2008 (5) TMI 405 - HC - Companies Law

Winding up - Fees to be credited to Central Government - seeking permission of this Court to deduct an amount of ₹ 3,54,90,803 from the liquidated assets of the 103 Companies (In Liquidation) as per Annexure A to this report, in terms of rule 291 of the Companies (Court) Rules, 1959 and to pay the said amount to the public account of India Held that - A close reading of rule 291 reveals that Central Government fees are to be charged by the Official Liquidator at the stage of collection or realization. Fees charged at the stage of disbursement under the provisions of sub-rules (3) and (4) of rule 291, are required to be deducted from the amount collected or realized. After effecting such deduction of the amount so disbursed and the deduction of expenses incurred by the Official Liquidator, fees can be charged on such balance amount. In the above view of the matter, the Official Liquidator is hereby directed to recalculate the amount of fees to be collected under the respective heads and only on those items which are covered under rule 291(2)(i) or 291(2)( ii) or 291(4) are to be considered. Subject to the aforesaid directions and observations, this report is accordingly, disposed of in the above terms.

Issues Involved:

1. Deduction of fees by the Official Liquidator under rule 291 of the Companies (Court) Rules, 1959.
2. Calculation of fees by the Official Liquidator.
3. Entitlement and scope of fees on interest from investments, dividend payments, sale proceeds, and miscellaneous receipts.
4. Specific objections raised by Secured Creditors and Workers' Union.
5. Judicial interpretation of the relevant statutory provisions and rules.

Issue-wise Detailed Analysis:

1. Deduction of fees by the Official Liquidator under rule 291 of the Companies (Court) Rules, 1959:

The Official Liquidator sought permission to deduct Rs. 3,54,90,803 from the liquidated assets of 103 Companies in Liquidation as per rule 291 of the Companies (Court) Rules, 1959. This amount was to be credited to the Central Government's account via the Reserve Bank of India. The Court acknowledged that granting this permission would affect a large number of Secured Creditors and workers, necessitating a hearing for all concerned parties.

2. Calculation of fees by the Official Liquidator:

The Official Liquidator provided calculations for two test cases, Ambika Mills and Calico Mills, detailing receipts under inspection charges, FDR interest, dividend payments, and sale proceeds. The Official Liquidator asserted that fees are to be collected under rule 291(2)(i), 291(2)(ii), and 291(4). However, Secured Creditors contended that the details provided were insufficient to understand the basis of these calculations, leading the Court to direct the Official Liquidator to furnish detailed calculations.

3. Entitlement and scope of fees on interest from investments, dividend payments, sale proceeds, and miscellaneous receipts:

- Interest on Investments: Rule 293 mandates the investment of surplus funds in interest-bearing deposits. The interest earned from these investments is credited to the respective Company's account. The Official Liquidator claimed that fees on such interest are deductible under rule 291(2)(i). However, the Court ruled that fees cannot be charged on interest earned from the investment of sale proceeds, as this amount ultimately belongs to the Creditors and workers and is meant for distribution.

- Dividend Payments: The Official Liquidator is required to open a separate dividend account for each Company and make payments to Creditors as ordered by the Court. Fees at half the rate prescribed in rule 291(2)(i) are to be paid to the Central Government for all distributions made by way of dividends.

- Sale Proceeds: Fees are required to be deducted from the realizations made by the Official Liquidator through the sale of assets under rule 291(4). The Court upheld that the Official Liquidator is entitled to charge fees on the sale proceeds realized through Court-supervised auctions.

- Miscellaneous Receipts: Fees on miscellaneous receipts, such as inspection charges and tender fees, are deductible under rule 291(2)(i).

4. Specific objections raised by Secured Creditors and Workers' Union:

Secured Creditors, represented by Mr. Sandeep Singhi, argued that the Official Liquidator cannot charge fees on the interest from investments of sale proceeds. They also contended that Secured Creditors under sections 529 and 529A are not covered under rule 291(2)(ii) and that fees under rule 291(4) are not applicable unless the Official Liquidator realizes property specifically for Secured Creditors. Workers' Union representatives supported these arguments.

5. Judicial interpretation of the relevant statutory provisions and rules:

The Court analyzed rule 291 and section 451 of the Companies Act, 1956. It concluded that fees under rule 291(2)(i) are chargeable on each year's collections from total assets, including produce of calls, interest on investments, and rents from properties. However, fees on interest from the investment of sale proceeds are excluded. Fees under rule 291(2)(ii) apply to dividends paid to contributories, Preferential Creditors, and Debenture Holders, but not to Secured Creditors under sections 529 and 529A. Fees under rule 291(4) are applicable to realizations made for Secured Creditors through the sale of assets.

Conclusion:

The Court directed the Official Liquidator to recalculate the fees, excluding fees on interest from the investment of sale proceeds, and charge fees only on items covered under rule 291(2)(i), 291(2)(ii), and 291(4). The report was disposed of accordingly.

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