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Companies Act,1956 (Section 303 to 674)

Companies Act,1956 (Section 303 to 674 The Schedule)

Repealed – See The Companies Act 2013

 

303. Register of directors

303. Register of directors, 1[***] etc.

(1) Every company shall keep at its registered office a register of its directors, managing director, 1[***] manager and secretary, containing with respect to each of them the following particulars, that is to say:-

(a) in the case of an individual, his present name, and surname in full; any former name or surname in full; 2[his father’s name and surname in full; or where the individual is a married woman, the husband’s name and surname in full]; his usual residential address; his nationality and, if that nationality is not the nationality of origin, his nationality of origin, his business occupation, if any, if he holds the office of director, managing director, 3[***] manager or secretary in any other body corporate, the particulars of each such office held by him; and except in the case of a private company which is not a subsidiary of a public company, the date of his birth;

(b) in the case of a body corporate, its corporate name and registered or principal office; and the full name, address, nationality, and nationality of origin, if different from that nationality 4[the father’s name or where a director is a married woman, the husband’s name] of each of its directors; and if it holds the office of 1[***] manager or secretary in any other body corporate, the particulars of each such office;

(c) in the case of a firm, the name of the firm, the full name, address, nationality, and nationality of origin, if different from that nationality 4[the father’s name or where a partner is a married woman, the husband’s name] of each partner; and the date on which each became a partner; and if the firm holds the office of 1[***] manager or secretary in any other body corporate, the particulars of each such office;

(d) if any director or directors have been nominated by a body corporate, its corporate name; all the particulars referred to in clause (a) in respect of each director so nominated, and also all the particulars referred to in clause (b) in respect of the body corporate;

(e) if any director or directors have been nominated by a firm, the name of the firm, all the particulars referred to in clause (a) in respect of each director so nominated, and also all the particulars referred to in clause (c) in respect of the firm.

Explanation.-For the purposes of this sub-section-

(1) any person in accordance with 5[whose directions or instructions], the Board of directors of a company is accustomed to act shall be deemed to be a director of the company;

(2) in the case of a person usually known by a title different from his surname, the expression “surname” means that title; and

(3) reference to a former name or surname do not include-

(i) in the case of a person usually known by an Indian title different from his surname, the name by which he was known previous to the adoption of, or succession to, the title;

(ii) in the case of any person, a former name or surname, where that name or surname was changed or disused before the person bearing the name attained the age of eighteen years, or has been changed or disused for a period of not less than twenty years; and

(iii) in the case of a married woman, the name or surname by which she was known previous to the marriage.

(2) The company shall, within the periods respectively mentioned in this sub-section, send to the Registrar 6[a return in duplicate in the prescribed form] containing the particulars specified in the said register and 7[a notification in duplicate in the prescribed form] of any change among its directors, managing directors, 1[***] managers or secretaries 8[***]specifying the date of the change.

The period within which the said return is to be sent shall be period of 9[thirty] days from the appointment of the first directors of the company and the period within which the said notification of a change is to be sent shall be 11[thirty] days from the happening thereof.

10[***]

(3) If default is made in complying with sub-section (1) or (2), the company, and every officer of the company who-is in default, shall be punishable with fine which may extend to 11[five hundred rupees] for every day during which the default continues.

1. The words “managing agents, secretaries and treasurers” omitted by Act 53 of 2000, sec. 148 (w.e.f. 13-12-2000).

2. Ins. by Act 65 of 1960, sec. 110 (w.e.f. 28-12-1960) (w.e.f. 13-12-2000).

3. The words “managing agent” omitted by Act 53 of 2000, sec. 148 (w.e.f. 13-12-2000).

4. Ins. by Act 65 of 1960, sec. 110 (w.e.f. 28-12-1960).

5. Subs. by Act 65 of 1960, sec. 110, for “whose instruction” (w.e.f. 28-12-1960).

6. Subs. by Act 65 of 1960, sec. 110, for “a return in the prescribed form” (w.e.f. 28-12-1960).

7. Subs. by Act 65 of 1960, sec. 110, for “a notification in the prescribed form” (w.e.f. 28-12-1960).

8. The words “or in any of the particulars contained in the register” omitted by Act 31 of 1965, sec. 41 (w.e.f. 15-10-1965).

9. Subs. by Act 31 of 1965, sec.62 and Sch., for “twenty-eight” (w.e.f. 15-10-1965).

10. Proviso omitted by Act 31 of 1965, sec. 41 (w.e.f. 15-10-1965).

11. Subs. by Act 53 of 2000, sec. 148, for “fifty rupees” (w.e.f. 13-12-2000)

304. Inspection of the register

(1) The register kept under section 303 shall be open to the inspection of any member of the company without charge and of any other person on payment of one rupee for each inspection during business hours subject to such reasonable restrictions as the company may by its articles or in general meeting impose, so that not less than two hours in each day are allowed for inspection.

(2) If any inspection required under sub-section (1) is refused,-

(a) The company, and every officer of the company who is in default, shall be punishable with fine which may extend to 1[five hundred rupees]; and

(b) The 2[Central Government or Tribunal, as the case may be,] may, by order, compel an immediate inspection of the register.

1. Subs. by Act 53 of 2000, sec. 149, for “fifty rupees” (w.e.f. 13-12-2000).

2. Subs. by Act 31 of 1988, sec. 67, for “Court” (w.e.f. 31-5-1991) and again subs. by Act 11 of 2003, sec. 35, for “Company Law Board”.

305. Duty of directors etc. to make disclosure

1[305. Duty of directors, etc., to make disclosure.-

(1) Every director, managing director, 2[***] manager or secretary of any company, who is appointed to or relinquishes, the office of director, managing director, 2[***] manager or secretary of any other body corporate, shall, within twenty days of his appointment to, or as the case may be, relinquishment of, such office, disclose to the company aforesaid the particulars relating to the office in the other body corporate which are required to be specified under sub-section (1) of section 303; and if he fails to do so, he shall be punishable with fine which may extend to 3[five thousand rupees].

(2) The provisions of sub-section (1) shall also apply to a person deemed to be a director of the company by virtue of the Explanation to subsection (1) of section 303 when such person is appointed to, or relinquishes, any of the offices in the other body corporate referred to in sub-section (1).]

1. Subs. by Act 65 of 1960, sec. 11, for section 305 (w.e.f. 28-12-1960).

2. The words “managing agent, secretaries and treasurers,” omitted by Act 53 of 2000, sec. 150 (w.e.f. 13-12-2000).

3. Subs. by Act 53 of 2000, sec. 150, for “five hundred rupees” (w.e.f. 13-12-2000).

306. REGISTER TO BE KEPT BY REGISTRAR AND INSPECTION THEREOF

(1) The Registrar shall keep a separate register or registers in which there shall be entered the particulars receive by him under sub-section (2) of section 303 in respect of companies, so however, that all entries in respect of each such company shall be together.

(2) The register or registers aforesaid shall be open to inspection by any member of the public at any time during office hours, on payment of the prescribed fee.

307. Register of directors’ shareholdings, etc

(1) Every company shall keep a register showing, as respects each director of the company, the number, description and amount of any shares in, or debentures of, the company or any other body corporate, being the company’s subsidiary or holding company, or a subsidiary of the company’s holding company, which are held by him or in trust for him, or of which he has any right to become the holder whether on payment or not.

(2) Where any shares or debentures have to be recorded in the said register or to be omitted therefrom, in relation to any director, by reason of a transaction entered into after the commencement of this Act and while he is a director, the register shall also show the date of, and the price or other consideration for, the transaction:

Provided that where there is an interval between the agreement for any such transaction and the completion thereof, the date so shown shall be that of the agreement.

(3) The nature and extent of any interest or right in or over any shares or debentures recorded in relation to a director in the said register shall, if he so requires be indicated in the register.

(4) The company shall not, by virtue of anything done for the purposes of this section, be affected with notice, of, or be put upon inquiry as to, the rights of any person in relation to any shares or debentures.

(5) The said register shall, subject to the provisions of this section, be kept at the registered office of the company, and shall be open to inspection during business hours (subject to such reasonable restrictions as the company may, by its articles or in general meeting, impose, so that not less than two hours in each day are allowed for inspection) as follows:-

(a) during the period beginning fourteen days before the date of the company’s annual general meeting and ending three days after the date of its conclusion, it shall be open to the inspection of any member or holder or debentures of the company; and

(b) during that or any other period, it shall be open to the inspection of any person acting on behalf of the Central Government or of the Registrar.

In computing the fourteen days and the three days mentioned in this sub-section any day which is a Saturday, a Sunday or a public holiday shall be disregarded.

(6) Without prejudice to the rights conferred by sub-section (5), the Central Government or the Registrar may, at any time require a copy of the said register, or any part thereof.

(7) The said register shall also be produced at the commencement of every annual general meeting of the company and shall remain open and accessible during the continuance of the meeting to any person having the right to attend the meeting.

If default is made in complying with this sub-section the company, and every officer of the company who is in default, shall be punishable with fine which may extend to 1[five thousand rupees].

(8) If default is made in complying with sub-section (1) or (2), or if any inspection required under this section is refused, or if any copy required thereunder is not sent within a reasonable time, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to 2[fifty thousand rupees] and also with a further fine which may extend to 3[two hundred rupees] for every day during which the default continues.

(9) In the case of any such refusal, the 4[Central Government or Tribunal, as the case may be,] may also, by order, compel an immediate inspection of the register.

(10) For the purposes of this section-

(a) any person in accordance with whose directions or instructions the Board of directors of a company is accustomed to act, shall be deemed to be a director of the company; and

(b) a director of a company shall be deemed to hold, or to have an interest or a right in or over, any shares or debentures, if a body corporate other than the company holds them or has that interest or right in or over them, and either-

(i) that body corporate or its Board of directors is accustomed to act in accordance with his directions or instructions; or

(ii) he is entitled to exercise or control the exercise of one-third or more of the total voting power exercisable at any general meeting of that body corporate.

5[***]

1. Subs. by Act 53 of 2000, sec. 151, for “five hundred rupees” (w.e.f. 13-12-2000).

2. Subs. by Act 53 of 2000, sec. 151, for “five thousand rupees” (w.e.f. 13-12-2000).

3. Subs. by Act 53 of 2000, sec. 151, for “twenty rupees” (w.e.f. 13-12-2000).

4. Subs. by Act 31 of 1988, sec. 67, for “Court” (w.e.f. 31-5-1991) and again subs, by Act 11 of 2003, sec. 35, for “Company Law Board”.

5. Sub-section (11) ins. by Act 65 of 1960, sec.112 (w.e.f. 28-12-1960) and omitted by Act 53 of 2000, sec. 151 (w.e.f. 13-12-2000).

308. Duty of directors and persons deemed to be directors to make disclosure of shareholdings

(1) Every director of a company, and every person deemed to be a director of the company by virtue of sub-section (10) of section 307, shall give notice to the company of such matters relating to himself as may be necessary for the purpose of enabling the company to comply with the provisions of that section.

(2) Any such notice shall be given in writing, and if it is not given at a meting of the Board, the person giving the notice shall take all reasonable steps to secure that it is brought up and read at the meeting of the Board next after it is given

(3) Any person who fails to comply with sub-section (1) or (2) shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to 1[fifty thousand rupees], or with both.

1. Subs. by Act 53 of 2000, sec. 152, for “five thousand rupees” (w.e.f. 13-12-2000)

309.

310. Provisions for increase in remuneration to require Government sanction

1[In the case of a public company, or a private company which is a subsidiary of a public company, any provision relating to the remuneration of any director including a managing or whole-time director, or any amendment thereof, which purports to increase] or has the effect of increasing, whether directly or indirectly, the amount thereof, whether that provision be contained in the company’s memorandum or articles, or in an agreement entered into by it, or in any resolution passed by the company in general meeting or by its Board of directors 2[shall not have any effect-

(a) in cases where Schedule XIII is applicable, unless such increase is in accordance with the conditions specified in that Schedule; and

(b) in any other case, unless it is approved by the Central Government:]

3[Provided that the approval of the Central Government shall not be required where any such provision or any amendment thereof purports to increase, or has the effect of increasing the amount of such remuneration only by way of a fee for each meeting of the Board or a committee thereof attended by any such director and the amount of such fee after such increase does not exceed 4[such sum as may be prescribed]:]

5[Provided further that where in the case of any private company which converts itself into a public company or becomes a public company under the provisions of section 43 A, any provision relating to the remuneration of any director including a managing or whole-time director as contained in its memorandum or articles or in any agreement entered into by it or in any resolution passed by it in general meeting or by its Board of directors includes a provision for the payment of fee for each meeting of the Board or a Committee thereof attended by any such director which is in excess of the sum specified under the first provision, such provision shall be deemed to be an increase in the remuneration of such director and shall not, after it ceases to be a private company, or, as the case may be, becomes a public company, have any effect unless approved by the Central Government.]

1. Subs. by Act 65 of I960, sec. 114, for certain words (w.e.f. 28-12-1960).

2. Subs. by Act 31 of 1988, sec. 47, for certain words (w.e.f. 15-6-1988).

3. Added by Act 31 of 1965, sec. 43 (w.e.f. 15-10-1965).

4. Subs. by Act 31 of 1988, sec. 47, for “two hundred and fifty rupees” (w.e.f. 15-6-1988).

5. Ins. by Act 31 of 1988, sec. 47 (w.e.f. 15-6-1988).

311. Increase in remuneration of managing director on reappointment or appointment after Act to require Government sanction

In the case of a public company, or a private company which is a subsidiary of a public company, if the terms of any re-appointment or appointment of a managing or whole-time director, made after the commencement of this Act, purport to increase or have the effect of increasing, whether directly or indirectly, the remuneration which the managing or whole-time director or the previous managing or whole-time director, as the case may be, was receiving immediately before such re-appointment or appointment, the re-appointment or appointment and shall become void if, and insofar as it is disapproved by that Government 1[shall not have any effect-

(a) in cases where Schedule XIII is applicable, unless such increase is in accordance with the conditions specified in that Schedule; and

(b) in any other case, unless it is approved by the Central Government.]

1. Subs, by Act 31 of 1988, sec. 48, for certain words (w.e.f. 15-6-1988).

312. PROHIBITION OF ASSIGNMENT OF OFFICE BY DIRECTOR.

Any assignment of his office made after the commencement of this Act by any director of a company shall be void.

313. Appointment and term of office of alternate directors

(1) The Board of directors of a company may, if so authorised by its articles or by a resolution passed by the company in general meeting, appoint an alternate director to act for a director (hereinafter in this section called “the original director”) during his absence for a period of not less than three months from the State in which meetings of the Board are ordinarily held.

1[(2) An alternate director appointed under sub-section (1) shall not bold office as such for a period longer than that permissible to the original director in whose place he has been appointed and shall vacate office if and when the original director returns to the State in which meetings of the Board are ordinarily held.]

(3) If the term of office of the original director is determined before he so returns to the State aforesaid, any provision for the automatic re-appointment of retiring directors in default of another appointment shall apply to the original, and not to the alternate, director.

1. Substituted by Act 65 of 1960, sec. 115, for sub-section (2) (w.e.f. 28-12-1960).

314. Director, etc., not to hold office or place of profit

1[(1) Except with the 2[consent] of the company accorded by a special resolution,- (a) no director of a company shall hold any office or place of profit, and

(b) 3[no partner or relative of such director, no firm in which such director, or a relative of such director, is a partner, no private company of which such director is a director or member, and no director or manager of such a private company shall hold any office or place of profit carrying a total monthly remuneration of 4[such sum as may be prescribed],

except that of managing director or manager,] banker, or trustee for the holders of debentures of the company-

(i) under the company; or

(ii) under any subsidiary of the company, unless the remuneration received from such subsidiary in respect of such office or place of profit is paid over to the company or its holding company:

5[Provided that it shall be sufficient if the special resolution according the consent of the company is passed at the general meeting of the company held for the first time after the holding of such office or place of profit:

Provided further that where a relative of a director or a firm in which such relative is a partner, is appointed to an office or place of profit under the company or a subsidiary thereof without the knowledge of the director, the consent of the company may be obtained either in the general meeting aforesaid or within three months from the date of the appointment, whichever is later.]

Explanation.-For the purpose of this sub-section, a special resolution according consent shall be necessary for every appointment in the first instance to an office or place of profit and to every subsequent appointment to such office or place of profit on a higher remuneration not covered by the special resolution, except where an appointment on a time scale has already been approved by the special resolution.

(1A) Nothing in sub-section (1), shall apply where a relative of a director or a firm in which such relative is a partner holds any office or place of profit under the company or a subsidiary thereof having been appointed to such office or place before such director becomes a director of the company.]

6[(1B) Notwithstanding anything contained in sub-section (1),-

(a) no partner or relative of a director or manager,

(b) no firm in which such director or manager, or relative of either, is a partner,

(c) no private company of which such a director or manager, or relative of either, is a director or member,

shall hold any office or place of profit in the company which carries a total monthly remuneration of not less than 7[such sum as may be prescribed] except with the prior consent of the company by a special resolution and the approval of the Central Government:

8[***]]

9[(2) 10[(a)] If any office or place of profit is held in contravention of the provisions of sub-section (1) the director, partner, relative, firm, private company, 11[***] or the manager, concerned, shall be deemed to have vacated his or its office as such on and from the date next following the date of the general meeting of the company referred to in the first proviso or, as the case may be, the date of the expiry of the period of three months referred to in the second proviso to that sub-section, and shall also be liable to refund to the company any remuneration received or the monetary equivalent of any perquisite or advantage enjoyed by him or it for the period immediately preceding the date aforesaid in respect of such office or place of profit.]

6[(b) The company shall not waive the recovery of any sum refundable to it under clause (a) unless permitted to do so by the Central Government.]

12[(2A) Every individual, firm, private company or other body corporate proposed to be appointed to any office or place of profit to which this section applies shall, before or at the time of such appointment, declare in writing whether he or it is or is not connected with a director of the company in any of the ways referred to in sub-section (1).]

6[(2B) If, after the commencement of the Companies (Amendment) Act, 1974 any office or place of profit is held, without the prior consent of the company by a special resolution and the approval of the Central Government the partner, relative, firm or private company appointed to such office or place of profit shall be liable to refund to the company any remuneration received or the monetary equivalent of any perquisite or advantage enjoyed by him on and from the date on which the office was so held by him.]

6[(2C) If any office or place of profit is held in contravention of the provisions of the proviso to sub-section (1B), the director, partner, relative, firm, private company or manager concerned shall be deemed to have vacated his or its office as such on and from the expiry of six months from the commencement of the Companies (Amendment) Act, 1974 of the date next following the date of the general meeting of the company referred to in the said proviso, whichever is earlier, and shall be liable to refund to the company any remuneration received or the monetary equivalent of any perquisite or advantage enjoyed by him or it for the period immediately preceding the date aforesaid in respect of such office or place of profit.]

6[(2D) The company shall not waive the recovery of any sum refundable to it under sub-section (2B) 13[***] unless permitted to do so by the Central Government.]

(3) Any office or place 14[***] shall be deemed to be an office or place of profit under the company 15[within the meaning of this section]

(a) in case the office or place is held by a director, if the director holding it 16[obtains from the company anything] by way of remuneration over and above the remuneration to which he is entitled as such director, whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise;

(b) in case the office or place is held by an individual other than a director or by any firm, private company or other body corporate, if the individual, firm, private company or body corporate holding it 16[obtains from the company anything] by way of remuneration whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise.

6[(4) Nothing in this section shall apply to a person, who being the holder of any office of profit in the company, is appointed by the Central Government, under section 408, as a director.]

1. Subs. by Act 65 of 1960, sec. 116, for sub-section (1) (w.e.f. 28-12-1960).

2. Subs. by Act 31 of 1965, sec. 44, for “previous consent” (w.e.f. 15-10-1965).

3. Subs. by Act 41 of 1974, sec. 29 for certain words (w.e.f. 1-2-1975).

4. Subs. by Act 31 of 1988, sec. 49, for “five hundred rupees or more” (w.e.f. 15-6-1988).

5. Subs. by Act 31 of 1965, sec. 44, for proviso (w.e.f. 15-10-1965).

6. Ins. by Act 41 of 1974, sec. 29 (w.e.f. 1-2-1975).

7. Subs. by Act 31 of 1988, sec. 49, for “three thousand rupees” (w.e.f. 15-6-1988).

8. Proviso omitted by Act 31 of 1988, sec. 49 (w.e.f. 15-6-1988).

9. Subs. by Act 31 of 1965, sec. 44, for sub-section (2) (w.e.f. 15-10-1965).

10. Sub-section (2) re-lettered as clause (a) thereof by Act 41 of 1974, sec. 29 (w.e.f. 1-2-1975).

11. The words “managing agent, secretaries and treasurers” omitted by Act 53 of 2000, sec. 154 (w.e.f. 13-12-2000).

12. Ins. by Act 65 of 1960, sec. 116 (w.e.f. 28-12-1960).

13. The words “or (2C), as the case may be,” omitted by Act 31 of 1988, sec. 49 (w.e.f. 15-6-1988). 14. The words “in a company” omitted by Act 65 of 1960, sec. 116 (w.e.f. 28-12-1960).

15. Subs. by Act 41 of 1974, sec. 29, for “within the meaning of sub-section (1)” (w.e.f. 1-2-1975).

16. Subs. by Act 65 of 1960, sec. 116, for “obtain anything” (w.e.f. 28-12-1960).

315. APPLICATION OF SECTIONS 316 AND 317. –

OMITTED BY THE COMPANIES (AMENDMENT) ACT, 1960.

316. Number of companies of which one person may be appointed managing director

1[No public company and no private company which is a subsidiary of a public company] shall, after the commencement of this Act, appoint or employ any person as managing director, if he is either the managing director or the manager of 2[any other company (including a private company which is not a subsidiary of a public company)], except as provided in sub-section (2).

(2) 3[A public company or a private company which is a subsidiary of a public company] may appoint or employ a person as its managing director, if he is the managing director or manager of one, and of not more than one, 4[other company (including a private company which is not a subsidiary of a public company)]:

Provided that such appointment or employment is made or approved by a resolution passed at a meeting of the Board with the consent of all the directors present at the meeting and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the directors then in India.

(3) Where, at the commencement of this Act, any person is holding the office either of managing director or of manager in more than 5[two companies of which each one or at least one is a public company or a private company which is a subsidiary of a public company], he shall, within one year from the commencement of 6[the Companies (Amendment)

Act, 1960, choose not more than two of those companies as companies in which he wishes to continue to hold the office of managing director or manager, as the case may be; and the provisions of clauses (b) and (c) of sub-section (1) and of sub-sections (2) and (3) of section 276 shall apply mutatis mutandis in relation to this case, as those provisions apply in relation to the case of director.

(4) Notwithstanding anything contained in sub-sections (1) to (3), the Central Government may, by order, permit any person to be appointed as a managing director of more than two companies if the Central Government is satisfied that it is necessary that the companies should, for their proper working, function as a single unit and have a common managing director.

1. Subs. by Act 65 of 1960, sec. 118, for “No company” (w.e.f. 28-12-1960).

2. Subs. by Act 65 of 1960, sec. 118, for “any other company” (w.e.f. 28-12-1960).

3. Subs. by Act 65 of 1960, sec. 118, for “A company” (w.e.f. 28-12-1960).

4. Subs. by Act 65 of 1960, sec. 118, for “other company” (w.e.f. 28-12-1960).

5. Subs. by Act 65 of 1960, sec. 118, for “two companies” (w.e.f. 28-12-1960).

6. Subs. by Act 65 of 1960, sec. 118, for “this Act” (w.e.f. 28-12-1960).

317. Managing director not to be appointed for more than five years at a time

(1) No company shall, after the commencement of this Act, appoint or employ any individual as its managing director for a term exceeding five years at a time.

(2) Any individual holding at the commencement of this Act the office of managing director in a company shall unless his term expires earlier, be deemed to have vacated his office immediately on the expiry of five years from the commencement of this Act.

(3) Nothing contained in sub-section (1) shall be deemed to prohibit the reappointment, re-employment, or the extension of the term of office, of any person by further periods not exceeding five years on each occasion:

Provided that any such re-appointment, re-employment or extension shall not be sanctioned earlier than two years from the date on which it is to come into force.

1[(4) This section shall not apply to a private company unless it is a subsidiary of a public company.]

1. Inserted by Act 65 of 1960, sec. 19 (w.e.f. 28-12-1960).

318. Compensation for loss of office not permissible except to managing or whole-time directors or to directors who are managers

(1) Payment may be made by a company, except in the cases specified in sub-section (3), and subject to the limit specified in sub-section (4), to a managing director, or a director holding the office of manager or in the whole-time employment of the company, by way of compensation for loss of office, or as consideration for retirement from office, or in Connection with such loss or retirement.

(2) No such payment shall be made by the company to any other director.

(3) No payment shall be made to a managing or other director in pursuance of sub-section (1), in the following cases, namely:-

(a) where the director resigns his office in view of the reconstruction of the company, or of its amalgamation with any other body corporate or bodies corporate, and is appointed as the managing director, 1[***] 2[***] manager or other officer of the reconstructed company or of the body corporate resulting from the amalgamation;

(b) where the director resigns his office otherwise than on the reconstruction of the company or its amalgamation as aforesaid;

(c) where the office of the director is vacated by virtue of section 203, 3[***] or any of the clauses (a) to 4[(1)], of sub-section (1) of section 283;

(d) where the company is being wound up, whether by 5[order of the Tribunal] or voluntarily, provided the winding up was due to the negligence or default of the director;

(e) where the director has been guilty of fraud or breach of trust in relation to, or of gross negligence in or gross mismanagement of, the conduct of the affairs of the company or any subsidiary or holding company thereof;

(f) where the director has instigated, or has taken part directly or indirectly in bringing about, the termination of his office.

(4) Any payment made to a managing or other director in pursuance of sub-section (1) shall not exceed the remuneration which he would have earned if he had been in office for the unexpired residue of his term or for three years, whichever is shorter, calculated on the basis of the average remuneration actually earned by him during a period of three years immediately preceding the date on which he ceased to hold the office, or where he held that office for a lesser period than three years, during such period:

Provided that no such payment shall be made to the director in the event of the commencement of the winding up of the company, whether before, or at any time within twelve months after, the date on which he ceased to hold office, if the assets of the company on the winding up, after deducting the expenses thereof, are not sufficient to repay to the shareholders the share capital (including the premiums, if any,) contributed by them.

(5) Nothing in this section shall be deemed to prohibit the payment to a managing director, or a director holding the office of manager, of any remuneration for services rendered by him to the company in any other capacity.

1. The words “managing agent,” omitted by Act 53 of 2000, sec. 155 (w.e.f. 13-12-2000).

2. The words “secretaries and treasurers,” omitted by Act 65 of 1960, sec.120 (w.e.f. 28-12-1960).

3. The word and figures “section 280″ omitted by Act 31 of 1965, sec. 45 (w.e.f. 15-10-1965).

4. Subs. by Act 65 of 1960, sec. 120, for “(k)” (w.e.f. 28-12-1960).

5. Subs. by Act 11 of 2003, sec. 36, for “or subject to the supervision of the Court”.

319. PAYMENT TO DIRECTOR, ETC., FOR LOSS OF OFFICE ETC., IN CONNECTION WITH TRANSFER OF UNDERTAKING OR PROPERTY.

(1) No director of a company shall, in connection with the transfer of the whole or any part of any undertaking or property of the company, receive any payment, by way of compensation for loss of office, or as consideration for retirement from office, or in connection with such loss or retirement -(a) from such company; or(b) from the transferee of such undertaking or property or from any other person (not being such company), unless particulars with respect to the payment proposed to be made by such transferee or person (including the amount thereof) have been disclosed to the members of the company and the proposal has been approved by the company in general meeting.(2) Where a director of a company receives payment of any amount in contravention of sub-section (1), the amount shall be deemed to have been received by him in trust for the company.

(3) Sub-sections (1) and (2) shall not affect in any manner the operation of section 318.

320. Payment to director for loss of office, etc., in connection with transfer of shares

(1) No director of a company shall, in connection with the transfer to any persons of all or any of the shares in a company, being a transfer resulting from-

(i) an offer made to the general body of shareholders;

(ii) an offer made by or on behalf of some other body corporate with a view to the company becoming a subsidiary of such body corporate or a subsidiary of its holding company;

(iii) an offer made by or on behalf of an individual with a view to his obtaining the right to exercise, or control the exercise of, not less than one-third of the total voting power at any general meeting of the company; or

(iv) any other offer which is conditional on acceptance to a given extent;

receive any payment by way of compensation for loss of office, or as consideration for retirement from office, or in connection with such loss or retirement,-

(a) from such company; or

(b) except as otherwise provided in this section, from the transferees of the shares or from any other person (not being such company).

(2) In the case referred to in clause (b) of sub-section (1), it shall be the duty of the director concerned to take all reasonable steps to secure that particulars with respect to the payment proposed to be made by the transferees or other person (including the amount thereof) are included in, or sent with, any notice of the offer made for their shares which is given to any shareholders.

(3) If-

(a) any such director fails to take reasonable steps as aforesaid; or

(b) any person who has been properly required by any such director to include the said particulars in, or send them with, any such notice as aforesaid fails so to do; he shall be punishable with fine which may extend to 1[two thousand five hundred rupees].

(4) If-

(a) the requirements of sub-section (2) are not complied with in relation to any such payment as is governed by clause (b) of sub-section (1); or

(b) the making of the proposed payment is not, before the transfer of any shares in pursuance of the offer, approved by a meeting called for the purpose, of the holders of the shares to which the offer relates and other holders of shares of the same class (other than shares already held at the date of the offer by, or by a nominee for, the offeror, or where the offeror is a company, by, or by a nominee for, any subsidiary thereof) as any of the said shares;

any sum received by the director on account of the payment shall be deemed to have been received by him in trust for any persons who have sold their shares as a result of the offer made, and the expenses incurred by him in distributing that sum amongst those persons shall be borne by him and not retained out of that sum.

(5) If at a meeting called for the purpose of approving any payment as required by clause (b) of sub-section (4), a quorum is not present and, after the meeting has been adjourned to a later date, a quorum is again not present, the payment shall, for the purposes of that sub-section, be deemed to have been approved.

1. Subs. by Act 53 of 2000, sec. 156, for “two hundred and fifty rupees” (w.e.f. 13-12-2000).

321. PROVISIONS SUPPLEMENTARY TO SECTIONS 318, 319 AND 320.

(1) Where in proceedings for the recovery of any payment as having, by virtue of sub-section (2) of section 319 or sub-section (4) of section 320, been received by any person in trust, it is shown that -(a) the payment was made in pursuance of any arrangement entered into as part of the agreement for the transfer in question, or within one year before, or within two years after, that agreement or the offer leading thereto; and(b) the company or any person to whom the transfer was made was privy to that arrangement;the payment shall be deemed, except in so far as the contrary is shown, to be one to which that sub-section applies.(2) If in connection with any such transfer as is mentioned in section 319 or in section 320, -(a) the price to be paid, to a director of the company whose office is to be abolished or who is to retire from office, for any shares in the company held by him is in excess of the price which could at the time have been obtained by other holders of the like shares; or(b) any valuable consideration is given to any such director;the excess or the money value of the consideration, as the case may be, shall for the purposes of that section, be deemed to have been a payment made to him by way of compensation for loss of office, or as consideration for retirement from office, or in connection with such loss or retirement.(3) References in sections 318, 319 and 320 to payments made to any director of a company by way of compensation for loss of office, or as consideration for retirement from office, or in connection with such loss or retirement, do not include any bona fide payment by way of damages for breach of contract or by way of pension in respect of past services; and for the purposes of this sub-section the expression “pension” includes any superannuation allowance, superannuation gratuity or similar payment.

(4) Nothing in section 319 and 320 shall be taken to prejudice the operation of any rule of law requiring disclosure to be made with respect to any such payments as are therein mentioned or with respect to any other like payments made or to be made to the directors of a company.

322. Directors, etc., with unlimited liability in limited company

(1) In a limited company, the liability of the directors or of any director 1[***] or manager may, if so provided by the memorandum, be unlimited. (2) In a limited company in which the liability of a director 2[***] or manager is unlimited, the directors 3[***] and the manager of the company, and the member who proposes a person for appointment to the office of director 2[***] or manager, shall add to that proposal a statement that the liability of the person holding that office will be unlimited; and before the person accepts the office or acts therein, notice in writing that his liability will be unlimited, shall be given to him by the following or one of the following persons, namely, the promoters of the company, its directors, 4[***] or manager, if any, and its officers. (3) If any director, 5[***] manager or proposer makes default in adding such a statement, or if any promoter director, 5[***] manager or officer of the company makes default in giving such a notice, he shall be punishable with fine which may extend to 6[ten thousand rupees] and shall also be liable for any damage which the person so appointed may sustain from the default; but the liability of the person appointed shall not be affected by the default.

1. The words “or of the managing agent, secretaries and treasurers” omitted by Act 53 of 2000, sec. 157 (w.e.f. 13-12-2000).

2. The words”, managing agent, secretaries and treasurers” omitted by Act 53 of 2000, sec. 157 (w.e.f. 13-12-2000).

3. The words “, the managing agent, secretaries and treasurers” omitted by Act 53 of 2000, sec. 157 (w.e.f. 13-12-2000).

4. The words”, its managing agent, secretaries and treasurers” omitted by Act 53 of 2000, sec. 157 (w.e.f. 13-12-2000).

5. The words “managing agent, secretaries and treasurers,” omitted by Act 53 of 2000, sec. 157 (w.e.f. 13-12-2000).

6. Subs. by Act 53 of 2000, sec. 157, for “one thousand rupees” (w.e.f. 13-12-2000).

323. Special resolution of limited company making liability of directors, etc., unlimited

A limited company may, if so authorised by its articles, by special resolution, alter its memorandum so as to render unlimited the liability of its directors or of any director 1[***] or manager.

(2) Upon the passing of any such special resolution, the provisions thereof shall be as valid as if they had been originally contained in the memorandum:

Provided that no alteration of the memorandum making the liability of any of the officers referred to in sub-section (1) unlimited shall apply to such officer, if he was holding the office from before the date of the alteration, until the expiry of his then term, unless he has accorded his consent to his liability becoming unlimited.

1. The words “or of its managing agent, secretaries and treasurers” omitted by Act 53 of 2000, sec. 157 (w.e.f. 13-12-2000).

Chapter III Managing Agents

324. POWER OF CENTRAL GOVERNMENT TO NOTIFY THAT COMPANIES ENGAGED IN SPECIFIED CLASSES OF INDUSTRY OR BUSINESS SHALL NOT HAVE MANAGING AGENTS.

(1) Subject to such rules as may be prescribed in this behalf, the Central Government may, by notification in the Official Gazette, declare that, as from such date as may be specified in the notification, the provisions of sub-section (2) shall apply to all companies, whether incorporated before or after the commencement of this Act, which are engaged on that date or may thereafter be engaged, wholly or in part, in such class or description of industry or business as may be specified in the notification.(2) Thereupon, -(a) where any such company has a managing agent on the specified date, the term of office of that managing agent shall, if it does not expire earlier, expire, at the end of three years from the specified date, or on the 15th day of August, 1960, whichever is later; and the company shall not re-appoint or appoint the same or any other managing agent; and(b) where any such company has no managing agent on the specified date, or where it is incorporated on or after that date, it shall not appoint a managing agent.(3) Copies of all rules prescribed under sub-section (1) shall, as soon as may be after they have been prescribed, be laid before both Houses of Parliament.

(4) A copy of every notification proposed to be issued under sub-section (1) shall be laid in draft before both Houses of Parliament for a period of not less than thirty days while they are in session; and if, within that period, either House disapproves of the issue of the notification or approves of such issue only with modifications, the notification shall not be issued or, as the case may require, shall be issued only with such modifications as may be agreed on by both the Houses.

324A. Abolition of managing agencies and secretaries and treasurers.

1[324A. Abolition of managing agencies and secretaries and treasurers.-

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 159 (w.e.f. 13-12-2000).]]

1. Section 324A ins. by Act 17 of 1969, sec. 4 (w.e.f. 28-5-1969).

325. MANAGING AGENCY COMPANY NOT TO HAVE MANAGING AGENT.

(1) No company acting as the managing agent of any other company shall, after the commencement of this Act, appoint a managing agent for itself, whether it transacts any other kind of business in addition or not.(2) No company having a managing agent shall, after the commencement of this Act be appointed as the managing agent of any other company.(3) Any appointment of managing agent made in contravention of sub-section (1) or (2) shall be void.

(4) Where at the commencement of this Act a company having a managing agent is itself acting as a managing agent of any other company, the term of office of the company first-mentioned as managing agent of the other company shall, if it does not expire earlier in accordance with the provisions applicable thereto immediately before such commencement [including any provisions contained in the Indian Companies Act, 1913 (7 of 1913)], expire on the 15th day of August, 1956.

325A SUBSIDIARY OF A BODY CORPORATE NOT TO BE APPOINTED AS MANAGING AGENT.

After the commencement of the Companies (Amendment) Act, 1960, no company shall appoint as its managing agent any body corporate which is a subsidiary either of itself or of any other body corporate unless immediately before such commencement the company has any such subsidiary as its managing agent.

1. Section 325A ins. by Act 65 of 1960, sec. 121 (w.e.f. 28-12-1960).

326. CENTRAL GOVERNMENT TO APPROVE OF APPOINTMENT, ETC., OF MANAGING AGENT; AND CIRCUMSTANCES IN WHICH APPROVAL MAY BE ACCORDED.

(1) In respect of any company to which neither the prohibition specified in section 324 nor that specified in section 325 applies, a managing agent shall not be appointed or re-appointed, -(a) except by the company in general meeting; and(b) unless the approval of the Central Government has been obtained for such appointment or re-appointment.(2) The Central Government shall not accord its approval under sub-section (1) in any case, unless it is satisfied -(a) that it is not against the public interest to allow the company to have managing agent;(b) that the managing agent proposed is, in its opinion, a fit and proper person to be appointed or re-appointed as such, and that the conditions of the managing agency agreement proposed are fair and reasonable; and

(c) that the managing agent proposed has fulfilled any conditions which the Central Government requires him to fulfill.

327. APPLICATION OF SECTIONS 328 TO 331.

The provisions of sections 328 to 331 shall apply to -(a) a public company;(b) a private company which is a subsidiary of a public company; and

(c) a private company which is not a subsidiary of a public company, unless the Central Government, by general or special order, specifically exempts the private company.

328. TERM OF OFFICE OF MANAGING AGENT.

(1) After the commencement of this Act, no company shall -(a) in case it appoints a managing agent for the first time (that is to say, in case the company has had no managing agent at any time since its formation), make the appointment for a term exceeding fifteen years;(b) in any other case, re-appoint or appoint a managing agent for a term exceeding ten years at a time;(c) re-appoint a managing agent for a fresh term, when the existing term of the managing agent has two years or more to run :Provided that the Central Government may, if satisfied that it is in the interest of the company so to do, permit the re-appointment of a managing agent at an earlier time than that specified in clause (c).(2) For the purpose of sub-section (1), re-appointment does not include the re-appointment of any person on fresh, additional or changed conditions for any period not extending beyond his existing term, but otherwise includes -(a) the renewal, or the extension of the term, of a previous appointment; and(b) the appointment of any person or persons having an interest in the previous managing agency.

(3) Any appointment or re-appointment of a managing agent, made in contravention of the provisions of sub-section (1) and (2) shall be void in respect of the entire term for which the appointment or re-appointment is made.

329. VARIATION OF MANAGING AGENCY AGREEMENT.

A resolution of the company in general meeting shall be required for varying the terms of a managing agency agreement; and before such a resolution is passed, the previous sanction of the Central Government shall be obtained therefor.

330. TERM OF OFFICE OF EXISTING MANAGING AGENTS TO TERMINATE ON 15TH AUGUST, 1960.

Where a company has a managing agent at the commencement of this Act, the term of office of such managing agent shall, if it does not expire earlier in accordance with the provisions applicable thereto immediately before such commencement [including any provisions contained in the Indian Companies Act, 1913 (7 of 1913)], expire on the 15th day of August, 1960, unless before that date he is re-appointed for a fresh term in accordance with any provision contained in this Act.

331. APPLICATION OF ACT TO EXISTING MANAGING AGENTS.

All provisions of this Act, other than those relating to the term for which the office can be held, shall apply to every managing agent holding office at the commencement of this Act, with effect from such commencement.

332. NO PERSON TO BE MANAGING AGENT OF MORE THAN TEN COMPANIES AFTER 15TH AUGUST, 1960.

(1) After the 15th day August, 1960, no person shall, at the same time, hold office as managing agent in more than ten companies.

(2) Where a person holding office as managing agent in more than ten companies before that date fails to comply with sub-section (1), the Central Government may permit him to hold office as managing agent with effect from that date in respect of such of those companies, not exceeding ten in number, as it may determine.

(3) In calculating the number of companies of which a person may be a managing agent in pursuance of this section, the following companies shall be excluded, namely :-(a) a private company which is neither a subsidiary nor a holding company of a public company;(b) an unlimited company;(c) an association which does not carry on business for profit, or which prohibits the payment of a dividend.

(4) For the purposes of this section, each of the following persons shall also be deemed to hold office as managing agent of the company :-(a) where the managing agent of the company is a firm, every partner in the firm;(b) where the managing agent of the company is itself a company, every person who is a director, the secretaries and treasurers or a manager of the latter company, and where the latter company is a public company, every member who is entitled to exercise not less than ten per cent of the total voting power therein and, where the latter is a private company, every member thereof who is entitled to exercise not less than five per cent of the total voting power therein.

