⚖️ How Liquidators Can Enforce Recovery Orders Through Civil Courts – Step-by-Step Procedure Under the Companies Act

When a company enters liquidation, the appointed Liquidator is legally bound to collect all debts and realize every asset belonging to the company. While the National Company Law Tribunal (NCLT) supervises the process, many recovery actions must still be executed before Civil or District Courts — especially when dealing with defaulting parties or third-party debtors.

This article explains, in practical terms, how Liquidators can lawfully enforce recoveries through Civil Courts.

🧾 1. Establishing Authority to Act

Before approaching any Court, the Liquidator must ensure:

• They hold a valid order of appointment issued by the NCLT or Central Government (in case of voluntary winding-up).

• They are duly empowered under Section 290 of the Companies Act, 2013 to institute or defend any legal proceeding on behalf of the company.

• Proper authorization documentation (including the NCLT order and seal) accompanies the petition or plaint.

This step establishes the Liquidator’s locus standi and ensures the case is not dismissed on technical grounds.

🧾 2. Identifying the Defaulter and Cause of Action

Once appointed, the Liquidator reviews the company’s books, bank accounts, and statements of affairs to identify:

• Outstanding debtors,

• Unpaid contractual amounts,

• Property held in others’ possession, or

• Any assets wrongfully transferred before liquidation.

Each of these may constitute a separate cause of action for which recovery or restitution can be sought through the appropriate Court.

🏛️ 3. Choosing the Right Forum

The forum depends on the nature and value of the claim:

• For monetary claims up to the jurisdictional limit, the Civil Judge (Junior or Senior Division) is approached.

• For higher-value or territorial matters, the District Court is competent.

• If the claim involves criminal breach of trust, fraud, or misfeasance, proceedings may also be initiated under the Indian Penal Code in coordination with NCLT directions.

The NCLT may grant leave to institute or continue civil proceedings, ensuring procedural compliance.

📜 4. Drafting and Filing of the Recovery Suit

The plaint should clearly mention:

• That the plaintiff company is under liquidation;

• The name and official capacity of the Liquidator;

• The specific transaction or debt in dispute;

• Supporting documents such as invoices, ledgers, and prior correspondence;

• Prayer for decree of recovery, interest, and costs.

The Liquidator files the case through a duly appointed Advocate-on-Record at the relevant District Court.

⚖️ 5. Court Proceedings and Evidence

Once admitted, the case proceeds like any civil suit:

1. Summons are issued to the defendant.

2. Written statement and reply are filed.

3. The Liquidator (through counsel) presents documentary and oral evidence proving the company’s claim.

4. After arguments, the Court pronounces a decree for recovery or other relief.

The decree may then be executed through attachment or sale of the debtor’s assets.

⚙️ 6. Execution of Decree

If the defaulter fails to comply voluntarily, the Liquidator may initiate execution proceedings under Order XXI of the Code of Civil Procedure, 1908.
The Court can order:

• Attachment of movable or immovable property,

• Garnishee orders directing banks to release funds,

• Arrest or detention in case of willful default, and

• Sale of attached property to realize the amount.

This converts the Liquidator’s paper decree into actual recovery.

🧩 7. Reporting and Distribution

Recovered amounts are deposited into the company’s liquidation account, maintained under the supervision of the NCLT or Official Liquidator.
After verification of claims, funds are distributed in the following order:

1. Costs and expenses of liquidation,

2. Secured creditors,

3. Workmen and employees,

4. Unsecured creditors,

5. Shareholders (if any balance remains).

The Liquidator must regularly report progress to the NCLT and maintain transparent records of recoveries and disbursements.

🧠 8. Key Legal Provisions Referenced

• Section 290, Companies Act, 2013 – Powers and duties of Company Liquidator

• Section 279, Companies Act, 2013 – Stay of suits and leave of Tribunal

• Rule 277–291, Companies (Winding-Up) Rules, 2020 – Procedure for recovery and realization of assets

• Order XXI, CPC, 1908 – Execution of decrees

📌 Conclusion

Liquidation is not merely an accounting process — it’s an active legal pursuit of recovery.
Civil and District Courts serve as vital instruments in enforcing a company’s rights once the Liquidator takes charge.
A methodical approach — grounded in documentation, jurisdictional clarity, and procedural precision — ensures that recoveries translate into real value for creditors and stakeholders.