Winding up - Part 4
Section 340. Power of Tribunal to assess damages against delinquent directors
340(1).
During the winding up of a company, if it appears that any of the following persons:
Someone involved in promotion or formation of the company,
Any present or former director.
Any present or former manager.
Any present or former Company Liquidator.
Any present or former officer of the company has engaged in any of the following:
(a). Misapplied, retained, or become liable or accountable for any money or property belonging to the company.
(b). Committed misfeasance (wrongful exercise of lawful authority) or breach of trust in relation to the company then:
The Tribunal may, on an application made by the Official Liquidator, Company Liquidator, creditor, or contributory, examine the conduct of such person.
After inquiry, the Tribunal may order that person to:
Repay or restore the money or property (or any part of it) with interest.
Pay compensation to the company for such misapplication, retention, misfeasance, or breach of trust.
The rate of interest or compensation is determined by the Tribunal based on what it considers fair.
340(2).
An application under 340(1) must be made within five years from the later of the following dates:
Date of the winding-up order.
Date of first appointment of the Company Liquidator.
Date of the wrongful act (misapplication, retention, misfeasance, breach of trust).
So , the limitation period is five years from whichever of these events occurred last.
340(3).
This section applies even if the conduct amounts to an offence under criminal law.
Thus, civil relief (repayment, restoration, compensation) under this section can be ordered in addition to criminal liability.
Section 341. Liability under sections 339 and 340 to extend to partners or directors in firms or companies
341(1).
If the Tribunal issues a declaration under Section 339 (fraudulent conduct of business) or
An order under Section 340 (damages for misfeasance or breach of trust) against a firm or body corporate, then:
It can extend that declaration or order to individuals connected with it.
Specifically, the Tribunal may make the same declaration or order against any person who, at the relevant time, was:
A partner of the firm.
A director of the body corporate.
This means liability is not limited to the firm or company itself.
Partners and directors who were involved during the wrongful act can be held personally accountable.
Section 342. Prosecution of delinquent officers and members of company
342(1).
During the Tribunal-ordered winding up of a company, if it appears that any current or former officer or member has committed an offence related to the company, the Tribunal can take action.
The Tribunal may act on its own (suo motu) or on an application by any person interested in the winding up.
It may then direct the Liquidator to prosecute the offender, or instruct the Liquidator to refer the matter to the Registrar for further action.
342(2)-342(4) - Omiited
342(5).
When a prosecution is initiated under this section, it is the duty of:
The liquidator & every present or former officer and agent of the company to provide all reasonable assistance in connection with the prosecution.
This obligation ensures cooperation and facilitates proper investigation and trial.
Explanation
For the purposes of 342(5), the term “Agent” includes:
Any banker of the company.
Any legal adviser of the company.
Any person employed by the company as auditor.
Thus, these individuals must also cooperate in prosecution to the extent reasonably possible.
Section 343. Company Liquidator to exercise certain powers subject to sanction
343(1).
When a company is being wound up by the Tribunal, the Company Liquidator may exercise certain powers only with the prior sanction of the Tribunal.
These include the power to:
(i). Pay any class of creditors in full.
(ii) Enter into compromise or arrangements with creditors or persons claiming to be creditors.
(iii) Compromise any call or liability to call, debt, or claim between the company and:
Any contributory.
Alleged contributory.
Debtor.
Any person who anticipates liability toward the company.
This power includes resolving any questions relating to company assets, liabilities, or winding-up matters.
The Liquidator may also take security for the discharge of such debt or liability and issue a full discharge once settled.
343(2).
Normally, under 343(1), the Company Liquidator must get Tribunal approval before using certain powers (specifically those in sub-clauses (ii) and (iii)).
However, this provision creates an exception: The Central Government can make rules that allow the Liquidator to use those powers without needing prior permission from the Tribunal.
The Central Government can allow this only by setting specific conditions or limitations that the Liquidator must follow.
343(3).
Any creditor or contributory may apply to the Tribunal regarding the Liquidator’s exercise or proposed exercise of powers under this section.
The Tribunal must give both the applicant and the Liquidator a reasonable opportunity to be heard and then pass suitable orders.
Section 344. Statement that company is in liquidation
344(1).