(4A) A director or member referred to in clause (b) of sub-section (4) shall include any person in accordance with whose directions or instructions any director or, as the case may be, any member is in the opinion of the Central Government accustomed to act.

(5) Any person who acts as a managing agent of more than ten companies in contravention of this section shall be punishable with fine which may extend to one thousand rupees in respect of each of those companies in excess of ten, for each day on which he so acts.

333. RIGHT OF MANAGING AGENT TO CHARGE ON COMPANY’S ASSETS.

A managing agent whose office stands terminated under section 324 or 332 shall be entitled to a charge on the assets of the company in respect of all moneys which are due to him from the company at the date of such termination, or which he may have to pay after that date in respect of any liability or obligation properly incurred by him on behalf of the company before such date, subject to all existing charges and incumbrances, if any, on such assets.

334. VACATION OF OFFICE ON INSOLVENCY, DISSOLUTION OR WINDING UP, ETC.

Subject to the provisions of section 340, the managing agent of a company shall be deemed to have vacated his office as such -(a) in case the managing agent is an individual, if he is adjudged an insolvent;(b) in the same case, if the managing agent applies to be adjudicated an insolvent;(c) in case the managing agent is a firm, on its dissolution from any cause whatsoever, including the insolvency of a partner in the firm;(d) in case the managing agent is a body corporate, on the commencement of its winding up whether by or subject to the supervision of the Court, or voluntarily;

(e) in all cases, on the commencement of the winding up of the company managed by the managing agent, whether by or subject to the supervision of the Court or voluntarily.

335. SUSPENSION FROM OFFICE WHERE RECEIVER APPOINTED.

(1) The managing agent of a company shall be deemed to have been suspended from his office as such, if a receiver is appointed for his property -(a) by a Court, or(b) by or on behalf of the creditors of the managing agent, including the holders of debentures issued by the managing agent, in pursuance of any power conferred by an instrument executed by the managing agent :Provided that the Court which appointed the receiver, or which will have jurisdiction to wind up the managed company, as the case may be, may, by order, direct that the managing agent shall continue to act as such for such period and subject to such restrictions and conditions, if any, as may be specified in the order.

(2) The Court may, at any time, cancel or vary any order passed by it under the proviso to sub-section (1).

336. VACATION OF OFFICE ON CONVICTION IN CERTAIN CASES.

Subject to the provisions of sections 340 and 341, the managing agent of a company shall also be deemed to have vacated his office as such, if -(a) the managing agent;(b) in case the managing agent is a firm, any partner in the firm; or(c) in case the managing agent is a body corporate, any director of, or any officer holding a general power of attorney from, such body corporate;

is convicted by a Court in India, after the commencement of this Act, of any offence, and sentenced therefor to imprisonment for a period of not less than six months.

337. REMOVAL FOR FRAUD OR BREACH OR TRUST.

A company in general meeting may, by ordinary resolution, remove its managing agent from office -(i) for fraud or breach of trust in relation to the affairs of the company or of any subsidiary or holding company thereof, whether committed before or after the commencement of this Act;(ii) for fraud or breach of trust, whether committed before or after such commencement, in relation to the affairs of any other body corporate, if a Court of law, whether in or outside India, finds such fraud or breach of trust to have been duly established; or

(iii) subject to the provisions of section 340 and 341, where the managing agent is a firm or body corporate, if any partner in the firm, or any director of, or any officer holding a general power of attorney from, the body corporate is guilty of any such fraud or breach of trust as is referred to in clause (i).

338. REMOVAL FOR GROSS NEGLIGENCE OR MISMANAGEMENT.

A company in general meeting may, by special resolution, remove its managing agent from office for gross negligence in, or for gross mismanagement of, the affairs of the company or of any subsidiary thereof.

339. POWER TO CALL MEETINGS FOR THE PURPOSES OF SECTIONS 337 AND 338 AND PROCEDURE.

(1) Without prejudice to any other provision contained in this Act or in the articles of the company for the calling of meetings, any two directors of the company may call a general meeting of the company for the purpose of considering any resolution of the nature referred to in section 337 or 338.(2) On receipt of notice of any such resolution, a copy of the resolution shall be sent forthwith to the managing agent by the company.

(3) The managing agent shall have, in relation to any such resolution, all the rights which a director of the company has under section 284 in relation to any resolution for removing him from office, including, in particular, the right to make representations to the company in writing, to have such representations sent to members of the company and to have them read out at the meeting and also the right to be heard on the resolution at the meeting.

340. TIME WHEN CERTAIN DISQUALIFICATIONS WILL TAKE EFFECT.

(1) The disqualifications imposed by clause (a) of section 334, by sub-section (1) of section 335, by section 336, and by any resolution passed in pursuance of clause (ii) of section 337, shall not take effect -(a) for thirty days from the date of the order of adjudication, appointment of the receiver, sentence, or finding of the Court, as the case may be, or(b) where any appeal or petition is preferred within the thirty days aforesaid against the order, appointment, sentence or conviction resulting in the sentence, or finding, until the expiry of seven days from the date on which such appeal or petition is disposed of, or(c) where within the seven days aforesaid, any further appeal or petition is preferred in respect of the order, appointment, sentence, conviction or finding, as the case may be, and the appeal or petition, if allowed, would result in the removal of the disqualification, or in making the resolution inapplicable, as the case may be, until such further appeal or petition is disposed of.

(2) In the cases referred to in sub-section (1), the Board may suspend the managing agent from office immediately on, or at any time after, the adjudication, appointment, sentence or finding referred to in clause (a) of that sub-section and until the disposal of the appeal and petitions, if any, referred to in clauses (b) and (c) thereof, or until the convicted partner, director or officer is expelled or dismissed in pursuance of section 341, as the case may be.

341. CONVICTION NOT TO OPERATE AS DISQUALIFICATION IF CONVICTED PARTNER, DIRECTOR, ETC., IS EXPELLED.

(1) In the cases referred to in clauses (b) and (c) of section 336, it shall be open to the managing agent, notwithstanding anything to the contrary in any other law or agreement, for the time being in force, to expel or dismiss the convicted partner, director or officer, within thirty days from the date of his sentence; and in that event, the disqualifications imposed by the clauses aforesaid shall cease to apply.

(2) Sub-section (1) shall not affect the operation of section 346 in any case to which that section would otherwise apply.

342. RESIGNATION OF OFFICE BY MANAGING AGENT.

(1) Unless the managing agency agreement otherwise provides, a managing agent may, by notice to the Board, resign his office as from such date as may be specified in the notice but such resignation shall not be effective until it is accepted by the company under sub-section (7).(2) The managing agent shall cease to act as such with effect from the date so specified or from such later date, if any, as may be mutually agreed on between him and the Board; but the managing agent shall not be absolved from liability to the company for his acts whether of commission or omission, during, the period of his managing agency.(3) When notice of resignation is given as aforesaid, the Board shall require the managing agent within such time as may be fixed by it or such further time as may be allowed by it, to prepare, and the managing agent shall prepare, a report on the state of affairs of the company as on the date specified in the notice of resignation or such subsequent date as the Board may think suitable, not being later than that on which the managing agent ceases to act as such under sub-section (2), together with a balance sheet made out as on that date and a profit and loss account for the period commencing from the date up to which the last such account was prepared and ending with the date on which the managing agent ceases to act as such.(4) In case of default by the managing agent in complying with the requisition of the Board under sub-section (3), the Board shall itself cause a report on the state of affairs of the company as on the date specified in the notice of resignation or such subsequent date as the Board may think suitable, not being later than that on which the managing agent ceases to act as such under sub-section (2), together with a balance sheet made out as on that date and a profit and loss account for the period specified in sub-section (3), to be prepared.(5) The Board shall also obtain a report from the auditors of the company on such balance sheet and profit and loss account in accordance with section 227, 228 and 229 and place the managing agent’s resignation together with the report on the state of the company’s affairs, balance sheet, profit and loss account and auditors’ report mentioned above, before the company in general meeting.(6) In relation to any report made by the auditors a aforesaid, sections 230 to 233 shall apply in like manner as they apply in relation to the auditors’ report referred to therein.

(7) The company in general meeting may, by a resolution, accept the resignation or take such other action with reference thereto as it may deem fit.

343. TRANSFER OF OFFICE BY MANAGING AGENT.

(1) The managing agent of a company shall not transfer his office to another person or enter into any agreement or arrangement with another person by or under which the managing agent parts with, or which has the effect of transferring, his right to manage the whole or substantially the whole of the affairs of the company in favour of or to that other person unless approval of the company in general meeting and also of the Central Government has been accorded to such transfer, agreement or arrangement.

(2) If the other person and the managing agent referred to in sub-section (1) contravene the provisions of that sub-section, that other person and the managing agent, and where the managing agent is a firm, every partner in the firm and where the managing agent is a body corporate, every director of the body corporate, shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to five thousand rupees, or with both.

344. MANAGING AGENCY NOT TO BE HERITABLE AFTER COMMENCEMENT OF ACT.

Any agreement made by a company other than a private company which is not a subsidiary of a public company, with its managing agent after the commencement of this Act shall be void in so far as it provides for succession to the office by inheritance or device.

345. SUCCESSION TO MANAGING AGENCY BY INHERITANCE OR DEVICE UNDER AGREEMENT BEFORE COMMENCEMENT OF ACT, TO BE SUBJECT TO CENTRAL GOVERNMENT’S APPROVAL.

(1) Where the office of the managing agent of a company is held by an individual at the commencement of this Act and the managing agency agreement provides for succession to the office by inheritance or device, no person shall succeed to the office on the death of the holder thereof; unless the succession of such person thereto is approved by the Central Government; and that Government shall not accord such approval unless, in its opinion, such person is a fit and proper person to hold the office of managing agent of the company.

(2) The provisions of sub-section (i) shall not apply to a private company which is not a subsidiary of a public company.

346. CHANGES IN CONSTITUTION OF MANAGING AGENCY, FIRM OR CORPORATION TO BE APPROVED BY CENTRAL GOVERNMENT.

(1) Notwithstanding anything to the contrary contained in any other provision of this Act, where the managing agent of a public company, or of a private company which is a subsidiary of a public company, is a firm or body corporate and any change takes place in the constitution of the firm or body corporate, the managing agent shall cease to act as such on the expiry of six months from the date on which the change takes place or such further time as the Central Government may (whether before or after the expiry of the six months) allow in that behalf, unless the approval of the Central Government has been accorded before the expiry of six months aforesaid or where further time has been allowed by the Central Government, before the expiry of that time to the changed constitution of the firm or body corporate.

Explanation : For the purposes aforesaid, a change in the constitution of a body corporate means -(a) its conversion from a private to a public company, or from a public to a private company;(b) any change among the directors or managers of the corporation whether caused by the death or retirement of a director or manager, the appointment of a new director or manager, or otherwise;(c) any change in the ownership of shares in the body corporate or in the case of a body corporate not having a share capital, any change in its membership;and where the managing agent, being a body corporate is a subsidiary of another body corporate, includes a change in the constitution of that other body corporate within the meaning of clause (a), clause (b) or clause (c).

(2) Where the managing agent is a body corporate (whether or not it is a subsidiary of another body corporate) and its shares are for the time being dealt in, or quoted on, a recognised stock exchange, a change in the ownership of its shares, orwhere a managing agent being a body corporate is a subsidiary of another body corporate and the shares of the other body corporate are for the time being dealt in, or quoted on, a recognised stock exchange, a change in the ownership of the shares of the other body corporate,shall not be deemed to be a change in the constitution of the managing agent within the meaning and for the purposes of sub-section (1), unless the Central Government, by notification in the Official Gazette, otherwise directs :

Provided that no such notification shall be issued in respect of any such, or such other, body corporate as aforesaid, unless the Central Government is of the opinion that any change in the ownership of its shares has taken place or is likely to take place, which has affected or is likely to affect prejudicially the affairs of the any company which is being managed by the managing agent.

347. APPLICATION OF SCHEDULE VIII TO CERTAIN MANAGING AGENTS.

(1) The provisions of Schedule VIII shall apply -(a) to every firm or private company which acts as the managing agent of any company, whether public or private; and(b) save as provided in sub-section (2), to every other body corporate (not being a private company) which acts as the managing agent of any company, whether public or private.(2) A body corporate (not being a private company) acting as managing agent shall, if and so long as its shares are dealt in, or quoted on, any recognised stock exchange, be exempt from the operation of sub-section (1), unless the Central Government, by notification in the Official Gazette otherwise directs :Provided that the Central Government may, by order, modify or limit the operation of this sub-section in relation to any body corporate in such manner as that Government thinks fit.(3) If default is made by a managing agent to which Schedule VIII applies in complying with the provisions thereof, -(a) if the managing agent is a firm, every partner therein who is in default, and(b) if the managing agent is a body corporate, the body corporate, and every director or other officer thereof who is in default,

shall be punishable with fine which may extend to fifty rupees for every day during which the default continues.

348. REMUNERATION OF MANAGING AGENT ORDINARILY NOT TO EXCEED 10 PER CENT OF NET PROFITS.

(1) A company shall not pay to its managing agent, in respect of any financial year beginning at or after the commencement of this Act, by way of remuneration, whether in respect of his services as managing agent or in any other capacity, any sum in excess of ten per cent of the net profits of the company for that financial year.(2) For the purposes of this section, any payment made by way of remuneration to any of the following persons shall be deemed to be included in the remuneration of the managing agent :-(a) where the managing agent of the company is a firm, every partner in the firm;(b) where the managing agent of the company is a public company, every director of that public company;(c) where the managing agent of the company is a private company, every director and member of that private company.

(3) Nothing contained in sub-section (1) or sub-section (2) shall be deemed to affect the operation of sections 352, 354 and 356 to 360.

349. Determination of net profits

(1) In computing 1[***] the net profits of a company in any financial year-

(a) credit shall be given for the sums specified in sub-section (2) and credit shall not be given for those specified in sub-section (3); and

(b) the sums specified in sub-section (4) shall be deducted, and those specified in sub-section (5) shall not be deducted.

(2) In making the computation aforesaid, credit shall be given for the following sums:-

bounties and subsidies received from any Government, or any public authority constituted or authorised in this behalf, by any Government, unless and except in so far as the Central Government otherwise directs.

(3) In making the computation aforesaid credit shall not be given for the following sums:-

(a) profits, by way of premium, on shares or debentures of the company, which are issued or sold by the company;

(b) profits on sales by the company of forfeited shares;

(c) 2[profits of a capital nature including profits from the sale] of the undertaking or any of the undertakings of the company or of any part thereof;

(d) profits from the sale of any immovable property or fixed assets of a capital nature comprised in the undertaking or any of the undertakings of the company, unless the business of the company consists, whether wholly or partly, of buying and selling any such property or assets:

3[Provided that where the amount for which any fixed asset is sold exceeds the written-down value thereof referred to in section 350, credit shall be given for so much of the excess as is not higher than the difference between the original cost of that fixed asset and its written-down value.]

(4) In making the computation aforesaid, the following sums shall be deducted:-

(a) all the usual working charges;

(b) directors’ remuneration;

(c) bonus or commission paid or payable to any member of the company’s staff, or to any engineer, technician or person employed or engaged by the company, whether on a whole-time or on a part-time basis;

(d) any tax notified by the Central Government as being in the nature of a tax on excess or abnormal profits;

(e) any tax on business profits imposed for special reasons or in special circumstances and notified by the Central Government in this behalf;

(f) interest on debentures issued by the company;

(g) interest on mortgages executed by the company and on loans and advances secured by a charge on its fixed or floating assets;

(h) interest on unsecured loans and advances;

(i) expenses on repairs, whether to immovable or to movable property, provided the repairs are not of a capital nature;

4[(j) outgoings inclusive of contributions made under clause (e) of sub-section (1) of section 293;]

(k) depreciation to the extent specified in section 350;

5[(1) the excess of expenditure over income, which had arisen in computing the net profits in accordance with this section in any year which begins at or after the commencement of this Act, insofar as such excess has not been deducted in any subsequent year preceding the year in respect of which the net profits have to be ascertained;]

(m) any compensation or damages to be paid in virtue of any legal liability, including a liability arising from a breach of contract;

(n) any sum paid by way of insurance against the risk of meeting any liability such as is referred to in clause (m);

3[(o) debts considered bad and written off or adjusted during the year of account;]

6[(p) amount paid as cess under section 441A.]

(5) In making the computation aforesaid, the following sums shall not be deducted:-

7[***]

(b) income-tax and super-tax payable by the company under the Indian Income-tax Act, 1922 (11 of 1922), or any other tax on the income of the company not falling under clauses (d) and (e) of sub-section (4);

(c) any compensation, damages or payments made voluntarily, that is to say otherwise than in virtue of a liability such as is referred to in clause (m) of sub-section (4);

3[(d) loss of a capital nature including loss on sale of the undertaking or any of the undertakings of the company or of any part thereof not including any excess referred to in the proviso to section 350 of the written-down value of any asset which is sold, discarded, demolished or destroyed over its sale proceeds or its scrap value.]

1. The words “for the purpose of section 348,” omitted by Act 53 of 2000, sec. 160 (w.e.f. 13-12-2000).

2. Subs. by Act 65 of 1960, sec. 127, for “profits from the sale” (w.e.f. 28-12-1960).

3. Ins. by Act 65 of 1960, sec. 127 (w.e.f. 28-12-1960).

4. Subs. by Act 65 of 1960, sec. 127, for clause (j) (w.e.f. 28-12-1960).

5. Subs. by Act 65 of 1960, sec. 127, for clause (l) (w.e.f. 28-12-1960).

6. Ins. by Act 11 of 2003, sec. 37.

7. Clause (a) omitted by Act 53 of 2000, sec. 160 (w.e.f. 13-12-2000).

350. Ascertainment of depreciation

1[350. Ascertainment of depreciation.-

The amount of depreciation to be deducted in pursuance of clause (k) of sub-section (4) of section 349 shall be 2[the amount of depreciation on assets] as shown by the books of the company at the end of the financial year expiring at the commencement of this Act or immediately thereafter and at the end of each subsequent financial year, 3[at the rate specified in Schedule XIV]:

Provided that if any asset is sold, discarded, demolished or destroyed for any reason before depreciation of such asset has been provided for in full, the excess, if any, of the written-down value of such asset over its sale proceeds or, as the case may be, its scrap value, shall be written off in the financial year in which the asset is sold, discarded, demolished or destroyed.]

1. Subs. by Act 65 of 1960, sec. 128, for section 350 (w.e.f. 28-12-1960).

2. Subs. by Act 53 of 2000, sec. 161, for certain words (w.e.f. 13-12-2000).

3. Subs. by Act 31 of 1988, sec. 50, for certain words (w.e.f. 15-6-1968).

351. SPECIAL PROVISION WHERE THERE IS A PROFIT-SHARING ARRANGEMENT BETWEEN TWO OR MORE COMPANIES.

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 162 (w.e.f. 13-12-2000).]

352. PAYMENT OF ADDITIONAL REMUNERATION

Additional remuneration in excess of the limits specified in section 198 and 348 may be paid to the managing agent if, and only if, such remunerations is sanctioned by a special resolution of the company and is approved by the Central Government as being in the public interest.

353. TIME OF PAYMENT OF REMUNERATION.

The remuneration payable to the managing agent for any financial year or part thereof shall not be paid to him, until the accounts of the company for such financial year have been audited and laid before the company in general meeting :

Provided that the minimum remuneration, if any, payable in pursuance of section 198 may be paid to the managing agent in such suitable instalments as may be specified either in the article of the company or in a resolution passed by the company at an annual general meeting or in the managing agency agreement executed by the company.

354. MANAGING AGENT NOT ENTITLED TO OFFICE ALLOWANCE BUT ENTITLED TO BE REIMBURSED IN RESPECT OF EXPENSES.

The managing agent shall be paid any office allowance, but he may be reimbursed in respect of any expenses incurred by him on behalf of the company and sanctioned by the Board or by the company in general meeting; and nothing contained in sections 348 to 353 shall be deemed to prohibit his being so reimbursed.

Saving

1[349 and 350] shall not apply to a private company unless it is a subsidiary of a public company.

1. Subs. by Act 53 of 2000, sec. 163, for “348 to 354″ (w.e.f. 13-12-2000).

356. Appointment of managing agent or associate as selling agent of goods produced by the Company.

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 164 (w.e.f. 13-12-2000).]

357. Application of section 356 to case where business of company consists of the supply or rendering of any service.

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 164 (w.e.f. 13-12-2000).]

358. Appointment of managing agent or associate as buying agent for company.

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 164 (w.e.f. 13-12-2000).]

359. Commission, etc., of managing agent as buying or selling agent of other concerns.

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 164 (w.e.f. 13-12-2000).]

360. Contracts between managing agent or associate and company for the sale or purchase of goods or the supply of services, etc.

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 164 (w.e.f. 13-12-2000).]

361. Existing contracts relating to matters dealt with in sections 356 to 360 to terminate on 1st March, 1958.

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 164 (w.e.f. 13-12-2000).]

362. Registers to be open to inspection.

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 164 (w.e.f. 13-12-2000).]

363. Remuneration received in contravention of foregoing sections to be held in trust for company.

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 164 (w.e.f. 13-12-2000).]

364. Company not to be bound by assignment of, or charge on, managing agent’s remuneration.

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 164 (w.e.f. 13-12-2000).]

365. Prohibition of payment of compensation for loss of office in certain cases.

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 164 (w.e.f. 13-12-2000).]

366. Limit of compensation for loss of office.

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 164 (w.e.f. 13-12-2000).]

367. Managing agent’s rights and liabilities after termination of office.

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 164 (w.e.f. 13-12-2000).]

368. Managing agent to be subject to control of Board and to restrictions in Schedule VII.

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 164 (w.e.f. 13-12-2000).]

369. Loans to managing agent.

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 164 (w.e.f. 13-12-2000).]

370. Loans, etc., to companies under the same management

(1) No company (hereinafter in this section referred to as “the lending company”) shall-

(a) make any loan to, or

(b) give any guarantee, or provide any security, in connection with a loan made by any other person to, or to any other person by,

any body corporate 1[***] unless the making of such loan, the giving of such guarantee or the provision of such security has been previously authorised by a special resolution of the lending company:

2[Provided that no special resolution shall be necessary in the case of loans made to other bodies corporate not under the same management as the lending company where the aggregate of such loans does not exceed 3[such percentage of the aggregate of the subscribed capital of the lending company and its free reserves as may be prescribed]:

Provided further that the aggregate of the loans made to all bodies corporate shall not exceed without the prior approval of the Central Government-

(a) 3[such percentage of the aggregate of the subscribed capital of the lending company and its free reserves as may be prescribed] where all such other bodies corporate are not under the same management. as the lending company;

(b) 3[such percentage of the aggregate of the subscribed capital of the lending company and its free reserves as may be prescribed] where all such other bodies corporate are under the same management as the lending company.

4[Explanation 1].-If a special resolution has been passed by the lending company authorising the making of loans up to the limit of 3[the percentage of the aggregate specified in clause (a), or as the case may be, the percentage of the aggregate specified in clause (b) of the second proviso], then, no further special resolution or resolutions shall be deemed to be necessary for the making of any loan or loans within such limit.]

5[Explanation 2.-If a special resolution has been passed by the lending company authorising the Board of directors to give any guarantee or provide any security up to a limit specified in the resolution, then, no further special resolution or resolutions shall be deemed to be necessary for giving any guarantee or providing any security within such limit.]

6[(1A) Where the lending company-

(a) makes any loan to, or

(b) gives any guarantee, or provides any security, in connection with a loan made by any other person to, or to any other person by,

a firm in which a partner is a body corporate, under the same management as the lending company-

(i) the loan shall be deemed to have been made to, or

(ii) the guarantee or the security shall be deemed to have been given or provided in connection with the loan made by such other person to, or to such other person by, a body corporate under the same management.]

7[(1B)] 8[For the purposes of sub-sections (1) and (1A)] two bodies corporate shall be deemed to be under the same management-

(i) if the 9[***] managing director or manager of the one body, 9[***] is-

(a) 9[***] managing director or manager of the other body; or

(b) 9[***]

(c) 9[***]

(ii) if a majority of the directors of the one body constitute, or at any time within the six months immediately preceding Constituted, a majority of the directors of the other body; 10[or]

11[(iii) if not less than one-third of the total voting power with respect to any matter relating to each of the two bodies corporate is exercised or controlled by the same individual or body corporate; or

(iv) if the holding company of the one body corporate is under the same management as the other body corporate within the meaning of clause (i), clause (ii) or clause (iii); or

(v) if one or more directors of the one body corporate while holding, whether by themselves or together with their relatives, the majority of shares in that body corporate also hold, whether by themselves or together with their relatives, the majority of shares in the other body corporate.]

11[(1C) Every lending company shall keep a register showing-

(a) the names of all bodies corporate under the same management as the lending company and the name of every firm in which a partner is a body corporate under the same management as the lending company, and

(b) the following particulars in respect of every loan made, guarantee given or security provided by the lending company 12[in relation to any such body corporate] under this section,-

(i) the name of the body corporate to which the loan has been made whether such loan has been made before or after that body corporate came under the same management as the lending company,

(ii) the amount of the loan,

(iii) the date on which the loan has been made,

(iv) the date on which the guarantee has been given or security has been provided in connection with a loan made by any other person to, or to any other person by, any body corporate or firm referred to in subsection (1) or (1A) together with the name of the person, body corporate or firm.

(1D) Particulars of 13[every loan, guarantee or security referred to in sub-section (1C)] shall be entered in the register aforesaid within three days of the making of such loan, or the giving of such guarantee or the provision of such security or in the case of any loan made, guarantee given or security provided before the commencement of the Companies (Amendment) Act, 1960, within three months from such commencement or such further time not exceeding six months as the company may by special resolution allow.

(1E) If default is made in complying with the provisions of sub-section (1C) or (ID), the company and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees and also with a further fine which may extend to fifty rupees for every day after the first during which the default continues.

(1F) The register aforesaid shall be kept at the registered office of the lending company and-

(a) shall be open to inspection at such office, and

(b) extracts may be taken therefrom or copies thereof may be required,

by any member of the company to the same extent and in the same manner and on the payment of the same fees as in the case of the register of members of the company; and the provisions of section 163 shall apply accordingly.]

14[(1G) A company, which has defaulted in the repayment of any deposit referred to in section 58A or part thereof or interest thereupon in accordance with the terms and conditions of such deposit, shall not make any loan or give guarantee under this section till the default is made good.]

15[(2) Nothing contained in the foregoing provisions of this section shall apply to-

(a) any loan made-

(i) by a holding company to its subsidiary; or

(ii) 16[***]

17[(iii) by a banking company, or an insurance company, in the ordinary course of it’s business; 18[or]

(iv) by a private company, unless it is a subsidiary of a public company; 18[or]

(v) by a company established with the object of financing industrial enterprises;]

(b) any guarantee given or any security provided-

(ii) 19[***]

20[(iii) by a banking company, or an insurance company, in the ordinary course of its business; or

(iv) by a private company, unless it is a subsidiary of a public company; or

(v) by a company established with the object of financing industrial enterprises.]

(3) Nothing in this section shall apply to a book debt unless the transaction represented by the book debt was from its inception in the nature of a loan or an advance.

(4) For the purposes of this section, any person in accordance with whose directions or instructions the Board of directors of a company is accustomed to act shall be deemed to be a director of the company.]

21[(5) Where before the commencement of the Companies (Amendment) Act, 1965, any loan, guarantee or security has been made, given or provided by a company which could not have been made, given or provided under this section as amended by that Act, and such loan, guarantee or security is outstanding at such commencement, the company shall, within six months from such commencement, enforce the repayment of the loan made or, as the case may be, revoke the guarantee given or the security provided, notwithstanding any agreement to the country:

Provided that the aforesaid period of six months may be extended by the Central Government on an application made to it in that behalf by the company.]

22[Explanation.-For the purposes of this section, “loan” includes any deposit of money made by one company with another company, not being a banking company.]

23[(6) Nothing contained in this section shall apply to a company on and after the commencement of the Companies (Amendment) Act, 1999.]

1. The words “which is under the same management as the lending company” omitted by Act No. 31 of 1965, Sec. 46 (w.e.f. 1st. April, 1967).

2. Inserted by Act 31 of 1965, sec. 46 (w.e.f. 1-4-1967).

3. Subs. by Act 31 of 1988, sec. 51, for certain words (w.e.f. 17-4-1989).

4. Explanation renumbered as Explanation 1 of by Act 34 of 1966, sec. 3 (w.e.f. 1-4-1967).

5. Ins. by Act 34 of 1966, sec. 3 (w.e.f. 1-4-1967).

6. Ins. by Act 65 of 1960, sec. 135 (w.e.f. 28-12-1960).

7. Explanation numbered and lettered as sub-section (1B) by Act 65 of 1960, sec. 135 (w.e.f. 28-12-1960).

8. Subs. by Act 65 of 1960, sec. 135, for “For the purposes of this sub-section” (w.e.f. 28-12-1960).

9. Provisions relating to managing agents, secretaries and treasurers have ceased to have effect by Act 17 of 1967, sec. 6 (w.e.f. 3-4-1970).

10. Added by Act 65 of 1960, sec. 135 (w.e.f. 28-12-1960).

11. Ins. by Act 65 of 1965, sec. 135 (w.e.f. 28-12-1960).

12. Ins. by Act 31 of 1965, sec. 46 (w.e.f. 1-4-1967).

13. Subs. by Act 31 of 1965, sec. 46, for “every such loan, guarantee or security” (w.e.f. 1-4-1967).

14. Ins. by Act 5 of 1997, sec. 7 (w.e.f.1-3-1997).

15. Subs. by Act 65 of 1960, sec. 135, for sub-section (2) (w.e.f. 28-12-1960).

16. Provisions relating to managing agents, secretaries and treasurers have ceased to have effect by Act 17 of 1967, sec. 6 (w.e.f. 3-4-1970).

17. Subs. by Act 31 of 1965, sec. 46, for sub-clause (iii) (w.e.f. 1-4-1967).

18. Ins. by Act 34 of 1966, sec. 3 (w.e.f. 1-4-1967).

19. Provisions relating to managing agents, secretaries and treasurers have ceased to have effect by Act 17 of 1967, sec. 6 (w.e.f. 3-4-1970).

20. Subs. by Act 34 of 1966, sec. 3, for sub-clause (iii) (w.e.f. 1-4-1967).

21. Ins. by Act 31 of 1965, sec. 46 (w.e.f. 1-4-1967).

22. Ins. by Act 31 of 1988, sec. 52 (w.e.f. 17-4-1989).

23. Ins. by Act 21 of 1999, sec. 17 (w.r.e.f. 31-10-1998).

370A. Provisions as to certain loans which could not have been made if sections 369 and 370 were in force

2[370A. Provisions as to certain loans which could not have been made if sections 369 and 370 were in force

Where any loan made, guarantee given or security provided by a company and outstanding at the commencement of the Companies (Amendment) Act, 1960 would not have been made, given or provided if 3[***] section 370 had been in force at the time when such loan was made, guarantee given or security provided, the company shall, within six months from the commencement of that Act, enforce the repayment of the loan made or, as the case may be, revoke the guarantee given or the security provided, notwithstanding any agreement to the contrary:

Provided that the period of six months within which the company is required by this section to enforce the repayment of the loan or to revoke the guarantee or security, may be extended-

(a) 1[***]

(b) in the case of a loan, guarantee or security under section 370, by a special resolution of the company.]

1. Omitted by Act 53 of 2000, sec. 165 (w.e.f. 13-12-2000).

2. Inserted by Act 65 of 1960, sec. 136 (w.e.f. 28-12- 1960).

3. The words “section 369 or” omitted by Act 53 of 2000, sec. 165 (w.e.f. 13th. December, 2000).

371. Penalty for contravention of section 369, 370 or 370A

(1) Every person who is a party to any contravention of 1[2[***] section 370 [excluding sub-section (1C) or (1D)], or section 370A] including in particular any person to whom the loan is made, or in whose interest the guarantee is given or the security is provided, shall be punishable with fine which may extend to 3[fifty thousand rupees] or with simple imprisonment for a term which may extend to six months:

Provided that where any such loan, or any loan in connection with which any such guarantee or security has been given or provided by the lending company, has been repaid in full, no punishment by way of imprisonment shall be imposed under this sub-section; and where rite loan has been repaid in part, the maximum punishment which may be imposed under this sub-section by way of imprisonment shall be proportionately reduced.

(2) All persons who are knowingly parties to any such contravention shall be liable, jointly and severally, to the lending company for the repayment of the loan, or for making good the sum which the lending company may have been called upon to pay in virtue of the guarantee given or the security provided by such company.

1. Subs. by Act 65 of 1960, sec. 137, for “section 369 or 370″ (w.e.f. 28-12-1960).

2. The words “section 369 or” omitted by Act 53 of 2000, sec. 116 (w.e.f. 13-12-2000).

3. Subs. by Act 53 of 2000, sec.166, for “five thousand rupees” (w.e.f. 13-12-2000).

372. Purchase by company of shares, etc., of other companies

1[372. Purchase by company of shares, etc., of other companies

2[(1) A company, whether by itself or together with its subsidiaries (hereafter in this section and section 373 referred to as the investing company), shall not be entitled to acquire, by way of subscription, purchase or otherwise (whether by itself, or by any individual or association of individuals in trust for it or for its benefit or on its account) the shares of any other body corporate except to the extent, and except in accordance with the restrictions and conditions, specified in this section.]

(2) 3[The Board of directors of the investing company shall be entitled to invest in any shares of any other body corporate up to such percentage of the subscribed equity share capital, or the aggregate of the paid-up equity and preference share capital, of such other body corporate, whichever is less, as may be prescribed:]

Provided that the aggregate of the investments so made by the Board in all other bodies corporate shall not exceed 4[such percentage of the aggregate of the subscribed capital and free reserves of the investing company, as may be prescribed:]

Provided further that the aggregate of the investments made in all other bodies corporate in the same group shall not exceed 4[such percentage of the aggregate of the subscribed capital and free reserves of the investing company, as may be prescribed].

(3) In computing at any time the percentages specified in sub-section (2) and the provisos thereto, the aggregate of the investments made by the investing company in other body or bodies corporate [whether before or after the commencement of the Companies (Amendment) Act, 1960] up to that time shall be taken into account.

5[(3A) A company, which has defaulted in the repayment of any deposit referred to in section 58A or part thereof or interest due thereupon in accordance with the terms and conditions of such deposit, shall riot make any investment under this section till the default is made good.]

(4) The investing company shall not make any investment in the shares of any other body corporate in excess of the percentages specified in sub-section (2) and the proviso thereto, unless the investment is sanctioned by a resolution of the investing company in general meeting and 6[unless previous approved] by the Central Government:

Provided that the investing company may at any time invest up to any amount in shares offered to it under clause (a) of sub-section (1) of section 81 (hereafter in this section referred to as rights shares) irrespective of the aforesaid percentages:

Provided further that when at any time the investing company intends to make any investments in shares other than rights shares, then, in computing at that time any of the aforesaid percentages, all existing investments, if any, made in rights shares up to that time shall be included in the aggregate of the investments of the company.

(5) No investment shall be made by the Board of directors of an investing company in pursuance of sub-section (2), unless it is sanctioned by a resolution passed at a meeting of the Board with the consent of all the directors present at the meeting, except those not entitled to vote thereon, and unless further notice of the resolution to be moved at the meeting has been given to every director in. the manner specified in section 286.

(6) Every investing company shall keep a register of all investments made by it in shares of any other body or bodies corporate (whether in the same group or not and whether in the case of a body corporate in the same group, such investments were made before or after that body came within the same group as the investing company), showing in respect of each investment the following particulars:-

(a) the name of the body corporate in which the investment has been made;

(b) the date on which the investment has been made;

(c) where the body corporate is in the same group as the investing company, the date on which the body corporate came in the same group;

(d) the names of all bodies corporate in the same group as the investing company.

(7) Particulars of every investment to which sub-section (6) applies shall be entered in the register aforesaid within seven days of the making thereof or in the case of investments made before the commencement of the Companies (Amendment) Act, 1960, within six months from such commencement, or such further time as the Central Government may grant on an application by the company in that behalf.

(8) If default is made in complying with the provisions of sub-section (6) or (7), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees and also with a further fine which may extend to fifty rupees for every day after the first during which the default continues.

(9) The register aforesaid shall be kept at the registered office of the investing company and-

(a) shall be open to inspection at such office, and

(b) extracts may be taken therefrom and copies thereof may be required,

by any member of the investing company to the same extent, in the same manner, and on the payment of the same fees as in the case of the register of members of the investing company; and the provisions of section 163 shall apply accordingly.

(10) Every investing company shall annex in each balance sheet prepared by it after the commencement of the Companies (Amendment) Act, 1960, a statement showing the bodies corporate (indicating separately the bodies corporate in the same group) in the shares of which investments have been made by it (including all investments, whether existing or not, made subsequent to the date as at which the previous balance sheet was made out) and the nature and extent of the investments so made in each body corporate:

Provided that in the case of a company whose principal business is the acquisition of shares, stock, debentures or other securities (hereafter in this section referred to as an investment company), it shall be sufficient if the statement shows only the investments existing on the date as at which the balance sheet to which the statement is annexed has been made out.

(11) For the purposes of this section, a body corporate shall be deemed to be in the same group as the investing company-

(a) 7[***]

(b) if the body corporate and the investing company should, in virtue of subsection (1B) of section 370, be deemed to be under the same management.

(12) References in the foregoing provisions of this section to shares shall in the case of investments made by the investing company in other bodies corporate in the same group, be deemed to include references to debentures also.

(13) The provisions of this section except the first proviso to sub-section (2) 8[and sub-section (5)] shall also apply to an investment company.

(14) This section shall not apply-

(a) to any banking or insurance company;

(b) to a private company, unless it is a subsidiary of a public company;

(c) to any company established with the object of financing, whether by way of making loans or advances to, or subscribing to the capital of, private industrial enterprises in India, in any case where the Central Government has made or agreed to make to the company a special advance for the purpose or has guaranteed or agreed to guarantee the payment of moneys borrowed by the company from any institution outside India;

9[(d) to investments by a holding company in its subsidiary, other than a subsidiary within the meaning of clause (a) of sub-section (1) of section 4.]

(e) 10[***]

11[(15) Nothing contained in this section shall apply to a company on and after the commencement of the companies (Amendment) Act, 1999.]

1. Subs. by Act 65 of 1960, sec, 138, for section 372 (w.e.f. 28-12-1960).

2. Subs. by Act 31 of 1988, sec, 52, for sub-section (1) (w.e.f. 17-4-1989).

3. Subs. by Act 31 of 1988, sec, 52, for certain words (w.e.f. 17-4-1989).

4. Subs. by Act 31 of 1988, sec, 52, for certain words (w.e.f. 17-4-1989).

5. Ins. by Act 5 of 1997, sec. 8 (w.e.f. 1-3-1997).

6. Subs. by Act 31 of 1988, sec, 52, for “unless further it is approved.” (w.e.f. 17-4-1989).

7. Provisions relating to managing agents, have ceased to have effect by Act 17 of 1969, sec. 6 (w.e.f. 3-4-1970).

8. Ins. by Act 31 of 1965, sec. 47 (w.e.f. 15-10-1965).

9. Subs. by Act 31 of 1988, sec. 52, for clause (d) (w.e.f. 17-4-1989).

10. Provisions relating to managing agents, secretaries and treasurers have ceased to have effect by Act 17 of 1969, sec. 6 (w.e.f. 3-4-1970).

11. Ins. by Act 21 of 1999, sec. 18 (w.r.e.f. 31-10-1998).

372A. Inter-corporate loans and investments

1[372A. Inter-corporate loans and investments

(1) No company shall, directly or indirectly-

(a) make any loan to any other body corporate;

(b) give any guarantee or provide security, in connection with a loan made by any other person to, or to any other person, by any body corporate; and

(c) acquire, by way of subscription, purchase or otherwise the securities of any other body corporate,

exceeding sixty per cent of its paid-up share capital and free reserves, or hundred per cent of its free reserves, whichever is more:

Provided that where the aggregate of the loans and investments so far made, the amounts for which guarantee or security so far provided to or in all other bodies corporate, along with the investment, loan, guarantee or security proposed to be made or given by the Board, exceeds the aforesaid limits, no investment or loan shall be made or guarantee shall be given or security shall be provided unless previously authorised by a special resolution passed in a general meeting:

Provided further that the Board may give guarantee, without being previously authorised by a special resolution, if,-

(a) a resolution is passed in the meeting of the Board authorising to give guarantee in accordance with the provisions of this section;

(b) there exists exceptional circumstances which prevent the company from obtaining previous authorisation by a special resolution passed in a general meeting for giving a guarantee; and

(c) the resolution of the Board under clause (a) is confirmed within twelve months, in a general meeting of the company or the annual general meeting held immediately after passing of the Board’s resolution, whichever is earlier:

Provided also that the notice of such resolution shall indicate clearly the specific limits, the particulars of the body corporate in which the investment is proposed to be made or loan or security or guarantee to be given, the purpose of. the investment, loan or security or guarantee, specific sources of funding and such other details.

(2) No loan or investment shall be made or guarantee or security given by the company unless the resolution sanctioning it is passed at a meeting of the Board with the consent of all the directors Present at the meeting and the prior approval of the public financial institution referred to in section 4A, where any term loan is subsisting, is obtained..

Provided that prior approval of a public financial institution shall not be required where the aggregate of the loans and investments so far made, the amounts for which guarantee or security so far provided to or in all other bodies corporate, alongwith the investments, loans, guarantee or security proposed to be made or given does not exceed the limit of sixty per cent specified in sub-section (1), if there is no default in repayment of loan instalments or payment of interest thereon as per the terms and Conditions of such loan to the public financial institution.

