Companies Act Section 352

Companies Act, Section 352: Provisions for Handling Unpaid Dividends and Undistributed Assets During Liquidation

Section 352 of the Companies Act, 2013 establishes a comprehensive mechanism for the management of unpaid dividends and undistributed assets that remain in the hands of a liquidator during the winding-up of a company. To protect the rights of creditors and contributories, and to ensure transparency and accountability in the liquidation process, the section mandates the creation and use of a specialized account known as the Company Liquidation Dividend and Undistributed Assets Account.

This section applies to all modes of winding-up   whether voluntary or by order of the Tribunal   and outlines clear duties for liquidators regarding the safekeeping, reporting, and eventual disbursement of unclaimed or undistributed funds.

1. Establishment of a Special Account

When a company is undergoing liquidation, the liquidator may find themselves holding certain sums of money which remain unclaimed or undistributed beyond a reasonable period. In such cases, the law requires:

a) Scope of Funds to Be Deposited: The liquidator must deposit any money:

(i) Representing dividends payable to creditors which have remained unpaid for six months after being declared,
(ii) Representing assets refundable to contributories which have remained undistributed for six months after becoming refundable.
b) Timeframe and Mode of Deposit: The liquidator is required to immediately deposit these sums into a special account known as the Company Liquidation Dividend and Undistributed Assets Account.
This account must be maintained in a scheduled bank, ensuring the funds remain safeguarded and beyond personal access.
2. Obligations Upon Dissolution

In addition to the ongoing requirement under subsection (1), Section 352(2) provides that:

Upon the final dissolution of the company, the liquidator must deposit any unpaid dividends or undistributed assets still in his possession into the same Company Liquidation Dividend and Undistributed Assets Account.
This ensures that no residual money remains with the liquidator beyond the company's legal existence.
3. Mandatory Reporting to the Registrar

Whenever a deposit is made under subsection (1) or (2), the liquidator must submit a statement to the Registrar of Companies. This statement must:

Be in the prescribed format, Detail the nature of the sums deposited, Provide the names and last known addresses of the entitled creditors or contributories, Indicate the individual amounts due to each person and the basis of their claim.
Include any other particulars as prescribed under applicable rules. This reporting ensures that a transparent record of unclaimed entitlements is maintained for possible future claims.

4. Discharge of Liquidator’s Liability

To protect the liquidator from future liability:

Upon making the deposit, the liquidator is entitled to receive a receipt from the scheduled bank. This receipt serves as full and effective discharge of the liquidator’s responsibility in respect of the amounts deposited.
This provision ensures clarity regarding the liquidator’s accountability and provides legal closure for the relevant transactions.

5. Additional Reporting in Voluntary Winding-Up

Where the liquidation is being conducted voluntarily, the Company Liquidator has further duties:

While submitting the periodic statement of accounts under Section 348(1), the liquidator must also indicate the sums payable to the Company Liquidation Dividend and Undistributed Assets Account under Section 352(1) and (2) during the preceding six months.
Within fourteen days of filing such a statement, the liquidator must actually deposit the stated sums into the designated account. This ensures a consistent and time-bound handling of unclaimed or undistributed funds, even in non-tribunal-led winding-ups.

6. Process for Claiming Funds from the Account

If any person believes they are entitled to funds deposited into the Company Liquidation Dividend and Undistributed Assets Account (whether under the current law or any prior company law), they may:

Submit a written claim to the Registrar of Companies, The Registrar, upon being satisfied of the claimant’s entitlement, may authorize payment to the rightful person.
Timely Resolution: The Registrar is obligated to settle such claims within 60 days from the date of receipt. 

In case of failure to do so within this period, the Registrar must submit a report to the Regional Director explaining the reasons for the delay. This provision provides a streamlined mechanism for creditors and contributories to reclaim their dues.

7. Treatment of Unclaimed Monies After 15 Years

To prevent indefinite holding of funds:

Any money lying in the Company Liquidation Dividend and Undistributed Assets Account for 15 years without being claimed shall be transferred to the general revenue account of the Central Government.
However a claim can still be made under subsection (6) even after such transfer. If the claim is found valid, it shall be treated as a refund of revenue, and the Central Government shall make payment accordingly. This strikes a balance between fiscal responsibility and protecting claimants’ rights.

8. Penalties for Non-Compliance by Liquidators

To ensure strict compliance, Section 352(8) lays down stringent penalties for any liquidator who withholds money that should have been deposited under this section:

a) Interest and Penalty: The liquidator shall be liable to pay interest at 12% per annum on the retained amount. The Registrar may also impose additional penalties.
The Central Government has the discretion to remit all or part of the interest payable, depending on the circumstances.

b) Responsibility for Expenses: The liquidator must bear any expenses incurred as a result of the delay or default.
c) Tribunal's Powers: In winding-up proceedings before the Tribunal, the liquidator may face:
Disallowance of remuneration (partially or entirely), Removal from office, if the Tribunal finds it just and proper. These consequences reinforce the fiduciary duty of the liquidator and the seriousness with which the law treats the handling of creditors’ and contributories’ dues.