Companies Act Section 363

Companies Act, Section 363: Settlement of Claims of Creditors by the Official Liquidator

Section 363 of the Companies Act, 2013 sets out the procedure that the Official Liquidator must follow to identify, verify, and settle the claims of creditors when a company is undergoing liquidation. This provision is essential to ensure transparency, fairness, and efficiency in dealing with the legitimate claims of creditors, who are key stakeholders in the winding-up process.

The section prescribes time-bound actions and specific procedural requirements for the Official Liquidator to invite, examine, and make decisions on the claims made by the creditors of the company.

1. Issuance of Notice to Creditors to Prove Their Claims:

Once the Official Liquidator is appointed by the appropriate authority to carry out the liquidation of a company, one of his earliest responsibilities is to initiate the process of claim verification by inviting creditors to submit proof of their claims.

To this end, the Official Liquidator is required to issue a formal notice to all known creditors within a period of thirty (30) days from the date of his appointment. This notice serves as an official call to all creditors whether secured, unsecured, or otherwise to prove their claims against the company. The claims must be submitted in the manner prescribed under the applicable rules framed by the Central Government or under the Companies (Winding Up) Rules.

Once the notice has been issued, creditors are given a further period of thirty (30) days from the date they receive the notice to submit the required documentation and evidence supporting the amounts they claim are due from the company. This provision ensures that the creditors have adequate but time-bound opportunity to assert their rights in the liquidation process.

2. Preparation of List of Claims and Communication of Decision:

After receiving claims from the creditors, the Official Liquidator is duty-bound to examine each claim in detail, verify its authenticity and legal validity, and then compile a comprehensive list of all claims submitted by creditors. This list must be prepared in the manner as may be prescribed by the relevant rules under the Companies Act.

The process of preparing this list involves assessing whether each claim is legitimate, partially valid, or invalid based on the company’s records, financial documents, contracts, and applicable laws. The Official Liquidator must apply fair and objective criteria in evaluating the claims.

Once the list is finalized, the Official Liquidator is required to communicate the outcome of the claim assessment to each creditor individually. Each creditor must be informed whether their claim has been:

Accepted in full, Partially accepted, or Rejected entirely.
Importantly, this communication must include a written explanation of the reasons for acceptance or rejection, thereby ensuring transparency and allowing creditors to understand the basis on which their claims were decided. The reasons must be recorded in writing, which provides a clear record for any future review or appeal and helps prevent arbitrary or unfair treatment.