When a company is under winding up, whether by the Tribunal or voluntarily then:
Any document that displays the company’s name must clearly mention that the company isbeing wound up.
This requirement applies to documents such as:
Invoices.
Orders for goods.
Business letters.
It covers documents issued by the company itself, the Company Liquidator, or any receiver or manager handling the company’s property.
344(2).
If the company fails to comply with 344(1), the following persons are punishable:
The company itself.
Every officer of the company.
The Company Liquidator.
Any receiver or manager , who knowingly permits or authorises the violation.
The punishment is a fine not less than Rs. 50,000 and up to Rs. 3,00,000.
Section 345. Books and papers of company to be evidence
When a company is being wound up, all books and papers that belong to the company or the Company Liquidator are treated as prima facie evidence.
This means the information recorded in these documents is presumed to be true in matters relating to the company’s contributories.
The presumption stands unless someone proves otherwise
Section 346. Inspection of books and papers by creditors and contributories
346(1).
Once the Tribunal passes an order for winding up, any creditor or contributory of the company has the right to inspect the company’s books and papers.
This right is not absolute and the inspection must be done only in the manner and under the conditions laid down by the applicable rules.
346(2).
The right mentioned in 346(1) does not limit or affect any rights conferred by law on:
(a). The Central Government.
(b). A State Government.
(c). Any authority or officer of such Government..
(d). Any person acting under their authority.
Thus, governmental authorities retain any statutory rights they have to inspect the company’s books and papers.
This is regardless of the rules applicable to creditors or contributories.
Section 347. Disposal of books and papers of company
347(1).
When the affairs of a company have been fully wound up and the company is about to be dissolved, the books and papers of both:
The company and the Company Liquidator may be disposed of.
Disposed off could be destroyed, archived, or otherwise handled in the manner directed by the Tribunal.
347(2).
After five years from the date of dissolution none of the parties including:
The company.
The Company Liquidator
Any person entrusted with custody of the books or papers
Will be held responsible if any book or paper cannot be produced to anyone claiming interest in it.
347(3).
The Central Government may make rules to:
(a). Prevent destruction of the company’s and Liquidator’s books and papers for a specified period it considers appropriate.
(b). Allow any creditor or contributory to:
Make representations to the Central Government regarding preservation of such records.
Appeal to the Tribunal against any related order of the Central Government.
347(4).
If any person violates a rule or an order made under 347(3), they may be punished with a fine up to fifty thousand rupees.
Section 348. Information as to pending liquidations
348(1).
If the winding up of a company is not completed within one year from its commencement, the Company Liquidator must file a periodic statement with the Tribunal.
The statement must be filed within two months after completion of the first year.
Thereafter, it must be filed every year or at shorter intervals if prescribed, until the winding up is completed.
The statement must be in the prescribed form and contain prescribed particulars about the liquidation proceedings and status.
The statement must be audited by a person qualified to act as the company’s auditor, unless exemption applies.
No such audit is required where Section 294 applies (which deals with summary liquidation of certain companies).
The Central Government may exempt the Liquidator from filing such statements, wholly or in part.
348(2).
When the statement is filed with the Tribunal, a copy must also be filed with the Registrar.
The Registrar will keep it with the official records of the company.
348(3).
If the statement under 348(1) relates to a Government company in liquidation, the Liquidator must send a copy to:
(a). The Central Government, if it is a member of the company.
(b). Any State Government, if it is a member of the company.
348(4).
Any person who states in writing that he is a creditor or contributory of the company may:
Inspect the statement.
Obtain a copy or extract, through himself or his agent, at reasonable times and upon payment of the prescribed fee.
348(5).
If a person fraudulently claims to be a creditor or contributory in order to inspect or obtain copies, he shall be treated as having committed an offence under Section 182 of the Indian Penal Code.
Upon application of the Company Liquidator, he may be punished accordingly.
348(6).
If the Company Liquidator is an insolvency professional registered under the Insolvency and Bankruptcy Code, 2016, and he fails to comply with this section, such failure is treated as a contravention of the IBC and its rules/regulations.
This exposes him to proceedings under Chapter VI of Part IV of the IBC.