(3) No loan to any body corporate shall be made at a rate of interest lower than the prevailing bank rate, being the standard rate made public under section 49 of the Reserve Bank of India Act, 1934.

(4) No company, which has defaulted in complying with the provision of section 58A, shall, directly or indirectly-

(a) make any loan to any body corporate;

(b) give any guarantee or provide security in connection with a loan made by any other person to, or to any other person by, any body corporate; and

(c) acquire, by way of subscription, purchase or otherwise the securities of any other body corporate,

till such default is subsisting.

(5)(a) Every company shall keep a register showing the following particulars in respect of every investment or loan made, guarantee given or security provided by it in relation to any body corporate under sub-section (1), namely:-

(i) the name of the body corporate;

(ii) the amount, terms and purpose of the investment or loan or security or guarantee;

(iii) the date on which the investment or loan has been made; and

(iv) the date on which the guarantee has been given or security has been provided in connection with a loan.

(b) The particulars of investment, loan, guarantee or security referred to in clause (a) shall be entered chronologically in the register aforesaid within seven days of the making of such investment or loan, or the giving of such guarantee or the provision of such security.

(6) The register referred to in sub-section (5) shall be kept at the registered a office of the company concerned and-

(a) shall be open to inspection at such office; and

(b) extracts may be taken therefrom and copies thereof may be required,

by any member of the company to the same extent, in the same manner, and on payment of the same fees as in the case of the register of members of the company, and the provisions of section 163 shall apply accordingly.

(7) The Central Government may, prescribe guidelines for the purposes of this section.

(8) Nothing contained in this section shall apply,-

(a) to any loan made, any guarantee given or any security provided or any investment made by-

(i) a banking company, or an insurance company, or a housing finance company in the ordinary course of its business, or a company established with the object of financing industrial enterprises or of providing infrastructural facilities;

(ii) a company whose principal business is the acquisition of shares, stock, debentures or other securities;

(iii) a private company, unless it is a subsidiary of a public company;

(b) to investment made in shares allotted in pursuance of clause (a) of subsection (1) of section 81;

(c) to any loan made by a holding company to its wholly owned subsidiary;

(d) to any guarantee given or any security provided by a holding company in respect of loan made to its wholly owned subsidiary; or

(e) to acquisition by a holding company, by way of subscription, purchases or otherwise, the securities of its wholly owned subsidiary.

(9) If default is made in complying with the provisions of this section, other than sub-section (5), the company and every officer of the company who is in default shall be punishable with imprisonment which may extend to two years or with fine which may extend to fifty thousand rupees:

Provided that where any such loan or any loan in connection with which any such guarantee or security has been given, or provided by the company, has been repaid in full, no punishment by way of imprisonment shall be imposed under this sub-section, and where such loan has been repaid in part, the maximum punishment which may be imposed under this sub-section by way of imprisonment shall be appropriately reduced

Provided further that all persons who are knowingly parties to an v such contravention shall be liable, jointly and severally, to the company or the repayment of the loan or for making good the same which the company may have been called upon to pay by virtue of the guarantee given or the securities provided by such company.

(10) If default is made in complying with the provisions of sub-section (5), the company and every officer of the company who is in default shall be punishable with fine which may extend to five thousand rupees and also with a further fine which may extend to five hundred rupees for every day after the first during which the default continues.

Explanation.-For the purposes of this section,-

(a) “loan” includes debentures or any deposit of money made by one company, with another company, not being a banking company;

(b) “free reserves” means those reserves which, as per the latest audited balance sheet of the company, are free for distribution as dividend and shall include balance to the credit of the securities premium account bat shall not include share application money.]

1. Inserted by Act 21 of 1999, sec. 19 (w.r.e.f. 31-10-1998).

373. Investments made before commencement of Act

Where any investments have been made by a company 1[in any other body corporate in the same group] at any time after the first day of April, 1952, which, if section 372 had been then in force, could not have been made except on the authority of a resolution passed by the investing company and the approval of the Central Government, the authority of the company by means of a resolution and the approval of the Central Government shall be obtained to such investments, within six months from the commencement of this Act; and if such authority and approval are not so obtained, the Board of directors of the company shall dispose of the investments, in so far as they may be in excess of the limits specified in subsection (2) of section 372 and 2[the second proviso to that sub-section], within two years from the commencement of this Act.

1. Inserted by Act 65 of 1960, sec. 39 (w.e.f. 28-12-1960).

2. Substituted by Act 65 of 1960, sec.139, for “the proviso to that sub-section” (w.e.f. 28-12-1960).

374. Penalty for contravention of section 372 or 373

If default is made in complying with the provisions of 1[section 372 [excluding sub-sections (6) and (7)] or section 373], every officer of the company who is in default shall be punishable with fine which may extend to 2[fifty thousand rupees].

1. Subs. by Act 65 of 1960, sec. 140, for “section 372 or 373″ (w.e.f. 28-12-1960).

2. Substituted by Act 53 of 2000, sec. 167, for “five thousand rupees” (w.e.f. 13-12-2000)

375. Managing agent not to engage in business competing with business of managed company.

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec.168 (w.e.f. 13-12-2000).]

376. Conditions prohibiting reconstruction or amalgamation of company.

1[376. Conditions prohibiting reconstruction or amalgamation of company

Where any provision in the memorandum or articles of a company, or in any resolution passed in general meeting by, or by the Board of Directors of the company, or in an agreement between the company and any other person, whether made before or after the commencement of this Act, prohibits the reconstruction of the company or its amalgamation with any body corporate or bodies corporate, either absolutely or except on the condition that the managing director or manager of the company is appointed or reappointed as managing director or manager of the reconstructed company or of the body resulting from amalgamation, as the case may be, shall become void with effect from the commencement of this Act, or be void, as the case may be.]

1. Subs. by Act 53 of 2000, sec. 169, for section 376 (w.e.f. 13-12-2000)

377. Restrictions on right of managing agent to appoint directors.—

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 170 (w.e.f. 13-12-2000).]

Chapter IV A. Secretaries and Treasurers.

378. Appointment of secretaries and treasurers.——

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 170 (w.e.f.3-12-2000).]

379. Provisions applicable to managing agents to apply to secretaries and treasurers with the exceptions and modifications specified in sections 380 to 383.—

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 170 (w.e.f. 13-12-2000).]

380. Sections 324, 330 and 332 not to apply.—

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 170 (w.e.f. 13-12-2000).]

381. Section 348 to apply subject to a modification.—

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 170 (w.e.f. 13-12-2000).]

382. Secretaries and treasurers not to appoint directors.—

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 170 (w.e.f. 13-12-2000).]

383. Secretaries and treasurers not to sell goods or articles produced by company, etc., unless authorised by Board.——

[Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 170 (w.e.f. 13-12-2000).]

383A. Certain companies to have secretaries.—

1[383A. Certain companies to have secretaries.—(1) Every company 2[having such paid-up share capital as may be prescribed*] shall have a whole-time secretary and where the Board of directors of any such company comprises only two directors, neither of them shall be the secretary of the company:

3[Provided that every company not required to employ a whole-time secretary under sub-section (1) and having a paid-up share capital of ten lakh rupees or more shall file with the Registrar a certificate from a secretary in whole-time practice in such form and within such time and subject to such conditions as may be prescribed, as to whether the comapny has complied with all provisions of this Act and a copy of such certificate shall be attached with Board’s report referred to in section 217.]

4[(1A) If a company fail to comply with the provisions of sub-section (1), the company and every officer of the company who is in default, shall be punishable with fine which may extend to 5[five hundred rupees] for every day during which the default continues:

Provided that in any proceedings against a person in respect of an offence under this sub-section, it shall be a defence to prove that all reasonable efforts to comply with the provisions of sub-section (1) were taken or that the financial position of the company was such that it was beyond its capacity to engage a whole-time secretary.]

(2) Where, at the commencement of the Companies (Amendment) Act, 1974,—

(a) any firm or body corporate is holding office, as the secretary of a company, such firm or body corporate shall, within six months from such commencement, vacate office as secretary of such company;

(b) any individual is holding office as the secretary of more than one company having a paid-up share capital of rupees twenty-five lakhs or more, he shall, within a period of six months from such commencement, exercise his option as to the company of which he intends to continue as the secretary and shall, on and from such date, vacate office as secretary in relation to all other companies.]

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1. Ins. by Act 41 of 1974, sec. 30 (w.e.f. 1-2-1975).

2. Subs. by Act 31 of 1988, sec. 53, for “having a paid-up share capital of rupees twenty five lakhs or more” (w.e.f. 1-12-1988).

*. Every company having paid-up share capital of Rs. 2 crore and above shall have a whole time Secretary [Companies (Appointment and Qualifications of Secretary) Rules, 1988].

3. Ins. by Act 53 of 2000, sec. 171 (w.e.f. 13-12-2000).

4. Ins. by Act 31 of 1988, sec. 53 (w.e.f. 1-12-1988).

5. Subs. by Act 53 of 2000, sec. 171, for “fifty rupees” (w.e.f. 13-12-2000).

B. Managers

384. Firm or body corporate not to be appointed manager.—

1[No company] shall, after the commencement of this Act, appoint or employ, or after the expiry of six months from such commencement continue the appointment or employment of, any firm, body corporate or association as its manager.

——————————-

1. Subs. by Act 65 of 1960, sec. 145, for certain words (w.e.f. 28-12-1960).

385. Certain persons not to be appointed managers.—

(1) No company shall, after the commencement of this Act, appoint or employ, or continue the appointment or employment of, any person as its manager who—

(a) is an undischarged insolvent, or has at any time within the preceding five years been adjudged an insolvent; or

(b) suspends, or has at any time within the preceding five years suspended, payment to his creditors; or makes, or has at any time within the preceding five years made, a composition with them; or

(c) is, or has at any time within the preceding five years been, convicted by a Court in India of an offence involving moral turpitude.

(2) The Central Government may, by notification in the Official Gazette remove the disqualification incurred by any person in virtue of clause (a), (b) or (c) of sub-section (1), either generally or in relation to any company or companies specified in the notification.

386. Number of companies of which a person may be appointed manager.—

(1) No company shall, after the commencement of this Act, appoint or employ any person as manager, if he is either the manager or the managing director of any other company, except as provided in sub-section (2).

(2) A company may appoint or employ a person as its manager, if he is the manager or managing director of one, and not more than one, other company:

Provided that such appointment or employment is made or approved by a resolution passed at a meeting of the Board with the consent of all the directors present at the meeting, and of which meeting and of the resolution to be moved thereat, specific notice has been given to all the directors then in India.

(3) Where at the commencement of this Act, any person is holding the office either of manager or of managing director in more than two companies, he shall, within one year from the commencement of this Act, chose not more than two of those companies as companies in which he wishes to continue to hold the office of manager or managing director, as the case may be; and the provisions of clauses (b) and (c) of sub-section (1) and of sub-sections (2) and (3) of section 276 shall apply mutatis mutandis in relation to this case, as those provisions apply in relation to the case of a director.

(4) Notwithstanding anything contained in sub-sections (1) to (3), the Central Government may, by order, permit any person to be appointed as a manager of more than two companies, if the Central Government is satisfied that it is necessary that the companies should, for their proper working, function as a single unit and have a common manager.

1[***]

—————————–

1. Sub-section (5) omitted by Act 65 of 1960, sec. 146 (w.e.f. 28-12-1960).

387. Remuneration of manager.—

The manager of a company may, subject to the provisions of section 198, receive remuneration either by way of a monthly payment, or by way of a specific percentage, 1[***] of the “net profits” of the company calculated in the manner laid down in sections 349 2[and 350], or partly by the one way and partly by the other:

3[Provided that except with the approval of the Central Government such remuneration shall not exceed in the aggregate five per cent of the net profits.]

——————————

1. The words “not exceeding five” omitted by Act 65 of 1960, sec. 147 (w.e.f. 28-12-1960).

2. Subs. by Act 53 of 2000, sec. 172, for “, 350 and 351” (w.e.f. 13-12-2000).

3. Ins. by Act 65 of 1960, sec. 147 (w.e.f. 28-12-1960).

388. Application of sections 269, 310, 311, 312 and 317 to managers.—

The provisions of sections 1[269, 310], 311 and 317 shall apply in relation to the manager of a company as they apply in relation to a managing director thereof, and those of section 312 shall apply in relation to the manager of a company, as they apply to a director thereof.

—————————–

1. Subs. by Act 65 of 1960, sec. 148, for “310” (w.e.f. 28-12-1960).

388A. Sections 386 to 388 not to apply to certain private companies.—

1[388A. Sections 386 to 388 not to apply to certain private companies.—Sections 386, 387 and 388 shall not apply to a private company unless it is a subsidiary of a public company.]

——————————-

1. Ins. by Act 65 of 1960, sec. 149 (w.e.f. 28-12-1960).

Chapter IVA – Powers of Central Government to Remove Managerial Personnel from Office on the Recommendation of the Company Law Board.

388B. Reference to 2[3[4[Tribunal]]] of cases against managerial personnel.—

1[388B. Reference to 2[3[4[Tribunal]]] of cases against managerial personnel.—(1) Where in the opinion of the Central Government there are circumstances suggesting—

(a) that any person concerned in the conduct and management of the affairs of a company is or has been in connection therewith guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions under the law, or breach of trust; or

(b) that the business of a company is not or has not been conducted and managed by such person in accordance with sound business principles or prudent commercial practices; or

(c) that a company is or has been conducted and managed by such person in a manner which is likely to cause, or has caused, serious injury or damage to the interest of the trade industry or business to which such company pertains; or

(d) that the business of a company is or has been conducted and managed by such person with intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose or in a manner prejudicial to public interest,

the Central Government may state a case against the person aforesaid and refer the same to the 2[3[4[Tribunal]]] with a request that the 2[3[4[Tribunal]]] may inquire into the case and 5[record a decision] as to whether or not such person is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company.

(2) Every case under sub-section (1) shall be stated in the form of an application which shall be presented to the 2[3[4[Tribunal]]] or such officer thereof as it may appoint in this behalf.

(3) The person against whom a case is referred to the 2[3[4[Tribunal]]] under this section shall be joined as a respondent to the application.

(4) Every such application—

(a) shall contain a concise statement of such circumstances and materials as the Central Government may consider necessary for the purpose of the inquiry, and

(b) shall be signed and verified in the manner laid down in the Code of Civil Procedure, 1908 (5 of 1908), for the signature and verification of a plaint in a suit by the Central Government.

(5) The 2[3[4[Tribunal]]] may at any stage of the proceedings allow the Central Government to alter or amend the application in such manner and no such terms as may be just, and all such alterations or amendments shall be made as may be necessary for the purpose of determining the real questions in the inquiry.]

——————————-

1. Section 388B ins. by Act 53 of 1963, sec. 9 (w.e.f. 1-1-1964).

2. Subs. by Act 17 of 1967, sec. 4 and Sch., for “Tribunal’ (w.e.f. 1-7-1967).

3. Subs. by Act 31 of 1988, sec. 67, for “High Court” (w.e.f. 31-5-1991).

4. Subs. by Act 11 of 2003, sec. 38, for “Company Law Board”.

5. Subs. by Act 17 of 1967, sec. 4 and Sch. for “record a finding” (w.e.f. 1-7-1967).

388C. Interim order by Tribunal—

1[388C. Interim order by 2[3[4[Tribunal]]].—(1) Where during the pendency of a case before the 2[3[4[Tribunal]]] it appears necessary to the 2[3[4[Tribunal]]] so to do in the interest of the members or creditors of the company or in the public interest, the 2[3[4[Tribunal]]] may on the application of the Central Government or on its own motion, by an order—

(a) direct that the respondent shall not discharge any of the duties of his office until further orders of the 2[3[4[Tribunal]]], and

(b) appoint a suitable person in pace of the respondent to discharge the duties of the office held by the respondent subject to such terms and conditions as the 2[3[4[Tribunal]]] may specify in the order.

(2) Every person appointed under clause (b) of sub-section (1) shall be deemed to be a public servant within the meaning of section 21 of the Indian Penal Code (45 of 1860).]

——————————-

1. Section 388C ins. by Act 53 of 1963, sec. 9 (w.e.f. 1-1-1964).

2. Subs. by Act 17 of 1967, sec. 4 and Sch., for “Tribunal” (w.e.f. 1-7-1967).

3. Subs. by Act 31 of 1988, sec. 67, for “High Court” (w.e.f. 31-5-1991).

4. Subs. by Act 11 of 2003, sec. 38, for “Company Law Board”.

388D. Decision of the Tribunal

1[388D. 2[Decision] of the 3[4[5[Tribunal]]].—At the conclusion of the hearing of the case, the 3[4[5[Tribunal]]] shall record its 2[decision] stating therein specifically as to whether or not the respondent is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company.]

——————————-

1. Section 388D ins. by Act 53 of 1963, sec. 9 (w.e.f. 1-1-1964).

2. Subs. by Act 17 of 1967, sec. 4 and Sch., for “Findings” (w.e.f. 1-7-1967).

3. Subs. by Act 17 of 1967, sec. 4 and Sch., for “Tribunal” (w.e.f. 1-7-1967).

4. Subs. by Act 31 of 1988, sec. 67, for “High Court” (w.e.f. 31-5-1991).

5. Subs. by Act 11 of 2003, sec. 38, for “Company Law Board”.

388E. Power of Central Government to remove managerial personnel on the basis of [Tribunal] decision.—

1[388E. Power of Central Government to remove managerial personnel on the basis of 2[3[4[Tribunal]]] decision.—(1) Notwithstanding any other provision contained in this Act, the 5[Central Government shall], by order, remove from office any director, or any other person concerned in the conduct and management of the affairs, of a company against whom where is a 6[decision of the 2[3[4Tribunal]]] under this Chapter]:

7[***]

8[***]

(3) The person against whom an order of removal from office is made under this section shall not hold the office of a director or any other office connected with the conduct and management of the affairs of any company during a period of five years from the date of the order of removal:

Provided that the Central Government may, with the previous concurrence of the 2[3[4[Tribunal]]] permit such person to hold any such office before the expiry of the said period of five years.

(4) Notwithstanding anything contained in any other provision of this Act, or any other law or any contract, memorandum or articles, on the removal of a person from the office of a director or, as the case may be, any other office connected with the conduct and management of the affairs of the company, that person shall not be entitled to, or be paid, any compensation for the loss or termination of office.

(5) On the removal of a person from the office of a director or, as the case may, be, any other office connected with the conduct and management of the affairs of the company, the company may, with the previous approval of the Central Government, appoint another person to that office in accordance with the provision of this Act.]

——————————-

1. Section 388D ins. by Act 53 of 1963, sec. 9 (w.e.f. 1-1-1964).

2. Subs. by Act 17 of 1967, sec. 4 and Sch., for “Tribunal” (w.e.f. 1-7-1967).

3. Subs. by Act 31 of 1988, sec. 67, for “High Court” (w.e.f. 31-5-1991).

4. Subs. by Act 11 of 2003, sec. 38, for “Company Law Board”.

5. Subs. by Act 17 of 1967, sec. 4 and Sch., for “Central Government may” (w.e.f. 1-7-1967).

6. Subs. by Act 17 of 1967, sec. 4 and Sch., for “finding of the Tribunal under this Chapter or a decision of a High Court thereon” (w.e.f. 1-7-1967).

7. Proviso omitted by Act 53 of 2000, sec. 173 (w.e.f. 13-12-2000).

8. Sub-section (2) omitted by Act 53 of 2000, sec. 173 (w.e.f. 13-12-2000).

Chapter V – Arbitration, Compromises, Arrangements and Reconstructions.

389. Power for companies to refer matters to arbitration.

[Rep. by the Companies (Amendment) Act, 1960 (65 of 1960), sec. 150 (w.e.f. 28-12-1960).

390. Interpretation of sections 391 and 393.

In sections 391 and 393,—

(a) the expression “company” means any company liable to be wound up under this Act;

(b) the expression “arrangement” includes a reorganization of the share capital of the company by the consolidation of shares of different classes, or by the division of shares into shares of different classes or, by both those methods; and

(c) unsecured creditors who may have filed suits or obtained decrees shall be deemed to be of the same class as other unsecured creditors.

391. Power to compromise or make arrangements with creditors and members.—

(1) Where a compromise or arrangement is proposed—

(a) between a company and its creditors or any class of them; or

(b) between a company and its members or any class of them,the 1[Tribunal] may, on the application of the company or of any creditor or member of the company or, in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be to be called, held and conducted in such manner as the 1[Tribunal] directs.

(2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members as the case may be, present and voting either in person or, where proxies are allowed 2[under the rules made under section 643], by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the 1[Tribunal], be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or, in the case of a company which is being wound up, on the liquidator and contributories of the company:

3[Provided that no order sanctioning any compromise or arrangement shall be made by the 1[Tribunal] unless the 1[Tribunal] is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the 1[Tribunal], by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor’s report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 351, and the like.]

(3) An order made by the 1[Tribunal] under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar.

(4) A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed as aforesaid, or in the case of a company not having a memorandum, to every copy so issued of the instrument constituting or defining the constitution of the company.

(5) If default is made in complying with sub-section (4), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to 4[one hundred rupees] for each copy in respect of which default is made.

(6) The 5[Tribunal] may, at any time after an application has been made to it under this section stay the commencement or continuation of any suit or proceeding against the company on such terms as the 5[Tribunal] thinks fit, until the application is finally disposed of.

6[***]

comments

(i) A scheme sanctioned by the Court does not operate as a mere agreement between the parties, it becomes binding on the company, the creditors and the shareholders and has statutory force. It cannot be altered except with the sanction of the Court even if the shareholders and creditors acquiesce in such alteration; J.K. (Bombay) Pvt. Ltd. v. New Kaiser-I-Hind Spinning and Weaving Co. Ltd., 1970 (40) Comp. Cas. 689: (1970) 1 Com LJ 151: AIR 1970 SC 1041.

(ii) A binding obligation created under a composition under section 391 of the Companies Act, between the company and its creditors does not affect the liability of the surety unless the contract of suretyship otherwise provides; Punjab National Bank Ltd. v. Sri Vikram Cotton Mills Ltd., 1970 (40) Comp. Cas. 927: 1970 (2) Com LJ 18: AIR 1970 SC 1973.

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1. Subs. by Act 11 of 2003, sec. 39, for “Court”.

2. Ins. by Act 65 of 1960, sec. 151 (w.e.f. 28-12-1960).

3. Added by Act 31 of 1965, sec. 48 (w.e.f. 15-10-1965).

4. Subs. by Act 53 of 2000, sec. 174, for “ten rupees” (w.e.f. 13-12-2000).

5. Subs. by Act 11 of 2003, sec. 39, for “Court”.

6. Sub-section (7) omitted by Act 11 of 2003, sec. 39.

392. Power of Tribunal to enforce compromise and arrangement.—

1[392. Power of Tribunal to enforce compromise and arrangement.—(1) Where the Tribunal makes an order under section 391 sanctioning a compromise or an arrangement in respect of a company, it—

(a) shall have power to supervise the carrying out of the compromise or an arrangement; and

(b) may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement.

(2) If the Tribunal aforesaid is satisfied that a compromise or an arrangement sanctioned under section 391 cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the company, make an order winding up the company, and such an order shall be deemed to be an order made under section 433 of this Act.

(3) The provisions of this section shall, so far as may be, also apply to a company in respect of which an order has been made before the commencement of the Companies (Amendment) Act, 2001 sanctioning a compromise or an arrangement.]

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1. Subs. by Act 11 of 2003, sec. 40, for section 392.

393. Information as to compromises or arrangements with creditors and members.—

(1) Where a meeting of creditors or any class of creditors, or of members or any class of members, is called under section 391,—

(a) with every notice calling the meeting which is sent to a creditor or member, there shall be sent also a statement setting forth the terms of the compromise or arrangement and explaining its effect; and in particular, stating any material interests of the directors, managing director 1[***] or manager of the company, whether in their capacity as such or as members or creditors of the company or otherwise, and the effect on those interests of the compromise or arrangement if, and in so far as, it is different from the effect on the like interests of other persons; and

(b) in every notice calling the meeting which is given by advertisement, there shall be included either such a statement as aforesaid or a notification of the place at which and the manner in which creditors or members entitled to attend the meeting may obtain copies of such a statement as aforesaid.

(2) Where the compromise or arrangement affects the rights of debenture-holders of the company, the said statement shall give the like information and explanation as respects the trustees of any deed for securing the issue of the debentures as it is required to give as respects the company’s directors.

(3) Where a notice given by advertisement includes a notification that copies of a statement setting forth the terms of the compromise or arrangement proposed and explaining its effect can be obtained by creditors or members entitled to attend the meeting, every creditor or member so entitled shall, on making an application in the manner indicated by the notice, be furnished by the company, free of charge, with a copy of the statement.

(4) Where default is made in complying with any of the requirements of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to 2[fifty thousand rupees]; and for the purpose of this sub-section any liquidator of the company and any trustee of a deed for securing the issue of debentures of the company shall be deemed to be an officer of the company:

Provided that a person shall not be punishable under this sub-section if he shows that the default was due to the refusal of any other person, being a director, managing director, 1[***] manager or trustee for debenture holders, to supply the necessary particulars as to his material interests.

(5) Every director, managing director, 1[***] or manager of the company, and every trustee for debenture holders of the company, shall give notice to the company of such matters relating to himself as may be necessary for the purposes of this section; and if he fails to do so, he shall be punishable with fine which may extend to 3[five thousand rupees].

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1. The words “managing agent, secretaries and treasurers,” omitted by Act 53 of 2000, sec. 175 (w.e.f. 13-12-2000).

2. Subs. by Act 53 of 2000, sec. 175, for “five thousand rupees” (w.e.f. 13-12-2000).

3. Subs. by Act 53 of 2000, sec. 175, for “five hundred rupees” (w.e.f. 13-12-2000).

394. Provisions for facilitating reconstruction and amalgamation of companies.——

(1) Where an application is made to the 1[Tribunal] under section 391 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the 1[Tribunal]—

(a) that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of any company or companies, or the amalgamation of any two or more companies; and

(b) that under the scheme the whole or any part of the undertaking, property or liabilities of any company concerned in the scheme (in this section referred to as a “transferor company”) is to be transferred to another company (in this section referred to as “the transferee company”);

the 1[Tribunal] may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all or any of the following matters:—

(i) the transfer to the transferee company of the whole or any part of the undertaking, property or liabilities of any transferor company;

(ii) the allotment or appropriation by the transferee company of any shares, debentures policies, or other like interests in that company which, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person;

(iii) the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company;

(iv) the dissolution, without winding up, of any transferor company;

(v) the provision to be made for any persons who, within such time and in such manner as the Court directs dissent from the compromise or arrangement; and

(vi) such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out:

2[Provided that no compromise or arrangement proposed for the purposes of, or in connection with, a scheme for the amalgamation of a company, which is being wound up, with any other company or companies; shall be sanctioned by the 1[Tribunal] unless the Court has received a report from 3[***] the Registrar that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest:

Provided further that no order for the dissolution of any transferor company under clause (iv) shall be made by the 4[Tribunal] unless the Official Liquidator has, on scrutiny of the books and papers of the company, made a report to the 4[Tribunal] that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest.]

(2) Where an order under this section provides for the transfer of any property or liabilities, then, by virtue of the order; that property shall be transferred to and vest in and those liabilities shall be transferred to and become the liabilities of the transferee company and in the case of any property, if the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to cease to have effect.

(3) Within 5[thirty] days after the making of an order under this section, every company in relation to which the order is made shall cause a certified copy thereof to be filed with the Registrar for registration.

If default is made in complying with this sub-section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to 6[five hundred rupees].

(4) In this section—

(a) “property” includes property rights and powers of every description; and “liabilities” includes duties of every description; and

(b) “transferee company” does not include any company other than a company within the meaning of this Act; but “transferor company” includes any body corporate, whether a company within the meaning of this Act or not.

comments

(i) When two companies amalgamate and merge into one the transferor company looses its entity as it ceases to have its business. However their respective rights or liabilities are determined under the scheme of amalgamation but the corporate entity of the transferor company ceases to exist with effect from the date the amalgamation is made effective; Saraswati Industrial Syndicate Ltd. v. Commissioner of Income Tax, Haryana, Himachal Pradesh, Delhi-III, New Delhi, AIR 1991 SC 70.

(ii) Merely because 51 per cent. of the shares of an Indian company are being given to a foreign company the scheme of amalgamation cannot be said to be against public interest; Hindustan Lever Employees Union v. Hindustan Lever Ltd., AIR 1955 SC 470.

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1. Subs. by Act 11 of 2003, sec. 41, for “Court”.

2. Added by Act 31 of 1965, sec. 49 (w.e.f. 15-10-1965).

3. The words “the Company Law Board or” omitted by Act 11 of 2003, sec. 41.

4. Subs. by Act 11 of 2003, sec. 41, for “Court”.

5. Subs. by Act 31 of 1965, sec. 62 and Sch., for “fourteen” (w.e.f. 15-10-1965).

6. Subs. by Act 53 of 2000, sec. 176, for “fifty rupees” (w.e.f. 13-12-2000).

[394A. Notice to be given to Central Government for applications under sections 391 and 394.—

1[394A. Notice to be given to Central Government for applications under sections 391 and 394.—The 2[Tribunal] shall give notice of every application made to it under section 391 or 394 to the Central Government, and shall take into consideration the representations, if any, made to it by that Government before passing any order under any of these sections.]

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1. Ins. by Act 31 of 1965, sec. 50 (w.e.f. 15-10-1965).

2. Subs. by Act 11 of 2003, sec. 42, for “Court”.

395. Power and duty to acquire shares of shareholders dissenting from scheme or contract approved by majority.—

(1) Where a scheme or contract involving the transfer of shares or any class of shares in a company (in this section referred to as “the transferor company”) to another company (in this section referred to as “the transferee company”), has, within four months after the making of the offer in that behalf by the transferee company, been approved by the holders of not less than nine-tenths in value of the shares whose transfer is involved (other than shares already held at the date of the offer by, or by a nominee for, the transferee company or its subsidiary), the transferee company may, at any time within two months after the expiry of the said four months, give notice in the prescribed manner to any dissenting shareholder, that it desires to acquire his shares; and when such a notice is given, the transferee company shall, unless, on an application made by the dissenting shareholder within one month from the date on which the notice was given the 1[Tribunal] thinks fit to order otherwise, be entitled and bound to acquire those shares on the terms on which, under the scheme or contract, the shares of the approving shareholders are to be transferred to the transferee company:

Provided that where shares in the transferor company of the same class as the shares whose transfer is involved are already held as aforesaid to a value greater than one-tenth of the aggregate of the values of all the shares in the company of such class, the foregoing provisions of this sub-section shall not apply, unless—

(a) the transferee company offers the same terms to all holders of the shares of that class (other than those already held as aforesaid) whose transfer is involved; and

(b) the holders who approve the scheme or contract besides holding not less than nine-tenths in value of the shares (other than those already held as aforesaid) whose transfer is involved, are not less than three-fourths in number of the holders of those shares.

(2) Where, in pursuance of any such scheme or contract as aforesaid, shares, or shares of any class, in a company are transferred to another company or its nominee, and those shares together with any other shares or any other shares of the same class, as the case may be, in the first-mentioned company held at the date of the transfer by, or by a nominee for, the transferee company or its subsidiary comprise nine-tenths in value of the shares, or the shares of that class, as the case may be, in the first-mentioned company, then,—

(a) the transferee company shall, within one month from the date of the transfer (unless on a previous transfer in pursuance of the scheme or contract it has already complied with this requirement), give notice of that fact in the prescribed manner to the holders of the remaining shares or of the remaining shares of that class, as the case may be, who have not assented to the scheme or contract; and

(b) any such holder may, within three months from the giving of the notice to him, require the transferee company to acquire the shares in question,

and where a shareholder gives notice under clause (b) with respect to any shares, the transferee company shall be entitled and bound to acquire those shares on the terms on which, under the scheme or contract, the shares of the approving shareholders were transferred to it, or on such other terms as may be agreed, or as the 1[Tribunal] on the application of either the transferee company or the shareholder thinks fit to order.

(3) Where a notice has been given by the transferee company under sub-section (1) and the 1[Tribunal] has not, on an application made by the dissenting shareholder, made an order to the contrary, the transferee company shall, on the expiry of one month from the date on which the notice has been given, or, if an application to the 1[Tribunal] by the dissenting shareholder is then pending, after that application has been disposed of, transmit a copy of the notice to the transferor company together with an instrument of transfer executed on behalf of the shareholder by any person appointed by the transferee company and on its own behalf by the transferee company, and pay or transfer to the transferor company the amount or other consideration representing the price payable by the transferee company for the shares which, by virtue of this section, that company is entitled to acquire; and 2[the transferor company shall—

(a) thereupon register the transferee company as the holder of those shares, and

(b) within one month of the date of such registration, inform the dissenting shareholders of the fact of such registration and of the receipt of the amount or other consideration representing the price payable to them by the transferee company:]

Provided that an instrument of transfer shall not be required for any share for which a share warrant is for the time being outstanding.

(4) Any sums received by the transferor company under this section shall be paid into a separate bank account, and any such sums and any other consideration so received shall be held by that company in trust for the several persons entitled to the shares in respect of which the said sums or other consideration were respectively received.

3[(4A) (a) The following provisions shall apply in relation to every offer of a scheme or contract involving the transfer of shares or any class of shares in the transferor company to the transferee company, namely:—

(i) every such offer or every circular containing such offer or every recommendation to the members of the transferor company by its directors to accept such offer shall be accompanied by such information as may be prescribed;

(ii) every such offer shall contain a statement by or on behalf of the transferee company, disclosing the steps it has taken to ensure that necessary cash will be available;

(iii) every circular containing, or recommending acceptance of, such offer shall be presented to the Registrar for registration and no such circular shall be issued until it is so registered;

(iv) the Registrar may refuse to register any such circular which does not contain the information required to be given under sub-clause (i) or which sets out such information in a manner likely to give a false impression; and

(v) an appeal shall lie to the 1[Tribunal] against an order of the Registrar refusing to register any such circular.

(b) Whoever issues a circular referred to in sub-clause (iii) of clause (a) which has not been registered, shall be punishable with fine which may extend to 4[five thousand rupees].]

(5) In this section—

(a) “dissenting shareholder” includes a shareholder who has not assented to the scheme or contract and any shareholder who has failed or refused to transfer his shares to the transferee company in accordance with the scheme or contract;

(b) “transferor company” and “transferee company” shall have the same meaning as in section 394.

(6) In relation to an offer made by the transferee company to shareholders of the transferor company before the commencement of this Act, this section shall have effect—

(a) with the substitution, in sub-section (1), for the words “the shares whose transfer is involved (other than shares already held at the date of the offer by, or by a nominee for, the transferee company or its subsidiary),” of the words “the shares affected” and with the omission of the proviso to that sub-section;

(b) with the omission of sub-section (2);

(c) with the omission in sub-section (3) of the words “together with an instrument of transfer executed on behalf of the shareholder by any person appointed by the transferee company and on its own behalf by the transferee company” and of the proviso to that sub-section; and

(d) with the omission of clause (b) of sub-section (5).

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1. Subs. by Act 11 of 2003, sec. 42, for “Court”.

2. Subs. by Act 31 of 1965, sec. 51, for certain words (w.e.f. 15-10-1965).

3. Ins. by Act 31 of 1965, sec. 51 (w.e.f. 15-10-1965).

4. Subs. by Act 53 of 2000, sec. 177, for “five hundred rupees” (w.e.f. 13-12-2000).

396. Power of Central Government to provide for amalgamation of companies in [public interest].—

396. Power of Central Government to provide for amalgamation of companies in 1[public interest].—(1) Where the Central Government is satisfied that it is essential in the 1[public interest] that two or more companies should amalgamate, then, notwithstanding anything contained in sections 394 and 395 but subject to the provisions of this section, the Central Government may, by order notified in the Official Gazette, provide for the amalgamation of those companies into a single company with such constitution; with such property, powers, rights, interests, authorities and privileges; and with such liabilities, duties, and obligations; as may be specified in the order.

(2) 2[The order aforesaid may provide for the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company and may also] contain such consequential, incidental and supplemental provisions as may, in the opinion of the Central Government, be necessary to give effect to the amalgamation.

(3) Every member or creditor (including a debenture holder) of each of the companies before the amalgamation shall have, as nearly as may be, the same interest in or rights against the company resulting from the amalgamation as he had in the company of which he was originally a member or creditor; and to the extent to which the interest or rights of such member or creditor in or against the company resulting from the amalgamation are less than his interest in or rights against the original company, he shall be entitled to compensation which shall be assessed by such authority 3[as may be prescribed and every such assessment shall be published in the Official Gazette].

The compensation so assessed shall be paid to the member, or creditor concerned by the company resulting from the amalgamation.

4[(3A) Any person aggrieved by any assessment of compensation made by the prescribed authority under sub-section (3) may, within thirty days from the date of publication of such assessment in the Official Gazette, prefer an appeal to the 5[Tribunal] and thereupon the assessment of the compensation shall be made by the 5[Tribunal].]

(4) No order shall be made under this section, unless—

(a) a copy of the proposed order has been sent in draft to each of the companies concerned; 6[***]

4[(aa) the time for preferring an appeal under sub-section (3A) has expired, or where any such appeal has been preferred, the appeal has been finally disposed of; and]

(b) the Central Government has considered, and made such modifications, if any, in the draft order as may seem to it desirable in the light of any suggestions and objections which may be received by it from any such company within such period as the Central Government may fix in that behalf, not being less than two months from the date on which the copy aforesaid is received by that company, or from any class of shareholders therein, or from any creditors or any class of creditors thereof.

(5) Copies of every order made under this section shall, as soon as may be after it has been made, be laid before both Houses of Parliament.

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1. Subs. by Act 65 of 1960, sec. 152, for “national interest” (w.e.f. 28-12-1960).

2. Subs. by Act 35 of 1985, sec. 3, for “The order aforesaid may” (w.e.f. 24-5-1985).

3. Subs. by Act 35 of 1985, sec. 3, for “as may be prescribed” (w.e.f. 24-5-1985).

4. Ins. by Act 35 of 1985, sec. 3 (w.e.f. 24-5-1985).

5. Subs. by Act 11 of 2003, sec. 43, for “Company Law Board”.

6. The word “and” omitted by Act 35 of 1985, sec. 3 (w.e.f. 24-5-1985).

396A. Preservation of books and papers of amalgamated company.—

1[396A. Preservation of books and papers of amalgamated company.—The books and papers of a company which has been amalgamated with, or whose shares have been acquired by, another company under this Chapter shall not be disposed of without the prior permission of the Central Government and before granting such permission, that Government may appoint a person to examine the books and papers or any of them for the purpose of ascertaining whether they contain any evidence of the commission of an offence in connection with the promotion or formation, or the management of the affairs, of the first-mentioned company or its amalgamation or the acquisition of its shares.]

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1. Ins. by Act 31 of 1965, sec. 52 (w.e.f. 15-10-1965).

Chapter VI – Prevention of Oppression and Mismanagement.

397. Application to [Tribunal] for relief in cases of oppression.—

397. Application to 1[Tribunal] for relief in cases of oppression.—(1) Any member of a company who complain that the affairs of the company 2[are being conducted in a manner prejudicial to public interest or] in a manner oppressive to any member or members (including any one or more of themselves) may apply to the 1[Tribunal] for an order under this section, provided such members have a right so to apply in virtue of section 399.

(2) If, on any application under sub-section (1), the Court is of opinion—

(a) that the company’s affairs 2[are being conducted in a manner prejudicial to public interest or] in a manner oppressive to any member or members; and

(b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up,

the 1[Tribunal] may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.

comments

(i) The legal representatives of a deceased member whose name is still on the register of members are entitled to petition under sections 397 and 398 of the Companies Act; Worldwide Agencies Pvt. Ltd. v. Mrs. Margarat T. Desor, AIR 1990 SC 737.

(ii) The law has not defined what is ‘oppression’ for purposes of section 397 and it is left to Courts to decide on the facts of each case whether there is such oppression as calls for action under this section; Shanti Prasad Jain v. Kalinga Tubes Ltd., 1965 (35) Comp. Cas. 351: 1965 (1) Com LJ 193: AIR 1965 SC 1535.

(iii) The conduct of the majority shareholders should not only be oppressive to the minority but must also be burdensome, harsh and wrongful and continuing up to the date of petition. The lack of confidence between the majority and minority shareholders should also spring from oppression of minority in the management of the company’s affairs; Shanti Prasad Jain v. Kalinga Tubes Ltd., 1965 (35) Comp. Cas. 351: 1965 (1) Com LJ 193: AIR 1965 SC 1535.

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1. Subs. by Act 11 of 2003, sec. 44, for “Company Law Board”. Earlier the words “Company Law Board” were substituted by Act 31 of 1988, sec. 67, for the word “Court” (w.e.f. 31-5-1991).

2. Subs. by Act 53 of 1963, sec. 10, for “are being conducted” (w.e.f. 1-1-1964).

398. Application to Tribunal for relief in cases of mismanage-ment.—

398. Application to 1[Tribunal] for relief in cases of mismanage-ment.—(1) Any members of a company who complain—

(a) that the affairs of the company 2[are being conducted in a manner prejudicial to public interest or] in a manner prejudicial to the interests of the company; or

(b) that a material change not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company) has taken place in the management or control of the company, whether by an alteration in its Board of directors, 3[***] 4[or manager], 5[***] or in the ownership of the company’s shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company 6[will be conducted in a manner prejudicial to public interest or] in a manner prejudicial to the interests of the company,

may apply to the 1[Tribunal] for an order under this section, provided such members have a right so to apply in virtue of section 399.

