5 June 2023
NCLT confirms that requirements of the Companies Act do not apply on commencement of Voluntary Liquidation
 
In a recent case1, the New Delhi Bench of the National Company Law Tribunal (NCLT) accepted the proposition that once the voluntary liquidation is commenced in respect of the Corporate Person, the requirement to perform the Statutory Audit and consequent filing of the Financial Statement and Annual Return with the Registrar does not apply. This alert summarizes the key aspects of the aforesaid ruling in the paragraphs below:
 
Facts of the Case
  • The voluntary liquidation in respect of the Corporate Person was commenced with effect from 8 March 2019.
  • Since the voluntary liquidation was commenced before the closure of the Financial Year 2018-19, there was no occasion to prepare the Financial Statements and get the same audited. Corollary to that, there was no occasion to file the Audited Statement with the Registrar in terms of Section 137 of the Companies Act, 2013 or the Annual Return under Section 932 of the said Act.
  • During the liquidation process, the Registrar inter alia raised an objection stating that the Corporate Person failed to file the Balance Sheet and Annual Return for the period of 1 April 2018 to 7 March 2019, therefore the company violated the provisions under Section 137(1) & 92(4) of the Companies Act, 2013. Furthermore, the Registrar stated that although the Liquidator filed unaudited accounts for the above period that is not the true compliance with the provisions of Section 137 of the Companies Act, 2013.
NCLT Ruling
 
The NCLT ruled in favor of the Liquidator as follows:  
  • The NCLT took note of the submission made by the Liquidator that once the liquidation process is commenced, the Liquidator is seized of the entire process, and he or she has to carry on the liquidation process in accordance with the provisions of the Code read with Regulations made thereunder and not otherwise. Since the voluntary liquidation was commenced with effect from 8 March 2019, there was no occasion or mandate to the Liquidator to prepare the Financial Statements and to file the Annual Returns of the Corporate Person concerning Financial Year 2018-19 under the Companies Act, 2013. The Liquidator has prepared unaudited account from 01 April 2018 to 7 March 2019 and filed the same with the Registrar.
  • The NCLT also took note of the reliance placed by the Liquidator on the Hon’ble National Company Law Appellate Tribunal (NCLAT)’s judgment in Om Prakash Agarwal, Liquidator-S. Kumars Nationwide Limited (C.A(AT)(Ins) No. 624 of 2020, wherein it was held that the provision of the Code and Regulations does not assign a duty on the Liquidator to prepare Financial Statements.
  • From the records and submissions, the NCLT observed that the Liquidator had filed the unaudited Balance Sheet from 1 April 2018 to 7 March 2019 with the Registrar. Considering the fact that now the management of the Corporate Person rests in the hands of the Liquidator, no decisions are to be taken by the shareholders with respect to the company or for the approval of accounts. Moreover, the NCLT held that it is of the view that the filing of the unaudited account of the Corporate Person for the period between 1 April 2018 to 7 March 2019 with the Registrar would suffice the requirement. Therefore, compliance of provisions under Section 137(1) seems no impediment in the approval of the application.
1. In the matter of Convotherm India Private Limited C.P.(IB)/475/ND/2022
Our Comments
The ruling of the NCLT confirms the position settled by the NCLAT in Om Prakash Agarwal, Liquidator-S. Kumars Nationwide Limited (C.A(AT)(Ins)) No. 624 of 2020, that under the provisions of the Insolvency and Bankruptcy Code, 2016, does not require the Liquidator to prepare the Financial Statements.

The provisions of the Companies Act, 2013 mandate it is necessary to prepare the Financial Statements and get the same audited and adopted at the Annual General Meeting before it is filed with the Registrar. However, once the voluntary liquidation process commences, the affairs of the Corporate Person vests in the hands of the Liquidator. From the commencement of the voluntary liquidation process, the Liquidator is not required to maintain accounts as per the Companies Act, 2013 but needs to maintain the receipt and payment accounts under the provisions of the Insolvency and Bankruptcy Code, 2016. Furthermore, the Corporate Person is not required to hold Annual General Meetings with the shareholders. Considering the requirements and position under the applicable law, it is not possible for the Liquidator to administratively and legally perform the tasks under the Companies Act, 2013 relating to the preparation of Financial Statements or filing of Annual Returns with the Registrar alongside carrying out audits.

The above ruling is welcomed as it is in line with the NCLAT judgment of the Om Prakash Agarwal (Supra) case, confirming the position qua audit and filing of the Financial Statement with the Registrar.

The Ministry of Corporate Affairs has issued a General Circular 08/2020 on 6 March 2020 on filing of forms in the Registry by the Resolution Professional/Liquidator. Moreover, the said circular is more appropriate in relation to the resolution process and liquidation arising out of a failure of such resolution process. However, in the context of the said circular and provisions of the law, the circular is not suitable when it comes to voluntary liquidation. Hence, additionally, it would be appropriate if the Ministry issues clarificatory circular in relation to voluntary liquidation process.
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