2009 (5) TMI 544 - HC - Companies Law

Winding up - entitlement of watch and ward expenses in respect of which reports have been made by the Official Liquidator for engagement of services of various security agencies and to whom the charges are payable in the course of liquidation Held that - All the applications filed by the security agencies under the circumstances deserve to be allowed. The objections filed by the Official Liquidator seeking for directions of the respective secured creditors are also ordered and the ultimate disposition is that the Official Liquidator shall forthwith make all the payments for the security staff authorized to be deployed by the respective agencies by examining the list of persons said to have been deployed and working out the rates as payable to the respective security agencies on the basis of rates agreed already together with the service charges as contemplated in the initial orders of engagement. The claims of the security agencies shall be tested only on the authorized strength of the staff and deductions shall be made in relation to specific instances of specific dates when any staff was found to be missing or when it was found that the staff had not been really in their roll of employment. The entire process of clarification of records in relation to each one of the security agencies shall be completed within a period of 30 days and the amounts as found on a proper reckoning shall be disbursed from out of the amounts available to the credit of the respective companies in liquidation and wherever they are not available, the secured creditors in relation to the assets where the security personnel had been deployed shall be liable to make the payments and claim refund when the assets were sold and when amounts are realized in excess of what have been paid by the secured creditors. The requirements as regards the individual companies in liquidation shall be jointly determined by the Official Liquidator in the immediate presence of the secured creditors and all the representatives of stakeholders over the asset owners of the company in liquidation.

Issues Involved:
1. Entitlement of watch and ward expenses.
2. Terms of initial engagement of security services.
3. Reasons for accumulation of unattended claims.
4. Objections to the claims of security agencies.
5. Reply to objections by security agencies.
6. Rejection or delay in payments.
7. Disposition for each of the claims.

I. Entitlement of Watch and Ward Expenses:
The judgment addresses the entitlement of watch and ward expenses incurred by security agencies during the liquidation process. The Official Liquidator had engaged various security agencies to safeguard the assets of factories and industrial houses under liquidation. Despite the empanelment and agreed remuneration, secured creditors were reluctant to pay the expenses. The security agencies filed petitions seeking directions for payment, which had been pending for several years.

II. Terms of Initial Engagement of Security Services:
The security agencies were empanelled based on applications received in response to advertisements. A meeting held on 2-4-2002 approved the names of 18 security agencies. Uniform rates were established, and the Committee decided to pay minimum wages plus 7% as agency charges to cover statutory liabilities. This arrangement was intended to absolve the Official Liquidator from liabilities such as Provident Fund and ESI contributions.

III. Reasons for Accumulation of Unattended Claims:
The lack of periodic checks and inspections, coupled with the reluctance of secured creditors to make upfront payments, led to the accumulation of unpaid invoices. The bills accumulated over time, resulting in claims amounting to several lacs and crores. The Official Liquidator, doubting the genuineness of the claims, joined issues with the security agencies.

IV. Objections to the Claims of Security Agencies:
General Objections:
The Official Liquidator raised objections on the following grounds:
1. Lack of details regarding Provident Fund and ESI contributions.
2. The duty to provide details of contributions made with the money collected.
3. Non-response to demands for proof of contributions.

Specific Instances:
1. Guardian Security Services: The claim was contested as the agency was not empanelled.
2. Chariot Security Services Private Limited: Directions were issued for reporting the status and payments, and discrepancies in claims were noted.
3. Varsed Detective & Security (P.) Ltd.: The company was also engaged in management consultancy, and the balance sheet did not solely relate to security services.

V. Reply to Objections by Security Agencies:
The security agencies argued that they were not liable for ESI or Provident Fund contributions, and the Official Liquidator, as the principal employer, was responsible. They contended that the lack of proof of such contributions should not be grounds for rejecting their claims. Discrepancies in balance sheets were attributed to tax liability considerations.

VI. Rejection or Delay in Payments:
The court found the objections raised by the Official Liquidator and secured creditors unjustified. The claims were not spurious, and the security agencies had provided necessary details. The court held that the entitlement of security agencies could not be denied based on non-furnishing of proof of Provident Fund or ESI contributions. The delay in addressing claims was attributed to the laxity of the Official Liquidator and secured creditors.

VII. Disposition for Each of the Claims:
All applications filed by the security agencies were allowed. The Official Liquidator was directed to make payments based on the authorized strength of staff and agreed rates. Specific instances of non-deployment or discrepancies would result in deductions. The court issued guidelines to prevent future issues, including regular checks, realistic wage approvals, and constant audits.

Guidelines Issued:
1. Joint determination of requirements by the Official Liquidator and secured creditors.
2. Advertisement for security agencies and preference for those with a good track record.
3. Approval of rates to include minimum wages and statutory levies.
4. Regular surprise checks and audits.
5. Immediate action for negligence or lapses.
6. Proof of Provident Fund and ESI contributions as corroborative evidence.
7. Constant audits to detect discrepancies and take appropriate action.

Conclusion:
The court disposed of all company petitions and applications, directing the Official Liquidator to make payments within 30 days and follow the issued guidelines to prevent future issues. A photostat copy of the order was to be placed on each connected case.

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