(2) If, on any application under sub-section (1), the 1[Tribunal] is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the 1[Tribunal] may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit.

comments

(i) The holder of a General Power of Attorney for and on behalf of a shareholder can validly give consent to a petition under sections 397 and 398 of the Act; P. Punnaiah v. Jeypore Sugar Co. Ltd., AIR 1994 SC 2258: 1994 (81) Comp. Cas. 1: 1994 (2) Com LJ 13.

(ii) Section 398 comes into play when there is actual mismanagement or apprehension of mismanagement of the affairs of the company. It may be contrasted with section 397 which deals with oppression to the minority shareholders, whether there is prejudice to the company or not; Shanti Prasad v. Kalinga Tubes Ltd., 1965 (35) Comp. Cas. 351: 1965 (1) Com LJ 193: AIR 1965 SC 1535.

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1. Subs. by Act 11 of 2003, sec. 44, for “Company Law Board”. Earlier the words “Company Law Board” were substituted by Act 31 of 1988, sec. 67, for the word “Court” (w.e.f. 31-5-1991).

2. Subs. by Act 53 of 1963, sec. 11, for “are being conducted” (w.e.f. 1-1-1964).

3. The words “or of its managing agent or secretaries and treasurers,” omitted by Act 53 of 2000, sec. 178 (w.e.f. 13-12-2000).

4. Ins. by Act 65 of 1960, sec. 153 (w.e.f. 28-12-1960).

5. Certain words omitted by Act 53 of 2000, sec. 178 (w.e.f. 13-12-2000).

6. Subs. by Act 53 of 1963, sec. 11, for “will be conducted” (w.e.f. 1-1-1964).

399. Right to apply under sections 397 and 398.——

(1) The following members of a company shall have the right to apply under section 397 or 398:—

(a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less or any members or members holding not less than one-tenth of the issued share capital of the company, provided that the applicant or applicants have paid all calls and other sums due on their shares;

(b) in the case of a company not having a share capital, not less than one-fifth of the total number of its members.

(2) For the purposes of sub-section (1), where any share or shares are held by two or more persons jointly, they shall be counted only as one member.

(3) Where any members of a company are entitled to make an application in virtue of sub-section (1), any one or more of them having obtained the consent in writing of the rest, may make the application on behalf and for the benefit of all of them.

(4) The Central Government may, if in its opinion circumstances exist which make it just and equitable so to do, authorise any member or members of the company to apply to the 1[Tribunal] under section 397 or 398, notwithstanding that the requirements of clause (a) or clause (b), as the case may be, of sub-section (1) are not fulfilled.

(5) The Central Government may, before authorising any member or members as aforesaid, require such member or members to give security for such amount as the Central Government may deem reasonable, for the payment of any costs which the 1[Tribunal] dealing with the application may order such member or members to pay to any other person or persons who are parties to the application.

comments

Sections 399 does not either expressly or by implication indicate that the consent to be accorded thereunder should be given by the member personally alone; P. Punnaiah v. Jeypore Sugar Co. Ltd., AIR 1994 SC 2258.

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1. Subs. by Act 11 of 2003, sec. 44, for “Company Law Board”. Earlier the words “Company Law Board” were substituted by Act 31 of 1988, sec. 67, for the word “Court” (w.e.f. 31-5-1991).

400. Notice to be given to Central Government of applications under sections 397 and 398.—

The 1[Tribunal] shall give notice of every application made to it under section 397 or 398 to the Central Government, and shall take into consideration the representation, if any, made to it by that Government before passing a final order under that section.

comments

Section 400 of the Act does not envisage a fresh notice to be issued to the Central Government at the appellate stage; Cosmo Steels Pvt. Ltd. v. Jairam Das Gupta, 1978 (48) Comp. Cas. 312: AIR 1978 SC 375.

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1. Subs. by Act 11 of 2003, sec. 44, for “Company Law Board”. Earlier the words “Company Law Board” were substituted by Act 31 of 1988, sec. 67, for the word “Court” (w.e.f. 31-5-1991).

401. Right of Central Government to apply under sections 397 and 398.—

The Central Government may itself apply to the 1[Tribunal] for an order under section 397 or 398, or cause an application to be made to the 1[Tribunal] for such an order by any person authorised by it in this behalf.

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1. Subs. by Act 11 of 2003, sec. 44, for “Company Law Board”. Earlier the words “Company Law Board” were substituted by Act 31 of 1988, sec. 67, for the word “Court” (w.e.f. 31-5-1991).

402. Powers of [Tribunal] on application under section 397 or 398.—

402. Powers of 1[Tribunal] on application under section section 397 or 398,.—Without prejudice to the generality of the powers of the 1[Tribunal] under section 397 or 398, any order under either section may provide for—

(a) the regulation of the conduct of the company’s affairs in future;

(b) the purchase of the shares or interests of any members of the company by other members thereof or by the company;

(c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital;

(d) the termination, setting aside or modification of any agreement,

howsoever arrived at, between the company on the one hand; and any of the following persons, on the other, namely:—

(i) the managing director,

(ii) any other director,

2[***]

(v) the manager,

upon such terms and conditions as may, in the opinion of the 1[Tribunal], be just and equitable in all the circumstances of the case;

(e) the termination, setting aside or modification of any agreement between the company and any person not referred to in clause (d), provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and provided further that no such agreement shall be modified except after obtaining the consent of the party concerned;

(f) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under section 397 or 398, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference;

(g) any other matter for which in the opinion of the 1[Tribunal] it is just and equitable that provision should be made.

comments

When a direction for purchase of shares is given by the Court under section 402 and consequent reduction in share capital is to be effected, the procedure prescribed for reduction of share capital in sections 100 to 104 is not required to be followed; Cosmo Steels Pvt. Ltd. v. Jairam Das Gupta, 1978 (48) Comp. Cas. 312: AIR 1978 SC 375.

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1. Subs. by Act 11 of 2003, sec. 44, for “Company Law Board”. Earlier the words “Company Law Board” were substituted by Act 31 of 1988, sec. 67, for the word “Court” (w.e.f. 31-5-1991).

2. Sub-clauses (iii) and (iv) omitted by Act 53 of 2000, sec. 179 (w.e.f. 13-12-2000).

403. Interim order by [Tribunal].

403. Interim order by 1[Tribunal].—Pending the making by it of a final order under section 397 or 398, as the case may be, the 1[Tribunal] may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct of the company’s affairs, upon such terms and conditions as appear to it to be just and equitable.

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1. Subs. by Act 11 of 2003, sec. 44, for “Company Law Board”. Earlier the words “Company Law Board” were substituted by Act 31 of 1988, sec. 67, for the word “Court” (w.e.f. 31-5-1991).

404. Effect of alteration of memorandum or articles of company by order under section 397 or 398.—

(1) Where an order under section 397 or 398 makes any alteration in the memorandum or articles of a company, then, notwithstanding any other provision of this Act, the company shall not have power except to the extent, if any, permitted in the order to make without the leave of the 1[Tribunal] any alteration whatever which is inconsistent with the order, either in the memorandum or in the articles.

(2) Subject to the provisions of sub-section (1), the alterations made by the order shall in all respects have the same effect as if they had been duly made by the company in accordance with the provisions of this Act; and the said provisions shall apply accordingly to the memorandum or articles as so altered.

(3) A certified copy of every order altering, or giving leave to alter, a company’s memorandum or articles, shall within 2[thirty] days after the making thereof, be filed by the company with the Registrar who shall register the same.

(4) If default is made in complying with the provisions of sub-section (3), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to 3[fifty thousand rupees].

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1. Subs. by Act 11 of 2003, sec. 44, for “Company Law Board”. Earlier the words “Company Law Board” were substituted by Act 31 of 1988, sec. 67, for the word “Court” (w.e.f. 31-5-1991).

2. Subs. by Act 31 of 1965, sec. 62 and Sch., for “fifteen” (w.e.f. 15-10-1965).

3. Subs. by Act 53 of 2000, sec. 180, for “five thousand rupees” (w.e.f. 13-12-2000).

405. Addition of respondents to application under section 397 or 398.—

If the managing director or any other director 1[***] or the manager, of a company, or any other person, who has not been impleaded as a respondent to any application under section 397 or 398 applies to be added as a respondent thereto, the 2[Tribunal] shall, if it is satisfied that there is sufficient cause for doing so, direct that he may be added as a respondent accordingly.

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1. The words “, the managing agent, secretaries and treasurers” omitted by Act 53 of 2000, sec. 181 (w.e.f. 13-12-2000).

2. Subs. by Act 11 of 2003, sec. 44, for “Company Law Board”. Earlier the words “Company Law Board” were substituted by Act 31 of 1988, sec. 67, for the word “Court” (w.e.f. 31-5-1991).

406. Application of sections 539 to 544 to proceedings under sections 397 and 398.—

In relation to an application under section 397 or 398, sections 539 to 544, both inclusive, shall apply in the form set forth in Schedule XI.

407. Consequences of termination or modification of certain agreements.—

(1) Where an order 1[***] made under section 397 or 398 terminates, sets aside, or modifies an agreement such as is referred to in clause (d) or (c) of section 402,—

(a) the order shall not give rise to any claims whatever against the company by any person for damages or for compensation for loss of office or in any other respect either in pursuance of the agreement or otherwise;

(b) no managing or other director 2[***] or manager whose agreement is so terminated or set aside 3[***] shall, for a period of five years from the date of 4[the order terminating or setting aside the agreement] without the leave of the 5[Tribunal] be appointed, or act, as the managing or other director 2[***] or manager of the company.

(2) (a) Any person who knowingly acts as a managing or other director 2[***] or manager of a company in contravention of clause (b) of sub-section (1);

6[***]

(c) every other director or every director, as the case may be, of the company, who is knowingly a party to such contravention,

shall be punishable with imprisonment for a term which may extent to one year, or with fine which may extend to 7[fifty thousand rupees] or with both.

(3) 8[No leave shall be granted] under clause (b) of sub-section (1) unless notice of the intention to apply for leave has been served on the Central Government and that Government has been given an opportunity of being heard in the matter.

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1. The words “of a Court” omitted by Act 31 of 1988, sec. 67 (w.e.f. 31-5-1991).

2. The words “, managing agent, secretaries and treasurers,” omitted by Act 53 of 2000, sec. 182 (w.e.f. 13-12-2000).

3. The words “managing agent or secretaries and treasurers” omitted by Act 53 of 2000, sec. 182 (w.e.f. 13-12-2000).

4. Subs. by Act 65 of 1960, sec. 154 for “the order terminating the agreement” (w.e.f. 28-12-1960).

5. Subs. by Act 11 of 2003, sec. 44, for “Company Law Board”. Earlier the words “Company Law Board” were substituted by Act 31 of 1988, sec. 67, for the word “Court” (w.e.f. 31-5-1991).

6. Clause (b) omitted by Act 53 of 2000, sec. 182 (w.e.f. 13-12-2000).

7. Subs. by Act 53 of 2000, sec. 182, for “five hundred rupees” (w.e.f. 13-12-2000).

8. Subs. by Act 31 of 1988, sec. 67, for “No Court shall grant leave” (w.e.f. 31-5-1991).

408. Powers of Government to prevent oppression or mismanage-ment.—

1[(1) Notwithstanding anything contained in this Act, the Central Government may appoint such number of persons as the 2[Tribunal] may, by order in writing, specify as being necessary to effectively safeguard the interests of the company, or its shareholders or the public interests to hold office as directors thereof for such period, not exceeding three years on any one occasion, as it may think fit, if the 2[Tribunal], on a reference made to it by the Central Government or on an application of not less than one hundred members of the company or of the members of the company holding not less than one-tenth of the total voting power therein, is satisfied, after such inquiry as it deems fit to make, that it is necessary to make the appointment or appointments in order to prevent the affairs of the company being conducted either in a manner which is oppressive to any members of the company or in a manner which is prejudicial to the interests of the company or to public interest:

Provided that in lieu of passing an order as aforesaid, the 2[Tribunal] may, if the company has not availed itself of the option given to it under section 265, direct the company to amend its articles in the manner provided in that section and make afresh appointments of directors in pursuance of the articles as so amended, within such time as may be specified in that behalf by the 2[Tribunal].

(2) In case the 2[Tribunal] passes an order under the proviso to sub-section (1), it may, if it thinks fit, direct that until new directors are appointed in pursuance of the order aforesaid, such number of persons as the 2[Tribunal] may, by order, specify as being necessary to effectively safeguard the interests of the company, or its shareholders or the public interest, shall hold office as additional directors of the company and on such directions, the Central Government shall appoint such additional directors.]

(3) For the purpose of reckoning two-thirds or any other proportion of the total number of directors of the company, any director or directors appointed by the Central Government under sub-section (1) or (2) shall not be taken into account.

3[(4) A person appointed under sub-section (1) to hold office as a director or a person directed under sub-section (2) to hold office as an additional director, shall not be required to hold any qualification shares nor his period of office shall be liable to determination by retirement of directors by rotation; but any such director or additional director may be removed by the Central Government from his office at any time and another person may be appointed by that Government in this place to held office as a director or, as the case may be, an additional director.

(5) No change in the Board of directors made after a person is appointed or directed to hold office as a director or additional director under this section shall, so long as such director or additional director holds office, have effect unless confirmed by the 4[Tribunal].]

5[(6) Notwithstanding anything contained in this Act or in any other law for the time being in force, where any person is appointed by the Central Government to hold office as director or additional director of a company in pursuance of sub-section (1) or sub-section (2), the Central Government may issue such directions to the company as it may consider necessary or appropriate in regard to its affairs 6[and such directions may include directions to remove an auditor already appointed and to appoint another auditor in his place or to alter the articles of the company, and upon such directions being given, the appointment, removal or alteration, as the case may be, shall be deemed to have come into effect as if the provisions of this Act in this behalf have been complied with without requiring any further act or thing to be done].

(7) The Central Government may require the persons appointed as directors or additional directors in pursuance of sub-section (1) or sub-section (2) to report to the Central Government from time to time with regard to the affairs of the company.]

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1. Subs. by Act 31 of 1988, sec. 54, for sub-sections (1) and (2) (w.e.f. 15-6-1988). 2. Subs. by Act 11 of 2003, sec. 44, for “Company Law Board”.

3. Ins. by Act 65 of 1960, sec. 155 (w.e.f. 28-12-1960).

4. Subs. by Act 11 of 2003, sec. 44, for “Company Law Board”. Earlier the words “Company Law Board” were substituted by Act 31 of 1988, sec. 54, for the word “Central Government” (w.e.f. 10-6-1988).

5. Ins. by Act 41 of 1974, sec. 31 (w.e.f. 1-2-1975).

6. Added by Act 31 of 1988, sec. 54 (w.e.f. 15-6-1988).

409. Power of [Tribunal] to prevent change in Board of directors likely to affect company prejudicially.—

409. Power of 1[Tribunal] to prevent change in Board of directors likely to affect company prejudicially.—(1) Where a complaint is made to the 1[Tribunal] by the managing director or any other director 2[3[***] or the manager], or a company that as a result of a change which has taken place or is likely to take place in the ownership of any shares held in the company, a change in the Board of directors is likely to take place which (if allowed) would affect prejudicially the affairs of the company, the 1[Tribunal] may, if satisfied, after such inquiry as it thinks fit to make that it is just and proper so to do by order, direct that 4[no resolution passed or that may be passed or no action taken or that may be taken] to effect a change in the Board of directors after the date of the complaint shall have effect unless confirmed by the 5[Tribunal]; and any such order shall have effect notwithstanding anything to the contrary contained in any other provision of this Act or in the memorandum or articles of the company, or in any agreement with, or any resolution passed in general meeting by, or by the Board of directors of the company.

(2) The 5[Tribunal] shall have power when any such complaint is received by it, to make an interim order to the effect set out in sub-section (1), before making or completing the inquiry aforesaid.

(3) Nothing contained in sub-sections (1) and (2) shall apply to a private company, unless it is a subsidiary of a public company.

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1. Subs. by Act 11 of 2003, sec. 44, for “Company Law Board”. Earlier the words “Company Law Board” were substituted by Act 31 of 1988, sec. 54, for the word “Central Government” (w.e.f. 10-6-1988).

2. Subs. by Act 65 of 1960, sec. 156, for “or the secretaries and treasures”.

3. The words “the managing agent, the secretaries and treasurers,” omitted by Act 53 of 2000, sec. 183 (w.e.f. 13-12-2000).

4. Subs. by Act 65 of 1960, sec. 156, for “no resolution passed or action taken” (w.e.f. 28-12-1960).

5. Subs. by Act 11 of 2003, sec. 44, for “Company Law Board”. Earlier the words “Company Law Board” were substituted by Act 31 of 1988, sec. 67, for the word “Central Government” (w.e.f. 15-10-1965).

Chapter VII – Constitution and Powers of Advisory Committee.

410. Appointment of Advisory Committee.

1[410. Appointment of Advisory Committee.—For the purpose of advising the Central Government and the 2[Tribunal] on such matters arising out of the administration of this Act as may be referred to it by that Government 3[or the Tribunal], the Central Government may constitute an Advisory Committee consisting of not more than five persons with suitable qualifications.]

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1. Subs. by Act 31 of 1965, sec. 53, for sections 410 to 415 (w.e.f. 15-10-1965).

2. Subs. by Act 11 of 2003, sec. 45, for “Company Law Board”.

3. Subs. by Act 11 of 2003, sec. 45, for “or Board”.

411. see footnote—

411. see footnote

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1. Subs. By Act 31 of 1965, sec 53, for sections 411 (w.e.f. 15-10-1965).

412. see footnote

see footnote

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1. Subs. By Act 31 of 1965, sec 53, for sections 412 (w.e.f.15-10-1965)

413. see footnote

413. see footnote

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1. Subs. By Act 31 of 1965, sec 53, for sections 413 (w.e.f. 15-10-1965).

414. see footnote

414. see footnote

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1. Subs. By Act 31 of 1965, sec 53, for sections 414 (w.e.f. 15-10-1965).

415. IMMUNITY FOR ACTION TAKEN IN GOOD FAITH. -—

415. IMMUNITY FOR ACTION TAKEN IN GOOD FAITH. –

1. Subs. By Act 31 of 1965, sec 53, for sections 415 (w.e.f. 15-10-1965).

Chapter VIII – Miscellaneous provisions.

416. Contracts by agents of company in which company is undisclosed principal.—.—

(1) Every person, being the 1[***] manager or other agent of a public company or of a private company which is a subsidiary of a public company, who enters into a contract for or on behalf of the company in which contract the company is an undisclosed principal shall, at the time of entering into the contract, make a memorandum in writing of the terms of the contract, and specify therein the person with whom it is entered into.

(2) Every such person who enters into a contract as aforesaid shall forthwith deliver the memorandum to the company and send copies thereof to each of the directors; and such memorandum shall be filed in the office of the company and laid before the Board of directors at its next meeting.

(3) If default is made in complying with the requirements of this section,—

(a) the contract shall, at the option of the company, be voidable as against the company; and

(b) the person who enters into the contract, or every officer of the company who is in default, as the case may be, shall be punishable with fine which may extend to 2[two thousand rupees].

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1. The words “managing agent, secretaries and treasurers,” omitted by Act 53 of 2000, sec. 184 (w.e.f. 13-12-2000).

2. Subs. by Act 53 of 2000, sec. 184, for “two hundred rupees” (w.e.f. 13-12-2000).

417. Employees’ securities to be deposited in post office savings bank or Scheduled Bank.—

1[(1) Any money or security deposited with a company by any of its employee in pursuance of his contract of service with the company shall be kept or deposited by the company within fifteen days from the date of deposit—

(a) in a post office savings bank account, or

(b) in a special account to be opened by the company for the purpose in the State Bank of India or in a Scheduled Bank, or

(c) where the company itself is a Scheduled Bank, in a special account to be opened by the company for the purpose either in itself or in the State Bank of India or in any other Scheduled Bank.]

(2) No portion of such moneys or securities shall be utilized by the company except for the purposes agreed to in the contracts of service.

(3) A receipt for moneys deposited with a company by its employee shall not be deemed to be a security within the meaning of this section; and the moneys themselves shall accordingly be deposited 2[***] as provided in sub-section (1).

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1. Subs. by Act 65 of 1960, sec. 158, for sub-section (1) (w.e.f. 28-12-1960).

2. The words “with a Scheduled Bank” omitted by Act 65 of 1960, sec. 158 (w.e.f. 28-12-1960).

418. Provisions applicable to provident funds of employees

1[(1) Where a provident fund has been constituted by a company for its employees or any class of its employees, all moneys contributed to such fund (whether by the company or by the employees) or received or accruing by way of interest or otherwise to such fund shall, within fifteen days from the date of contribution receipt or accrual, as the case may be, either- (a) be deposited- (i) in a post office savings bank account, or

(ii) in a special account to be opened by the company for the purpose in the State Bank of India or in a Scheduled Bank, or

(iii) where the company itself is a Scheduled Bank, in a special account to be opened by the company for the purpose either in itself or in the State Bank of India or in any other Scheduled Bank; or

(b) be invested in the securities mentioned or referred to in clauses (a) to (e) of section 20 of the Indian Trusts Act, 1882 (2 of 1882).]

(2) Notwithstanding anything to the contrary in the rules of any ‘ provident fund to which sub-section (1) applies or in any contract, between a company and its employees, no employee shall be entitled to receive, in respect of, such portion of the amount to his credit in such fund as is invested in accordance with the provisions of sub-section (1), interest at a rate exceeding the rate of interest yielded by such investment.

(3) Nothing in sub-section (1) shall affect any rights of an employee under the rules of a provident fund to obtain advances from or to withdraw money standing to his credit in the fund, where the fund is a recognised provident fund within the meaning of clause (a) of section 58A of the Indian Income-tax Act, 1922 (11 of 1922), or where the rules of the fund contain provisions corresponding to rules 4, 5, 6, 7, 8 and 9 of the Indian Income-tax (Provident Funds Relief) Rules.

(4) Where a 2[***] trust has been created by a company with respect to any provident fund referred to in sub-section (1), the company shall be bound to collect the contributions of the employees concerned and pay such contributions as well as its own contributions, if any, to the trustees 3[within fifteen days from the date of collection]; but in other respects the obligations laid on the company by this section shall devolve on the trustees and shall be discharged by them instead of by the company.

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1. Subs, by Act 65 of I960, sec. 159, for sub-section (1) (w.e.f. 28-12-1960).

2. The word “separate” omitted by Act 65 of 1960, sec. 159 (w.e.f- 28-12-1960).

3. Ins. by Act 65 of 1960, sec. 159 (w.e.f. 28-12-1960).

419. Right of employee to see bank’s receipt for moneys or securities referred to in section 417 or 418.—

An employee shall be entitled, on request made in this behalf to the company, or to the trustees referred to in sub-section (4) of section 418, as the case may be, to see the bank’s receipt for any money or security such as is referred to in sections 417and 418.

420. Penalty for contravention of sections 417, 418 and 419.—

Any officer of a company, or any such trustee of a provident fund as is referred to in sub-section (4) of section 418 who, knowingly, contravenes, or authorises or permits the contravention of, the provisions of section 417, 418 or 419, shall be punishable with 1[imprisonment for a term which may extend to six months, or with fine which may extend to 2[ten thousand rupees]].

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1. Subs. by Act 65 of 1960, sec. 160, for “fine which may extend to five hundred rupees” (w.e.f. 28-12-1960).

2. Subs. by Act 53 of 2000, sec. 185, for “one thousand rupees” (w.e.f. 13-12-2000).

421. Filing of accounts of receivers.—

Every receiver of the property of a company who has been appointed under a power conferred by any instrument and who has taken possession, shall once in every half year while he remains in possession, and also on ceasing to act as receiver, file with the Registrar an abstract in the prescribed form of his receipts and payments during the period to which the abstract relates.

422. Invoices, etc., to refer to receiver where there is one.—

Where a receiver of the property of a company has been appointed, every invoice, order for goods, or business letter issued by or on behalf of the company, or the receiver of the company, being a document on or in which the name of the company appears, shall contain a statement that a receiver has been appointed.

423. Penalty for non-compliance with sections 421 and 422.——

If default is made in complying with the requirements of section 421 or 422, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to 1[two thousand rupees]. For the purposes of this section, the receiver shall be deemed to be an officer of the company.

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1. Subs. by Act 53 of 2000, sec. 186, for “two hundred rupees” (w.e.f. 13-12-2000).

424. Application of sections 421 to 423 to receivers and managers appointed by Tribunal and managers appointed in pursuance of an instrument.—

1[424. Application of sections 421 to 423 to receivers and managers appointed by Tribunal and managers appointed in pursuance of an instrument.—The provisions of sections 421 to 423 shall apply to the receiver of, or any person appointed to manage, the property of a company, appointed by the Tribunal or to any person appointed to manage, the property of a company under any powers contained in an instrument, in like manner as they apply to a receiver appointed under any powers contained in an instrument.]

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1. Subs. by Act 11 of 2003, sec. 46, for section 424.

424A. Reference to Tribunal.——

1[424A. Reference to Tribunal.—(1) Where an industrial company, has become a sick industrial company, the Board of directors of such company shall make a reference to the Tribunal, and prepare a scheme of its revival and rehabilitation and submit the same to the Tribunal along with an application containing such particulars as may be prescribed, for determination of the measures which may be adopted with respect to such company:

Provided that nothing contained in this sub-section shall apply to a Government company:

Provided further that a Government company may, with the prior approval of the Central Government or a State Government, as the case may be, make a reference to the Tribunal in accordance with the provisions of this sub-section and thereafter all the provisions of this Act shall apply to such Government company:

2[Provided also that in case any reference had been made before the Tribunal and a scheme for revival and rehabilitation submitted before the commencement of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Ordinance, 2004, such reference shall abate if the secured creditors representing three‑fourth in value of the amount outstanding against financial assistance disbursed to the borrower have taken measures to recover their secured debt under sub‑section (4) of section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002):

Provided also that no reference shall be made under this section if the secured creditors representing three‑fourth in value of the amount outstanding against financial assistance disbursed to the borrower have taken measures to recover their secured debt under sub‑section (4) of section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement Security Interest Act, 2002 (54 of 2002).]

(2) The application under sub-section (1) shall be accompanied by a certificate from an auditor from a panel of auditors prepared by the Tribunal indicating—

(a) the reasons of the net worth of such company being fifty per cent. or less than fifty per cent.; or

(b) the default in repayment of its debt making such company a sick industrial company,

as the case may be.

(3) Without prejudice to the provisions of sub-section (1), the Central Government or the Reserve Bank or a State Government or a public financial institution or a State level institution or a scheduled bank may, if it has sufficient reasons to believe that any industrial company has become, for the purposes of this Act, a sick industrial company, make a reference in respect of such company to the Tribunal for determination of the measures which may be adopted with respect to such company:

Provided that a reference shall not be made under this sub-section in respect of any industrial company by—

(a) the Government of any State unless all or any of the industrial undertakings belonging to such company are situated in such State;

(b) a public financial institution or a State level institution or a scheduled bank unless it has, by reason of any financial assistance or obligation rendered by it, or undertaken by it, with respect to such company, an interest in such company.

(4) A reference under sub-section (1) or sub-section (3) shall be made to the Tribunal within a period of one hundred and eighty days from the date on which the Board of directors of the company or the Central Government or the Reserve Bank of India or a State Government or a public financial institution or a State level institution or a scheduled bank, as the case may be, come to know, of the relevant facts giving rise to causes of such reference or within sixty days of final adoption of accounts, whichever is earlier.

(5) The Tribunal may, on receipt of a reference under sub-section (1), pass an order as to whether a company in respect of which a reference has been made has become a sick industrial company and such order shall be final.]

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1. Section 424A ins. by Act 11 of 2003, sec. 47.

2. Ins. by Act 30 of 2004, sec. 22 (w.e.f. 11-11-2004).

424B. Inquiry into working of sick industrial companies.——

1[424B. Inquiry into working of sick industrial companies.—(1) The Tribunal may make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company—

(a) upon receipt of a reference with respect to such company under section 424A; or

(b) upon information received with respect to such company or upon its own knowledge as to the financial condition of the company.

(2) The Tribunal may, if it deems necessary or expedient so to do for the expeditious disposal of an inquiry under sub-section (1), require by order any operating agency to enquire into the scheme for revival and make a report with respect to such matters as may be specified in the order.

(3) The operating agency shall complete its inquiry as expeditiously as possible and submit its report to the Tribunal within twenty-one days from the date of such order:

Provided that the Tribunal may extend the said period to forty days for reasons to be recorded in writing for such extension.

(4) The Tribunal shall conclude its enquiry as expeditiously as possible and pass final orders in the proceedings within sixty days from the commencement of the inquiry:

Provided that the Tribunal may extend the said period to ninety days for reasons to be recorded in writing for such extension.

Explanation.—For the purposes of this sub-section, an inquiry shall be deemed to have commenced upon the receipt by the Tribunal of any reference or information or upon its own knowledge reduced to writing by the Tribunal.

(5) Where the Tribunal deems it fit to make an enquiry or to cause an inquiry to be made into any industrial company under sub-section (1) or, as the case may be, under sub-section (2), it may appoint one or more persons who possess knowledge, experience and expertise in management and control of the affairs of any other company to be a special director or special directors on the board of such industrial company on such terms and conditions as may be prescribed for safeguarding its financial and other interests or in the public interest.

(6) The special director or special directors appointed under sub-section (5) shall submit a report to the Tribunal within sixty days from the date of appointment of such director or directors about the state of affairs of the company in respect of which reference has been made under sub-section (1) and such special director or directors shall have all the powers of a director of a company under this Act, necessary for discharge of his or their duties.

(7) The Tribunal may issue such directions to a special director appointed under sub-section (5) as it may deem necessary or expedient for proper discharge of his duties.

(8) The appointment of a special director referred to in sub-section (5) shall be valid and effective notwithstanding anything to the contrary contained in any other provision of this Act or in any other law for the time being in force or in the memorandum and articles of association or any other instrument relating to the industrial company, and any provision regarding share qualification, age limit, number of directorships, removal from office of directors and such like conditions contained in any such law or instrument aforesaid, shall not apply to any special director or directors appointed by the Tribunal.

(9) Any special director appointed under sub-section (5), shall—

(a) hold office during the pleasure of the Tribunal and may be removed or substituted by any person by order of the Tribunal;

(b) not incur any obligation or liability by reason only of his being a director or for anything done or omitted to be done in good faith in the discharge of his duties as a director or anything in relation thereto;

(c) not be liable to retirement by rotation and shall not be taken into account for computing the number of directors liable to such retirement;

(d) not be liable to be prosecuted under any law for anything done or omitted to be done in good faith in the discharge of his duties in relation to the sick industrial company.]

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1. Section 424B ins. by Act 11 of 2003, sec. 47.

424C. Powers of Tribunal to make suitable order on completion of inquiry.——

1[424C. Powers of Tribunal to make suitable order on completion of inquiry.—(1) If after making an inquiry under section 424B, the Tribunal is satisfied that a company has become a sick industrial company, the Tribunal shall, after considering all the relevant facts and circumstances of the case, decide, as soon as may be, by an order in writing, whether it is practicable for the company to make its net worth exceed the accumulated losses or make the repayment of its debt referred to in clause (b) of sub-section (2) of section 424A within a reasonable time.

(2) If the Tribunal decides under sub-section (1) that it is practicable for a sick industrial company to make its net worth exceed the accumulated losses or pay its debt referred to in that sub-section within a reasonable time, the Tribunal shall, by order in writing and subject to such restrictions or conditions as may be specified in the order, give such time to the company as it may deem fit to make its net worth exceed the accumulated losses or make repayment of the debt.

(3) If the Tribunal decides under sub-section (1) that it is not practicable for a sick industrial company to make its net worth exceed the accumulated losses or make the repayment of its debts referred to in clause (b) of sub-section (2) of section 424A, within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in section 424D in relation to the said company it may, as soon as may be, by order in writing, direct any operating agency specified in the order to prepare, having regard to such guidelines as may be specified in the order, a scheme providing for such measures in relation to such company.

(4) The Tribunal may,—

(a) if any of the restrictions or conditions specified in an order made under sub-section (2) are not complied with by the company concerned, or if the company fails to revive in pursuance of the said order, review such order on a reference in that behalf from any agency referred to in sub-section (3) of section 424A or on its own motion and pass a fresh order in respect of such company under sub-section (3);

(b) if the operating agency specified in an order made under sub-section (3) makes submission in that behalf, review such order and modify the order in such manner as it may deem appropriate.]

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1. Section 424C ins. by Act 11 of 2003, sec. 47.

424D. Preparation and sanction of schemes.——

1[424D. Preparation and sanction of schemes.—(1) Where an order is made under sub-section (3) of section 424C in relation to any sick industrial company, the operating agency specified in the order shall prepare as expeditiously as possible and ordinarily within a period of sixty days from the date of such order, having regard to the guidelines framed by the Reserve Bank of India in this behalf, a scheme with respect to such company providing for any one or more of the following measures, namely:—

(a) the financial reconstruction of such industrial company;

(b) the proper management of such industrial company by change in, or take over of, the management of such industrial company;

(c) the amalgamation of—

(i) such industrial company with any other company; or

(ii) any other company with such industrial company (hereafter in this section, in the case of sub-clause (i), the other company, and in the case of sub-clause (ii), such industrial company, referred to as “transferee-company”);

(d) the sale or lease of a part or whole of any industrial undertaking of such industrial company;

(e) the rationalization of managerial personnel, supervisory staff and workmen in accordance with law;

(f) such other preventive ameliorative and remedial measures as may be appropriate;

(g) repayment of debt;

(h) such incidental, consequential or supplemental measures as may be necessary or expedient in connection with or for the purposes of the measures specified in clauses (a) to (g):

Provided that the Tribunal may extend the said period of sixty days to ninety days for reasons to be recorded in writing for such extension.

(2) The scheme referred to in sub-section (1) may provide for any one or more of the following, namely:—

(a) the constitution, name and registered office, the capital, assets, powers, rights, interests, authorities and privileges, duties and obligations of the sick industrial company or, as the case may be, of the transferee company;

(b) the transfer to the transferee company of the business, properties, assets and liabilities of the sick industrial company on such terms and conditions as may be specified in the scheme;

(c) any change in the Board of directors, or the appointment of a new Board of directors, of the sick industrial company and authority by whom, the manner in which and the other terms and conditions on which, such change or appointment shall made and in the case of appointment of a new Board of directors or of any director, the period for which such appointment shall be made;

(d) the alteration of the memorandum or articles of association of the sick industrial company or, as the case may be, of the transferee company for the purpose of altering the capital structure thereof, or for such other purposes as may be necessary to give effect to the reconstruction or amalgamation;

(e) the continuation by or against the sick industrial company or, as the case may be, the transferee company of any action or other legal proceeding pending against the sick industrial company immediately before the date of the order made under sub-section (3) of section 424C;

(f) the reduction of the interest or rights which the shareholders have in the sick industrial company to such extent as the Tribunal considers necessary in the interests of the reconstruction, revival or rehabilitation or repayment of debt of such the sick industrial company or for the maintenance of the business of such industrial company;

(g) the allotment to the shareholders of the sick industrial company, of shares in such company or, as the case may be, in the transferee company and where any shareholder claims payment in cash and not allotment of shares, or where it is not possible to allot shares to any shareholder, the payment of cash to those shareholders in full satisfaction of their claims—

(i) in respect of their interest in shares in the sick industrial company before its reconstruction or amalgamation; or

(ii) where such interest has been reduced under clause (f) in respect of their interest in shares as so reduced;

(h) any other terms and conditions for the reconstruction or amalgamation of the sick industrial company;

(i) sale of the industrial undertaking of the sick industrial company free from all encumbrances and all liabilities of the company or other such encumbrances and liabilities as may be specified, to any person, including a co-operative society formed by the employees of such undertaking and fixing of reserve price for such sale;

(j) lease of the industrial undertaking of the sick industrial company to any person, including a co-operative society formed by the employees of such undertaking;

(k) method of sale of assets of the industrial undertaking of the sick industrial company such as by public auction or by inviting tenders or in any other manner as may be specified and for the manner of publicity therefor;

(l) issue of the shares in the sick industrial company at the face value or at the intrinsic value which may be at discount value or such other value as may be specified to any industrial company or any person including the executives and employees of such sick industrial company;

(m) such incidental, consequential and supplemental matters as may be necessary to secure that the reconstruction or amalgamation or other measures mentioned in the scheme are fully and effectively carried out.

(3) (a) The scheme prepared by the operating agency shall be examined by the Tribunal and a copy of the scheme with modification, if any, made by the Tribunal shall be sent, in draft, to the sick industrial company and the operating agency and in the case of amalgamation, also to any other company concerned, and the Tribunal may publish or cause to be published the draft scheme in brief in such daily newspapers as the Tribunal may consider necessary, for suggestions and objections, if any, within such period as the Tribunal may specify.

(b) The complete draft scheme shall be kept at the place where registered office of the company is situated or at such places as mentioned in the advertisement.

(c) The Tribunal may make such modifications, if any, in the draft scheme as it may consider necessary in the light of the suggestions and objections received from the sick industrial company and the operating agency and also from the transferee company and any other company concerned in the amalgamation and from any shareholder or any creditors or employees of such companies:

Provided that where the scheme relates to amalgamation, the said scheme shall be laid before the company other than the sick industrial company in the general meeting for the approval of the scheme by its shareholders and no such scheme shall be proceeded with unless it has been approved, with or without modification, by a special resolution passed by the shareholders of the transferee company.

(4) The scheme may thereafter be sanctioned, within sixty days by the Tribunal (hereinafter referred to as the sanctioned scheme) and shall come into force on such date as the Tribunal may specify in this behalf:

Provided that the Tribunal may extend the said period of sixty days to ninety days for reasons to be recorded in writing for such extension:

Provided further that different dates may be specified for different provisions of the scheme.

(5) The Tribunal may, on the recommendations of the operating agency or otherwise, review any sanctioned scheme and make such modifications as it may deem fit or may by order in writing direct any operating agency specified in the order, having regard to such guidelines including the guidelines framed by the Reserve Bank of India in this behalf in order to prepare a fresh scheme providing for such measures as the operating agency may consider necessary.

(6) When a fresh scheme is prepared under sub-section (5), the provisions of sub-sections (3) and (4) shall apply in relation thereto as they apply to in relation to a scheme prepared under sub-section (1).

(7) Where a sanctioned scheme provides for the transfer of any property or liability of the sick industrial company in favour of any other company or person or where such scheme provides for the transfer of any property or liability of any other company or person in favour of the sick industrial company, then, by virtue of, and to the extent provided in, the scheme, on and from the date of coming into operation of the sanctioned scheme or any provision thereof, the property shall be transferred to, and vest in, and the liability shall become the liability of, such other company or person or, as the case may be, the sick industrial company.

(8) The sanction accorded by the Tribunal under sub-section (4) shall be conclusive evidence that all the requirements of this scheme relating to the reconstruction or amalgamation, or any other measure specified therein have been complied with and a copy of the sanctioned scheme certified in writing by an officer of the Tribunal to be a true copy thereof, shall, in all legal proceedings (whether in appeal or otherwise), be admitted as evidence.

(9) A copy of the sanctioned scheme referred to in sub-section (8) shall be filed with the Registrar within the prescribed time by the company in respect of which such scheme relates.

(10) On and from the date of the coming into operation of the sanctioned scheme or any provision thereof, the scheme or such provision shall be binding on the sick industrial company and the transferee company or, as the case may be, the other company and also on the shareholders, creditors and guarantors and employees of the said companies.

(11) The creditors of a sick industrial company may also prepare a scheme for revival or rehabilitation of such sick industrial company and submit the same to the Tribunal for its sanction:

Provided that no scheme shall be submitted by the creditors to the Tribunal unless such scheme has been approved by at least three-fourth in value of creditors of the sick industrial company.

(12) All the provisions relating to the preparation of scheme by the operating agency and sanction of such scheme by the Tribunal shall, as far as may be, apply to the scheme referred to in sub-section (11).

(13) The scheme referred to in sub-section (11) if sanctioned by the Tribunal shall be binding on all the creditors and on other concerned.

(14) If any difficulty arises in giving effect to the provisions of the sanctioned scheme, the Tribunal may, on the recommendation of the operating agency or otherwise, by order, do anything, not inconsistent with such provisions, which appears to it to be necessary or expedient for the purpose of removing the difficulty.

(15) The Tribunal may, if it deems necessary or expedient so to do, by order in writing, direct any operating agency specified in the order to implement a sanctioned scheme with such terms and conditions and in relation to the sick industrial company as may be specified in the order.

(16) Where the whole of the undertaking of the sick industrial company is sold under a sanctioned scheme, the Tribunal may distribute the sale proceeds to the parties entitled thereto in accordance with the provisions of section 529A and other provisions of this Act.

(17) The Tribunal may monitor periodically the implementation of the sanctioned scheme.]

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1. Section 424D ins. by Act 11 of 2003, sec. 47.

[424E. Rehabilitation by giving financial assistance.—

1[424E. Rehabilitation by giving financial assistance.—(1) Where the scheme relates to preventive, ameliorative, remedial and other measures with respect to the sick industrial company, the scheme may provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, a public financial institution or State level institution or any institution or other authority (any Government, bank, institution or other authority required by a scheme to provide for such financial assistance being hereafter in this section referred to as the person required by the scheme to provide financial assistance) to the sick industrial company.

(2) Every scheme referred to in sub-section (1) shall be circulated to every person required by the scheme to provide financial assistance for his consent within a period of sixty days from the date of such circulation or within such further period, not exceeding sixty days, as may be allowed by the Tribunal, and if no consent is received within such period or further period, it shall be deemed that consent has been given.