Section 349. Official Liquidator to make payments into public account of India
Every Official Liquidator must pay all monies received by him in that capacity into the public account of India in the Reserve Bank of India, in the manner and at the times prescribed.
Section 350. Company Liquidator to deposit monies into scheduled bank
350(1).
Every Company Liquidator must deposit all monies received by him in his capacity as liquidator into a scheduled bank, into a special bank account opened specifically for this purpose.
The Tribunal may permit the account to be opened in another bank if it is considered advantageous for the creditors, contributories, or the company.
350(2).
If the Company Liquidator keeps with himself, for more than ten days, an amount exceeding Rs. 5,000 (or such higher limit as authorised by the Tribunal on his application), he will face consequences unless he provides a satisfactory explanation to the Tribunal.
The consequences include:
(a) Paying interest at 12% per annum on the excess amount retained, and any penalty the Tribunal may impose.
(b) Being liable to pay expenses caused due to his default.
(c) Loss of all or part of his remuneration as the Tribunal considers appropriate, or even removal from office.
Section 351. Liquidator not to deposit monies into private banking account
An Official Liquidator or Company Liquidator is not allowed to deposit any money they receive in their role into a private bank account.
This rule ensures that all liquidation funds are kept only in authorised accounts (such as the public account of India or a scheduled bank, as required under Sections 349 and 350).
The purpose is to prevent misuse or misappropriation of company funds during liquidation.
Section 352. Company Liquidation Dividend and Undistributed Assets Account.
352(1).
When a company is being wound up and the liquidator holds any money that represents:
(a). Dividends payable to creditors which have remained unpaid for six months from the date they were declared.
(b). Assets refundable to contributories which have remained undistributed for six months from the date they became refundable then:
He must immediately deposit such money into a separate special account called the “Company Liquidation Dividend and Undistributed Assets Account” in a scheduled bank.
352(2).
When the company is dissolved, the liquidator must deposit into the same account any remaining unpaid dividends or undistributed assets still in his possession at the date of dissolution.
352(3).
Whenever the liquidator deposits money into the Company Liquidation Dividend and Undistributed Assets Account he must submit a statement to the Registrar in the prescribed form.
The statement must include the following details:
Nature of the sums deposited.
Names and last known addresses of persons entitled to the money.
Amount due to each person.
Nature of each person’s claim.
Any other prescribed particulars.
352(4).
The liquidator must obtain a receipt from the scheduled bank for any money deposited.
This receipt serves as a complete discharge of the liquidator’s responsibility for that money.
352(5).
If the company is being wound up voluntarily, the Company Liquidator must:
Include in the statement filed under Section 348(1) the total amount that became payable under 352 (1) & (2) during the previous six months &
Within 14 days after filing that statement, deposit that amount into the Company Liquidation Dividend and Undistributed Assets Account.
352(6).
Any person claiming entitlement to money deposited in this account (whether deposited under this Act or earlier company law) may apply to the Registrar.
If the Registrar is satisfied about the claimant’s entitlement, he shall make the payment.
The Registrar must settle such claim within 60 days of receipt.
If he fails to do so, he must report the reasons for the delay to the Regional Director.
352(7).
If money deposited in the relevant account stays unclaimed for 15 years, it must be transferred to the General Revenue Account of the Central Government.
This transfer does not mean the claimant loses their right to the money.
Even after the transfer, a claim can still be made under Section 352(6).
If the claim is found valid, the payment will be made to the claimant and treated as a refund of revenue.
352(8).
If any liquidator retains money that he should have deposited into the account under this section, he will face the following consequences:
(a).
He must pay interest at 12% per annum on the retained amount, and may also be required to pay a penalty determined by the Registrar.
The Central Government may waive the interest partially or fully in appropriate cases.
(b).
He will be liable to pay any expenses caused due to his default.
(c).
In winding up by the Tribunal, he may lose all or part of his remuneration as the Tribunal thinks fit, and he may also be removed from office by the Tribunal.
Section 353. Liquidator to make returns
353(1).
A Company Liquidator has certain legal duties to file, deliver, or submit documents such as returns, accounts, notices, or other required paperwork.
If he fails to do so, and even after receiving a notice asking him to comply he still does not correct the default within 14 days, the law steps in.
