2 weeks. 25% of bid amount is to be deposited within 24 hours failing which 10 % of reserve price is forfeited. Excess time is given by OL to derive pecuniary advantage. Balance 75% is to be deposited only after confirmation which may take years itself. This is done to retain security agency for as long as possible.
As per 2nd schedule IT Act;-
Balance 75% of bid amount is to be deposited within 15 days of bid. Confirmation is not filed unless full bid amount is received. In case of failure to deposit 75% within 15 days, 25% is forfeited.
Remarks;-
1. High court should not hear objections unless objector has deposited the full bid amount. This will curtail frivolous objections.
2. Objections based on irregularity or fraud in auction can be heard without mandatory deposit.
VII Objections are heard even by depositing token amount unlike 100 % in DRTs.
As per 2nd schedule IT Act;-
No objections are heard unless objector deposits the full higher bid amount. Entire bid amount is to be deposited within 30 days of impugned bidding.
Remarks;-
The terms & conditions of got approved by OL in CP 220/05 are defective to enable him to derive pecuniary advantage by keeping sale proceedings pending for long.
VIII. Claims are not invited /settled by OL till sale is confirmed and No dividend is declared for years together. There is no dissolution for years and years.
As per 2nd schedule IT Act;-
Once sale is confirmed, claims are considered, sale proceeds are disbursed to claimants. Recovery officers have no vested interest to retain sale proceeds as sale proceeds are kept in FDR with the bank which has charge over assets of the Company. Banks are entitled to interest.
Remarks;-
OL can invite claims as soon as he receives Winding Up order so as to save time of the Court. Expenses can be paid as is being done in case of inviting bids for assets or initially out of common pool fund which can be later paid back out of sale proceeds. Advertisement for claims & of Sale should take place within 1 month of possession.
B. Declaration of dividend u/s 529/530 of the Act and filing dissolution report.
High Court should invite claims within one month from date of winding up order or while inviting bids for the assets of the Company. The expenses can be initially met from common pool fund and later recouped from sale proceeds. So by the time sale is completed, claims have already been received and settled. Hence disbursement can be done immediately on confirmation of sale and dissolution report can be filed. The collective wisdom of Parliament which framed section 551 of the Companies act envisages the time period of one year for completion of dissolution which can be met as:- Order of winding Up is treated as 1st day of month
1st month; OL gives notice to ex-directors for filing statement of affairs offering (1 – 30 day) that all expenses in terms of section 454 (4) will be paid by OL. OL also takes last balance sheet from ROC. In meantime OL takes possession of assets as per balance sheet or as available at registered office of Company and invites claims. Possession to be taken within 15 days Valuation to be filed within 15 days next. Assets can also be given on ‘Superdari’ to Banks.
2-3rd month; Advertisement for sale. Sale proclamation is for 60 days with reserve (60 days) price. Claims can also be invited at this stage and can be settled by CA.
4th month; Confirmation applied. 30 days are given for filing objections. (30 days) 30 days given for objections on settlement of Claims done by CA. Thus by end of 4th month sale is confirmed. Sale proceeds disbursed and dissolution filed.
Dated 31.8.2009 CA K D Aggarwal,
Advocate
ENCL:
1. Existing terms & Conditions of sale as approved in CP 220/05
2. Proposed terms & Conditions of sale.
Note by Author; on above letter the court asked comments of Branch Incharge, on another similar letter court also asked comments of Official Liquidator.
NEXT LETTER
To, Incharge Company Branch/Liquidation Section, Punjab & Haryana High Court.
Sub: Suggestions for winding up of affairs of Companies under Liquidation.
Dear Sir,
Reference to the orders passed by the Hon’ble Company Judge Dt 4.9.2009;
That since office of Official Liquidator has had no working knowledge in winding up the affairs of the Companies, it will not be practicable to expect them to voluntarily follow the directions if any that may be given to them. I offer to impart training to Office of Official Liquidator to winding up affairs of Companies in liquidation on purely honorarium basis at Rs 1/- per month for a short period of four months to oversee the implementation of these directions.
I promise to file dissolution of at least 50 companies during this period. The period may be extendable to 2 more months during which I will file dissolution of fifty more companies and so on.
Presently realization from Companies under Liquidation is under 30 Paise. Even out of this 30 Paise, more than 25 paise is taken away by the Official Liquidator towards his ‘expenses’ leaving nothing for the creditors and shareholders. One of the reasons is inefficient handling of staff by the Official Liquidator. To enable conclusion of winding up, the staff of O/O Official Liquidator has to be re arranged. Presently there are 34 employees in the office out of whom 11 are government and 23 are company paid. The re arrangement of duties may include:- 4 for accounts, 3 for salaries etc, 2 for RTI, 2 in office pool to work in place of employees on leave. [Total in administration section 11]. 2 in Sale section, 3 in claims section, 10 in dissolution section, 1 in security section/dispatch section, 4 in court cases legal 3 in company pool.
This offer may be brought to the notice of Hon’ble Company Judge along with your comments. I may point out that as per the procedure in vogue in High Court of Himachal Pradesh and at Delhi High Court, Company miscellaneous applications/petitions are kept on the record of main petition with single order sheet. This will also avoid inconsistency in orders of same company.
Dated 23.9.2009 CA K D Aggarwal,
Advocate
Note by Author;
1 In his reply to the suggestions for expeditious disposal of work, Sh Sunil Dutta the branch head (who had recently been transferred from Lower Court) stated that Branch is working smoothly, meaning thereby that it is expected that No company is to be ever dissolved and 90% of realization will continued to be taken by the office staff in every case.
2. In reply to suggestions for expeditious disposal of work, Sh D P Ojha the official liquidator stated that the suggestions are impracticable meaning thereby that suggestions if implemented will directly effect the pockets of the executive as the underhand money which is generated is shared at all levels up to those in charge of transfers and postings.
The copies of these replies are in possession of author obtained under Right to Information Act.
Kapil Dev Aggarwal