(3) Where in respect of any scheme the consent referred to in sub-section (2) is given by every person required by the scheme to provide financial assistance, the Tribunal may, as soon as may be, sanction the scheme and on and from the date of such sanction the scheme shall be binding on all concerned.

(4) On the sanction of the scheme under sub-section (3), the financial institutions and the banks required to provide financial assistance, shall designate by mutual agreement a financial institution and a bank from amongst themselves which shall be responsible to disburse financial assistance by way of loans or advances or guarantees or reliefs or concessions or sacrifices agreed to be provided or granted under the scheme on behalf of all financial institutions and banks concerned.

(5) The financial institution and the bank designated under sub-section (4) shall forthwith proceed to release the financial assistance to the sick industrial company in fulfilment of the requirement in this regard.

(6) Where in respect of any scheme consent under sub-section (2) is not given by any person required by the scheme to provide financial assistance, the Tribunal may adopt such other measures, including the winding up of the sick industrial company, as it may deem fit.]

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1. Section 424E ins. by Act 11 of 2003, sec. 47.

424F. Arrangement for continuing operations, etc., during inquiry.

1[424F. Arrangement for continuing operations, etc., during inquiry.—(1) At any time before completion of the inquiry under section 424B, the sick industrial company or the Central Government or the Reserve Bank of India or a State Government or a public financial institution or a State level institution or a scheduled bank or any other institution, bank or authority providing or intending to provide any financial assistance by way of loans or advances or guarantees or reliefs, or concessions to such industrial company may make an application to the Tribunal—

(a) agreeing to an arrangement for continuing the operations of the sick industrial company; or

(b) suggesting a scheme for the financial reconstruction of the sick industrial company.

(2) The Tribunal may, within sixty days of the receipt of the application under sub-section (1), pass such orders thereon as it may deem fit.]

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1. Section 424F ins. by Act 11 of 2003, sec. 47.

424G. Winding up of sick industrial company.—

1[424G. Winding up of sick industrial company.—(1) Where the Tribunal, after making inquiry under section 424B and after consideration of all the relevant facts and circumstances and after giving an opportunity of being heard to all concerned parties, is of the opinion that the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company as a result thereof is not likely to become viable in future and that it is just and equitable that the company should be wound up, it may record its findings and order winding up of the company.

(2) For the purpose of winding up of the sick industrial company, the Tribunal may appoint any officer of the operating agency, if the operating agency gives its consent, as the liquidator of such industrial company and the officer so appointed shall for the purpose of the winding up of such sick industrial company, be deemed to be, and have all the powers of, the official liquidator under this Act.

(3) Notwithstanding anything contained in sub-section (2), the Tribunal may cause to be sold the assets of the sick industrial company in such manner as it may deem fit and pass orders for distribution in accordance with the provisions of section 529A, and other provisions of this Act.

(4) Without prejudice to the other provisions contained in this Act, the winding up of a company shall, as far as may be, concluded within one year from the date of the order made under sub-section (1).]

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1. Section 424G ins. by Act 11 of 2003, sec. 47.

424H. Operating agency to prepare complete inventory, etc.—

1[424H. Operating agency to prepare complete inventory, etc.—Where for the proper discharge of the functions of the Tribunal under this Part, the circumstances so require, the Tribunal may, through any operating agency, cause to be prepared—

(a) with respect to a company a complete inventory of—

(i) all assets and liabilities of whatever nature;

(ii) all books of account, registers, maps, plans, records, documents of title or ownership of property and all other documents of whatever nature relating thereto;

(b) a list of shareholders and a list of creditors showing separately in the list of creditors, the secured creditors and unsecured creditors;

(c) a valuation report in respect of the shares and assets in order to arrive at the reserve price for the sale of a part or whole of the industrial undertaking of the company or for fixation of the lease rent or share exchange ratio;

(d) an estimate of reserve price, lease rent or share exchange ratio;

(e) proforma accounts, where no up-to-date audited accounts are available.

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1. Section 424H ins. by Act 11 of 2003, sec. 47.

424-I. Direction not to dispose of assets.

1[424-I. Direction not to dispose of assets.—The Tribunal may, if it is of opinion, that any direction is necessary in the interest of the sick industrial company or creditors or shareholders or in the public interest, by order, direct such company not to dispose of, except with the prior approval of the Tribunal, any of its assets during the period of inquiry under section 424B or during the period of preparation or consideration of the scheme under section 424C.]

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1. Section 424-I ins. by Act 11 of 2003, sec. 47.

424J. Power of Tribunal to call for periodic information.

1[424J. Power of Tribunal to call for periodic information.—On receipt of reference under section 424A, the Tribunal may call for any periodic information from the company as to the steps taken by the company to make its net worth exceed the accumulated losses or to make repayment of its debts referred to in that section, as the case may be, and the company shall furnish such information.]

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1. Section 424J ins. by Act 11 of 2003, sec. 47.

[424K. Misfeasance proceedings.—

1[424K. Misfeasance proceedings.—(1) If, in the course of scrutiny or implementation of any scheme or proposal, it appears to the Tribunal that any person who has taken part in the promotion, formation or management of the sick industrial company or its undertaking, including any past or present director, manager or officer or employee of the sick industrial company—

(a) has misapplied or retained, or become liable or accountable for, any money or property of the sick industrial company; or

(b) has been guilty of any misfeasance, malfeasance or non-feasance of breach of trust in relation to the sick industrial company, the Tribunal may, by order, direct him to repay or restore the money or property or any part thereof, with or without interest, as it thinks just, or to contribute such sum to the assets of the sick industrial company or the other person, entitled thereto by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust as the Tribunal thinks just, and also report the matter to the Central Government for any other action which that Government may deem fit.

(2) If the Tribunal is satisfied on the basis of the information and evidence in its possession with respect to any person who is or was a director or an officer or other employee of the sick industrial company, that such person by himself or alongwith others had diverted the funds or other property of such company for any purpose other than a bona fide purpose of the company or had managed the affairs of the company in a manner highly detrimental to the interests of the company, the Tribunal shall by order, direct the public financial institutions, scheduled banks and State level institutions not to provide, during a period of ten years from the date of the order, any financial assistance to such person or any firm of which such person is a partner or any company or other body corporate of which such person is a director (by whatever name called).

(3) No order shall be made by the Tribunal under this section against any person unless such person has been given an opportunity for making his submissions.

(4) This section shall apply notwithstanding that the matter is one for which the person may be criminally liable.

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1. Section 424K ins. by Act 11 of 2003, sec. 47.

[424L. Penalty for certain offences.—

1[424L. Penalty for certain offences.—(1) Whoever violates provisions of this Part or any scheme, or any order, of the Tribunal or the Appellate Tribunal or makes a false statement or gives false evidence to the Tribunal or the Appellate Tribunal, and attempts to tamper the records of reference or appeal filed under this Act, shall be punishable with simple imprisonment for a term which may extend to three years or shall be liable to fine not exceeding ten lakhs rupees.

(2) No court shall take cognizance of any offence under sub-section (1) except on a complaint in writing of an officer of the Tribunal or the Appellate Tribunal or any officer of the Central Government authorised by it or any officer of an operating agency as may be authorised in this behalf by the Tribunal or the Appellate Tribunal as the case may be.]

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1. Section 424L ins. by Act 11 of 2003, sec. 47.

Part VII – Winding Up

Chapter I – Preliminary

425. Modes of winding up.—

(1) The winding up of a company may be either—

(a) by the 1[Tribunal]; or

(b) voluntary; 2[***]

3[***]

(2) The provisions of this Act with respect to winding up apply, unless the contrary appears, to the winding up of a company in any of those modes.

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1. Subs. by Act 11 of 2003, sec. 48, for “Court”.

2. The word “or” omitted by Act 11 of 2003, sec. 48.

3. Clause (c) omitted by Act 11 of 2003, sec. 48.

426. Liability as contributories of present and past members.—

(1) In the event of a company being wound up, every present and past member shall be liable to contribute to the assets of the company to an amount sufficient for payment of its debts and liabilities and the costs, charges and expenses of the winding up, and for the adjustment of the rights of the contributories among themselves, subject to the provisions of section 427 and subject also to the following qualifications, namely:—

(a) a past member shall not be liable to contribute if he has ceased to be a member for one year or upwards before the commencement of the winding up;

(b) a past member shall not be liable to contribute in respect of any debt or liability of the company contracted after he ceased to be a member;

(c) no past member shall be liable to contribute unless it appears to the 1[Tribunal] that the present members are unable to satisfy the contributions required to be made by them in pursuance of this Act;

(d) in the case of a company limited by shares, no contribution shall be required from any past or present member exceeding the amount if any unpaid on the shares in respect of which he is liable as such member;

(e) in the case of a company limited by guarantee, no contribution shall, subject to the provisions of sub-section (2), be required from any past or present member exceeding the amount undertaken to be contributed by him to the assets of the company in the event of its being wound up;

(f) nothing in this Act shall invalidate any provision contained in any policy of insurance or other contract whereby the liability of individual members on the policy or contract is restricted, or whereby the funds of the company are alone made liable in respect of the policy or contract;

(g) a sum due to any past or present member of the company in his character as such, by way of dividends, profits or otherwise, shall not be deemed to be a debt of the company payable to that member, in a case of competition between himself and 2[any creditor claiming otherwise than in the character of a past or present member of the company]; but any such sum shall be taken into account for the purpose of the final adjustment of the rights of the contributories among themselves.

(2) In the winding up of a company limited by guarantee which has a share capital, every member of the company shall be liable, in addition to the amount undertaken to be contributed by him to the assets of the company in the event of its being wound up, to contribute to the extent of any sums unpaid on any shares held by him as if the company were a company limited by shares.

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1. Subs. by Act 11 of 2003, sec. 49, for “Court”.

2. Subs. by Act 65 of 1960, sec. 161, for certain words (w.e.f. 28-12-1960).

427. Obligations of directors and managers whose liability is unlimited.

427. Obligations of directors 1[***] and managers whose liability is unlimited.—In the winding up of a limited company, any director 2[***] or manager, whether past or present, whose liability is, under the provisions of this Act, unlimited, shall, in addition to his liability, if any, to contribute as an ordinary member, be liable to make a further contribution as if he were, at the commencement of the winding up, a member of an unlimited company:

Provided that—

(a) a past director 2[***] or manager shall not be liable to make such further contribution, if he has ceased to hold office for a year or upwards before the commencement of the winding up;

(b) a past director 2[***] or manager shall not be liable to make such further contribution in respect of any debt or liability of the company contracted after he ceased to hold office;

(c) subject to the articles of the company, a director 2[***] or manager shall not be liable to make such further contribution, unless the 3[Tribunal] deems it necessary to require the contribution in order to satisfy the debts and liabilities of the company, and the costs, charges and expenses of the winding up.

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1. The words “, managing agents” omitted by Act 53 of 2000, sec. 187 (w.e.f. 13-12-2000).

2. The words “, managing agent, secretaries and treasurers” omitted by Act 53 of 2000, sec. 187 (w.e.f. 13-12-2000).

3. Subs. by Act 11 of 2003, sec. 49, for “Court”.

428. Definition of “contributory”.——

The term “contributory” means every person liable to contribute to the assets of a company in the event of its being wound up, and includes the holder of any shares which are fully paid up; and for the purposes of all proceedings for determining, and all proceedings prior to the final determination of, the persons who are to be deemed contributories, includes any person alleged to be a contributory

429. Nature of liability of contributory.—

(1) The liability of a contributory shall create a debt accruing due from him at the time when his liability commenced, but payable at the times specified in calls made on him for enforcing the liability.

(2) No claim founded on the liability of a contributory shall be cognizable by any Court of Small Causes sitting outside the presidency-towns.

430. Contributories in case of death of member.—

(1) If a contributory dies either before or after he has been placed on the list of contributories, his legal representatives shall be liable in a due course of administration, to contribute to the assets of the company in discharge of his liability, and shall be contributories accordingly.

(2) If the legal representatives make default in paying any money ordered to be paid by them, proceedings may be taken for administering the estate of the deceased contributory and compelling payment thereout of the money due.

(3) For the purposes of this section, where the deceased contributory was a member of a Hindu joint family governed by the Mitakshara School of Hindu Law, his legal representatives shall be deemed to include the surviving coparceners.

431. Contributories in case of insolvency of member.—

If a contributory is adjudged insolvent, either before or after he has been placed on the list of contributories,—

(a) his assignees in insolvency shall represent him for all the purposes of the winding up, and shall be contributories accordingly, and may be called on to admit to proof against the estate of the insolvent, or otherwise to allow to be paid out of his assets in due course of law, any money due from the insolvent in respect of his liability to contribute to the assets of the company; and

(b) there may be proved against the estate of the insolvent the estimated value of his liability to future calls as well as calls already made.

432. Contributories in case of winding up of a body corporate which is a member.—

If a body corporate which is a contributory is ordered to be wound up, either before or after it has been placed on the list of contributories,—

(a) the liquidator of the body corporate shall represent it for all the purposes of the winding up of the company and shall be a contributory accordingly, and may be called on to admit to proof against the assets of the body corporate, or otherwise to allow to be paid out of its assets in due course of law, any money due from the body corporate in respect of its liability to contribute to the assets of the company; and

(b) there may be proved against the assets of the body corporate the estimated value of its liability to future calls as well as calls already made.

Chapter II – Winding up by the Court.

433. Circumstances in which company may be wound up by Tribunal.

1[433. Circumstances in which company may be wound up by Tribunal.—A company may be wound up by the Tribunal,—

(a) if the company has, by special resolution, resolved that the company be wound up by the Tribunal;

(b) if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting;

(c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year;

(d) if the number of members is reduced, in the case of a public company, below seven, and in the case of a private company, below two;

(e) if the company is unable to pay its debts;

(f) if the Tribunal is of the opinion that it is just and equitable that the company should be wound up;

(g) if the company has made a default in filing with the Registrar its balance sheet and profit and loss account or annual return for any five consecutive financial years;

(h) if the company has acted against the interests of the sovereignty and integrity of India, the security of the State, freindly relations with foreign States, public order, decency or morality;

(i) if the Tribunal is of the opinion that the company should be wound up under the circumstances specified in section 424G:

Provided that the Tribunal shall make an order for winding up of a company under clause (h) on application made by the Central Government or a State Government.]

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1. Subs. by Act 11 of 2003, sec. 51, for section 433.

434. Company when deemed unable to pay its debts. —

(1) A company shall be deemed to be unable to pay its debts—

(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding 1[one lakh rupees] then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor;

(b) if execution or other process issued on a decree or order of 2 [any Court or Tribunal] in favour of a creditor of the company is returned unsatisfied in whole or in part; or

(c) if it is proved to the satisfaction of the 3[Tribunal] that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the 3[Tribunal] shall take into account the contingent and prospective liabilities of the company.

(2) The demand referred to in clause (a) of sub-section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by any agent or legal adviser duly authorised on his behalf, or in

the case of a firm, if it is signed by any such agent or legal adviser or by any member of the firm.

COMMENTS

A Court Receiver is a creditor within the meaning of clause (a) of section 434 (1) of the Indian Companies Act; Harinagar Sugar Mills Co. Ltd. v. M.W. Pradhan (now G.V. Dalvi) Court Receiver, High Court, Bombay , 1966 (36) Comp. Cas. 426: 1966 (2) Com LJ 17: AIR 1966 SC 1707.

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1. Subs. by Act 11 of 2003, sec. 52, for “five hundred rupees”.

2. Subs. by Act 11 of 2003, sec. 52, for “any Court”.

3.Subs. by Act 11 of 2003, sec. 52, for “Court”.

435. Transfer of winding up proceedings to District Court.—

[Rep. by the Companies (Second Amendment) Act, 2002, sec. 53.]

436. Withdrawal and transfer of winding up from one District Court to another.—

[Rep. by the Companies (Second Amendment) Act, 2002, sec. 53.]

437. Power of High Court to retain winding up proceedings in District Court.—

[Rep. by the Companies (Second Amendment) Act, 2002, sec. 53.]

438. Jurisdiction of High Court under sections 435, 436 and 437 to be exercised at any time and at any stage.—

[Rep. by the Companies (Second Amendment) Act, 2002, sec. 53.]

439. Provisions as to applications for winding up.——

(1) An application to the 1[Tribunal] for the winding up of a company shall be by petition presented, subject to the provisions of this section,—

(a) by the company; or

(b) by any creditor or creditors, including any contingent or prospective creditor or creditors; or

(c) by any contributory or contributories; or

(d) by all or any of the parties specified in clauses (a), (b) and (c), whether together or separately; or

(e) by the Registrar; or

(f) in a case falling under section 243, by any person authorised by the Central Government in that behalf.

2[(g) in a case falling under clause (h) of section 433, by the Central Government or a State Government.]

(2) A secured creditor, the holder of any debentures (including debenture stock), whether or not any trustee or trustees have been appointed in respect of such and other like debentures, and the trustee for the holders of debentures, shall be deemed to be creditors within the meaning of clause (b) of sub-section (1).

(3) A contributory shall be entitled to present a petition for winding up a company, notwithstanding that he may be the holder of fully paid-up shares, or that the company may have no assets at all or may have no surplus assets left for distribution among the share-holders after the satisfaction of its liabilities.

(4) A contributory shall not be entitled to present a petition for winding up a company unless—

(a) either the number of members is reduced, in the case of a public company, below seven, and, in the case of a private company, below two; or

(b) the shares in respect of which he is a contributory, or some of them, either were originally allotted to him or have been held by him, and registered in his name, for at least six months during the eighteen months immediately before the commencement of the winding up, or have devolved on him through the death of a former holder.

(5) Except in the case where he is authorised in pursuance of clause (f) of sub-section (1), the Registrar shall be entitled to present a petition for winding up a company only on the grounds specified in 3[clauses (b), (c), (d), (e) 4[, (f) and (g)] of section 433:

Provided that the Registrar shall not present a petition on the ground specified in clause (e) aforesaid, unless it appears to him either from the financial condition of the company as disclosed in its balance-sheet or from the report of 5[a special auditor appointed under section 233A or an inspector] appointed under section 235 or 237, that the company is unable to pay its debts:

Provided further that the Registrar shall obtain the previous sanction of the Central Government to the presentation of the petition on any of the grounds aforesaid.

(6) The Central Government shall not accord its sanction in pursuance of the foregoing proviso, unless the company has first been afforded an opportunity of making its representations, if any.

(7) A petition for winding up a company on the ground specified in clause (b) of section 433 shall not be presented—

(a) except by the Registrar or by a contributory; or

(b) before the expiration of fourteen days after the last day on which the statutory meeting referred to in clause (b) aforesaid ought to have been held.

(8) Before a petition for winding up a company presented by a contingent or prospective creditor is admitted, the leave of the 6[Tribunal] shall be obtained for the admission of the petition and such leave shall not be granted—

(a) unless, in the opinion of the 6[Tribunal], there is a prima facie case for winding up the company; and

(b) until such security for costs has been given as the 6[Tribunal] thinks reasonable.

comments

(i) The right to apply for winding up of a company being a creature of statute, none other than those on whom the right to present a winding up petition is conferred by the statute can make an application for winding up of a company; National Textiles Workers’ Union v. P.R. Ramakrishnan, 1983 (53) Comp. Cas. 184: 1983 (1) Com LJ (SC) 1: AIR 1983 SC 759.

(ii) No statutory right is conferred on the workers to present a petition for winding up of a company, they therefore cannot prefer a winding up petition against a company; National Textiles Workers’ Union v. P.R. Ramakrishnan, 1983 (53) Comp. Cas. 184: 1983 (1) Com LJ (SC) 1: AIR 1983 SC 75.

(iii) A winding up order will not be made on a creditor’s petition if it would not benefit him or the company’s creditors generally; Madhu Sudan Gordhandas & Co. v. Madhu Woollen Industries Pvt. Ltd., 1972 (42) Comp. Cas. 125: AIR 1971 SC 2600.

(iv) A Court Receiver is a creditor within the meaning of section 439 (1) (b) of the Indian Companies Act and therefore, is competent to maintain the petition for winding up of the company; Harinagar Sugar Mills Co. Ltd. v. M.W. Pradhan (now G.V. Dalvi) Court Receiver, High Court, Bombay, 1966 (36) Comp. Cas. 426: 1966 (2) Com LJ 17: AIR 1966 SC 1707.

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1. Subs. by Act 11 of 2003, sec. 54, for “Court”.

2. Subs. by Act 11 of 2003, sec. 54.

3. Subs. by Act 65 of 1960, sec. 162, for “clauses (b), (c) and (e)” (w.e.f. 28-12-1960).

4. Subs. by Act 11 of 2003, sec. 54, for “and (f)”.

5. Subs. by Act 65 of 1960, sec. 162, for “an inspector” (w.e.f. 28-12-1960).

6. Subs. by Act 11 of 2003, sec. 54, for “Court”.

439A. Statement of affairs to be filed on winding up of a company.——

1[439A. Statement of affairs to be filed on winding up of a company.—(1) Every company shall file with the Tribunal a statement of its affairs along with the petition for winding up.

(2) Where a company oppose a petition for its winding up, it shall file with the Tribunal a statement of its affairs.

(3) The statement of affairs referred to in sub-section (1) or sub-section (2) shall be accompanied by—

(a) the last known address of all directors and company secretary of such company;

(b) the details of location of assets of the company and their value;

(c) the details of all debtors and creditors with their complete addresses;

(d) the details of workmen and other employees and any amount outstanding to them;

(e) such other details as the Tribunal may direct.]

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1. Ins. by Act 11 of 2003, sec. 55.

[440. Right to present winding up petition where company is being wound up voluntarily.—

1[440. Right to present winding up petition where company is being wound up voluntarily.—(1) Where a company is being wound up voluntarily, a petition for its winding up by the Tribunal may be presented by—

(a) any person authorised to do so under section 439; or

(b) the Official Liquidator.

(2) The Tribunal shall not make a winding up order on a petition presented to it under sub-section (1), unless it is satisfied that the voluntary winding up cannot be continued with due regard to the interests of the creditors or contributories or both.]

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1. Subs. by Act 11 of 2003, sec. 56, for section 440.

[441. Commencement of winding up by Tribunal.—

1[441. Commencement of winding up by Tribunal.—(1) Where, before the presentation of a petition for the winding up of a company by the Tribunal, a resolution has been passed by the company for voluntary winding up, the winding up of the company shall be deemed to have commenced at the time of the passing of the resolution, and unless the Tribunal, on proof of fraud or mistake, thinks fit to direct otherwise, all proceedings taken in the voluntary winding up shall be deemed to have been validly taken.

(2) In any other case, the winding up of a company by the Tribunal shall be deemed to commence at the time of the presentation of the petition for the winding up.]

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1. Subs. by Act 11 of 2003, sec. 56, for section 441.

441A. Levy and collection of cess on turnover or gross receipts of companies.—

(1) There shall be levied and collected, for the purposes of rehabilitation or revival or protection of assets of the sick industrial company, a levy by way of cess at such rate not less than 0.005 per cent. and not more than 0.1 per cent. on the value of annual turnover of every company or its annual gross receipt, whichever is more as the Central Government may, from time to time, specify by notification in the Official Gazette.

(2) Every company shall pay to the Central Government the cess referred to in sub-section (1) within three months from the close of every financial year.

(3) Every company shall furnish, in such form as may be prescribed, to the Central Government and the Tribunal the details of its turnover and gross receipts with payment of cess under sub-section (1).

(4) The Central Government may, by rules made in this behalf, specify the manner in which the cess shall be paid under sub-section (2).

441B. Crediting proceeds of cess to Consolidated Fund of India.——

The proceeds of the cess levied and collected under section 441A shall first be credited to the Consolidated Fund of India and the Central Government may, if Parliament by appropriation made by law in this behalf so provides, pay to the Tribunal, from time to time, out of such proceeds (after deducting the cost of collection), such sums of money as it may think fit for being utilised for the purposes of the Fund.

41C. Rehabilitation Fund.—

(1) There shall be formed for the purposes of rehabilitation or revival or protection of assets of a sick industrial company, a Fund to be called the Rehabilitation and Revival Fund.

(2) There shall be credited to the Fund—

(a) all amounts paid under section 441B;

(b) any amount given as grants by the Central Government for the purposes of this Fund;

(c) any amount given to the Fund from any other source;

(d) any income from investment of the amount in the Fund.

(e) amount refunded by the company under section 441G.

441D. Application of Fund.—

The Fund shall be applied by the Tribunal for the purpose of—

(a) making interim payment of workmen’s dues pending the revival or rehabilitation of the sick industrial company; or

(b) payment of workmen’s dues due to the workmen, referred to in sub-section (3) of section 529, of the sick industrial company; or

(c) protection of assets of sick industrial company; or

(d) revival or rehabilitation of sick industrial company;

which in the opinion of the Tribunal are necessary or expedient for the said purposes.

441E. Power to call for information.——

The Central Government or Tribunal may require any company to furnish for the purposes of rehabilitation or revival or protection of assets of sick industrial companies, such statistical and other information in such form and within such period as may be prescribed.

441F. Penalty for non-payment of cess.—

(1) If any cess payable by a company under section 441A is not paid in accordance with the provisions of that section, it shall be deemed to be in arrears and the same shall be recovered by the Tribunal in such manner as may be prescribed.

(2) The Tribunal may, after such inquiry as it deems fit, impose on the company, which is in arrears under sub-section (1), a penalty not exceeding ten times the amount in arrears:

Provided that before imposing such penalty, such company shall be given a reasonable opportunity of being heard, and if, after such hearing, the Tribunal is satisfied that the default was for any good and sufficient reason, no penalty shall be imposed under this sub-section.

441G. Refund of fund in certain cases.—

(1) Where the fund has been applied by the Tribunal for any of the purposes specified in clauses (a) to (d) of section 441D, such amount of fund shall be recovered from the company after its revival or rehabilitation or out of sale proceeds of its assets after discharging the statutory liabilities and payment of dues to creditors.

(2) The amount referred to in sub-section (1) shall be recovered in the manner as the Tribunal may direct.]

442. Power of Court to stay or restrain proceedings against company.—

[Rep. by the Companies (Second Amendment) Act, 2002, sec. 59.]

443. Powers of Tribunal on hearing petition.——

1[443. Powers of Tribunal on hearing petition.—(1) On hearing a winding up petition, the Tribunal may—

(a) dismiss it, with or without costs; or

(b) adjourn the hearing conditionally or unconditionally; or

(c) make any interim order that it thinks fit; or

(d) make an order for winding up the company with or without costs, or any other order that it thinks fit:

Provided that the Tribunal shall not refuse to make a winding up order on the ground only that the assets of the company have been mortgaged to an amount equal to or in excess of those assets, or that the company has no assets.

(2) Where the petition is presented on the ground that it is just and equitable that the company should be wound up, the Tribunal may refuse to make an order of winding up, if it is of the opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.

(3) Where the petition is presented on the ground of default in delivering the statutory report to the Registrar, or in holding the statutory meeting, the Tribunal may—

(a) instead of making a winding up order, direct that the statutory report shall be delivered or that a meeting shall be held; and

(b) order the costs to be paid by any persons who, in the opinion of the Tribunal, are responsible for the default.]

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1. Subs. by Act 11 of 2003, sec. 60, for section 443.

444. Order for winding up to be communicated to Official Liquidator and Registrar.—

1[444. Order for winding up to be communicated to Official Liquidator and Registrar.—Where the Tribunal makes an order for the winding up of the company, the Tribunal, shall within a period not exceeding two weeks from the date of passing of the order, cause intimation thereof to be sent to the Official Liquidator and the Registrar.]

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1. Subs. by Act 11 of 2003, sec. 60, for section 444.

445. Copy of winding up order to be filed with Registrar.—

(1) On the making of a winding up order, it shall be the duty of the petitioner in the winding up proceedings and of the company to file with the Registrar a certified copy of the order, within 1[thirty days] from the date of the making of the order.

If default is made in complying with the foregoing provision, the petitioner, or as the case may require, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to 2[one thousand rupees] for each day during which the default continues.

3[(1A) In computing the period of 4[thirty days] from the date of the making of a winding up order under sub-section (1) the time requisite for obtaining a certified copy of the order shall be excluded.]

(2) On the filing of a certified copy of the winding up order, the Registrar shall make a minute thereof in his books relating to the company, and shall notify in the Official Gazette that such an order has been made.

(3) Such order shall be deemed to be notice of discharge to the officers and employees of the company, except when the business of the company is continued.

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1. Subs. by Act 31 of 1965 sec. 62 and Sch., for “one month” (w.e.f. 15-10-1965).

2. Subs. by Act 53 of 2000, sec. 188, for “one hundred rupees” (w.e.f. 13-12-2000).

3. Ins. by Act 65 of 1960, sec. 164 (w.e.f. 28-12-1960).

4. Subs. by Act 31 of 1965 sec. 62 and Sch., for “one month” (w.e.f. 15-10-1965).

446. Suits stayed on winding up order.—

(1) When a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the 1[Tribunal] and subject to such terms as the 1[Tribunal] may impose.

2[(2) 3[Tribunal] shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of—

(a) any suit or proceeding by or against the company;

(b) any claim made by or against the company (including claims by or against any of its branches in India);

(c) any application made under section 391 by or in respect of the company;

(d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or rise in course of the winding up of the company,

whether such suit or proceeding has been instituted or is instituted or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960 (65 of 1960).]

4[***]

5[(4) Nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court.]

comments

(i) The expression “Court which is winding up the company” will comprehend the Court before which a winding up petition is pending or which has made an order for winding up of the company and further winding up proceedings are continued under its directions. Such a Court ipso facto would have jurisdiction to entertain the proceedings enumerated in clauses (a) to (d) of sub-section (2) of section 446; Sudarsan Chits (I) Ltd. v. G. Sukumaran Pillai, 1984 (30) Com LJ 40: AIR 1984 SC 1579.

(ii) The expression “other legal proceeding” in sub-section (1) and the expression “legal proceeding” in sub-section (2) convey the same sense and the proceedings in both the sub-sections must be such as can appropriately be dealt with by the winding up Court; S.V. Kondaskar, Official Liquidator v. V.M. Deshpande, 1972 (42) Comp. Cas. 168: AIR 1972 SC 878.

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1. Subs. by Act 11 of 2003, sec. 61, for “Court”.

2. Subs. by Act 65 of 1960, sec. 165, for sub-section (2) (w.e.f. 28-12-1960).

3. Subs. by Act 11 of 2003, sec. 61, for “The Court which is winding up the company”.

4. Sub-section (3) omitted by Act 11 of 2003, sec. 61.

5. Ins. by Act 65 of 1960, sec. 165 (w.e.f. 28-12-1960).

446A. Responsibility of directors and officers to submit to Tribunal audited books and accounts.——

1[446A. Responsibility of directors and officers to submit to Tribunal audited books and accounts.—The directors and other officers of every company shall ensure that books of account of the company are completed and audited upto date of winding up order made by the Tribunal and submitted to it at the cost of the company, failing which such directors and officers shall be liable for punishment for a term not exceeding one year and fine for an amount not exceeding one lakh rupees.]

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1. Ins. by Act 11 of 2003, sec. 62.

447. Effect of winding up order.—

An order for winding up a company shall operate in favour of all the creditors and of all the contributories of the company as if it has been made on the joint petition, of a creditor and of a contributory.

448. Appointment of Official Liquidator.——

1[448. Appointment of Official Liquidator.—(1) For the purposes of this Act, so far as it relates to the winding up of a company by the Tribunal, there shall be an Official Liquidator who—

(a) may be appointed from a penal of professional firms of chartered accountants, advocates, company secretaries, costs and works accountants or firms having a combination of these professions, which the Central Government shall constitute for the Tribunal; or

(b) may be a body corporate consisting of such professionals as may be approved by the Central Government from time to time; or

(c) may be a whole-time or a part-time officer appointed by the Central Government:

Provided that, before appointing the Official Liquidator, the Tribunal may give due regard to the views or opinion of the secured creditors and workmen.

(2) The terms and conditions for the appointment of the Official Liquidator and the remuneration payable to him shall be—

(a) approved by the Tribunal for those appointed under clauses (a) and (b) of sub-section (1), subject to a maximum remuneration of five per cent. of the value of debt recovered and realisation of sale of assets;

(b) approved by the Central Government for those appointed under clause (c) of sub-section (1) in accordance with the rules made by it in this behalf.

(3) Where the Official Liquidator is an officer appointed by the Central Government under clause (c) of sub-section (1), the Central Government may also appoint, if considered necessary, one or more Deputy Official Liquidators or Assistant Official Liquidators to assist the Official Liquidator in the discharge of his functions, and the terms and conditions for the appointment of such Official Liquidators and the remuneration payable to them shall also be in accordance with the rules made by the Central Government.

(4) All references to the “Official Liquidator” in this Act shall be construed as reference to the Official Liquidator specified in sub-section (1), or to the Deputy Official Liquidator or Assistant Official Liquidator referred to in sub-section (3), as the case may be.

(5) The amount of the remuneration payable shall—

(a) form part of the winding up order made by the Tribunal;

(b) be treated as first charge on the realisation of the assets and be paid to the Official Liquidator or to the Central Government, as the case may be.

(6) The Official Liquidator shall conduct proceedings in the winding up of a company and perform such duties in reference thereto as the Tribunal may specify in this behalf:

Provided that the Tribunal may—

(a) transfer the work assigned from one Official Liquidator to another Official Liquidator for the reasons to be recorded in writing;

(b) remove the Official Liquidator on sufficient cause being shown;

(c) proceed against the Official Liquidator for professional misconduct.]

1. Subs. by Act 11 of 2003, sec. 63, for section 448.

449. Official Liquidator to be liquidator.—

On a winding up order being made in respect of a company, the Official Liquidator shall, by virtue of his office, become the liquidator of the company.

450. Appointment and powers of provisional liquidator.——

(1) At any time after the presentation of a winding up petition and before the making of a winding up order, the 1[Tribunal] may appoint the Official Liquidator to be liquidator provisionally.

(2) Before appointing a provisional Liquidator, the 1[Tribunal] shall give notice to the company and give a reasonable opportunity to it to make its representations, if any, unless, for special reasons to be recorded in writing, the 1[Tribunal] thinks fit to dispense with such notice.

(3) Where a provisional liquidator is appointed by the 1[Tribunal], the 1[Tribunal] may limit and restrict his powers by the order appointing him or by a subsequent order, but otherwise he shall have the same powers as a liquidator.

(4) The Official Liquidator shall cease to hold office as provisional liquidator, and shall become the liquidator, of the company, on a winding up order being made.

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1. Subs. by Act 11 of 2003, sec. 64, for “Court”.

451. General Provisions as to liquidators.—

(1) The liquidator shall conduct the proceedings in winding up the company and perform such duties in reference thereto as the 1[Tribunal] may impose.

(2) Where 2[the Official liquidator referred to in clause (c) of sub-section (1) of section 448] becomes or acts as liquidator, there shall be paid to the Central Government out of the assets of the company such fees as may be prescribed.

(3) The acts of a liquidator shall be valid, notwithstanding any defect that may afterwards be discovered in his appointment or qualification:

Provided that nothing in this sub-section shall be deemed to give validity to acts done by a liquidator after his appointment has been shown to be invalid.

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1. Subs. by Act 11 of 2003, sec. 65, for “Court”.

2. Subs. by Act 11 of 2003, sec. 65, for “Official Liquidator”.

452. Style, etc., of liquidator.—

A liquidator shall be described by the style of “The Official Liquidator” of the particular company in respect of which he acts, and not by his individual name.

453. Receiver not to be appointed of assets with liquidator.—

A receiver shall not be appointed of assets in the hands of a liquidator except by, or with the leave of, the 1[Tribunal].

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1. Subs. by Act 11 of 2003, sec. 66, for “Court”.

454. Statement of affairs to be made to Official Liquidator.——

(1) Where the 1[Tribunal] has made a winding up order or appointed the Official Liquidator as provisional liquidator, unless the 1[Tribunal] in its discretion otherwise orders, there shall be made out and submitted to the Official Liquidator a statement as to the affairs of the company in the prescribed form, verified by an affidavit, and containing the following particulars, namely:—

(a) the assets of the company, stating separately the cash balance in hand and at the bank, if any, and the negotiable securities, if any, held by the company;

(b) its debts and liabilities;

(c) the names, residences and occupations of its creditors, stating separately the amount of secured and unsecured debts; and in the case of secured debts, particulars of the securities given, whether by the company or an officer thereof, their value and the dates on which they were given;

(d) the debts due to the company and the names, residences and occupations of the persons from whom they are due and the amount likely to be realised on account thereof;

(e) such further or other information as may be prescribed, or as the Official Liquidator may require.

(2) The statement shall be submitted and verified by one or more of the persons who are at the relevant date the directors and by the person who is at that date the manager, secretary or other chief officer of the company, or by such of the persons hereinafter in this sub-section mentioned, as the Official Liquidator, subject to the direction of the 1[Tribunal], may require to submit and verify the statement, that is to say, persons—

(a) who are or have been officers of the company;

(b) who have taken part in the formation of the company at any time within one year before the relevant date;

(c) who are in the employment of the company, or have been in the employment of the company within the said year, and are, in the opinion of the Official Liquidator, capable of giving the information required;

(d) who are or have been within the said year officers of, or in the employment of, a company which is, or within the said year was, an officer of the company to which the statement relates.

(3) The statement shall be submitted within twenty-one days from the relevant date, or within such extended time not exceeding three months from that date as the Official Liquidator or the 1[Tribunal] may, for special reasons, appoint.

(4) Any person making, or concurring in making, the statement and affidavit required by this section shall be allowed, and shall be paid by the Official Liquidator or provisional liquidator, as the case may be, out of the assets of the company, such costs and expenses incurred in and about the preparation and making of the statement and affidavit as the Official Liquidator may consider reasonable, subject to an appeal to the 1[Tribunal].

2[(5) If any person, without reasonable excuse, makes default in complying with any of the requirements of this section, he shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to 3[one thousand rupees] for every day during which the default continues, or with both.

(5A) The 1[Tribunal] by which the winding up order is made or the provisional liquidator is appointed, may take cognizance of an offence under sub-section (5) upon receiving a complaint of facts constituting such an offence and trying the offence itself in accordance with the procedure laid down in the Code of Criminal Procedure, 1898 (5 of 1898), for the trial of summons cases by magistrates.]

(6) Any person stating himself in writing to be a creditor or contributory of the company shall be entitled, by himself or by his agent, at all reasonable times, on payment of the prescribed fee, to inspect the statement submitted in pursuance of this section, and to a copy thereof or extract therefrom.

(7) Any person untruthfully so stating himself to be a creditor or contributory shall be guilty of an offence under section 182 of the Indian Penal Code (45 of 1860); and shall, on the application of the Official Liquidator, be punishable accordingly.

(8) In this section, the expression “the relevant date” means, in a case where a provisional liquidator is appointed, the date of his appointment, and in a case where no such appointment is made, the date of the winding up order.

1. Subs. by Act 11 of 2003, sec. 66, for “Court”.

2. Subs. by Act 65 of 1960, sec. 167, for sub-section (5) (w.e.f. 28-12-1960).

3. Subs. by Act 53 of 2000, sec. 189, for “one hundred rupees” (w.e.f. 13-12-2000).

455. Report by Official Liquidator

(1) In a case where a winding up order is made, the Official Liquidator shall, as soon as practicable after receipt of the statement to be submitted under section 454 and not later than six months from the date of the order, 2[or such extended period as may be allowed by the Court] or in a case where the 1[Tribunal] orders that no statement need be submitted, as soon as practicable after the date of the order, submit a preliminary report to the 1[Tribunal]-

(a) as to the amount of capital issued, subscribed, and paid up, and the estimated amount of assets and liabilities, giving separately under the heading of assets, particulars of (i) cash and negotiable securities; (ii) debts due from contributories; (iii) debts due to the company and securities if any, available in respect thereof; (iv) movable and immovable properties belonging to the company; and (v) unpaid calls;

(b) if the company has failed, as to the causes of the failure; and

(c) whether, in his opinion, further inquiry is desirable as to any matter relating to the promotion, formation, or failure of the company, or the conduct of the business thereof.

(2) The Official Liquidator may also, if he thinks fit, make a further report, or further reports, stating the manner in which the company was promoted or formed and whether in his opinion any fraud has been committed by any person in its promotion or formation, or by any officer of the company in relation to the company since the formation thereof, and any other matters which, in his opinion, it is desirable to bring to the notice of the 1[Tribunal].

(3) If the Official Liquidator states in any such further report that in this opinion a fraud has been committed as aforesaid, the 1[Tribunal] shall have the further powers provided in section 478.

1. Subs. by Act 11 of 2003, sec. 66, for “Court”.

2. Ins. by Act 65 of 1960, sec, 168 (w.e.f. 28-12-1960).

456. Custody of company’s property..—

(1) Where a winding up order has been made or where a provisional liquidator has been appointed, the liquidator 1[or the provisional liquidator, as the case may be,] shall take into his custody or under his control, all the property, effects and actionable claims to which the company is or appears to be entitled.

1[(1A) For the purpose of enabling the liquidator or the provisional liquidator, as the case may be, to take into his custody or under his control, any property, effects or actionable claims to which the company is or appears to be entitled, the liquidator or the provisional liquidator, as the case may be, may by writing request the Chief Presidency Magistrate or the District Magistrate within whose jurisdiction such property, effects or actionable claims or any books of account or other documents of the company may be found, to take possession thereof, and the Chief Presidency magistrate or the District Magistrate may thereupon after such notice as he may think fit to give to any party, take possession of such property, effects, actionable claims, books of account or other documents and deliver possession thereof to the liquidator or the provisional liquidator.