In such a case, the Tribunal may be approached by any of the following
A contributory.
A creditor.
The Registrar.
Once approached, the Tribunal can order the Liquidator to rectify the default and complete the required filing or submission within a specified period.
353(2).
When the Tribunal issues an order under 353(1) directing the Liquidator to fix a default, it may also order that the Liquidator personally pays the costs of the application.
These costs include all expenses related to the proceedings, not just the filing.
This means the Liquidator himself, and not the company, may have to bear the financial burden.
353(3).
This section does not affect the operation of any other legal provision that imposes penalties on the Liquidator for the same default.
So, the Liquidator may still face penal consequences in addition to the Tribunal’s order under this section.
Section 354. Meetings to ascertain wishes of creditors or contributories
354(1).
In matters concerning the winding up of a company, the Tribunal has the discretion to:
(a). Consider the wishes of the company’s creditors or contributories, based on sufficient evidence presented to it.
(b). If necessary, direct that meetings of creditors or contributories be convened, held, and conducted in a manner determined by the Tribunal.
(c). Appoint a person to act as chairman of such meetings and require that person to report the meeting results back to the Tribunal.
354(2).
When determining or considering the wishes of creditors, the Tribunal must take into account the value of each creditor’s debt.
So , creditors with larger claims may carry greater weight in the decision-making process.
354(3).
When the Tribunal needs to determine or take into account the wishes of contributories, it cannot treat all contributories equally by default.
Instead, it must consider how many votes each contributory is entitled to cast, as provided under the law.
Section 355. Court, tribunal or person, etc., before whom affidavit may be sworn
355(1).
Any affidavit required to be sworn under this Chapter may be sworn before:
(a). In India: Any court, tribunal, judge, or person who is legally authorised to take and receive affidavits.
(b). Outside India: Any court, judge, or person legally authorised in that country to take and receive affidavits, or before an Indian diplomatic or consular officer stationed in that country.
355(2).
Anyone acting in a judicial capacity in India including tribunals, judges, justices, and commissioners must take judicial notice of certain official marks on an affidavit.
This means they must accept as genuine the seal, stamp, or signature of the authority before whom the affidavit was sworn.
This rule applies whether the affidavit was sworn in India or outside India.
The recognised authorities include:
Courts and tribunals.
Judges.
Authorised officers.
Indian diplomatic or consular officers abroad.
Section 356. Power of Tribunal to declare dissolution of company void
356(1).
When a company has been dissolved whether under the winding-up provisions, under Section 232 (mergers/amalgamations), or in any other manner the Tribunal still has power to reverse that dissolution.
The Tribunal may act within two years from the date of dissolution.
An application can be made by the Company Liquidator or any other interested person.
If the Tribunal is satisfied, it may issue an order declaring the dissolution void.
Once such an order is made, the law treats the company as if it had never been dissolved, allowing pending matters to continue or new proceedings to be started.
The Tribunal may also impose any terms or conditions it considers appropriate while declaring the dissolution void.
356(2).
After the Tribunal declares a company’s dissolution void, it must send a copy of the order to the Registrar within 30 days, and the Registrar must record it.
The Tribunal must also instruct either the Company Liquidator or the applicant (the person who requested the order) to file a certified copy of the order with the Registrar within 30 days, or within any extended time the Tribunal allows.
The Registrar must then enter and record this order as well.
Section 357. Commencement of winding up by Tribunal
When a company is being wound up by the Tribunal, the law treats the winding up as starting on the date the winding-up petition is filed.
It does not start on the date the Tribunal later issues the winding-up order.
This filing date becomes the legal commencement date of winding up.
The date is important because it determines:
Which transactions are valid or void.
What liabilities arise.
How creditors’ claims are prioritised.
Section 358. Exclusion of certain time in computing period of limitation.
When calculating the limitation period for any suit or application filed in the name of or on behalf of a company being wound up by the Tribunal, a specific period must be excluded from the calculation.
The excluded period is:
From the commencement of winding up (the date the petition is filed), up to one year after the Tribunal passes the winding-up order.
So this entire duration is not counted when determining whether a legal action is within the limitation period.
