⚖️ Practical Challenges Faced by Liquidators During Recovery Litigation – Common Obstacles and Legal Solutions

The process of liquidation does not end with declaring a company insolvent — in fact, that’s where the most intricate legal work begins. Once appointed, a Liquidator steps into the shoes of the company to trace, preserve, and recover its assets. However, when these recoveries require litigation before District or Civil Courts, the Liquidator faces multiple procedural, legal, and evidentiary challenges.

This article highlights the most common difficulties encountered during such proceedings and discusses legally sound approaches to overcome them.

⚖️ 1. Establishing Standing and Authorization

One of the first hurdles arises when the Liquidator institutes a case in court. Judges often seek documentary proof that the person filing the suit is legally authorized to represent the company.

Challenge:
Courts may question the Liquidator’s locus standi if the appointment order or NCLT authorization is incomplete, ambiguous, or not annexed with the plaint.

Solution:
Always attach:

• The certified copy of the NCLT appointment order,

• The certificate of authority under Section 290 of the Companies Act, 2013, and

• A copy of the company’s statement of affairs to establish the debt or claim.

These documents make the Liquidator’s authority legally indisputable.

📚 2. Incomplete Records and Evidence Gaps

Often, companies in liquidation have poorly maintained financial records or missing invoices and ledgers. Without these, the Liquidator’s claims become vulnerable in court.

Challenge:
Absence of original books of accounts or signed agreements weakens the case.

Solution:

• Obtain certified copies from banks, suppliers, or statutory auditors.

• Use secondary evidence provisions under Section 65 of the Indian Evidence Act, 1872.

• File an affidavit explaining the loss or unavailability of originals to satisfy procedural compliance.

Courts generally adopt a practical approach when a Liquidator acts in good faith.

🏛️ 3. Delay in Grant of Leave by NCLT

Under Section 279 of the Companies Act, no new suit can be filed against or by the company without prior leave of the NCLT.

Challenge:
The procedural delay in obtaining such permission often slows down recovery efforts.

Solution:

• File a consolidated application before the NCLT seeking blanket leave for all recovery actions within a specific list of debtors.

• Keep detailed annexures for faster approval.

• Follow up through electronic filing and cause lists to minimize adjournments.

This approach helps streamline multiple litigations simultaneously.

⚖️ 4. Non-Cooperation from Former Directors or Management

Liquidators often depend on the company’s past directors to trace documents, explain transactions, or locate assets.

Challenge:
Directors may be unresponsive, evasive, or fail to appear when summoned.

Solution:

• Use Section 284 of the Companies Act to summon directors and seek production of records.

• Apply for attachment of property or examination in NCLT if they deliberately obstruct proceedings.

• Coordinate with local police authorities if non-compliance continues.

Active enforcement deters non-cooperation early in the process.

💼 5. Defaulters Evading Service or Concealing Assets

In many cases, debtors of the company avoid receiving summons or conceal property to frustrate recovery.

Challenge:
Repeated adjournments delay proceedings, and the Liquidator struggles to locate the assets.

Solution:

• Use Order V Rule 20 CPC for substituted service through newspaper publication.

• Apply for attachment before judgment (Order XXXVIII Rule 5 CPC) to prevent dissipation of assets.

• Seek information under the Right to Information Act (RTI) or from revenue authorities for property details.

This ensures that recovery orders, once passed, are actually enforceable.

🧾 6. Execution of Decree

Even after obtaining a decree, converting it into realized funds can be complex.

Challenge:
Execution proceedings may take months due to verification, objections, and procedural backlogs.

Solution:

• File for execution in the same court to avoid jurisdictional issues.

• Ensure the decree includes interest and cost clauses for full recovery.

• Track the case proactively with follow-up dates and ensure that any payment made is officially recorded.

Timely execution is the final test of effectiveness in liquidation recovery.

📊 7. Managing Multiple Proceedings

Large companies under liquidation often have dozens of recovery cases across various jurisdictions.

Challenge:
Coordination becomes difficult, leading to inconsistent pleadings or duplicated efforts.

Solution:

• Maintain a case-wise recovery register in both digital and physical form.

• Use standardized plaint templates and affidavits to ensure uniformity.

• Regularly update NCLT with consolidated progress reports, demonstrating diligence and transparency.

Efficient documentation is often as critical as courtroom strategy.

📌 Conclusion

Liquidation-related recovery is a specialized legal process, not merely an accounting exercise. The Liquidator, while acting as an officer of the court, must balance procedural compliance, practical efficiency, and creditor interests.
Every successful recovery strengthens the integrity of the corporate insolvency framework and restores faith in India’s commercial justice system.

District and Civil Courts continue to play an indispensable role in translating paper claims into tangible recoveries — provided the Liquidator’s case is well-prepared, well-documented, and persistently followed through.