Companies Act Section 348

Companies Act, Section 348: Obligation to Provide Periodic Information During Liquidation 

Section 348 of the Companies Act, 2013 sets out mandatory reporting requirements for Company Liquidators during the course of winding up a company, especially when the liquidation process extends beyond one year. It is designed to ensure transparency, accountability, and oversight of the liquidation proceedings by requiring the submission of regular, audited statements about the status and progress of the liquidation.

This section also defines who must receive such information, how it should be made available to stakeholders, and the penalties for non-compliance or misrepresentation. It also links the obligations of Insolvency Professionals to the Insolvency and Bankruptcy Code, 2016 (IBC) in cases of default.

1. Obligation to File Periodic Statements When Winding-Up Exceeds One Year

If the winding up of a company is not completed within one year from the date of its commencement, then the Company Liquidator has a statutory duty to file a statement on the status of the liquidation.

Key Requirements:

Timing of First Filing: Within two months after the expiry of the first year from the commencement of winding up.
Subsequent Filings: At intervals of not more than one year thereafter until the winding up is concluded. The Central Government may prescribe shorter intervals through rules.
Contents and Format: The statement must be in a prescribed form, containing details about:
Proceedings taken so far, Status of asset realization and distribution, Remaining tasks in liquidation, Cash flows and liabilities.
Audit Requirement: The statement must be duly audited by a person qualified to act as the company’s auditor.
Exemptions: The Central Government may wholly or partially exempt the Company Liquidator from filing such statements in specified cases.
This obligation promotes continuous oversight by the Tribunal and ensures that stakeholders are kept informed about the progress of the liquidation.

2. Filing with the Registrar

Once the Liquidator files the statement with the Tribunal, a copy must be simultaneously filed with the Registrar of Companies (ROC). The ROC is required to retain the copy as part of the company’s public records. 

This allows regulators and stakeholders to access official information about ongoing liquidation proceedings. The dual filing requirement enhances regulatory transparency and facilitates public access to key updates.

3. Additional Filing Requirements for Government Companies

If the company under liquidation is a Government company, the Company Liquidator must forward a copy of the statement to the relevant government authority, depending on the ownership pattern of the company.

Filing Obligations:

Central Government: If the Central Government is a shareholder.
State Government: If a State Government is a shareholder.
Both Governments: If both the Central and State Governments hold shares in the company.
This ensures that government stakeholders are kept informed about the liquidation of companies in which public funds are invested, allowing for better financial and policy oversight.

4. Right of Inspection to Creditors and Contributories

To maintain stakeholder transparency, Section 348 grants certain rights to creditors and contributories of the company during liquidation.

Rights Granted: Any person who declares in writing that they are a creditor or contributory may:
Inspect the liquidation statement during reasonable hours, either personally or through an authorized agent, Obtain a copy or extract of the statement by paying the prescribed fee. This provision allows those with a financial interest in the company to:

Track the realization and distribution of assets, Evaluate the Liquidator’s performance, Raise concerns or objections, if necessary. It is a crucial tool for promoting accountability and protecting the rights of stakeholders.

5. Penalty for False Claims to Access Statement

To prevent abuse of the inspection rights under sub-section (4), the Act includes a penal provision for misrepresentation.

Offence and Penalty:

A person who falsely claims to be a creditor or contributory in order to access the statement is deemed to have committed an offence under Section 182 of the Indian Penal Code (IPC), 1860 (which deals with false information to a public servant).
On the application of the Company Liquidator, such a person may be punished accordingly. This discourages fraudulent access to sensitive information and helps preserve the integrity of the liquidation process.

6. Consequences for Insolvency Professionals Who Default

If the Company Liquidator is a registered Insolvency Professional (IP) under the Insolvency and Bankruptcy Code, 2016, and he fails to comply with Section 348, such failure is considered a contravention of the IBC and its rules and regulations.

Key Implications:

The default is treated as a violation under Chapter VI of Part IV of the IBC (which deals with disciplinary proceedings against IPs).It may lead to:
Investigation by the Insolvency and Bankruptcy Board of India (IBBI), Suspension or cancellation of the IP’s registration, Monetary penalties or sanctions.
This provision ensures that IPs discharging duties as Liquidators are held to a high standard of diligence, compliance, and professional responsibility.