(1B) For the purpose of securing compliance with the provisions of sub-section (1A), the Chief Presidency Magistrate or the District Magistrate may take or cause to be taken such steps and use or cause to be used such force as may in his opinion be necessary.]

(2) All the property and effects of the company shall be deemed to be in the custody of the 2[Tribunal] as from the date of the order for the winding up of the company.

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1. Ins. by Act 65 of 1960, sec. 169 (w.e.f. 28-12-1960).

2. Subs. by Act 11 of 2003, sec. 66, for “Court”.

457. Powers of liquidator.—

(1) The liquidator in a winding up by the 1[Tribunal] shall have power, with the sanction of the 2[Tribunal],—

(a) to institute or defend any suit, prosecution, or other legal proceeding, civil or criminal, in the name and on behalf of the company;

(b) to carry on the business of the company so far as may be necessary for the beneficial winding up of the company;

(c) to sell the immovable and movable property and actionable claims of the company by public auction or private contract, with power to transfer the whole thereof to any person or body corporate, or to sell the same in parcels;

3[(ca) to sell whole to the undertaking of the company as a going concern;]

(d) to rise on the security of the assets of the company any money requisite;

(e) to do all such other things as may be necessary for winding up the affairs of the company and distributing its assets.

(2) The liquidator in a winding up by the Court shall have power—

(i) to do all acts and to execute, in the name and on behalf of the company, all deeds, receipts, and other documents, and for that purpose to use when necessary, the company’s seal;

4[(ia) to inspect the records and returns of the company on the files of the Registrar without payment of any fee;]

(ii) to prove, rank and claim in the insolvency of any contributory, for any balance against his estate, and to receive dividends in the insolvency, in respect of that balance, as a separate debt due from the insolvent, and rateably with the other separate creditors;

(iii) to draw, accept, make and endorse any bill of exchange, hundi or promissory note in the name and on behalf of the company, with the same effect with respect to the liability of the company as if the bill, hundi, or note had been drawn, accepted, made or indorsed by or on behalf of the company in the course of its business;

(iv) to take out, in his official name, letters of administration to any deceased contributory and to do in his official name any other act necessary for obtaining payment of any money due from a contributory or his estate which cannot be conveniently done in the name of the company, and in all such cases, the money due shall, for the purpose of enabling the liquidator to take out the letters of administration or recover the money, be deemed to be due to the liquidator himself:

Provided that nothing herein empowered shall be deemed to affect the rights, duties, and privileges of any Administrator-General;

(v) to appoint an agent to do any business which the liquidator is unable to do himself.

5[(2A) The liquidator shall—

(a) appoint security guards to protect the property of the company taken into his custody and to make out an inventory of the assets in consultation with secured creditors after giving them notice;

(b) appoint, as the case may be, valuer, chartered surveyors or chartered accountant to assess the value of company’s assets within fifteen days after taking into custody of property, assets referred to in sub-clause (a) and effects or actionable claims subject to such terms and conditions as may be specified by the Tribunal;

(c) give an advertisement, inviting bids for sale of the assets of the company, within fifteen days from the date of receiving valuation report from the valuer, chartered surveyors or chartered accountants referred to in clause (b), as the case may be.

(2B) The liquidator shall, immediately after the order for winding up or appointing the liquidator as provisional Liquidator is made, issue a notice requiring any of the persons mentioned in sub-section (2) of section 454, to submit and verify a statement of the affairs of the company and such notice shall be served by the liquidator.

(2C) The liquidator may apply to the Tribunal for an order directing any person who, in his opinion, is competent to furnish a statement of the affairs under sections 439A and 454 and such person shall for the said purpose be served a notice by the liquidator in the matter as may be prescribed.

(2D) The liquidator may, from time to time, call any person for recording any statement for the purpose of investigating the affairs of the company which is being wound by and it shall be the duty of every such person to attend to the liquidator at such time and place as the liquidator may appoint and give the liquidator all information which he may require and answer all such questions relating to winding up of company as may be put to him by the liquidator.

(2E) Every bidder shall, in response to advertisement referred to in clause (c) of sub-section (2A), deposit, his offer in the manner as may be prescribed, with liquidator or provisional liquidator, as the case may be, within forty-five days from the date of the advertisement and the liquidator or provisional liquidator shall permit inspection of property and assets in respect of which bids were invited:

Provided that such bid may be withdrawn within three days before the last day of closing of the bid:

Provided further that the inspection of property shall be open for not more than five days before closing of the bid.

(2F) The advertisement inviting bids shall contain the following details, namely:—

(a) name, address of registered office of the company and its branch offices, factories and plants and the place where assets of the company are kept and available for sale;

(b) last date for submitting bids which shall not exceed ninety days from the date of advertisement;

(c) time during which the premises of the company shall remain open for inspection;

(d) the last date for withdrawing the bid;

(e) financial guarantee which shall not be less than one-half of the value of the bid;

(f) validity period of the bids;

(g) place and date of opening of the bids in public;

(h) reserve price and earnest money to be deposited along with the bid;

(i) any other terms and conditions of sale which may be prescribed.

(2G) The liquidator appointed shall—

(a) maintain a separate bank account for each company under his charge for depositing the sale proceeds of the assets and recovery of debts of each company;

(b) maintain proper books of account in respect of all receipts and payments made by him in respect of each company and submit half yearly return of receipts and payments to the Tribunal.]

(3) The exercise by the liquidator in a winding up by the Court of the powers conferred by this section shall be subject to the control of the Court; and any creditor or contributory may apply to the Court with respect to the exercise or proposed exercise of any of the powers conferred by this section.

comments

The exercise of power under section 457 (1) (c) to sell the immovable and moveable property of the company by public auction or private contract would require serving any person who would be prejudicially affected by such sale with a notice of the summons under the general rule of natural justice; Smt. Jatan Kanwar Golcha v. Golcha Properties Pvt. Ltd. (in Liquidation), 1971 (41) Comp. Cas. 230: AIR 1971 SC 374.

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1. Subs. by Act 11 of 2003, sec. 66, for “Court”.

2. Subs. by Act 11 of 2003, sec. 67, for “Court”.

3. Ins. by Act 11 of 2003, sec. 67.

4. Ins. by Act 65 of 1960, sec. 170 (w.e.f. 28-12-1960).

5. Ins. by Act 11 of 2003, sec. 67.

458. Discretion of liquidator.——

The 1[Tribunal] may, by order, provide that the liquidator may exercise any of the powers referred to in sub-section (1) of section 457 without the sanction or intervention of the 1[Tribunal]:

Provided always that the exercise by the liquidator of such powers shall be subject to the control of the 1[Tribunal].

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1. Subs. by Act 11 of 2003, sec. 68, for “Court”.

458A. Exclusion of certain time in computing periods of limitation.—

1[458A. Exclusion of certain time in computing periods of limitation.—Notwithstanding anything in the Indian Limitation Act, 1908 (9 of 1908) or in any other law for the time being in force, in computing the period of limitation prescribed for any suit or application in the name and on behalf of a company which is being wound up by the 2[Tribunal], the period from the date of commencement of the winding up of the company to the date on which the winding up order is made (both inclusive) and a period of one year immediately following the date of the winding up order shall be excluded.]

1. Ins. by Act 65 of 1960, sec. 171 (w.e.f. 28-12-1960).

2. Subs. by Act 11 of 2003, sec. 68, for “Court”.

459. Provision for legal assistance to liquidator.——

1[459. Provision for legal assistance to liquidator.—The liquidator may, with the sanction of the Tribunal, appoint one or more chartered accountants or company secretaries or cost accountants or legal practitioners entitled to appear before the Tribunal under section 10GD to assist him in the performance of his duties.]

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1. Subs. by Act 11 of 2003, sec. 69, for section 459.

460. Exercise and control of liquidator’s powers.——

(1) Subject to the provisions of this Act, the liquidator shall, in the administration of the assets of the company and the distribution thereof among its creditors, have regard to any directions which may be given by resolution of the creditors or contributories at any general meeting or by the committee of inspection.

(2) Any directions given by the creditors or contributories at any general meeting shall, in case of conflict, be deemed to override any directions given by the committee of inspection.

(3) The liquidator—

(a) may summon general meetings of the creditors or contributories, whenever he thinks fit, for the purpose of ascertaining their wishes;

(b) shall summon such meetings at such times, as the creditors or contributories, as the case may be, may, by resolution, direct, or whenever requested in writing to do so by not less than one-tenth in value of the creditors or contributories, as the case may be.

(4) The liquidator may apply to the 1[Tribunal] in the manner prescribed, if any, for directions in relation to any particular matter arising in the winding up.

(5) Subject to the provisions of this Act, the liquidator shall use his own discretion in the administration of the assets of the company and in the distribution thereof among the creditors.

(6) Any person aggrieved by any act or decision of the liquidator may apply to the 1[Tribunal]; and the 1[Tribunal] may confirm, reverse or modify the act or decision complained of and make such further order as it thinks just in the circumstances.

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1. Subs. by Act 11 of 2003, sec. 70, for “Court”.

461. Books to be kept by liquidator.—

(1) The liquidator shall keep, in the manner prescribed, proper books in which he shall cause entries or minutes to be made of proceedings at meetings and of such other matters as may be prescribed.

(2) Any creditor or contributory may, subject to the control of the 1[Tribunal], inspect any such books, personally or by his agent.

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1. Subs. by Act 11 of 2003, sec. 70, for “Court”.

462. Audit of liquidator’s accounts.——

(1) The liquidator shall, at such times as may be prescribed but not less than twice in each year during his tenure of office, present to the 1[Tribunal] an account of his receipts and payments as liquidator.

(2) The account shall be in the prescribed form, shall be made in duplicate, and shall be verified by a declaration in the prescribed form.

(3) The 1[Tribunal] shall cause the account to be audited in such manner as it thinks fit; and for the purpose of the audit, the liquidator shall furnish the 1[Tribunal] with such vouchers and information as the 1[Tribunal] may require, and the 1[Tribunal] may, at any time, require the production of, and inspect, any books or accounts kept by the liquidator.

(4) When the account has been audited, one copy thereof shall be filed and kept by the 1[Tribunal], and the other copy shall be delivered to the Registrar for filing; and each copy shall be open to the inspection of any creditor, contributory or person interested.

2[(4A) Where an account referred to in sub-section (4) relates to a Government company in liquidation, the liquidator shall forward a copy thereof,—

(a) to the Central Government, if that Government is a member of the Government company; or

(b) to any State Government, if that Government is a member of the Government company; or

(c) to the Central Government and any State Government, if both the Governments are members of the Government company.]

(5) The liquidator shall cause the account when audited or a summary thereof to be printed, and shall send a printed copy of the account or summary by post to every creditor and to every contributory:

Provided that the 1[Tribunal] may in any case dispense with compliance with this sub-section.

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1. Subs. by Act 11 of 2003, sec. 70, for “Court”.

2. Ins. by Act 31 of 1988, sec. 55 (w.e.f. 15-6-1988).

463. Control of Central Government over liquidators.—

(1) The Central Government shall take cognizance of the conduct of liquidators of companies which are being wound up by the 1[Tribunal], and, if a liquidator does not faithfully perform his duties and duly observe all the requirements imposed on him by this Act 2[or by the Indian Companies Act, 1913 (7 of 1913)], the rules thereunder, or otherwise, with respect to the performance of his duties, or if any compliant is made to the Central Government by any creditor or contributory in regard thereto, the Central Government shall inquire into the matter, and take such action thereon as it may think expedient:

2[Provided that where the winding up of a company has commenced before the commencement of this Act, the 1[Tribunal] may, on the application of the Central Government, appoint in place of such liquidator the Official Liquidator as the liquidator in such winding up.]

(2) The Central Government may at any time require any liquidator of a company which is being wound up by the 1[Tribunal] to answer any inquiry in relation to any winding up in which he is engaged, and may, if the Central Government thinks fit, apply to the 1[Tribunal] to examine him or any other person on oath concerning the winding up.

(3) The Central Government may also direct a local investigation to be made of the books and vouchers of the liquidators.

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1. Subs. by Act 11 of 2003, sec. 70, for “Court”.

2. Ins. by Act 65 of 1960, sec. 172 (w.e.f. 28-12-1960)..

464. Appointment and Composition of committee of inspection.

464. Appointment and Composition of committee of inspection.—2[(1) (a) The 1[Tribunal] may, at the time of making an order for the winding up of a company or at any time thereafter, direct that there shall be appointed a committee of inspection to act with the liquidator.

(b) Where a direction is given by the 1[Tribunal] as aforesaid, the liquidator shall, within two months from the date of such direction, convene a meeting of the creditors of the company (as ascertained from its books and documents) for the purpose of determining who are to be members of the committee.]

3[(2) The liquidator shall, within fourteen days from the date of the creditors’ meeting or such further time as the 1[Tribunal] in its discretion may grant for the purpose, convene a meeting of the contributories to consider the decision of the creditors’ meeting with respect to the membership of the committee; and it shall be open to the meeting of the contributories to accept the decision of the creditors’ meeting with or without modifications or to reject it.]

(3) Except in the case where the meeting of the contributories accepts the decision of the creditors’ meeting in its entirety, it shall be the duty of the liquidator to apply to the 1[Tribunal] for directions as to 4[***] what the composition of the committee shall be, and who shall be members thereof.

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1. Subs. by Act 11 of 2003, sec. 70, for “Court”.

2. Subs. by Act 65 of 1960, sec. 173, for sub-section (1) (w.e.f. 28-12-1960).

3. Subs. by Act 65 of 1960, sec. 173, for sub-section (2) (w.e.f. 28-12-1960).

4. The words “whether there shall be a committee of inspection; and, if so,” omitted by Act 65 of 1960, sec. 173 (w.e.f. 28-12-1960).

465. Constitution and proceedings of committee of inspection.—

(1) A committee of inspection appointed in pursuance of section 464 shall consist of not more than twelve members, being creditors and contributories of the company or persons holding general or special powers of attorney from creditors or contributories, in such proportions as may be agreed on by the meetings of creditors and contributories, or in case of difference of opinion between the meetings, as may be determined by the 1[Tribunal].

(2) The committee of inspection shall have the right to inspect the accounts of the liquidator at all reasonable times.

(3) The committee shall meet at such times as it may from time to time appoint, 2[***] and the liquidator or any member of the committee may also call a meeting of the committee as and when he thinks necessary.

(4) The quorum for a meeting of the committee shall be one-third of the total number of the members, or two, whichever is higher.

(5) The committee may act by a majority of its members present at a meeting, but shall not act unless a quorum is present.

(6) A member of the committee may resign by notice in writing signed by him and delivered to the liquidator.

(7) If a member of the committee is adjudged an insolvent, or compounds or arranges with this creditors, or is absent from five consecutive meetings of the committee without the leave of those members who, together with himself, represent the creditors or contributories, as the case may be, his office shall become vacant.

(8) A member of the committed may be removed at a meeting of creditors if he represents creditors, or at a meeting of contributories if he represents contributories, by an ordinary resolution of which seven days’ notice has been given, stating the object of the meeting.

(9) On a vacancy occurring in the committee, the liquidator shall forthwith summon a meeting of creditors or of contributories, as the case may require, to fill the vacancy; and the meeting may, by resolution, re-appoint the same, or appoint another, creditor or contributory to fill the vacancy:

Provided that if the liquidator, having regard to the position in the winding up, is of the opinion that it is unnecessary for the vacancy to be filled, he may apply to the Court and the 1[Tribunal] may make an order that the vacancy shall not be filled, or shall not be filled except in such circumstances as may be specified in the order.

(10) The continuing members of the committee, if not less than two, may act notwithstanding any vacancy in the committee.

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1. Subs. by Act 11 of 2003, sec. 70, for “Court”.

2. The words “and, failing such appointment, at least once a month,” omitted by Act 65 of 1960, sec. 174 (w.e.f. 28-12-1960).

466. Power of Tribunal to stay winding up.—

1[466. Power of Tribunal to stay winding up.—(1) The Tribunal may at any time after making a winding up order, on the application either of the Official Liquidator or of any creditor or contributory, and on proof to the satisfaction of the Tribunal that all proceedings in relation to the winding up ought to be stayed, make an order staying the proceedings, either altogether or for a limited time, on such terms and conditions as the Tribunal thinks fit.

(2) On any application under this section, the Tribunal may, before making an order, require the Official Liquidator to furnish to the Tribunal a report with respect to any facts or matters which are in his opinion relevant to the application.

(3) A copy of every order made under this section shall forthwith be forwarded by the company, or otherwise as may be prescribed, to the Registrar, who shall make a minute of the order in his books relating to the company.]

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1. Subs. by Act 11 of 2003, sec. 72, for section 466.

467. Settlement of list of contributories and application of assets.——

(1) As soon as may be after making a winding up order, the 1[Tribunal] shall settle a list of contributories, with power to rectify the register of members in all cases where rectification is required in pursuance of this Act, and shall cause the assets of the company to be collected and applied in discharge of its liabilities:

Provided that, where it appears to the 1[Tribunal] that it will not be necessary to make calls on, or adjust the rights of, contributories, the 1[Tribunal] may dispense with the settlement of a list of contributories.

(2) In settling the list of contributories, the 1[Tribunal] shall distinguish between those who are contributories in their own right and those who are contributories as being representatives of, or liable for the debts of, others.

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1. Subs. by Act 11 of 2003, sec. 73, for “Court”.

468. Delivery of property to liquidator.—

The 1[Tribunal] may, at any time after making a winding up order, require any contributory for the time being on the list of contributories, and any trustee, receiver, banker, agent, 2[officer or other employee] of the company, to pay, deliver, surrender or transfer forthwith or within such time as the 1[Tribunal] directs, to the liquidator, any money, property or books and papers 3[in his custody or under his control] to which the company is prima facie entitled.

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1. Subs. by Act 11 of 2003, sec. 73, for “Court”.

2. Subs. by Act 65 of 1960, sec. 175, for “or officer” (w.e.f. 28-12-1960).

3. Subs. by Act 65 of 1960, sec. 175, for “in his hands” (w.e.f. 28-12-1960).

469. Payment of debts due by contributory and extent of set-off.——

(1) The 1[Tribunal] may, at any time after making a winding up order, make an order on any contributory for the time being on the list of contributories to pay, in the manner directed by the order, any money due to the company, from him or from the estate of the person whom he represents, exclusive of any money payable by him or the estate by virtue of any call in pursuance of this Act.

(2) The 1[Tribunal], in making such an order, may—

(a) in the case of an unlimited company, allow to the contributory, by way of set-off, any money due to him or to the estate which he represents, from the company, on any independent dealing or contract with the company, but not any money due to him as a member of the company in respect of any dividend or profit; and

(b) in the case of a limited company, make to any director 2[***] or manager whose liability is unlimited, or to his estate, the like allowance.

(3) In the case of any company, whether limited or unlimited, when all the creditors have been paid in full, any money due on any account whatever to a contributory from the company may be allowed to him by way of set-off against any subsequent call.

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1. Subs. by Act 11 of 2003, sec. 73, for “Court”.

2. The words “, managing agent, secretaries and treasurers” omitted by Act 53 of 2000, sec. 190 (w.e.f. 13-12-2000).

470. Power of Tribunal to make calls.

1[470. Power of Tribunal to make calls.—(1) The Tribunal may, at any time after making a winding up order, and either before or after it has ascertained the sufficiency of the assets of the company,—

(a) make calls on all or any of the contributories for the time being on the list of the contributories, to the extent of their liability, for payment of any money which the Tribunal considers necessary to satisfy the debts and liabilities of the company, and the costs, charges and expenses of winding up, and for the adjustment of the rights of the contributories among themselves; and

(b) make an order for payment of any calls so made.

(2) In making a call, the Tribunal may take into consideration the probability that some of the contributories may, partly or wholly, fail to pay the call.]

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1. Subs. by Act 11 of 2003, sec. 74, for section 470.

471. Payment into bank of moneys due to company.—

(1) The 1[Tribunal] may order any contributory, purchaser or other person from whom any money is due to the company to pay the money into the public account of India in the Reserve Bank of India instead of to the liquidator.

(2) Any such order may be enforced in the same manner as if the 1[Tribunal] had directed payment to the liquidator.

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1. Subs. by Act 11 of 2003, sec. 75, for “Court”.

472. Moneys and securities paid into bank to be subject to order of Tribunal.

1[472. Moneys and securities paid into bank to be subject to order of Tribunal.—All moneys, bills, hundis, notes and other securities paid or delivered into the Reserve Bank of India in the course of the winding up of a company by the Tribunal, shall be subject in all respects to the orders of the Tribunal.]

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1. Subs. by Act 11 of 2003, sec. 76, for section 472.

473. Order on contributory to be conclusive evidence.—

(1) An order made by the 1[Tribunal] on a contributory shall, subject to any right to appeal, be conclusive evidence that the money, if any, thereby appearing to be due or ordered to be paid is due.

(2) All other pertinent matters stated in the order shall be taken to be truly stated as against all persons and in all proceedings whatsoever.

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1. Subs. by Act 11 of 2003, sec. 77, for “Court”.

474. Power to exclude creditors not proving in time.—

The 1[Tribunal] may fix a time or times within which creditors are to prove their debts or claims, or to be excluded from the benefit of any distribution made before those debts or claims are proved.

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1. Subs. by Act 11 of 2003, sec. 77, for “Court”.

475. Adjustment of rights of contributories.—

The 1[Tribunal] shall adjust the rights of the contributories among themselves, and distribute any surplus among the persons entitled thereto.

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1. Subs. by Act 11 of 2003, sec. 77, for “Court”.

476. Power to order costs

The1[Tribunal] may, in the event of the assets being insufficient to satisfy the liabilities, make an order for the payment out of the assets, of the costs, charges and expenses incurred in the winding up, in such order of priority inter se as the 1[Tribunal] thinks just.

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1. Subs. by Act 11 of 2003, sec. 77, for “Court”.

477. Power to summon persons suspected of having property of company, etc.—

(1) The 1[Tribunal] may, at any time after the appointment of a provisional liquidator or the making of a winding up order summon before it any officer of the company or person known or suspected to have in his possession any property or books or papers, of the company or known or suspected to be indebted to the company, or any person whom the 1[Tribunal] deems capable of giving information concerning the promotion, formation, trade, dealings, property, books or papers or affairs of the company.

(2) The 1[Tribunal] may examine any officer or person so summoned on oath concerning the matters aforesaid, either by word of mouth or on written interrogatories; and may, in the former case, reduce his answers to writing and require him to sign them.

(3) The 1[Tribunal] may require any officer or person so summoned to produce any books and papers in his custody or power relating to the company; but, where he claims any lien on books or papers produced by him, the production shall be without prejudice to that lien, and the 1[Tribunal] shall have jurisdiction in the winding up to determine all questions relating to that lien.

(4) If any officer or person so summoned, after being paid or tendered a reasonable sum for his expenses, fails to appear before the 1[Tribunal] at the time appointed, not having a lawful impediment (made known to the 1[Tribunal] at the time of its sitting and allowed by it), the 1[Tribunal] may cause him to be apprehended and brought before the 1[Tribunal] for examination.

2[(5) If, on his examination, any officer or person so summoned admits that he is indebted to the company, the 1[Tribunal] may order him to pay to the provisional liquidator or, as the case may be, the liquidator at such time and in such manner as to the 1[Tribunal] may seem just, the amount in which he is indebted, or any part thereof, either in full discharge of the whole amount or not, as the 1[Tribunal] thinks fit, with or without costs of the examination.

(6) If, on his examination, any such officer or person admits that he has in his possession any property belonging to the company, the 1[Tribunal] may order him to deliver to the provisional liquidator or, as the case may be, the liquidator, that property or any part thereof, at such time, in such manner and on such terms as to the 1[Tribunal] may seem just.

(7) Orders made under sub-sections (5) and (6) shall be executed in the same manner as decrees for the payment of money or for the delivery of property under the Code of Civil Procedure, 1908 (5 of 1908) respectively.

(8) Any person making any payment or delivery in pursuance of an order made under sub-section (5) or sub-section (6) shall by such payment or delivery be, unless otherwise directed by such order, discharged from all liability whatsoever in respect of such debt or property.]

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1. Subs. by Act 11 of 2003, sec. 77, for “Court”.

2. Ins. by Act 65 of 1960, sec. 176 (w.e.f. 28-12-1960).

478. Power to order public examination of promoters, directors, etc.—

(1) When an order has been made for winding up a company by the 1[Tribunal], and the Official Liquidator has made a report to the 1[Tribunal] under this Act, stating that in his opinion a fraud has been committed by any person in the promotion or formation of the company, or by any officer of the company in relation to the company since its formation, the 1[Tribunal] may, after considering the report, direct that that person or officer shall attend before the 1[Tribunal] on a day appointed by it for that purpose, and be publicly examined as to the promotion or formation or the conduct of the business of the company, or as to his conduct and dealings as an officer thereof.

(2) The Official Liquidator shall take part in the examination, and for that purpose may, if specially authorized by the 1[Tribunal] in that behalf, employ such legal assistance as may be sanctioned by the 1[Tribunal].

(3) Any creditor or contributory may also take part in the examination either personally or by any 2[chartered accountants or company secretaries or cost accountants or legal practitioners entitled to appear before the Tribunal under section 10GD].

(4) The 1[Tribunal] may put such questions to the person examined as it thinks fit.

(5) The person examined shall be examined on oath, and shall answer all such questions as the 1[Tribunal] may put, or allow to be put, to him.

(6) A person ordered to be examined under this section—

(a) shall before his examination, be furnished at his own cost with a copy of the Official Liquidator’s report; and

(b) may at his own cost employ an 2[charterted accountants or company secretaries or cost accountants or legal practioners entitled to appear before the Tribunal under section 10GD], who shall be at liberty to put to him such questions as the 1[Tribunal] may deem just for the purpose of enabling him to explain or qualify any answers given by him.

(7) (a) If any such person applies to the 1[Tribunal] to be exempted from any charges made or suggested against him it shall be the duty of the Official Liquidator to appear on the hearing of the application and call the attention to the 1[Tribunal] to any matters which appear to the Official Liquidator to be relevant.

(b) If the Court, after hearing any evidence given or witnesses called by the Official Liquidator, grants the application, the Court may allow the applicant such costs as it may think fit.

(8) Notes of the examination shall be taken down in writing, and shall be read over to or by, and signed by, the person examined: and may thereafter be used in evidence against him, and shall be open to the inspection of any creditor or contributory at all reasonable times.

(9) The Court may, if it thinks fit, adjourn the examination from time to time.

3[(10) An examination under this section may, if the Tribunal so directs, be held before any person or authority authorised by the Tribunal.]

(11) The powers of the Court under this section as to the conduct of the examination, but not as to costs, may be 4[exercised by the person or authoritiy] before whom the examination is held in pursuance of sub-section (10).

comments

Section 478 of the Act does not offend clause (3) of Article 20 of the Constitution of India and no order for public examination under it could violate that clause as there could be no accusation in a proceeding under the section resulting in an order for public examination; Official Liquidator (The Popular Bank Ltd.) v. K. Madhava Naik, 1965 (35) Comp. Cas. 174: 1965 (1) Com LJ 161: AIR 1965 SC 654.

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1. Subs. by Act 11 of 2003, sec. 78, for “Court”.

2. Subs. by Act 11 of 2003, sec. 78, for “advocate, attorney or pleader entitled to appear before the Court”.

3. Subs. by Act 11 of 2003, sec. 78, for sub-section (10).

4. Subs. by Act 11 of 2003, sec. 78, for “exercised by the Judge or officer”.

479. Power to arrest absconding contributory.——

At any time either before or after making a winding up order, the 1[Tribunal] may, on proof of probable cause for believing that a contributory is about to quit India or otherwise to abscond, or is about to remove or conceal any of his property, for the purpose of evading payment of calls or of avoiding examination respecting the affairs of the company, cause—

(a) the contributory to be arrested and safely kept until such time as the 1[Tribunal] may order; and

(b) his books and papers and movable property to be seized and safely kept until such time as the 1[Tribunal] may order.

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1. Subs. by Act 11 of 2003, sec. 79, for “Court”.

480. Saving of existing powers of Tribunal.—

1[480. Saving of existing powers of Tribunal.—Any powers conferred on the Tribunal by this Act shall be in addition to, and not in derogation of, any existing powers of instituting proceedings against any contributory or debtor of the company, or the estate of any contributory or debtor, for the recovery of any call or other sums.]

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1. Subs. by Act 11 of 2003, sec. 80, for section 480.

481. Dissolution of company.——

(1) When the affairs of a company have been completely wound up 1[or when the 2[Tribunal] is of the opinion that the liquidator cannot proceed with the winding up of a company for want of funds and assets or for any other reason whatsoever and it is just and reasonable in the circumstances of the case that an order of dissolution of the company should be made], the 2[Tribunal] shall make an order that the company be dissolved from the date of the order, and the company shall be dissolved accordingly.

(2) A copy to the order shall within 3[thirty] days from the date thereof, be forwarded by the liquidator to the Registrar who shall make in his books a minute of the dissolution of the company.

(3) If the liquidator makes default in forwarding a copy as aforesaid, he shall be punishable with fine which may extend to 4[five hundred rupees] for every day during which the default continues.

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1. Ins. by Act 65 of 1960, sec. 177 (w.e.f. 28-12-1960).

2. Subs. by Act 11 of 2003, sec. 81, for “Court”.

3. Subs. by Act 31 of 1965, sec. 62 and Sch., for “fourteen” (w.e.f. 15-10-1965).

4. Subs. by Act 53 of 2000, sec. 191, for “fifty rupees” (w.e.f. 13-12-2000).

482. Order made in any Court to be enforced by other Courts.—

Any order made by a Court for, or in the course of, winding up a company shall be enforceable at any place in India, other than that over which such Court has jurisdiction, by the Court which would have had jurisdiction in respect of the company if its registered office had been situate at such other place, and in the same manner in all respects as if the order had been made by that Court.

483. Appeals from orders.—

Appeals from 1[any order made or decision given before the commencement of the Companies (Second Amendment) Act, 2002], in the matter of the winding up of a company by the Court shall lie to the same Court to which, in the same manner in which, and subject to the same conditions under which, appeals lie from any order or decision of the Court in cases within its ordinary jurisdiction.

comments

(i) An appeal under section 483 of the Act lies to the same High Court irrespective of the powers under the Letters Patent; Arti Dutta v. Eastern Tea Estate (P) Ltd., 1988 (64) Comp. Cas. 313: 1988 (1) Com LJ 34: AIR 1988 SC 325.

(ii) An order passed by a company Judge directing advertisement of a winding up application is appealable under section 483 of the Companies Act; Golcha Investment (P) Ltd. v. Shanti Chandra Bafna, 1970 (40) Comp. Cas. 1128: AIR 1970 SC 1350.

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1. Subs. by Act 11 of 2003, sec. 82, for “any order made, or decision given”.

Chapter III – Voluntary winding up.

484. Circumstances in which company may be wound up voluntarily.—

(1) A company may be wound up voluntarily—

(a) when the period, if any, fixed for the duration of the company by the articles has expired, or the event, if any, has occurred, on the occurrence of which the articles provide that the company is to be dissolved, and the company in general meeting passes a resolution requiring the company to be wound up voluntarily;

(b) if the company passes a special resolution that the company be wound up voluntarily.

(2) In this Act, the expression “a resolution for voluntary winding up” means a resolution passed under clause (a) or (b) of sub-section (1).

485. Publication of resolution to wind up voluntarily.——

(1) When a company has passed a resolution for voluntary winding up, it shall, within fourteen days of the passing of the resolution, give notice of the resolution by advertisement in the Official Gazette, and also in some newspaper circulating in the district where the registered office of the company is situate.

(2) If default is made in complying with sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to 1[five hundred rupees] for every day during which the default continues.

For the purposes of this sub-section, a liquidator of the company shall be deemed to be an officer of the company.

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1. Subs. by Act 53 of 2000, sec. 192, for “fifty rupees” (w.e.f. 13-12-2000).

486. Commencement of voluntary winding up.—

A voluntary winding up shall be deemed to commence at the time when the resolution for voluntary winding up is passed.

487. Effect of voluntary winding up on status of company.——

In the case of a voluntary winding up, the company shall from the commencement of the winding up, cease to carry on its business, except so far as may be required for the beneficial winding up of such business:

Provided that the corporate state and corporate powers of the company shall continue to till it is dissolved.

comments

A company which has resolved to be voluntary wound up may be dissolved in the manner provided by section 497 (5), till then the company has corporate existence and corporate powers. The property of the company does not vest in the liquidator, it continues to remain vested in the company; Hari Prasad Jayanti Lal & Co. v. V.S. Gupta Income Tax Officer, 1966 (1) Com LJ 230: AIR 1966 SC 1481.

488. Declaration of solvency in case of proposal to wind up voluntarily.—

(1) Where it is proposed to wind up a company voluntarily, its directors, or in case the company has more than two directors, the majority of the directors, may, at a meeting of the Board, make a declaration verified by an affidavit, to the effect that they have made a full inquiry into the affairs of the company, and that, having done so, they have formed the opinion that the company has no debts, or that it will be able to pay its debts in full within such period not exceeding three years from the commencement of the winding up as may be specified in the declaration.

(2) A declaration made as aforesaid shall have no effect for the purposes of this Act, unless—

(a) it is made within the five weeks immediately preceding the date of the passing of the resolution for winding up the company and is delivered to the Registrar for registration before that date; and

1[(b) it is accompanied by a copy of the report of the auditors of the company (prepared, as far as circumstances admit, in accordance with the provisions of this Act) on the profit and loss account of the company for the period commencing from the date up to which the last such account was prepared and ending with the latest practicable date immediately before the making of the declaration and the balance sheet of the company made out as on the last-mentioned date and also embodies a statement of the company’s assets and liabilities as at that date.]

(3) Any director of a company making a declaration under this section without having reasonable grounds for the opinion that the company will be able to pay its debts in full within the period specified in the declaration, shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to 2[fifty thousand rupees], or with both.

(4) If the company is wound up in pursuance of a resolution passed within the period of five weeks after the making of the declaration, but its debts are not paid or provided for in full within the period specified in the declaration, it shall be presumed, until the contrary is shown, that the director did not have reasonable grounds for his opinion.

(5) A winding up in the case of which a declaration has been made and delivered in accordance with this section is in this Act referred to as “a members’ voluntary winding up”; and a winding up in the case of which a declaration has not been so made and delivered is in this Act referred to as a “a creditors’ voluntary winding up”.

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1. Subs. by Act 65 of 1960, sec. 178, for clause (b) (w.e.f. 28-12-1960).

2. Subs. by Act 53 of 2000, sec. 193, for “five thousand rupees” (w.e.f. 13-12-2000).

489. Provisions applicable to a members’ voluntary winding up.—

The provisions contained in sections 490 to 498, both inclusive shall subject to the provisions of section 498, apply in relation to a members’ voluntary winding up.

490. Power of company to appoint and fix remuneration of liquidators.—

(1) The company in general meeting shall—

(a) appoint one or more liquidators for the purpose of winding up the affairs and distributing the assets of the company; and

(b) fix the remuneration, if any, to be paid to the liquidator or liquidators.

(2) Any remuneration so fixed shall not be increased in any circumstances whatever, whether with or without the sanction of the 1[Tribunal].

(3) Before the remuneration of the liquidator or liquidators is fixed, as aforesaid, the liquidator, or any of the liquidators, as the case may be, shall not take charge of his office.

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1. Subs. by Act 11 of 2003, sec. 83, for “Court”.

491. Board’s powers to cease on appointment of liquidator.—

On the appointment of a liquidator, all the powers of the Board of directors and of the managing or whole-time directors 1[***] and manager, if there be any of these, shall cease except for the purpose of giving notice of such appointment to the registrar in pursuance of section 493 or insofar as the company in general meeting or the liquidator may sanction the continuance thereof.

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1. The words “, managing agent, secretaries and treasurers,” omitted by Act 53 of 2000, sec. 194 (w.e.f. 13-12-2000).

492. Power to fill vacancy in office of liquidator.—

(1) If a vacancy occurs by death, resignation or otherwise in the office of any liquidator appointed by the company, the company in general meeting may, subject to any arrangement with its creditors, fill the vacancy.

(2) For that purpose, a general meeting may be convened by any contributory, or by the continuing liquidator or liquidators, if any.

(3) The meeting shall be held in the manner provided by this Act or by the articles, or in such other manner as the1[Tribunal] may, on application by any contributory or by the continuing liquidator or liquidators, determine.

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1. Subs. by Act 11 of 2003, sec. 83, for “Court”.

493. Notice of appointment of liquidator to be given to Registrar.——

(1) The company shall give notice to the Registrar of the appointment of a liquidator or liquidators made by it under section 490, of every vacancy occurring in the office of liquidator, and of the name of the liquidator or liquidators appointed to fill every such vacancy under section 492.

(2) The notice aforesaid shall be given by the company within ten days of the event to which it relates.

(3) If default is made in complying with sub-section (1) or (2), the company, and every officer of the company (including every liquidator or continuing liquidator) who is in default, shall be punishable with fine which may extend to 1[one thousand rupees] for every day during which the default continues.

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1. Subs. by Act 53 of 2000, sec. 195, for “one hundred rupees” (w.e.f. 13-12-2000).

494. Power of liquidator to accept shares, etc., as consideration for sale of property of company.

(1) Where—

(a) a company (in this section called “the transferor company”) is proposed to be, or is in course of being, wound up altogether voluntarily; and

(b) the whole or any part of its business or property is proposed to be transferred or sold to another company, whether a company within the meaning of this Act or not (in this section called “the transferee company”),

the liquidator of the transferor company may, with the sanction of a special resolution of that company conferring on the liquidator either a general authority or an authority in respect of any particular arrangement,—

(i) receive, by way of compensation or part compensation for the transfer or sale, shares, policies, or other like interests in the transferee company, for distribution among the members of the transferor company; or

(ii) enter into any other arrangement whereby the members of the transferor company may, in lieu of receiving cash, shares, policies, or other like interests or in addition thereto, participate in the profits of, or receive any other benefit from, the transferee company.

(2) Any sale or arrangement in pursuance of this section shall be binding on the members of the transferor company.

(3) If any member of the transferor company who did not vote in favour of the special resolution expresses his dissent therefrom in writing addressed to the liquidator, and left at the registered office of the company within seven days after the passing of the resolution he may require the liquidator either—

(a) to abstain from carrying the resolution into effect; or

(b) to purchase his interest at a price to be determined by agreement or by arbitration in the manner provided by this section.

(4) If the liquidator elects to purchase the member’s interest, the purchase money shall be paid before the company is dissolved, and be raised by the liquidator in such manner as may be determined by special resolution.

(5) A special resolution shall not be invalid for the purposes of this section by reason only that it is passed before or concurrently with a resolution for voluntary winding up or for appointing liquidators; but if an order is made within a year for winding up the company by 1[the Tribunal], the special resolution shall not be valid unless it is 2[sanctioned by the Tribunal].

(6) The provisions of the Arbitration Act, 1940 (10 of 1940) other than those restricting the application of that Act in respect of the subject matter of the arbitration, shall apply to all arbitrations in pursuance of this section.

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1. Subs. by Act 11 of 2003, sec. 84, for “or subject to the supervision of the Court”.

2. Subs. by Act 11 of 2003, sec. 84, for “sanctioned by the Court”.

495. Duty of liquidator to call creditors’ meeting in case of insolvency.——

(1) If, in the case of a winding up commenced after the commencement of this Act, the liquidator is at any time of opinion that the company will not be able to pay its debts in full within the period stated in the declaration under section 488, or that period has expired without the debts having been paid in full, he shall forthwith summon a meeting of the creditors, and shall lay before the meeting a statement of the assets and liabilities of the company.

(2) If the liquidator fails to comply with such-section (1), he shall be punishable with fine which may extend to 1[five thousand rupees].

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1. Subs. by Act 53 of 2000, sec. 196, for “five hundred rupees” (w.e.f. 13-12-2000).

496. Duty of liquidator to call general meeting at end of each year.——

(1) Subject to the provisions of section 498, in the event of the winding up continuing for more than one year, the liquidator shall—

(a) call a general meeting of the company at the end of the first year from the commencement of the winding up, and at the end of each succeeding year, or as soon thereafter as may be convenient within three months from the end of the year or such longer period as the Central Government may allow; and

(b) lay before the meeting an account of his acts and dealings and of the conduct of the winding up during the preceding year, together with a statement in the prescribed form and containing the prescribed particulars with respect to the proceedings in, and position of, the liquidation.

(2) If the liquidator fails to comply with sub-section (1) he shall be punishable in respect of each failure, with fine which may extend to 1[one thousand rupees].

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1. Subs. by Act 53 of 2000, sec. 197, for “one hundred rupees” (w.e.f. 13-12-2000)

497. Final meeting and dissolution.—

(1) Subject to the provisions of section 498, as soon as the affairs of the company are fully wound up, the liquidator shall—

(a) make up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of; and

(b) call a general meeting of the company for the purpose of laying the account before it, and giving any explanation thereof.

(2) The meeting shall be called by advertisement—

(a) specifying the time, place and object of the meeting; and

(b) published not less than one month before the meeting in the Official Gazette, and also in some newspaper circulating in the district where the registered office of the company is situate.

(3) Within one week after the meeting, the liquidator shall send to the 1[Registrar and the 2[Official Liquidator referred to in clause (c) of sub-section (1) of section 448 a copy each of the account and shall make a return to each of them] of the holding of the meeting and of the date thereof.

If the copy is not so sent or the return is not so made, the liquidator shall be punishable with fine which may extend to 3[five hundred rupees] for every day during which the default continues.

(4) If a quorum is not present at the meeting aforesaid, the liquidator shall, in lieu of the return referred to in sub-section (3) make a return that the meeting was duly called and that no quorum was present thereat.

