Power of Official Liquidator for Claims against Third Parties

Power of Official Liquidator for Claims against Third Parties Case Laws Corporate Corporate Law Knowledge – Corporate Law Lahore High Court Liquidation Litigation & Arbitration Official Liquidator Solutions - Corporate Law Ultra Vires Mr. Justice Shahid Karim in his judgment has decided the issue regarding power of official liquidator for claims against third parties in Company Original No. 29 of 2010.

1. This is a petition under section 391 of the Companies Ordinance, 1984 (Ordinance, 1984), filed by the Official Liquidator of the company under liquidation ‘Mechanized Construction of Pakistan (Pvt.) Ltd.’ (MCPL). It seeks the implementation of the findings of the Official Liquidator with regard to certain dues which are allegedly payable by the Government of Balochistan to MCP(L).

2. No one had appeared on behalf of the Government of Balochistan despite notice and it was proceeded against ex-parte on 21.10.15

3. The purported findings of the Official Liquidator have been annexed with this petition. On the threshold, the question which begs an answer is whether there is power in the Official Liquidator to make a determination of the nature which has been undertaken by the Official Liquidator and which is sought to be implemented by this Court in the present application. Upon a holistic reading of the Ordinance, 1984 and its various provisions, no power seems to have been conferred on the Official Liquidator appointed with regard to the company which is wound up which gives the authority and jurisdiction to the Official Liquidator to determine the claims of the company under liquidation against third persons or legal entities. At best, in case the Official Liquidator considers that there is a claim against a third party and which is due to the company under liquidation, proceedings under the relevant laws may be instituted for seeking a determination of those claims and debts and to have them realized. In terms of section 317 of the Ordinance, 1984, the liquidator may apply to the court for expeditious disposal of the suits filed by the company under liquidation. By section 316, jurisdiction has been conferred on the court to entertain and dispose of suits or proceedings by or against the company under liquidation.

Section 333 of the Ordinance, 1984 delineates the powers of the Official Liquidator which does not include the power of adjudication vis-à-vis third parties and this is clearly outside the scope of the Official Liquidator. The reason for not conferring a power on the Official Liquidator to adjudicate claims against third parties is grounded in good sense and propriety. The Official Liquidator is not empowered to exercise judicial powers and thus cannot determine disputes or render a decision thereupon. The only powers which have been conferred on the Official Liquidator by the provisions of the Ordinance, 1984 are the powers to decide claims and debts of third persons and creditors in respect of the company under liquidation which power too, is subject to the supervision of this Court. But this has to be contrasted from the power of the Official Liquidator to determine claims between the company under liquidation and third parties. In such matters the rights of third parties are involved and they have a right to due process of law and a regular trial and cannot be left to the discretion of the Official Liquidator to pass a judgment on the disputes involving third parties. Not only that this will run counter to the provisions of the Ordinance, 1984, it is tantamount to conferring judicial power in the Official Liquidator which can only be done in terms of Article 175 of the Constitution.

4. Rules 127 of the Companies (Court) Rules, 1997 confers the powers on the Official Liquidator to determine the debts and claims made by creditors against the company under liquidation upon furnishing of proof of those debts and claims. The Official Liquidator may thereupon accept or reject the claims in terms of rule 141 of the Rules, 1997. From such determination, an appeal has been provided under rule 142 of the Rules, 1997. These are the only powers conferred on the Official Liquidator and clearly the powers of the Official Liquidator are circumscribed by these Rules. The Official Liquidator cannot transgress the power so conferred upon him by law.

5. The Official Liquidator of MCP(L) has applied under section 391 of the Ordinance, 1984 to this Court for the implementation of the determination made by the Official Liquidator on 07.10.2009. Section 391 reads as under:

“391. Power to apply to Court to have questions determined or powers exercised. – (1) The liquidator or any contributory or creditor may apply to the Court-

(a) to determine any question arising in the winding up of a company; or

(b) to exercise as respects the enforcing of calls, the staying of proceedings or any other matter, all or any of the powers which the Court might exercise if the company were being wound up by the Court.

(2) The liquidator or any contributory may apply to the Court specified in sub-section (3) for an order setting aside any attachment, distress or execution put into force against the estate or effects of the company after the commencement of the winding up.

(3) An application under sub-section (2) shall be made-

(a) if the attachment, distress or execution is levied or put into force by a High Court, to such High Court, and

(b) if the attachment, distress or execution is levied or put into force by any other court, to the court having jurisdiction to wind up the company.

(4) The Court, if it is satisfied that the determination of the question or the required exercise of power or the order applied for will be just and beneficial, may accede wholly or partially to the application on such terms and conditions as it thinks fit, or may make such other orders on the application as it thinks just.

(5) A copy of an order staying the proceedings in the winding up, made by virtue of this section, shall forthwith be forwarded by the company, or otherwise as may be prescribed, to the registrar, who shall make a minute of the order in his books relating to the company.”

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