Companies Act Section 361

Companies Act, Section 361: Summary Procedure for Liquidation of Companies

Section 361 of the Companies Act, 2013 introduces a simplified or summary procedure for winding up certain categories of companies. This provision is designed to provide administrative efficiency and procedural ease in cases where the company in question is relatively small in size and has limited assets. By allowing the Central Government to supervise the process directly through the Official Liquidator, Section 361 ensures that companies qualifying under specific thresholds can be wound up quickly, economically, and with appropriate oversight.

The procedure reduces the need for prolonged tribunal proceedings while ensuring that mechanisms are in place to investigate fraud or mismanagement if they surface during the liquidation process.

1. Applicability of Summary Procedure

The summary winding-up process is not applicable to all companies. It applies only when both of the following conditions are met:
The book value of the company’s total assets does not exceed ?1 crore, and the company falls under such class or category of companies as may be notified or prescribed by rules made by the Central Government.
This ensures that only small-sized companies or low-risk entities are eligible, thereby maintaining a streamlined process for uncomplicated liquidation cases. The Central Government holds the discretion to invoke this summary process.
2. Appointment of Official Liquidator

Once the Central Government issues an order for summary liquidation, it is required to appoint an Official Liquidator to manage the process.
The Official Liquidator, being a public officer appointed under Section 359, brings professional competence and impartiality to the liquidation.
The appointment ensures that the winding-up process is handled with integrity, even in a fast-tracked framework.
3. Taking Custody and Control of Assets

The Official Liquidator must immediately assume control over:
All tangible and intangible assets, Any rights, effects, or property of the company, All actionable claims (i.e., claims that can be enforced through legal action).
This early and complete assumption of control prevents unauthorized transactions, asset dissipation, or fraudulent activity by former directors or officers during the winding-up process.
4. Submission of Initial Report

Within 30 days of being appointed, the Official Liquidator must:
Prepare and submit a report to the Central Government. The report must be in a prescribed format and include a fraud assessment, covering aspects such as:
Any misrepresentation or dishonesty in the promotion of the company, Any misconduct during the formation of the company, Any fraudulent acts in the management or operation of the company.
This step acts as a safeguard mechanism, ensuring that companies attempting to misuse the summary liquidation route are subject to scrutiny.
5. Investigation into Allegations of Fraud

If the initial report indicates fraud, the Central Government has the power to:
Direct a more detailed investigation into the affairs of the company. Set a specific timeline for submission of the investigation report.
This ensures that malpractice or misconduct is thoroughly investigated and that persons involved in fraudulent activities are held accountable. The provision acts as a deterrent against the misuse of the simplified procedure and ensures that public interest and creditor rights are not compromised.
6. Further Course of Winding-Up

Once the investigation (if any) is complete, the Central Government has two options:
If serious irregularities are found, the case may be shifted to a more detailed winding-up process under Part I of Chapter XX. If no fraud or only minor irregularities are found, the company may continue to be wound up under the summary procedure as per Section 361.
This two-track approach ensures that the winding-up framework is flexible, allowing a transition to more rigorous proceedings if the facts warrant it.