Upon such a return being made within one week after the date fixed for the meeting, the provisions of sub-section (3) as to the making of the return shall be deemed to have been complied with.

4[(5) The Registrar, on receiving the account and either the return mentioned in sub-section (3) or the return mentioned in sub-section (4), shall forthwith register them.

(6) The 2[Official Liquidator referred to in clause (c) of sub-section (1) of section 448], on receiving the account and either the return mentioned in sub-section (3) or the return mentioned in sub-section (4), shall, as soon as may be, make, and the liquidator and all officers, past or present, of the company shall give the 2[Official Liquidator referred to in clause (c) of sub-section (1) of section 448] all reasonable facilities to make, a scrutiny of the books and papers of the company and if on such scrutiny the 2[Official Liquidator referred to in clause (c) of sub-section (1) of section 448] makes a report to the 5[Tribunal] that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest, then, from the date of the submission of the report to the 5[Tribunal] the company shall be deemed to be dissolved.

(6A) If on such scrutiny the 2[Official Liquidator referred to in clause (c) of sub-section (1) of section 448] makes a report to the 5[Tribunal] that the affairs of the company have been conducted in a manner prejudicial as aforesaid, the 5[Tribunal] shall by order direct the 2[Official Liquidator referred to in clause (c) of sub-section (1) of section 448] to make a further investigation of the affairs of the company and for that purpose shall invest him with all such powers as the 5[Tribunal] may deem fit.

(6B) On the receipt of the report of the 2[Official Liquidator referred to in clause (c) of sub-section (1) of section 448], on such further investigation the 5[Tribunal] may either make an order that the company shall stand dissolved with effect from the date to be specified by the 5[Tribunal] therein or make such other order as the circumstances of the case brought out in the report permit.]

(7) If the liquidator fails to call a general meeting of the company as required by this section, he shall be punishable with fine which may extend to3[five thousand rupees].

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1. Subs. by Act 31 of 1965, sec. 54, for certain words (w.e.f. 15-10-1965).

2. Subs. by Act 11 of 2003, sec. 85, for “Official Liquidator”.

3. Subs. by Act 53 of 2000, sec. 198, for “fifty rupees” (w.e.f. 13-12-2000).

4. Subs. by Act 31 of 1965, sec. 54, for sub-sections (5) and (6) (w.e.f. 15-10-1965).

5. Subs. by Act 11 of 2003, sec. 85, for “Court”.

498. Alternative provisions as to annual and final meetings in case of insolvency.——

Where section 495 has effect sections 508 and 509 shall apply to the winding up, to the exclusion of sections 496 and 497, as if the winding up were a creditors’ voluntary winding up and not a members’ voluntary winding up:

Provided that the liquidator shall not be required to call a meeting of creditors under section 508 at the end of the first year from the commencement of the winding up, unless the meeting held under section 495 has been held more than three months before the end of that year.

499. Provisions applicable to a creditors’ voluntary winding up.—

The provisions contained in sections 500 to 509, both inclusive, shall apply in relation to a creditors’ voluntary winding up.

500. Meeting of creditors.——

(1) The company shall cause a meeting of the creditors of the company to be called for the day, or the day next following the day, on which there is to be held the general meeting of the company at which the resolution for voluntary winding up is to be proposed, and shall cause notices of the meeting of creditors to be sent by post to the creditors simultaneously with the sending of the notices of the meeting of the company.

(2) The company shall cause notice of the meeting of the creditors to be advertised once at least in the Official Gazette and once at least in two newspapers circulating in the district where the registered office or principal place of business of the company is situate.

(3) The Board of directors of the company shall—

(a) cause a full statement of the position of the company’s affairs together with a list of the creditors of the company and the estimated amount of their claims to be laid before the meeting of the creditors to be held as aforesaid; and

(b) appoint one of their number to preside at the said meeting.

(4) It shall be the duty of the director appointed to preside at the meeting of creditors to attend the meeting and preside thereat.

(5) If the meeting of the company at which the resolution for voluntary winding up is to be proposed is adjourned and the resolution is passed at an adjourned meeting, any resolution passed at the meeting of the creditors held in pursuance of sub-section (1) shall have effect as if it had been passed immediately after the passing of the resolution for winding up the company.

(6) If default is made—

(a) by the company, in complying with sub-sections (1) and (2);

(b) by its Board of directors, in complying with sub-section (3);

(c) by any director of the company, in complying with sub-section (4),

the company, each of the directors, or the director, as the case may be, shall be punishable with fine which may extend to 1[ten thousand rupees] and, in the case of default by the company, every officer of the company who is in default, shall be liable to the like punishment.

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1. Subs. by Act 53 of 2000, sec. 199, for “one thousand rupees” (w.e.f. 13-12-2000).

501. Notice of resolutions passed by creditors’ meeting to be given to Registrar.——

(1) Notice of any resolution passed at a creditors’ meeting in pursuance of section 500 shall be given by the company to the Registrar within ten days of the passing thereof.

(2) If default is made in complying with sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to 1[five hundred rupees] for every day during which the default continues.

For the purposes of this section, a liquidator of the company shall be deemed to be an officer of the company.

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1. Subs. by Act 53 of 2000, sec. 200, for “fifty rupees” (w.e.f. 13-12-2000).

502. Appointment of liquidator.—

(1) The creditors and the company at their respective meetings mentioned in section 500 may nominate a person to be liquidator for the purpose of winding up the affairs and distributing the assets of the company.

(2) If the creditors and the company nominate different persons the person nominated by the creditors shall be liquidator:

Provided that any director, member or creditor of the company may, within seven days after the date on which the nomination was made by the creditors, apply to the 1[Tribunal] for an order either directing that the person nominated as liquidator by the company shall be liquidator instead of or jointly with the person nominated by the creditors, or appointing the Official Liquidator or some other person to be liquidator instead of the person appointed by the creditors.

(3) If no person is nominated by the creditors, the person if any, nominated by the company shall be liquidator.

(4) If no person is nominated by the company, the person, if any, nominated by the creditors shall be liquidator.

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1. Subs. by Act 11 of 2003, sec. 86, for “Court”.

503. Appointment of committee of inspection.—

(1) The creditors at the meeting to be held in pursuance of section 500 or at any subsequent meeting may, if they think fit, appoint a committee of inspection consisting of not more than five persons.

(2) If such a committee is appointed, the company may, either at the meeting at which the resolution for voluntary winding up is passed or at any subsequent general meeting, appoint such number of persons (not exceeding five) as they think fit to act as members of the committee:

Provided that the creditors may, if they think fit, resolve that all or any of the persons so appointed by the company ought not to be members of the committee of inspection.

(3) If the creditors so resolve, the persons mentioned in the resolution shall not, unless the 1[Tribunal] otherwise directs, be qualified to act as members of the committee.

(4) On any application to the 1[Tribunal] for a direction under sub-section (3), the 1[Tribunal] may, if it thinks fit, appoint other persons to act as members of the committee of inspection in the place of the persons mentioned in the creditors’ resolution.

(5) Subject to the provisions of sub-sections (1) to (4) and to such rules as may be made by the Central Government, the provisions of section 465 [except sub-section (1) thereof] shall apply with respect to a committee of inspection appointed under this section as they apply with respect to a committee of inspection appointed in a winding up by the 1[Tribunal] .

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1. Subs. by Act 11 of 2003, sec. 86, for “Court”.

504. Fixing of liquidators’ remuneration.——

(1) The committee of inspection, or if there is no such committee, the creditors, may fix the remuneration to be paid to the liquidator or liquidators.

(2) Where the remuneration is not so fixed, it shall be determined by the 1[Tribunal].

(3) Any remuneration fixed under sub-section (1) or (2) shall not be increased in any circumstances whatever, whether with or without the sanction of the 1[Tribunal].

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1. Subs. by Act 11 of 2003, sec. 86, for “Court”.

505. Board’s powers to cease on appointment of liquidator.——

On the appointment of a liquidator, all the powers of the Board of directors shall cease, except insofar as the committee of inspection, or if there is no such committee, the creditors in general meeting, may sanction the continuance thereof.

506. Power to fill vacancy in office of liquidator.—

If a vacancy occurs by death, resignation or otherwise, in the office of a liquidator (other than a liquidator appointed by, or by the direction of, the 1[Tribunal]), the creditors in general meeting may fill the vacancy.

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1. Subs. by Act 11 of 2003, sec. 86, for “Court”.

507. Application of section 494 to a creditors’ voluntary winding up.—

The provisions of section 494 shall apply in the case of a creditors’ voluntary winding up as in the case of a members’ voluntary winding up, with the modification that the powers of the liquidator under that section shall not be exercised except with the sanction either of the 1[Tribunal] or of the committee of inspection.

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1. Subs. by Act 11 of 2003, sec. 86, for “Court”.

508. Duty of liquidator to call meetings of company and of creditors at end of each year.——

(1) In the event of the winding up continuing for more than one year, the liquidator shall—

(a) call a general meeting of the company and a meeting of the creditors at the end of the first year from the commencement of the winding up and at the end of each succeeding year, or as soon thereafter as may be convenient within three months from the end of the year or such longer period as the Central Government may allow; and

(b) lay before the meetings an account of his acts and dealings and of the conduct of the winding up during the preceding year, together with a statement in the prescribed form and containing the prescribed particulars with respect to the proceedings in, and position of, the winding up.

(2) If the liquidator fails to comply with sub-section (1) he shall be punishable, in respect of each failure, with fine which may extend to 1[one thousand rupees].

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1. Subs. by Act 53 of 2000, sec. 201, for “one hundred rupees” (w.e.f. 13-12-2000).

509. Final meeting and dissolution.—

(1) As soon as the affairs of the company are fully wound up, the liquidator shall—

(a) make up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of; and

(b) call a general meeting of the company and a meeting of the creditors for the purpose of laying the account before the meetings and giving any explanation thereof.

(2) Each such meeting shall be called by advertisement—

(a) specifying the time, place and object thereof; and

(b) published not less than one month before the meeting in the Official Gazette and also in some newspapers circulating in the district where the registered office of the company is situate.

(3) Within one week after the date of the meetings, or if the meetings are not held on the same date, after the date of the later meeting, the liquidator shall send to the 1[Registrar and the 2[Official Liquidator referred to in clause (c) of sub-section (1) of section 448] a copy each of the account and shall make a return to each of them] of the holding of the meetings and of the date or dates on which they were held.

If the copy is not so sent or the return is not so made, the liquidator shall be punishable with fine which may extend to 3[five hundred rupees] for every day during which the default continues.

(4) If a quorum (which for the purposes of this section shall be two persons) is not present at either of such meetings, the liquidator shall, in lieu of the return referred to in sub-section (3), make a return that the meeting was duly called and that no quorum was present thereat.

Upon such a return being made within one week after the date fixed for the meeting, the provisions of sub-section (3) as to the making of the return shall, in respect of that meeting, be deemed to have been complied with.

4[(5) The Registrar, on receiving the account and also, in respect of each such meeting, either the return mentioned in sub-section (3) or the return mentioned in sub-section (4) shall forthwith register them.

(6) The 5[Official Liquidator referred to in clause (c) of sub-section (1) of section 448]], on receiving the account and either the return mentioned in sub-section (3) or the return mentioned in sub-section (4), shall, as soon as may be, make, and the liquidator and all officers, past or present, of the company shall give the 5[Official Liquidator referred to in clause (c) of sub-section (1) ofsection 448]] all reasonable facilities to make, a scrutiny of the books and papers of the company and if on such scrutiny the Official Liquidator makes a report to the6[Tribunal] that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest, then, from the date of the submission of the report to the 6[Tribunal] the company shall be deemed to be dissolved.

(6A) If on such scrutiny the 5[Official Liquidator referred to in clause (c) of sub-section (1) of section 448]] makes a report to the Court that the affairs of the company have been conducted in a manner prejudicial as aforesaid, the 6[Tribunal] shall by order direct the 5[Official Liquidator referred to in clause (c) of sub-section (1) of section 448] to make a further investigation of the affairs of the company and for that purpose shall invest him with all such powers as the 6[Tribunal] may deem fit.

(6B) On the receipt of the report of the 5[Official Liquidator referred to in clause (c) of sub-section (1) of section 448]] on such further investigation the 6[Tribunal] may either make an order that the company shall stand dissolved with effect from the date to be specified by the 6[Tribunal] therein or make such other order as the circumstances of the case brought out in the report permit.]

(7) If the liquidator fails to call a general meeting of the company or a meeting of the creditors as required by this section, he shall be punishable, in respect of each such failure, with fine which may extend to 7[five thousand rupees].

comments

(i) The shareholders or creditors of the dissolved company cannot maintain any action for recovery of its assets. No effective relief can be given in such action, as the company is not a party and the assets cannot be restored to its coffers; Pierce Leslie and Co. Ltd. v. Miss Violet Ouchterlony Wapshare, 1969 (39) Comp. Cas. 808: 1969 (2) Com LJ 113: AIR 1969 SC 843.

(ii) The shareholders or creditors of a dissolved company cannot be regarded as its heirs and successors. On dissolution of the company, its properties if any, vest in the government; Pierce Leslie and Co. Ltd. v. Miss Violet Ouchterlony Wapshare, 1969 (39) Comp. Cas. 808: 1969 (2) Com LJ 113: AIR 1969 SC 843.

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1. Subs. by Act 31 of 1965, sec. 55, for certain words (w.e.f. 15-10-1965).

2. Subs. by Act 11 of 2003, sec. 87, for “Official Liquidator”.

3. Subs. by Act 53 of 2000, sec. 202, for “fifty rupees” (w.e.f. 13-12-2000).

4. Subs. by Act 31 of 1965, sec. 55, for sub-sections (5) and (6) (w.e.f. 15-10-1965).

5. Subs. by Act 11 of 2003, sec. 87, for “Official Liquidator”.

6. Subs. by Act 11 of 2003, sec. 87, for “Court”. 7. Subs. by Act 53 of 2000, sec. 202, for “five hundred rupees” (w.e.f. 13-12-2000).

510. Provisions applicable to every voluntary winding up.—

The provisions contained in sections 511 to 521, both inclusive, shall apply to every voluntary winding up, whether a members’ or a creditors’ winding up.

511. Distribution of property of company.—

Subject to the provisions of this Act as to preferential payments, the assets of a company shall, on its winding up be applied in satisfaction of its liabilities pari passu and subject to such application, shall, unless the articles otherwise provide, be distributed among the members according to their rights and interests in the company.

511A. Application of section 454 to voluntary winding up.—

1[511A. Application of section 454 to voluntary winding up.—The provisions of section 454 shall, so far as may be, apply to every voluntary winding up as they apply to the winding up by the 2[Tribunal] except that references to—

(a) the 2[Tribunal] shall be omitted;

(b) the Official Liquidator or the provisional liquidator shall be construed as references to the liquidator; and

(c) the “relevant date” shall be construed as references to the date of commencement of the winding up.]

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1. Ins. by Act 31 of 1965, sec. 56 (w.e.f. 15-10-1965).

2. Subs. by Act 11 of 2003, sec. 88, for “Court”..

512. Powers and duties of liquidator in voluntary winding up.——

(1) The liquidator may,—

(a) in the case of a members’ voluntary winding up, with the sanction of a special resolution of the company, and in the case of a creditors’ voluntary winding up, with the sanction of the 1[Tribunal] or, the committee of inspection or, if there is no such committee, of a meeting of the creditors, exercise any of the powers given by 2[clauses (a) to (d) of sub-section (1)] of section 457 to a liquidator in a winding up by the 1[Tribunal];

(b) without the sanction referred to in clause (a), exercise any of the other powers given by this Act to the liquidator in a winding up by the 1[Tribunal];

(c) exercise the power of the 1[Tribunal] under this Act of settling a list of contributories (which shall be prima facie evidence of the liability of the persons named therein to be contributories);

(d) exercise the power of the 1[Tribunal] of making calls;

(e) call general meetings of the company for the purpose of obtaining the sanction of the company by ordinary or special resolution, as the case may require, or for any other purpose he may think fit.

(2) The exercise by the liquidator of the powers given by clause (a) of sub-section (1) shall be subject to the control of the 1[Tribunal]; and any creditor or contributory may apply to the 1[Tribunal] with respect to any exercise or proposed exercise of any of the posers conferred by this section.

(3) The liquidator shall pay the debts of the company and shall adjust the rights of the contributories among themselves.

(4) When several liquidators are appointed, any power given by this Act may be exercised by such one or more of them as may be determined at the time of their appointment, or, in default of such determination, by any number of them not being less than two.

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The liquidator appointed in a member’s winding up is merely an agent of the company to administer the property of the company for purposes prescribed by the statute. In distributing the assets including accumulated profits the liquidator acts merely as an agent or administrator for and on behalf of the company; Hari Prasad Jayanti Lal & Co. v. V.S. Gupta, Income Tax Officer, 1966 (1) Com LJ 230: AIR 1966 SC 1481.

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1. Subs. by Act 11 of 2003, sec. 88, for “Court”.

2. Subs. by Act 65 of 1960, sec. 179, for “clauses (i) to (iv) of sub-section (2)” (w.e.f. 28-12-1960).

513. Body corporate not to be appointed as liquidator.—

(1) A body corporate shall not be qualified for appointment as liquidator of a company in a voluntary winding up.

(2) Any appointment made in contravention of sub-section (1) shall be void.

(3) Any body corporate which acts as liquidator of a company and very director 1[***] or a manager thereof shall be punishable with fine which may extend to 2[ten thousand rupees].

3[Provided that, notwithstanding anything contained in any other law for the time being in force, a body corporate consisting of such professionals as may be approved by the Central Government from time to time, shall be qualified for appointment as Official Liquidator under section 448.]

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1. The words “, managing agent, secretaries and treasurers,” omitted by Act 53 of 2000, sec. 203 (w.e.f. 13-12-2000).

2. Subs. by Act 53 of 2000, sec. 203, for “one thousand rupees” (w.e.f. 13-12-2000).

3. Ins. by Act 11 of 2003, sec. 89.

514. Corrupt inducement affecting appointment as liquidator.——

Any person who gives or agrees or offers to give, to any member or creditor of a company any gratification whatever with a view to—

(a) securing his own appointment or nomination as the company’s liquidator; or

(b) securing or preventing the appointment or nomination of some person other than himself, as the company’s liquidator,

shall be punishable with fine which may extend to 1[ten thousand rupees].

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1. Subs. by Act 53 of 2000, sec. 204, for “one thousand rupees” (w.e.f. 13-12-2000).

515. Power of Tribunal to appoint and remove liquidator in voluntary winding up.

1[515. Power of Tribunal to appoint and remove liquidator in voluntary winding up.—(1) If from any cause whatever, there is no liquidator acting, the Tribunal may appoint the Official Liquidator or any other person as a liquidator.

(2) The Tribunal may, on cause shown, remove a liquidator and appoint the Official Liquidator or any other person as a liquidator in place of the removed liquidator.

(3) The Tribunal may also appoint or remove a liquidator on the application made by the Registrar in this behalf.

(4) If the Official Liquidator is appointed as liquidator under the proviso to sub-section (2) of section 502 or under this section, the remuneration to be paid to him shall be fixed by the Tribunal and shall be credited to the Central Government.]

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1. Subs. by Act 11 of 2003, sec. 90, for section 515.

516. Notice by liquidator of his appointment.——

(1) The liquidator shall, within 1[thirty] days after his appointment, publish in the Official Gazette, and deliver to the Registrar for registration, a notice of his appointment in the from prescribed.

(2) If the liquidator fails to company with sub-section (1), he shall be punishable with fine which may extend to 2[five hundred rupees] for every day during which the default continues.

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1. Subs. by Act 31 of 1965, sec. 62 and Sch., for “twenty-one” (w.e.f. 15-10-1965).

2. Subs. by Act 53 of 2000, sec. 205, for “fifty rupees” (w.e.f. 13-12-2000).

517. Arrangement when binding on company and creditors.—

(1) Any arrangement entered into between a company about to be, or in the course of being, wound up and its creditors shall, subject to the right of appeal under this section, be binding on the company and on the creditors if it is sanctioned by a special resolution of the company and acceded to by three-fourths in number and value of the creditors.

(2) Any creditor or contributory may, within three weeks from the completion of the arrangement, appeal to the 1[Tribunal] against it and the 1[Tribunal] may thereupon, as it thinks just, amend, vary, confirm or set aside the arrangement.

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1. Subs. by Act 11 of 2003, sec. 91, for “Court”.

518. Power to apply to Tribunal to have questions determined or powers exercised..—

1[518. Power to apply to Tribunal to have questions determined or powers exercised.—(1) The liquidator or any contributory or creditor may apply to the Tribunal,—

(a) to determine any question arising in the winding up of a company; or

(b) to exercise, as respects the enforcing of calls, the staying of proceedings or any other matter, all or any of the powers which the Tribunal might exercise if the company were being wound up by the Tribunal.

(2) The liquidator or any creditor or contributory may apply to the Tribunal for an order setting aside any attachment, distress or execution put into force against the estate or effects of the company after the commencement of the winding up.

(3) The Tribunal, if satisfied on an application under sub-section (1) or sub-section (2) that the determination of the question or the required exercise of power or the order applied for will be just and beneficial, may accede wholly or partially to the application on such terms and conditions as it thinks fit, or may make such other order on the application as it thinks just.

(4) A copy of an order staying the proceedings in the winding up, made by virtue of this section, shall forthwith be forwarded by the company, or otherwise as may be prescribed, to the Registrar, who shall make a minute of the order in his books relating to the company.]

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1. Subs. by Act 11 of 2003, sec. 92, for section 518.

[519. Application of liquidator to Tribunal for public examination of promoters, directors, etc.——

1[519. Application of liquidator to Tribunal for public examination of promoters, directors, etc.—(1) The liquidator may make a report to the Tribunal stating that in his opinion a fraud has been committed by any person in the promotion or formation of the company or by any officer of the company in relation to the company since its formation; and the Tribunal may, after considering the report, direct that that person or officer shall attend before the Tribunal on a day appointed by it for that purpose, and be publicly examined as to the promotion or formation or the conduct of the business of the company, or as to his conduct and dealings as officer thereof.

(2) The provisions of sub-sections (2) to (11) of section 478 shall apply in relation to any examination directed under sub-section (1) as they apply in relation to an examination directed under sub-section (1) of section 478 with references to the liquidator being substituted for references to the Official Liquidator in those provisions.]

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1. Subs. by Act 11 of 2003, sec. 92, for section 519.

520. Costs of voluntary winding up.——

All costs, charges and expenses properly incurred in the winding up, including the remuneration of the liquidator, shall, subject to the rights of secured creditors, if any, be payable out of the assets of the company in priority to all other claims.

521. Saving of right of creditors and contributories to apply for winding up.——

[Rep. by the Companies (Amendment) Act, 1960 (65 of 1960), sec. 181 (w.e.f. 28-12-1960).]

522. Power to order winding up subject to supervision.——

[Rep. by the Companies (Second Amendment) Act, 2002, sec. 93.]

523. Effect of petition for winding up subject to supervision.——

[Rep. by the Companies (Second Amendment) Act, 2002, sec. 93.]

524. Power of Court to appoint or remove liquidators.——

[Rep. by the Companies (Second Amendment) Act, 2002, sec. 93.]

525. Powers and obligations of liquidator appointed by Court.——

[Rep. by the Companies (Second Amendment) Act, 2002, sec. 93.]

526. Effect of supervision order.—

[Rep. by the Companies (Second Amendment) Act, 2002, sec. 93.]

527. Appointment in certain cases of voluntary liquidators to office of liquidators.——

[Rep. by the Companies (Second Amendment) Act, 2002, sec. 93.]

Chapter V – Provisions applicable to every mode of Winding up

528. Debts of all descriptions to be admitted to proof.——

In every winding up (subject, in the case of insolvent companies, to the application in accordance with the provisions of this Act of the law of insolvency), all debts payable on a contingency, and all claims against the company, present or future, certain or contingent, ascertained or sounding only in damages, shall be admissible to proof against the company, a just estimate being made, so far as possible, of the value of such debts or claims as may be subject to any contingency; or may sound only in damages, or for some other reason may not bear a certain value.

529. Application of insolvency rules in winding up of insolvent companies.——

(1) In the winding up of an insolvent company, the same rules shall prevail and be observed with regard to—

(a) debts provable;

(b) the valuation of annuities and future and contingent liabilities; and

(c) the respective rights of secured and unsecured creditors; as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent:

1[Provided that the security of every secured creditor shall be deemed to be subject to a pari passu charge in favour of the workmen to the extent of the workmen’s portion therein, and, where a secured creditor, instead of relinquishing his security and proving his debt, opts to realise his security,—

(a) the liquidator shall be entitled to represent the workmen and enforce such charge;

(b) any amount realised by the liquidator by way of enforcement of such charge shall be applied rateably for the discharge of workmen’s dues; and

(c) so much of the debt due to such secured creditor as could not be realised by him by virtue of the foregoing provisions of this proviso or the amount of the workmen’s portion in his security, whichever is less, shall rank pari passu with the workmen’s dues for the purposes of section 529A.]

(2) All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of this section:

2[Provided that if a secured creditor instead of relinquishing his security and proving for his debt proceeds to realise his security, he shall be liable to 2[pay his portion of the expenses] incurred by the liquidator (including a provisional liquidator, if any) for the preservation of the security before its realization by the secured creditor.]

3[Explanation.—For the purposes of this proviso, the portion of expenses incurred by the liquidator for the preservation of a security which the secured creditor shall be liable to pay shall be the whole of the expenses less an amount which bears to such expenses the same proportion as the workmen’s portion in relation to the security bears to the value of the security.]

4[(3) For the purposes of this section, section 529A and section 530,—

(a) “workmen”, in relation to a company, means the employees of the company, being workmen within the meaning of the Industrial Disputes Act, 1947 (14 of 1947);

(b) “workmen’s dues”, in relation to a company, means the aggregate of the following sums due from the company to its workmen, namely:—

(i) all wages or salary including wages payable for time or piece work and salary earned wholly or in part by way of commission of any workman, in respect of services rendered to the company and any compensation payable to any workman under any of the provisions of the Industrial Disputes Act, 1947 (14 of 1947);

(ii) all accrued holiday remuneration becoming payable to any workman, or in the case of his death to any other person in his right, on the termination of his employment before, or by the effect of, the winding up order or resolution;

(iii) unless the company is being wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, or unless the company has, at the commencement of the winding up, under such a contract with insurers as is mentioned in section 14 of the Workmen’s Compensation Act, 1923 (8 of 1923) rights capable of being transferred to and vested in the workman, all amounts due in respect of any compensation or liability for compensation under the said Act in respect of the death or disablement of any workman of the company;

(iv) all sums due to any workman from a provident fund, a pension fund, a gratuity fund or any other fund for the welfare of the workmen, maintained by the company;

(c) “workmen’s portion”, in relation to the security of any secured creditor of a company, means the amount which bears to the value of the security the same proportion as the amount of the workmen’s dues bears to the aggregate of—

(i) the amount of workmen’s dues; and

(ii) the amounts of the debts due to the secured creditors.

Illustration

The value of the security of a secured creditor of a company is Rs. 1,00,000. The total amount of the workmen’s dues is Rs. 1,00,000. The amount of the debts due from the company to its secured creditors is Rs. 3,00,000. The aggregate of the amount of workmen’s dues and of the amounts of debts due to secured creditors is Rs. 4,00,000. The workmen’s portion of the security is therefore, one-fourth of the value of the security, that is Rs. 25,000.]

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Once a winding up order is passed the assets of the company pass under the control of the liquidator whose statutory duty is to realize them and pay from out of the sale proceeds its creditors. Such creditors acquire on such order being passed the right to have the assets realised and distributed among them pari passu; J.K. (Bombay) Pvt. Ltd. v. New Kaiser-I-Hind Spinning and Weaving Co. Ltd., 1970 (40) Comp. Cas. 689: (1970) 1 Com LJ 151: AIR 1970 SC 1041.

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1. Ins. by Act 35 of 1985, sec. 4 (w.e.f. 24-5-1985).

2. Ins. by Act 65 of 1960, sec. 183 (w.e.f. 28-12-1960).

3. Subs. by Act 35 of 1985, sec. 4, for “pay the expenses” (w.e.f. 24-5-1985).

4. Ins. by Act 35 of 1985, sec. 4 (w.e.f. 24-5-1985).

530. Preferential payments.——

(1) In a winding up 1[subject to the provisions of section 529A, there shall be paid] in priority to all other debts—

(a) all revenues taxes, cesses and rates due from the company to the Central or a State Government or to a local authority at the relevant date as defined in clause (c) of sub-section (8), and having become due and payable within the twelve months next before that date;

(b) all wages or salary (including wages payable for time or piece work and salary earned wholly or in part by way of commission) of any employee, in respect of services rendered to the company and due for a period not exceeding four months within the twelve months next before the relevant date 2[***] subject to the limit specified in sub-section (2);

(c) all accrued holiday remuneration becoming payable to any employee, or in the case of his death to any other person in his right, on the termination of his employment before, or by the effect of, the winding up order or resolution;

(d) unless the company is being wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, all amounts due, in respect of contributions payable during the twelve months next before the relevant date, by the company as the employer of any persons, under the Employees’ State Insurance Act, 1948 (34 of 1948), or any other law for the time being in force;

(e) unless the company is being wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, or unless the company has, at the commencement of the winding up, under such a contract with insurers as is mentioned in section 14 of the Workmen’s Compensation Act, 1923 (8 of 1923), rights capable of being transferred to and vested in the workman, all amounts due in respect of any compensation or liability for compensation under the said Act in respect of the death or disablement of any employee of the company;

(f) all sums due to any employee from a provident fund, a pension fund, a gratuity fund or any other fund for the welfare of the employees maintained by the company; and

(g) the expenses of any investigation held in pursuance of section 235 or 237, in so far as they are payable by the company.

(2) The sum to which priority is to be given under clause (b) of sub-section (1), shall not, in the case of any one claimant, 3[exceed such sum as may be notified by the Central Government in the Official Gazette].

4[***]

(3) Where any compensation under the Workmen’s Compensation Act, 1923 (8 of 1923), is a weekly payment, the amount due in respect thereof shall, for the purposes of clause (e) of sub-section (1), be taken to be the amount of the lump sum for which the weekly payment could, if redeemable, be redeemed if the employer made an application for that purpose under the said Act.

(4) Where any payment has been made to any employee of a company,—

(i) on account of wages or salary; or

(ii) to him, or in the case of his death, to any other person in his right, on account of accrued holiday remuneration,

out of money advanced by some person for that purpose, the person by whom the money was advanced shall, in a winding up, have a right of priority in respect of the money so advanced and paid, up to the amount by which the sum in respect of which the employee or other person in his right would have been entitled to priority in the winding up has been diminished by reason of the payment having been made.

(5) The foregoing debts shall—

(a) rank equally among themselves and be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions; and

(b) so far as the assets of the company available for payment of general creditors are insufficient to meet them, have priority over the claims of holders of debentures under any floating charge created by the company, and be paid accordingly out of any property comprised in or subject to that charge.

(6) Subject to the retention of such sums as may be necessary for the costs and expenses of the winding up, the foregoing debts shall be discharged forthwith so far as the assets are sufficient to meet them, and in the case of the debts to which priority is given by clause (d) of sub-section (1), formal proof thereof shall not be required except in so far as may be otherwise prescribed.

(7) In the event of a landlord or other person distraining or having distrained on any goods or effects of the company within three months next before the date of a winding up order, the debts to which priority is given by this section shall be a first charge on the goods or effect so distrained on, or the proceeds of the sale thereof:

Provided that, in respect of any money paid under any such charge, the landlord or other person shall have the same rights of priority as the person to whom the payment is made.

(8) For the purposes of this section—

(a) any remuneration in respect of a period of holiday or of absence from work through sickness or other good cause shall be deemed to be wages in respect of services rendered to the company during that period;

(b) the expression “accrued holiday remuneration” includes, in relation to any person, all sums which, by virtue either of his contract of employment or of any enactment (including any order made or direction given under any enactment), are payable on account of the remuneration which would, in the ordinary course, have become payable to him in respect of a period of holiday, had his employment with the company continued until he became entitled to be allowed the holiday; 5[***]

6[(bb) the expression “employees” does not include a workman; and]

(c) the expression “the relevant date” means—

(i) in the case of a company ordered to be wound up compulsorily, the date of the appointment (or first appointment) of a provisional liquidator, or if no such appointment was made, the date of the winding up order, unless in either case the company had commenced to be wound up voluntarily before that date; and

(ii) in any case where sub-clause (i) does not apply, the date of the passing of the resolution for the voluntary winding up of the company.

(9) This section shall not apply in the case of a winding up where the date referred to in sub-section (5) of section 230 of the Indian Companies Act, 1913 (7 of 1913), occurred before the commencement of this Act, and in such a case, the provisions relating to preferential payments which would have applied if this Act had not been passed, shall be deemed to remain in full force.

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Whenever any creditor seeks to prove his debt against the company in liquidation, the rule enacted in section 46 of the Provincial Insolvency Act should apply and only that amount which is ultimately found due from him at the foot of the account in respect of mutual dealings should be recoverable from him and not that the amount due from him should be recovered fully while the amount due to him from the company in liquidation should rank in payment after the preferential claims provided under section 530; Official Liquidator of High Court of Karnataka v. Smt. V. Lakshmikutty, 1981 (51) Comp. Cas. 566: AIR 1981 SC 1483.

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1. Subs. by Act 35 of 1985, sec. 6, for “there shall be paid” (w.e.f. 24-5-1985).

2. Certain words ins. by Act 65 of 1960, sec. 184 (w.e.f. 28-12-1960), and omitted by Act 35 of 1985, sec. 6 (w.e.f. 24-5-1985).

3. Subs. by Act 5 of 1997, sec. 9, for “exceed one thousand rupees” (w.e.f. 1-3-1997).

4. Proviso omitted by Act 35 of 1985, sec. 6 (w.e.f. 24-5-1985).

5. The word “and” omitted by Act 35 of 1985, sec. 6 (w.e.f. 24-5-1985).

6. Ins. by Act 35 of 1985, sec. 6 (w.e.f. 24-5-1985).

531. Fraudulent preference.—

(1) Any transfer of property, movable or immovable, delivery of goods, payment, execution or other act relating to property made, taken or done by or against a company within six months before the commencement of its winding up which, had it been made, taken or done by or against an individual within three months before the presentation of an insolvency petition on which he is adjudged insolvent, would be deemed in his insolvency a fraudulent preference, shall in the event of the company being wound up, be deemed a fraudulent preference of its creditors and be invalid accordingly:

Provided that, in relation to things made, taken or done before the commencement of this Act, this sub-section shall have effect with the substitution, for the reference to six months, of a reference to three months.

(2) For the purposes of sub-section (1), the presentation of a petition for winding up in the case of a winding up by 1[the Tribunal], and the passing of a resolution for winding up in the case of a voluntary winding up, shall be deemed to correspond to the act of insolvency in the case of an individual.

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1. Subs. by Act 11 of 2003, sec. 94, for “or subject to the supervision of the Court”.

531A. Avoidance of voluntary transfer.

2[531A. Avoidance of voluntary transfer.-

Any transfer of property movable or immovable, or any delivery of goods, made by a company, not being a transfer or delivery made in the ordinary course of its business or in favour of a purchaser or encumbrancer in good faith and for valuable consideration, if made within a period of one year before the presentation of a petition for winding up by 1[theTribunal] or the passing of a resolution for voluntary winding up of the company, shall be void against the liquidator.]

1. Subs. by Act 11 of 2003, sec. 94, “or subject to the supervision of the Court”.

2. Ins. by Act 65 of 1960, sec. 185 (w.e.f. 28-12-1960)

532. Transfers for benefit of all creditors to be void.——

Any transfer or assignment by a company of all its property to trustees for the benefit of all its creditors shall be void.

533. Liabilities and rights of certain fraudulently preferred persons.—

(1) Where, in the case of a company which is being wound up, anything made, taken or done after the commencement of this Act is invalid under section 531 as a fraudulent preference of a person interested in property mortgaged or charged to secure the company’s debt, then (without prejudice to any rights or liabilities arising apart from this provisions), the person preferred shall be subject to the same liabilities, and shall have the same rights, as if he had undertaken to be personally liable as surety for the debt, to the extent of the mortgage or charge on the property or the value of his interest, whichever is less.

(2) The value of the said person’s interest shall be determined as at the date of the transaction constituting the fraudulent preference, and shall be determined as if the interest were free of all encumbrances other than those to which the mortgage or charge for the company’s debt was then subject.

(3) On any application made to the 1[Tribunal] with respect to any payment on the ground that the payment was a fraudulent preference of a surety or guarantor, the Court shall have jurisdiction to determine any questions with respect to the payment arising between the person to whom the payment was made and the surety or guarantor and to grant relief in respect thereof, notwithstanding that it is not necessary so to do for the purposes of the winding up, and for that purpose may give leave to bring in the surety or guarantor as a third party as in the case of a suit for the recovery of the sum paid.

This sub-section shall apply, with the necessary modifications, in relation to transactions other than the payment of money as it applies in relation to payments of money.

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1. Subs. by Act 11 of 2003, sec. 95, for “Court”.

534. Effect of floating charge.——

Where a company is being wound up, a floating charge on the undertaking or property of the company created within the twelve months immediately preceding the commencement of the winding up, shall, unless it is proved that the company immediately after the creation of the charge was solvent, be invalid, except to the amount of any cash paid to the company at the time of, or subsequently to the creation of, and in consideration for, the charge, together with interest on that amount at the rate of five per cent. per annum or such other rate as may for the time being be notified by the Central Government in this behalf in the Official Gazette:

Provided that in relation to a charge created more than three months before the commencement of this Act, this section shall have effect with the substitution, for references to twelve months of references to three months.

535. Disclaimer of onerous property in case of a company which is being wound up.—

(1) Where any part of the property of a company which is being wound up consists of—

(a) land of any tenure, burdened with onerous covenants;

(b) shares or stock in companies;

(c) any other property which is unsaleable or is not readily saleable, by reason of its binding the processor thereof either to the performance of any onerous act or to the payment of any sum of money; or

(d) unprofitable contracts,

the liquidator of the company, notwithstanding that he has endeavoured to sell or has taken possession of the property, or exercised any act of ownership in relation thereto, or done anything in pursuance of the contract, may, with the leave of the 1[Tribunal] and subject to the provisions of this section, by writing signed by him, at any time within twelve months after the commencement of the winding up or such extended period as may be allowed by the 1[Tribunal], disclaim the property:

Provided that, where any such property has not come to the knowledge of the liquidator within one month after the commencement of the winding up, the power of disclaiming the property may be exercised at any time within twelve months after he has become aware thereof or such extended period as may be allowed by the 1[Tribunal].

(2) The disclaimer shall operate to determine, as from the date of disclaimer, the rights, interest, and liabilities of the company, and the property of the company, in or in respect of the property disclaimed, but shall not, except so far as is necessary for the purpose of releasing the company and the property of the company from liability, affect the rights or liabilities of any other person.

(3) The 1[Tribunal], before or on granting leave to disclaim, may require such notices to be given to persons interested, and impose such terms as a condition of granting leave, and make such other order in the matter as the 1[Tribunal] thinks just.

(4) The liquidator shall not be entitled to disclaim any property in any case where an application in writing has been made to him by any person interested in the property requiring him to decide whether he will or will not disclaim, and the liquidator has not, within a period of twenty-eight days after the receipt of the application or such extended period as may be allowed by the 1[Tribunal], given notice to the applicant that he intends to apply to the 1[Tribunal] for leave to disclaim; and in case the property is a contract, if the liquidator, after such an application as aforesaid, does not within the said period or extended period disclaim the contract, 2[he shall be deemed to have adopted it].

(5) The 1[Tribunal] may, on the application of any person who is, as against the liquidator, entitled to the benefit or subject to the burden or a contract made with the company, made an order rescinding the contract on such terms as to payment by or to either party of damages for the non-performance of the contract, or otherwise as the 1[Tribunal] thinks just; and any damages payable under the order to any such person may be proved by him as a debt in the winding up.

(6) The 1[Tribunal] may, on an application by any person who either claims any interest in any disclaimed property or is under any liability not discharged by this Act in respect of any disclaimed property, and after hearing any such persons as it thinks fit, make an order for the vesting of the property in, or the delivery of the property to, any person entitled thereto or to whom it may seem just that the property should be delivered by way of compensation for such liability as aforesaid, or a trustee for him, and on such terms as the 1[Tribunal] thinks just; and on any such vesting order being made, the property comprised therein shall vest accordingly in the person therein named in that behalf without any conveyance or assignment for the purpose:

Provided that, where the property disclaimed is of a lease-hold nature the 1[Tribunal] shall not make a vesting order in favour of any person claiming under the company, whether as under-lessee or as mortgagee or holder of a charge by way of demise, except upon the terms of making that person—

(a) subject to the same liabilities and obligations as those to which the company was subject under the lease in respect of the property at the commencement of the winding up; or

(b) if the 1[Tribunal] thinks fit, subject only to the same liabilities and obligations as if the lease had been assigned to that person at that date,

and in either event (if the case so requires) as if the lease had comprised only the property comprised in the vesting order; and any mortgagee or under-lessee declining to accept a vesting order upon such terms shall be excluded from all interest in and security upon the property, and, if there is no person claiming under the company who is willing to accept an order upon such terms, the 1[Tribunal] shall have power to vest the estate and interest of the company in the property in any person liable, either personally or in a representative character, and either alone or jointly with the company, to perform the lessee’s covenants in the lease, freed and discharged from all estates, encumbrances and interests created therein by the company.

