Facts of the Case

The Official Liquidator for the States of Telangana and Andhra Pradesh filed a Company Application before the High Court seeking approval for the allocation of 166 companies under liquidation to three Chartered Accountant firms for conducting the statutory half-yearly audit for the period 01.10.2021 to 31.03.2022. The application also sought permission to file audit reports within the prescribed period, file affidavits of "No Receipts or Payments" for certain companies, pay audit fees, and recover such expenses from the funds of the respective companies or, where insufficient funds existed, from the Estate and Establishment Fund Account of the Official Liquidator, subject to reimbursement upon realization of company assets.

Issues Involved

  1. Whether the Official Liquidator should be permitted to allocate the audit of 166 companies in liquidation to the proposed Chartered Accountant firms.
  2. Whether permission should be granted to file audit reports within sixty days after receipt from the auditors.
  3. Whether affidavits of "No Receipts or Payments" could be filed for companies having no financial transactions during the relevant period.
  4. Whether payment of audit fees from the funds of the companies in liquidation or the Estate and Establishment Fund Account should be permitted.
  5. Whether the costs of the application should be borne from the funds of the companies under liquidation.

Petitioner’s Arguments

The Official Liquidator submitted that:

  • Audit of the half-yearly accounts of 166 companies in liquidation was required under the Companies (Court) Rules.
  • Three Chartered Accountant firms were proposed for proportionate allocation of the audit work.
  • The Court had already fixed the audit remuneration at ₹500 per company plus applicable GST.
  • In respect of 19 companies where no financial transactions had taken place, only affidavits of "No Receipts or Payments" were required.
  • Where individual companies lacked sufficient funds, audit fees should be paid from the Estate and Establishment Fund Account with reimbursement after realization of assets.
  • Necessary directions were required for filing audit reports and meeting incidental expenses.

Respondent’s Arguments

No specific objections or counter-arguments were recorded in the order. The Court considered the submissions made by the Official Liquidator along with the affidavit placed on record.

Court Order / Findings

The Telangana High Court observed that:

  • The company had already been ordered to be wound up in earlier proceedings.
  • The application was filed in accordance with the relevant provisions governing liquidation proceedings and audit requirements.
  • The allocation of audit work to the proposed Chartered Accountant firms was justified.
  • Filing of audit reports, affidavits of "No Receipts or Payments," payment of audit fees, and recovery of such expenses from the respective company funds or the Estate and Establishment Fund Account were in accordance with the applicable legal framework.

Accordingly, the Court allowed the Company Application in its entirety as prayed for, granting all the reliefs sought by the Official Liquidator.

Important Clarification

  • The order facilitates statutory compliance during liquidation proceedings by authorising the appointment of Chartered Accountants for auditing companies under liquidation.
  • The Court recognised that audit expenses may be temporarily met from the Estate and Establishment Fund where company funds are unavailable, subject to later reimbursement.
  • Companies with no financial transactions during the relevant period may file affidavits of "No Receipts or Payments" instead of detailed audit statements.
  • The order primarily concerns procedural administration of liquidation proceedings and does not determine any dispute relating to creditors, shareholders, or company liabilities.

Sections Involved

  • Sections 457 and 462 of the Companies Act, 1956
  • Rules 298, 300, 302, 304, 306 and 309 of the Companies (Court) Rules, 1959
  • Rule 9 of the Companies (Court) Rules, 1959

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1784889307_1962compressed.pd

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.