(7) Any person injured by the operation of a disclaimer under this section shall be deemed to be a creditor of the company to the amount of the compensation or damages payable in respect of the injury, and may accordingly prove the amount as a debt in the winding up.

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1. Subs. by Act 11 of 2003, sec. 95, for “Court”.

2. Subs. by Act 65 of 1960, sec. 186, for “the company shall be deemed to have adopted it” (w.e.f. 28-12-1960)..

536. Avoidance of transfers, etc., after commencement of winding up.—

(1) In the case of a voluntary winding up, any transfer of shares in the company, not being a transfer made to or with the sanction of the liquidator and any alteration in the status of the members of the company made after the commencement of the winding up, shall be void.

(2) In the case of a winding up by 1[the Tribunal], any disposition of the property (including actionable claims) of the company, and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up, shall 22[unless the Tribunal] otherwise orders, be void.

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1. Subs. by Act 11 of 2003, sec. 96, for “or subject to the supervision of the Court”.

2. Subs. by Act 11 of 2003, sec. 96, for “unless the Court”.

537. Avoidance of certain attachments, executions, etc., in winding up by Tribunal.—

1[537. Avoidance of certain attachments, executions, etc., in winding up by Tribunal.—(1) Where any company is being wound up by Tribunal—

(a) any attachment, distress or execution put in force, without leave of the Tribunal against the estate or effects of the company, after the commencement of the winding up; or

(b) any sale held, without leave of the Tribunal of any of the properties or effects of the company after such commencement] shall be void.

(2) Nothing in this section applies to any proceedings for the recovery of any tax or impost or any dues payable to the Government.]

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1. Subs. by Act 11 of 2003, sec. 97, for section 537.

538. Offences by officers of companies in liquidation.——

(1) If any person, being a past or present officer of a company, which, at the time of the commission of the alleged offence, is being wound up, whether by 1[the Tribunal] or voluntarily, or which is subsequently ordered to be wound up 2[by the Tribunal] or which subsequently passes a resolution for voluntary winding up,—

(a) does not, to the best of his knowledge and belief, fully and truly discover to the liquidator all the property, movable and immovable, of the company, and how and to whom and for what consideration and when the company disposed of any part thereof, except such part as has been disposed of in the ordinary course of the business of the company;

(b) does not deliver up to the liquidator, or as he directs, all such parts of the movable and immovable property of the company as is in his custody or under his control, and which he is required by law to deliver up;

(c) does not deliver up to the liquidator, or as he directs, all such books and papers of the company as are in his custody or under his control and which he is required by law to deliver up;

(d) within the twelve months next before the commencement of the winding up or at any time thereafter, conceals any part of the property of the company to the value of one hundred rupees or upwards, or conceals any debt due to or from the company;

(e) within the twelve months next before the commencement of the winding up or at any time thereafter, fraudulently removes any part of the property of the company to the value of one hundred rupees or upwards;

(f) makes any material omission in any statement relating to the affairs of the company;

(g) knowing or believing that a false debt has been proved by any person under the winding up, fails for a period of one month to inform the liquidator thereof;

(h) after the commencement of the winding up, prevents the production of any book or paper affecting or relating to the property or affairs of the company;

(i) within the twelve months next before the commencement of the winding up or at any time thereafter, conceals, destroys, mutilates or falsifies, or is privy to the concealment, destruction, mutilation or falsification of, any book or paper affecting or relating to, the property or affairs of the company;

(j) within the twelve months next before the commencement of the winding up or at any time thereafter makes, or is privy to the making of, any false entry in any book or paper affecting or relating to, the property or affairs of the company;

(k) within the twelve months next before the commencement of the winding up or at any time thereafter, fraudulently parts with, alters or makes any omission in, or is privy to the fraudulent parting with, altering or making of any omission in, any book or paper affecting or relating to the property or affairs of the company;

(l) after the commencement of the winding up or at any meeting of the creditors of the company within the twelve months next before the commencement of the winding up attempts to account for any part of the property of the company by fictitious losses or expenses;

(m) within the twelve months next before the commencement of the winding up or at any time thereafter, by any false representation or other fraud, obtains on credit, for or on behalf of the company, any property which the company does not subsequently pay for;

(n) within the twelve months next before the commencement of the winding up or at any time thereafter, under the false pretence that the company is carrying on its business, obtains on credit, for or on behalf of the company, any property which the company does not subsequently pay for;

(o) within the twelve months next before the commencement of the winding up or at any time thereafter, pawns, pledges or disposes of any property of the company which has been obtained on credit and has not been paid for, unless such pawning, pledging or disposing is in the ordinary course of the business of the company; or

(p) is guilty of any false representation or other fraud for the purpose of obtaining the consent of the creditors of the company or any of them, to an agreement with reference to the affairs of the company or to the winding up,

he shall be punishable, in the case of any of the offences mentioned in clauses (m), (n) and (o), with imprisonment for a term which may extend to five years, or with fine, or with both, and, in the case of any other offence, with imprisonment for a term which may extend to two years, or with fine, or with both:

Provided that it shall be a good defence—

(i) to a charge under any of the clauses, (b), (c), (d), (f) (n) and (o), if the accused proves that he had no intent to defraud; and

(ii) to a charge under any of the clauses, (a), (h), (i) and (j), if he proves that he had no intent to conceal the true state of affairs of the company or to defeat the law.

(2) Where any person pawns, pledges or disposes of any property in circumstances which amount to an offence under clause (o) of sub-section (1), every person who takes in pawn or pledge or otherwise receives the property, knowing it to be pawned, pledged, or disposed of in such circumstances as aforesaid, shall be punishable with imprisonment for a term which may extend to three years, or with fine, or with both.

(3) For the purposes of this section, the expression “officer” shall include any person in accordance with whose directions or instructions the directors of the company have been accustomed to act.

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1. Subs. by Act 11 of 2003, sec. 98, for “or subject to the supervision of the Court”.

2. Subs. by Act 11 of 2003, sec. 98, for “by the Court”.

539. Penalty for falsification of books.——

If with intent to defraud or deceive any person, any officer or contributory of a company which is being wound up—

(a) destroys mutilates, alters, falsifies or secretes, or is privy to the destruction, mutilation, alteration, falsification or secreting of, any books, papers or securities; or

(b) makes, or is privy to the making of, any false or fraudulent entry in any register, book of account or document belonging to the company,

he shall be punishable with imprisonment for a term which may extend to seven years, and shall also be liable to fine.

540. Penalty for frauds by officers.——

If any person, being at the time of the commission of the alleged offence an officer of a company which is subsequently ordered to be wound up by the 1[Tribunal] or which subsequently passes a resolution for voluntary winding up,—

(a) has, by false pretences or by means of any other fraud, induced any person to give credit to the company; or

(b) with intent to defraud creditors of the company, has made or caused to be made any gift or transfer of or charge on, or has caused or connived at the levying of any execution against, the property of the company; or

(c) with intent to defraud creditors of the company, has concealed or removed any part of the property of the company since the date of any unsatisfied judgment or order for payment of money obtained against the company, or within two months before that date,

he shall be punishable with imprisonment for a term which may extend to two years and shall also be liable to fine.

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1. Subs. by Act 11 of 2003, sec. 99, for “Court”.

541. Liability where proper accounts not kept.——

(1) Where a company is being wound up, if it is shown that proper books of account were not kept by the company throughout the period of two years immediately preceding the commencement of the winding up, or the period between the incorporation of the company and the commencement of the winding up, whichever is shorter, every officer of the company who is in default shall, unless he shows that he acted honestly and that in the circumstances in which the business of the company was carried on, the default was excusable, be punishable with imprisonment for a term which may extend to one year.

(2) For the purposes of sub-section (1), it shall be deemed that proper books of account have not been kept in the case of any company, if there have not been kept—

(a) such books or accounts as are necessary to exhibit and explain the transactions and financial position of the business of the company, including books containing entries made from day to day in sufficient detail of all cash received and all cash paid; and

(b) where the business of the company has involved dealings in goods, statements of the annual stocktakings and (except in the case of goods sold by way of ordinary retail trade) of all goods sold and purchased, showing the goods and the buyers and sellers thereof in sufficient detail to enable those goods and those buyers and sellers to be identified.

542. Liability for fraudulent conduct of business.—

(1) If in the course of the winding up of a company, it appears that any business of the company has been carried on, with intent to defraud creditors of the company or any other persons or for any fraudulent purpose, the 1[Tribunal], on the application of the Official Liquidator, or the liquidator or any creditor or contributory of the company, may, if it thinks it proper so to do, declare that any persons who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the 1[Tribunal] may direct.

On the hearing of an application under this sub-section, the Official Liquidator or the liquidator, as the case may be, may himself give evidence or call witnesses.

(2) (a) Where the 1[Tribunal] makes any such declaration, it may give such further directions as it thinks proper for the purpose of giving effect to that declaration.

(b) In particular, the 1[Tribunal] may make provision for making the liability of any such person under the declaration a charge on any debt or obligation due from the company to him, or on any mortgage or charge or any interest in any mortgage or charge on any assets of the company held by or vested in him, or any person on his behalf, or any person claiming as assignee from or through the person liable or any person acting on his behalf.

(c) The 1[Tribunal] may, from time to time, make such further order as may be necessary for the purpose of enforcing any charge imposed under this sub-section.

(d) For the purpose of this sub-section, the expression “assignee” includes any person to whom or in whose favour, by the directions of the person liable, the debt, obligation, mortgage or charge was created, issued or transferred or the interest was created, but does not include an assignee for valuable consideration (not including consideration by way of marriage) given in good faith and without notice of any of the matters on the ground of which the declaration is made.

(3) Where any business of a company is carried on with such intent or for such purpose as is mentioned in sub-section (1), every person who was knowingly a party to the carrying on of the business in the manner aforesaid, shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to 2[fifty thousand rupees], or with both.

(4) This section shall apply, notwithstanding that the person concerned may be criminally liable in respect of the matters on the ground of which the declaration is to be made.

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1. Subs. by Act 11 of 2003, sec. 99, for “Court”.

2. Subs. by Act 53 of 2000, sec. 206, for “five thousand rupees” (w.e.f. 13-12-2000).

543. Power of Tribunal to assess damages against delinquent directors, etc.—

1[543. Power of Tribunal to assess damages against delinquent directors, etc.—(1) If in the course of winding up of a company, it appears that any person who has taken part in the promotion or formation of the company, or any past or present director, manager, liquidator or officer of the company—

(a) has misapplied, or retained, or become liable or accountable for, any money or property of the company; or

(b) has been guilty of any misfeasance or breach of trust in relation to the company;

the Tribunal may, on the application of the Official Liquidator, or the liquidator, or of any creditor or contributory, made within the time specified in that behalf in sub-section (2), examine into the conduct of the person, director, manager, liquidator or officer aforesaid, and compel him to repay or restore the money or property or any part thereof respectively, with interest at such rate as the Tribunal thinks just, or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust, as the Tribunal thinks just.

(2) An application under sub-section (1) shall be made within five years from the date of the order for winding up, or of the first appointment of the liquidator in the winding up, or of the misapplication, retainer, misfeasance or breach of trust, as the case may be, whichever is longer.

(3) This section shall apply notwithstanding that the matter is one for which the person concerned may be criminally liable.]

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1. Subs. by Act 11 of 2003, sec. 100, for section 543.

544. Liability under sections 542 and 543 to extend to partners or directors in firm or company.—

544. Liability under sections 542 and 543 to extend to partners or directors in firm or company.—Where a declaration under section 542 or an order under section 543 is or may be made in respect of a firm or body corporate, the 1[Tribunal] shall also have power to make a declaration under section 542, or pass an order under section 543, as the case may be, in respect of any person who was at the relevant time a partner in that firm or a director of that body corporate.

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1. Subs. by Act 11 of 2003, sec. 101, for “Court”.

545. Prosecution of delinquent officers and members of company.—

(1) If it appears to the 1[Tribunal] in the course of a winding up by, 2[the Tribunal], that any past or present officer, or any member, of the company has been guilty of any offence in relation to the company, the 3[Tribunal] may, either on the application of any person interested in the winding up or of its own motion, direct the liquidator either himself to prosecute the offender or to refer the matter to the Registrar.

(2) If it appears to the liquidator in the course of a voluntary winding up that any past or present officer, or any member, of the company has been guilty of an offence in relation to the company he shall forthwith report the matter to the Registrar and shall furnish to him such information and give to him such access to and facilities for inspecting and taking copies of any books and papers, being information or books and papers in the possession or under the control of the liquidator and relating to the matter in question, as the Registrar may require

(3) Where any report is made under sub-section (2) to the Registrar, he may, if he thinks fit, refer the matter to the Central Government for further inquiry.

The Central Government shall thereupon investigate the matter and may, if it thinks it expedient, apply to the 3[Tribunal] for an order conferring on any person designated by the Central Government for the purpose, with respect to the company concerned, all such powers of investigating the affairs of the company as are provided by this Act in the case of a winding up by the 3[Tribunal].

(4) If on any report to the Registrar under sub-section (2), it appears to him that the case is not one in which proceedings ought to be taken by him, he shall inform the liquidator accordingly, and thereupon, subject to the previous sanction of the 3[Tribunal], the liquidator may himself take proceedings against the offender.

(5) If it appears to the 3[Tribunal] in the course of a voluntary winding up that any past or present officer, or any member, of the company has been guilty as aforesaid, and that no report with respect to the matter has been made by the liquidator to the Registrar under sub-section (2), the 3[Tribunal] may, on the application of any person interested in the winding up or of its own motion, direct the liquidator to make such a report, and on a report being made accordingly, the provisions of this section shall have effect as though the report had been made in pursuance of the provisions of sub-section (2).

(6) If, where any matter is reported or referred to the Registrar under this section, he considers that the case is one in which a prosecution ought to be instituted, he shall report the matter to the Central Government; and that Government may, after taking such legal advice as it thinks fit, direct the Registrar to institute proceedings:

Provided that no report shall be made by the Registrar under this sub-section without first giving the accused person an opportunity of making a statement in writing to the Registrar and of being heard thereon.

(7) When any proceedings are instituted under this section, it shall be the duty of the liquidator and of every officer and agent of the company past and present (other than the defendant in the proceedings) to give all assistance in connection with the prosecution which he is reasonably able to give.

For the purposes of this sub-section, the expression “agent”, in relation to a company, shall be deemed to include any banker or legal adviser of the company and any person employed by the company as auditor.

(8) If any person fails or neglects to give assistance in the manner required by sub-section (7), the vestigate the matter and may, if it thinks it expedient, apply to the 3[Tribunal] may, on the application of the Registrar, direct that person to comply with the requirements of that sub-section.

(9) Where any such application is made with respect to a liquidator, the vestigate the matter and may, if it thinks it expedient, apply to the 3[Tribunal] may, unless it appears that the failure or neglect was due to the liquidator not having in his hands sufficient assets of the company to enable him so to do, direct that the costs of the application shall be borne by the liquidator personally.

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For the purpose of action under section 545 it is not essential that a public examination should first be held under section 478 of the Act; Official Liquidator (The Popular Bank Ltd.) v. K. Madhava Naik, 1965 (35) Comp. Cas. 174: 1965 (1) Com LJ 161: AIR 1965 SC 654.

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1. Subs. by Act 11 of 2003, sec. 102, for “Court”.

2. Subs. by Act 11 of 2003, sec. 102, for “or subject to the supervision of the Court”.

3. Subs. by Act 11 of 2003, sec. 102, for “Court”.

546. Liquidator to exercise certain powers subject to sanction.——

(1) The liquidator may—

(a) with the 1[sanction of the Tribunal], when the company is being wound up by 2[the Tribunal]; and

(b) with the sanction of a special resolution of the company, in the case of a voluntary winding up,—

(i) pay any classes of creditors in full;

(ii) make any compromise or arrangement with creditors or persons claiming to be creditors, or having or alleging themselves to have any claim, present or future, certain or contingent, ascertained or sounding only in damages, against the company, or whereby the company may be rendered liable; or

(iii) compromise any call or liability to call, debt, and liability capable of resulting in a debt, and any claim, present or future, certain or contingent, ascertained or sounding only in damages, subsisting or alleged to subsist between the company and contributory or alleged contributory or other debtor or person apprehending liability to the company, and all questions in any way relating to or affecting the assets or liabilities or the winding up of the company, on such terms as may be agreed, and take any security for the discharge of any such call, debt, liability or claim, and give a complete discharge in respect thereof.

3[(1A) Notwithstanding anything contained in sub-section (1), in the case of a 4[winding up by the Tribunal], the Supreme Court may make rules under section 643 providing that the liquidator may, under such circumstances, if any, and subject to such conditions, restrictions and limitations, if any, as may be specified in the rules, exercise any of the powers referred to in sub-clause (ii) or sub-clause (iii) of sub-section (1) without the 5[sanction of the Tribunal.]

(2) In the case of a voluntary winding up, the exercise by the liquidator of the powers conferred by sub-section (1) shall be subject to the control of the 6[Tribunal].

(3) Any creditor or contributory may apply to the 6[Tribunal] with respect to any exercise or proposed exercise of any such power.

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1. Subs. by Act 11 of 2003, sec. 103, for “sanction of the Court”.

2. Subs. by Act 11 of 2003, sec. 103, for “or subject to the supervision of the Court”.

3. Ins. by Act 65 of 1960, sec. 188 (w.e.f. 28-12-1960).

4. Subs. by Act 11 of 2003, sec. 103, for “winding up by the Court”.

5. Subs. by Act 11 of 2003, sec. 103, for “sanction of the Court”.

6. Subs. by Act 11 of 2003, sec. 103, for “Court”.

547. Notification that a company is in liquidation.—

(1) Where a company is being wound up, whether by 1[the Tribunal] or voluntarily, every invoice, order for goods or business letter issued by or on behalf of the company or a liquidator of the company, or a receiver or manager of the property of the company, being a document on or in which the name of the company appears, shall contain a statement that the company is being wound up.

(2) If default is made in complying with this section, the company, and every one of the following persons who wilfully authorises or permits the default, namely any officer of the company, any liquidator of the company and any receiver or manager, shall be punishable with fine which may extend to 2[five thousand rupees].

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1. Subs. by Act 11 of 2003, sec. 104, for “or under the supervision of the Court”.

2. Subs. by Act 53 of 2000, sec. 208, for “five hundred rupees” (w.e.f. 13-12-2000).

548. Books and papers of company to be evidence.—

Where a company is being wound up, all books and papers of the company and of the liquidators shall, as between the contributories of the company be prima facie evidence of the truth of all matters purporting to be therein recorded.

549. Inspection of books and papers by creditors and contributories.—

(1) At any time after the making of an order for the winding up of a company by 1[the Tribunal], any creditor or contributory of the company may, if 2[the Supreme Court], by rules prescribed so permit and in accordance with and subject to such rules but not further or otherwise, inspect the books and papers of the company.

(2) Nothing in sub-section (1) shall be taken as excluding or restricting any rights conferred by any law for the time being in force—

(a) on the Central or a State Government; or

(b) on any authority or officer thereof; or

(c) on any person acting under the authority of any such Government or of any such authority or officer.

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1. Subs. by Act 11 of 2003, sec. 105, for “or subject to the supervision of the Court”.

2. Subs. by Act 65 of 1960, sec. 189, for “the Central Government” (w.e.f. 28-12-1960).

550. Disposal of books and papers of company.

(1) When the affairs of a company have been completely wound up and it is about to be dissolved, its books and papers and those of the liquidator may be disposed of as follows, that is to say:-

1[(a) in the case of a winding up by the Tribunal, in such manner as the Tribunal directs;]

(b) in the case of a member’s voluntary winding up, in such manner as the company by special resolution directs; and

(c) in the case of a creditor’s voluntary winding up, in such manner as the committee of inspection or, if there is no such committee, as the creditors of the company may direct. (2) After the expiry of five years from the dissolution of the company, no responsibility shall rest on the company, the liquidator, or any person to whom the custody of the books and papers has been committed, by reason of any book or paper not being forthcoming to any person claiming to be interested therein.

(3) The Central Government may, by rules,-

(a) prevent for such period (not exceeding five years from the dissolution of the company) as the Central Government thinks proper, the destruction of the books and papers of a company which has been wound up and of its liquidator; and

(b) enable any creditor or contributory of the company to make representations to the Central Government in respect of the matters specified in clause (a) and to 2[appeal to the Tribunal] from any direction which may be given by the Central Government in the matter.

(4) If any person acts in contravention of any such rules or of any direction of the Central Government thereunder, he shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to 3[fifty thousand rupees], or with both.

1. Subs. by Act 11 of 2003, sec. 106, for clause (a).

2. Subs. by Act 11 of 2003, sec. 106, for “appeal to the Court”.

3. Subs. by Act 53 of 2000, sec. 209, for “five thousand rupees” (w.e.f, 13-12-2000).

551. Information as to pending liquidations.

1[(1) If the winding up of a company is not concluded within one year after its commencement, the liquidator shall, unless he is exempted from so doing either wholly or in part by the Central Government, within two months of the expiry of such year and thereafter until the winding up is concluded, at intervals of not more than one year or at such shorter intervals if any, as may be prescribed, file a statement in the prescribed form and containing the prescribed particulars duly audited, by a person qualified to act as auditor of the company, with respect to the proceedings in, and position of, the liquidation,—

2[(a) in the case of a winding up by the Tribunal, in Tribunal; and]

(b) in the case of a voluntary winding up, with the Registrar:

Provided that no such audit as is referred to in this sub-section shall be necessary where the provisions of section 462 apply.]

(2) When the statement is filed in 3[Tribunal] under clause (a) of sub-section (1), a copy shall simultaneously be filed with the Registrar and shall be kept by him along with the other records of the company.

4[(2A) Where a statement referred to in sub-section (2) relates to a Government company in liquidation, the liquidator shall forward a copy thereof,—

(a) to the Central Government, if that Government is a member of the Government company; or

(b) to any State Government, if that Government is a member of the Government company; or

(c) to the Central Government and any State Government, if both the Governments are members of the Government company.]

(3) Any person stating himself in writing to be a creditor or contributory of the company shall be entitled, by himself or by his agent, at all reasonable times, on payment of the prescribed fee, to inspect the statement, and to receive a copy thereof or an extract therefrom.

(4) Any person untruthfully stating himself to be a creditor or contributory for the above purpose shall be deemed to be guilty of an offence under section 182 of the Indian Penal Code (45 of 1860), and shall, on the application of the liquidator, be punishable accordingly.

(5) If a liquidator fails to comply with any of requirements of this section, he shall be punishable with fine which may extend to 5[five thousand rupees] for every day during which the failure continues:

6[Provided that if the liquidator makes wilful default in causing the statement referred to in sub-section (1) to be audited by a person qualified to act as auditor of the company, the liquidator shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to 7[ten thousand rupees], or with both.]

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1. Subs. by Act 65 of 1960, sec. 190, for sub-section (1) (w.e.f. 28-12-1960).

2. Subs. by Act 11 of 2003, sec. 107, for clause (a).

3. Subs. by Act 11 of 2003, sec. 107, for “Court”.

4. Ins. by Act 31 of 1988, sec. 56 (w.e.f. 15-6-1988).

5. Subs. by Act 53 of 2000, sec. 210, for “five hundred rupees” (w.e.f. 13-12-2000).

6. Ins. by Act 65 of 1960, sec. 190 (w.e.f. 28-12-1960).

7. Subs. by Act 53 of 2000, sec. 210, for “one thousand rupees” (w.e.f. 13-12-2000).

552. Official Liquidator to make payments into the public account of India.——

Every Official Liquidator shall, in such manner and at such times as may be prescribed, pay the moneys received by him as liquidator of any company, into the public account of India in the Reserve Bank of India.

553. Voluntary liquidator to make payments into Scheduled Bank.——

(1) Every liquidator of a company, not being an Official Liquidator shall, in such manner and at such times as may be prescribed, pay the moneys received by him in his capacity as such into a Scheduled Bank to the credit of a special banking account opened by him in that behalf, and called “the Liquidation Account of …………………….. Company Limited/Company Private Limited/Company”:

Provided that if the 1[Tribunal] is satisfied that for the purpose of carrying on the business of the company or of obtaining advances or for any other reason, it is to the advantage of the creditors or contributories that the liquidator should have an account with any other bank, the 1[Tribunal] may authorise the liquidator to make his payments into or out of such other bank as the 1[Tribunal] may select; and thereupon those payments shall be made in the prescribed manner and at the prescribed times into or out of such other bank.

(2) If any such liquidator at any time retains for more than ten days a sum exceeding five hundred rupees or such other amount as the 1[Tribunal] may, on the application of the liquidator, authorise him to retain, then, unless he explains the retention to the satisfaction of the 1[Tribunal], he shall—

(a) pay interest on the amount so retained in excess, at the rate of twelve per cent, per annum and also pay such penalty as may be determined by the Registrar;

(b) be liable to pay any expenses occasioned by reason of his default; and

(c) also be liable to have all or such part of his remuneration as the Court may think just disallowed, and to be removed from his office by the 1[Tribunal].

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1. Subs. by Act 11 of 2003, sec. 108, for “Court”.

554. Liquidator not to pay moneys into private banking account.—

Neither the Official Liquidator nor any other liquidator of a company shall pay any moneys received by him in his capacity as such into any private banking account.

555. Unpaid dividends and undistributed assets to be paid into the Companies Liquidation Account.——

1[(1) Where any company is being wound up, if the liquidator has in his hands or under his control any money representing—

(a) dividends payable to any creditor which had remained un-paid for six months after the date on which they were declared, or

(b) assets refundable to any contributory which have remained undistributed for six months after the date on which they became refundable,

the liquidator shall forthwith pay the said money into the public account of India in the Reserve Bank of India in a separate account to be known as the Company’s Liquidation Account.]

(2) The liquidator shall, on the dissolution of the company, similarly pay into the said account any money representing 2[unpaid] dividends or undistributed assets in his hands at the date of dissolution.

(3) The liquidator shall, when making any payment referred to in sub-sections (1) and (2), furnish to such officer as the Central Government may appoint in this behalf, a statement in the prescribed form, setting forth, in respect of all sums included in such payment, the nature of the sums, the names and last known addresses of the persons entitled to participate therein, the amount to which each is entitled and the nature of his claim thereto, and such other particulars as may be prescribed.

(4) The liquidator shall be entitled to a receipt from the Reserve Bank of India for any money paid to it under sub-sections (1) and (2); and such receipt shall be an effectual discharge of the liquidator in respect thereof.

(5) Where the company is being wound up by the 3[Tribunal], the liquidator shall make the payments referred to in sub-sections (1) and (2) by transfer from the account referred to in section 552.

(6) Where the company is being wound up voluntarily or by 3[the Tribunal], the liquidator shall, when filing a statement in pursuance of sub-section (1) of section 551, indicate the sum of money which is payable to the Reserve Bank of India under sub-sections (1) and (2) of this section which he has had in his hands or under his control during the six months preceding the date to which the said statement is brought down, and shall, within fourteen days of the date of filing the said statement, pay that sum into the Companies Liquidation Account.

(7) (a) Any person claiming to be entitled to any money paid into the Companies Liquidation Account (whether paid in pursuance of this section or under the provisions of any previous companies law) may apply to the 4[Tribunal] for an order for payment thereof, and the 4[Tribunal], if satisfied that the person claiming is entitled, may make an order for the payment to that person of the sum due:

Provided that before making such an order, the 4[Tribunal] shall cause a notice to be served on such officer as the Central Government may appoint in this behalf calling on the officer to show cause within one month from the date of the service of the notice why the order should not be made.

(b) Any person claiming as aforesaid may, instead of applying to the 4[Tribunal], apply to the Central Government for an order for payment of the money claimed; and the Central Government may, if satisfied whether on a certificate by the liquidator or the Official Liquidator or otherwise, that such person is entitled to the whole or any part of the money claimed and that no application made in pursuance of clause (a) is pending in the 4[Tribunal], make an order for the payment to that person of the sum due to him, after taking such security from him as it may think fit.

(8) Any money paid into the Companies Liquidation Account in pursuance of this section, which remains unclaimed thereafter for a period of fifteen years, shall be transferred to the general revenue account of the Central Government; but a claim to any money so transferred may be preferred under sub-section (1) and shall be dealt with as if such transfer had not been made, the order, if any, for payment on the claim being treated as an order for refund of revenue.

(9) Any liquidator retaining any money which should have been paid by him into the Companies Liquidation Account under this section shall—

(a) pay interest on the amount retained at the rate of twelve per cent. per annum and also pay such penalty as may be determined by the Registrar:

5[Provided that the Central Government may in any proper case remit either in part or in whole the amount of interest which the liquidator is required to pay under this clause;]

(b) be liable to pay any expenses occasioned by reason of his default; and

(c) where the winding up is by 6[the Tribunal], also be liable to have all or such part of his remuneration as the 4[Tribunal] may think just to be disallowed and to be removed from his office by the 4[Tribunal].

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1. Subs. by Act 65 of 1960, sec. 191, for sub-section (1) (w.e.f. 28-12-1960).

2. Subs. by Act 65 of 1960, sec. 191, for “unclaimed” (w.e.f. 28-12-1960).

3. Subs. by Act 11 of 2003, sec. 109, for “or under the supervision of the Court”.

4. Subs. by Act 11 of 2003, sec. 109, for “Court”.

5. Ins. by Act 65 of 1960, sec. 191 (w.e.f. 28-12-1960).

6. Subs. by Act 11 of 2003, sec. 109, for “or under the supervision of the Court”.

556. Enforcement of duty of liquidator to make returns, etc.——

(1) If any liquidator who has made any default in filing, delivering or making any return, account or other document, or in giving any notice which he is by law required to file, deliver, make or give fails to make good the default within fourteen days after the service on him of a notice requiring him to do so, the 1[Tribunal] may, on an application made to the 1[Tribunal] by any contributory or creditor of the company or by the Registrar, make an order directing the liquidator to make good the default within such time as may be specified in the order.

(2) Any such order may provide that all costs of and incidental to the application shall be borne by the liquidator.

(3) Nothing in this section shall be taken to prejudice the operation of any enactment imposing penalties on a liquidator in respect of any such default as aforesaid.

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1. Subs. by Act 11 of 2003, sec. 110, for “Court”.

557. Meetings to ascertain wishes of creditors or contributories. ——

(1) In all matters relating to the winding up of a company, the 1 [Tribunal] may—

(a) have regard to the wishes of creditors or contributories of the company, as proved to it by any sufficient evidence;

(b) if it thinks fit for the purpose of ascertaining those wishes direct meetings of the creditors or contributories to be called, held and conducted in such manner as the 1 [Tribunal] directors; and

(c) appoint a person to act as chairman of any such meeting and to report the result thereof to the1 [Tribunal] .

(2) When ascertaining the wishes of creditors, regard shall be had to the value of each creditor’s debt.

(3) When ascertaining the wishes of contributories, regard shall be had to the number of votes which may be cast by each contributory.

COMMENTS

In all matters relating to winding up of a company, the Court may ascertain the wishes of the creditors and test them on the grounds as to whether the case of the persons opposing the winding up is reasonable and whether there are matters which should be inquired into and investigated if a winding up order is made; Madhu Sudan Gordhandas & Co. v. Madhu Woollen Industries Pvt. Ltd. , 1972 (42) Comp. Cas. 125: AIR 1971 SC 2600.

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1.Subs. by Act 11 of 2003, sec. 112, for “Court”.

558. Court or person before whom affidavit may be sworn.—

(1) Any affidavit, required to be sworn under the provisions, or for the purposes of this Part may be sworn—

(a) in India, before any 1[Court or the Tribunal], Judge or person lawfully authorised to take and receive affidavits; and

(b) in any other country, either before any Court, Judge or person lawfully authorised to take and receive affidavits in that country or before an Indian Consul or Vice-Consul.

22[***]

(2) 3[All Courts, Tribunal], Judges, Justices, Commissioners and persons acting judicially in India shall take judicial notice of the seal, stamp or signature, as the case may be, of any 4[such Court, Tribunal] Judge, person, Consul or Vice-Consul, attached appended or subscribed to any such affidavit or to any other document to be used for the purposes of this Part.

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1. Subs. by Act 11 of 2003, sec. 113, for “Court”.

2. Explanation omitted by Act 62 of 1956, sec. 2 and Sch. (w.e.f. 1-11-1956).

3. Subs. by Act 11 of 2003, sec. 113, for “All Courts”.

4. Subs. by Act 11 of 2003, sec. 113, for “such Court”

559. Power of Court to declare dissolution of company void.—

559. Power of Court to declare dissolution of company void.—(1) Where a company has been dissolved, whether in pursuance of this Part or of section 394 or otherwise, the 1[Tribunal] may at any time within two years of the date of the dissolution on application by the liquidator of the company or by any other person who appears to the 1[Tribunal] to be interested, make an order, upon such terms as the 1[Tribunal] thinks fit, declaring the dissolution to have been void; and thereupon such proceedings may be taken as might have been taken if the company had not been dissolved.

(2) It shall be the duty of the person on whose application the order was made, within2[thirty] days after the making of the order or such further time as the 1[Tribunal] may allow, to file a certified copy of the order with the Registrar who shall register the same; and if such person fails so to do, he shall be punishable with fine which may extend to 3[five hundred rupees] for every day during which the default continues.

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1. Subs. by Act 11 of 2003, sec. 114, for “Court”.

2. Subs. by Act 31 of 1965, sec. 62 and Sch., for “twenty-one” (w.e.f. 15-10-1965).

3. Subs. by Act 53 of 2000, sec. 211, for “fifty rupees” (w.e.f. 13-12-2000).

560. Power of Registrar to strike defunct company off register.——

(1) Where the Registrar has reasonable cause to believe that a company is not carrying on business or in operation, he shall send to the company by post a letter inquiring whether the company is carrying on business or in operation.

(2) If the Registrar does not within one month of sending the letter receive any answer thereto, he shall, within fourteen days after the expiry of the month, send to the company by post a registered letter referring to the first letter, and stating that no answer thereto has been received and that, if an answer is not received to the second letter within one month from the date thereof, a notice will be published in the Official Gazette with a view to striking the name of the company off the register.

(3) If the Registrar either receives an answer from the company to the effect that it is not carrying on business or in operation, or does not within one month after sending the second letter receive any answer, he may publish in the Official Gazette, and send to the company by registered post, a notice that, at the expiration of three months from the date of that notice, the name of the company mentioned therein will, unless cause is shown to the contrary, be struck off the register and the company will be dissolved.

(4) If, in any case where a company is being wound up, the Registrar has reasonable cause to believe either that no liquidator is acting, or that the affairs of the company have been completely wound up, and any returns required to be made by the liquidator have not been made for a period of six consecutive months, the Registrar shall publish in the Official Gazette and send to the company or the liquidator, if any, a like notice as is provided in sub-section (3).

(5) At the expiry of the time mentioned in the notice referred to in sub-section (3) or (4), the Registrar may, unless cause to the contrary is previously shown by the company, strike its name off the register, and shall publish notice thereof in the Official Gazette; and on the publication in the Official Gazette of this notice, the company shall stand dissolved:

Provided that—

(a) the liability, if any, of every director,1[***] manager or other officer who was exercising any power of management, and of every member of the company, shall continue and may be enforced as if the company had not been dissolved; and

(b) nothing in this sub-section shall affect the power of the Court to wind up a company the name of which has been struck off the register.

(6) If a company, or any member or creditor thereof, feels aggrieved by the company having been struck off the register, the 2[Tribunal], on an application made by the company, member or creditor before the expiry of twenty years from the publication in the Official Gazette of the notice aforesaid, may, if satisfied that the company was, at the time of the striking off, carrying on business or in operation or otherwise that it is just that the company be restored to the register, order the name of the company to be restored to the register; and the 2[Tribunal] may, by the order, give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off.

(7) Upon a certified copy of the order under sub-section (6) being delivered to the Registrar for registration, the company shall be deemed to have continued in existence as if its name had not been struck off.

(8) A letter or notice to be sent under this section to a company may be addressed to the company at its registered office, or if no office has been registered, to the care of some director, 1[***] manager or other officer of the company or if there is no director, 3[***] manager or officer of the company whose name and address are known to the Registrar, may be sent to each of the persons who subscribed the memorandum, addressed to him at the address mentioned in the memorandum.

(9) A notice to be sent under this section to a liquidator may be addressed to the liquidator at his last known place of business.

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1. The words “the managing agent, secretaries and treasurers,” omitted by Act 53 of 2000, sec. 212 (w.e.f. 13-12-2000).

2. Subs. by Act 11 of 2003, sec. 114, for “Court”.

3. The words “managing agent, secretaries and treasurers,” omitted by Act 53 of 2000, sec. 212 (w.e.f. 13-12-2000).

Part VIII – Application of Act to companies formed or registered under previous Companies Laws.

561. Application of Act to companies formed and registered under previous companies laws.——

This Act shall apply to existing companies as follows:—

(a) in the case of a limited company other than a company limited by guarantee, this Act shall apply in the same manner as if the company had been formed and registered under this Act as a company limited by shares;

(b) in the case of a company limited by guarantee, this Act shall apply in the same manner as if the company had been formed and registered under this Act as a company limited by guarantee; and

(c) in the case of a company other than a limited company, this Act shall apply in the same manner as if the company had been formed and registered under this Act as an unlimited company:

Provided that—

(i) nothing in Table A in Schedule I shall apply to a company formed and registered under Act 19 of 1857 and Act 7 of 1860 or either of them, or under the Indian Companies Act, 1866 (10 of 1866), or the Indian Companies Act, 1882 (6 of 1882),

(ii) reference, express or implied, to the date of registration shall be construed as a reference to the date at which the company was registered under the previous companies law concerned.

562. Application of Act to companies registered but not formed under previous companies laws.——

This Act shall apply to every company registered but not formed under any previous companies law in the same manner as it is in Part IX of this Act declared to apply to companies registered but not formed under this Act:

Provided that reference, express or implied, to the date of registration shall be construed as a reference to the date at which the company was registered under the previous companies law concerned.

563. Application of Act to unlimited companies re-registered under previous companies laws.——

This Act shall apply to every unlimited company registered as a limited company in pursuance of any previous companies law, in the same manner as it applies to an unlimited company registered in pursuance of this Act as a limited company:

Provided that reference, express or implied, to the date of registration shall be construed as a reference to the date at which the company was registered as a limited company under the previous companies law concerned.

564. Mode of transferring shares in the case of companies registered under Acts 19 of 1857 and 7 of 1860.——

A company registered under Act 19 of 1857 and Act 7 of 1860 or either of them may cause its shares to be transferred in the manner hitherto in use, or in such other manner as the company may direct.

Part IX – Companies Authorised to register under this Act.

565. Companies capable of being registered.—

(1) With the exceptions and subject to the provisions contained in this section—

(a) any company consisting of seven or more members, which was in existence on the first day of May, 1882, including any company registered under Act No. 19 of 1857 and Act No. 7 of 1860 or either of them or under any laws or law in force in a Part B State, corresponding to those Acts or either of them; and

(b) any company formed after the date aforesaid, whether before or after the commencement of this Act, in pursuance of any Act of Parliament other than this Act or of any other Indian law (including a law in force in a Part B State), or of any Act of Parliament of the United Kingdom or Letters Patent in force in India, or being otherwise duly constituted according to law, and consisting of seven or more members,

may at any time register under this Act as an unlimited company, or as a company limited by shares, or as a company limited by guarantee; and the registration shall not be invalid by reason only that it has taken place with a view to the company’s being wound up:

Provided that—

(i) a company registered under the Indian Companies Act, 1882 (6 of 1882), or under the Indian Companies Act, 1913 (7 of 1913), shall not register in pursuance of this section;

(ii) a company having the liability of its members limited by any Act of Parliament other than this Act or by any other Indian law (including a law in force in a Part B State), or by any Act of Parliament of the United Kingdom or Letters Patent in force in India, and not being a joint stock company as defined in section 566, shall not register in pursuance of this section;

(iii) a company having the liability of its members limited by any Act of Parliament other than this Act or by any other Indian law (including a law in force in a Part B State), or any Act of Parliament of the United Kingdom or Letters Patent in force in India, shall not register in pursuance of this section as an unlimited company or as a company limited by guarantee;

(iv) a company that is not a joint stock company as defined in section 566 shall not register in pursuance of this section as a company limited by shares;

(v) a company shall not register in pursuance of this section without the assent of a majority of such of its members as are present in person, or where proxies are allowed, by proxy, at a general meeting summoned for the purpose;

(vi) where a company not having the liability of its members limited by any Act of Parliament or any other Indian law (including a law in force in a Part B State) or by any Act of Parliament of the United Kingdom or Letters Patent in force in India, is about to register as a limited company, the majority required to assent as aforesaid shall consist of not less than three-fourths of the members present in person, or where proxies are allowed, by proxy, at the meeting;

(vii) where a company is about to register as a company limited by guarantee, the assent to its being so registered shall be accompanied by a resolution declaring that each member undertakes to contribute to the assets of the company, in the event of its being wound up while he is a member, or within one year after he ceases to be a member, for payment of the debts and liabilities of the company or of such debts and liabilities as may have been contracted before he ceases to be a member, and of the costs, charges and expenses of winding up, and for the adjustment of the rights of the contributories among themselves, such amount as may be required, not exceeding a specified amount.

(2) In computing any majority required for the purposes of sub-section (1) when a poll is demanded, regard shall be had to the number of votes to which each member is entitled according to the regulations of the company.

(3) Nothing in this section shall be deemed to apply to any company the registered office whereof at the commencement of this Act is in Burma, Aden or Pakistan, 1[***].

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1. The words “or in the State of Jammu and Kashmir” omitted by Act 62 of 1956, sec. 2 and Sch. (w.e.f. 1-11-1956).

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