CHAPTER V

ARBITRATION, COMPROMISES, ARRANGEMENTS AND

RECONSTRUCTIONS

[389. Power for companies to refer matters to arbitration - Repealed by the Companies (Amendment) Act, 1960 (65 of 1960), section 150.]

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 he 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 Court 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 Court 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 ¹[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 Court, 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:

1 Inserted by Act 65 of 1990, section 151.

¹[Provided that no order sanctioning any compromise or arrangement shall be made by the Court unless the Court is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the Court, 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 251, and the like.]

(3) An order made by the Court 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 ten rupees for each copy in respect of which default is made.

(6) The Court 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 Court thinks fit, until the application is finally disposed of.

(7) An appeal shall lie from any order made by a Court exercising original jurisdiction under this section to the Court empowered to hear appeals from the decisions of that Court, or if more than one Court is so empowered, to the Court of inferior jurisdiction.

The provisions of sub-sections (3) to (6) shall apply in relation to the appellate order and the appeal as they apply in relation to the original order and the application.

392. Power of High Court to enforce compromises and arrangements

(1) Where a High Court 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 arrangement; and

1 Inserted by Act 31 of 1965, section 48, w.e.f. 15-10-1965.

(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 Court aforesaid is satisfied that a compromise or 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 this Act under section 153 of the Indian Companies Act, 1913 (7 of 1913), sanctioning a compromise or an arrangement.

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 the 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.

1 Reference to managing agent, secretaries and treasurers after abolition of the system by Act 17 of 1969, w.e.f. 3-4-1970.

(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 five 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[***] managing or trustee for debenture holders, to supply the necessary particulars as to his material interest.

(5) Every director, managing director, ²[***] or manager of the company, and every trustee for debenture holders of the company, shall give notice to the company of such matter 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 five hundred rupees.

394. Provisions for facilitating reconstruction and amalgamation of companies

(1) Where an application is made to the Court 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 Court,

(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");

1 Ibid.

2 Ibid.

the Court 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:

¹[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 Court unless the Court has received a report from the Company Law Board or 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 Court unless the Official Liquidator has, on scrutiny of the books and papers of the company, made a report to the Court that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest.]

1 Inserted by Act 31 of 1965, section 49, w.e.f. 15-10-1965.

(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 ¹[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 fifty 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.

²[394A. Notice to be given to Central Government³ for applications under sections 391 and 394

The Court 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.]

1 Substituted by Act 31 of 1965, section 62 and Schedule, for “Fourteen” w.e.f. 15-10-1965.

2 Inserted by Act 31 of 1965, section 50, w.e.f. 15-10-1965.

3 Powers delegated to Regional Directors vide Notification No. GSR 288(E), dated 31-5-1991.

395. Power and duty to acquire shares of shareholders dissenting from scheme or contract approved by majority¹

(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 manner² 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 Court 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, -

1 See rule 12, Companies (Central Government’s) General Rules and Forms, 1956.

2 See Form 35, Companies (Central Government’s) General Rules and Forms, 1956.

(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 Court 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 Court 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 Court 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 ¹[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.

1 Substituted by Act 31 of 1965, section 51, for certain words, w.e.f. 15-10-1965.

(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.

¹[(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 prescribed²;

(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 Court 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 five hundred 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.

1 Inserted by Act 31 of 1965, section 51, w.e.f. 15-10-1965.

2 See Form 35A, Companies (Central Government’s) General Rules and Forms, 1956.

(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).

396. Power of Central Government to provide for amalgamation of companies in 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.

1 Substituted by Act 65 of 1960, section 152 for “national interest”.

2 Substituted by the Companies (Amendment) Act, 1985 (35 of 1985) for the words “The order aforesaid”.

(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 ¹[as may be prescribed² 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.

³[(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 Company Law Board and thereupon the assessment of the compensation shall be made by the Company Law Board]

(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; ⁴[***]

⁵[(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.

1 Ibid, for the words “as may be prescribed”.

2 Joint Director (Accounts), Department of Company Affairs is the prescribed authority vide rule 12A, Companies (Central Government’s) General Rules and Forms, 1956.

3 Inserted by the Companies (Amendment) Act, 1985 (35 of 1985).

4 The word “and” omitted, ibid.

5 Inserted, ibid.

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.]

CHAPTER VI

PREVENTION OF OPPRESSION AND MISMANAGEMENT

A. Powers of ²[Company Law Board]

397. Application to Company Law Board for relief in cases of oppression

(1) Any members of a company who complain that the affairs of the company ⁴[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 apply⁵ to the ⁶[Company Law Board] 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 ⁷[Company Law Board] is of opinion -

(a) that the company's affairs ⁸[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;

1 Inserted by Act 31 of 1965, section 52, w.e.f. 15-10-1965.

2 Substituted by the Companies (Amendment) Act, 1988 for the word “Court” w.e.f. 31-5-1991.

3 Ibid.

4 Substituted by Act 53 of 1963, section 10 for “are being conducted” w.e.f. 1-1-1964.

5 Fees prescribed is Rs. 500.

6 Substituted by the Companies (Amendment) Act, 1988 for the word “Court” w.e.f. 31-5-1991.

7 Ibid.

8 Substituted by Act 53 of 1963, section 10 for “are being conducted” w.e.f. 1-1-1964.

9 Substituted by the Companies (Amendment) Act, 1988 for the word “Court” w.e.f. 31-5-1991.

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

398. Application to ²[Company Law Board] for relief in cases of mismanagement

(1) Any members of a company who complain:

(a) that the affairs of the company ³[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, ⁴[***] ⁵[or manager], ⁶[***] 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 ⁷[will be conducted in a manner prejudicial to public interest or] in a manner prejudicial to the interests of the company;

may apply⁸ to the ⁹[Company Law Board] 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 ¹⁰[Company Law Board] 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 ¹¹[Company Law Board] may, with view to bringing to an end or preventing the matters complained or apprehended, make such order as it thinks fit.

1 Substituted by the Companies (Amendment) Act, 1988 for the word “Court” w.e.f. 31-5-1991.

2 Substituted by Act 53 of 1963, section 11, for “are being conducted”, w.e.f. 1-1-1964.

3 Substituted by the Companies (Amendment) Act, 1988 for the word “Court” w.e.f. 31-5-1991.

4 Reference to managing agent, secretaries and treasurers redundant after abolition of the system by Act 17 of 1969, w.e.f. 3-4-1970.

5 Inserted by Act 65 of 1960, section 153.

6 Reference to managing agent, secretaries and treasurers redundant after abolition of the system by Act 17 of 1969, w.e.f. 3-4-1970.

7 Substituted by Act 53 of 1963, section 11, for “are being conducted”, w.e.f. 1-1-1964.

8 Fees prescribed is Rs. 500.

9 Substituted by the Companies (Amendment) Act, 1988 for the word “Court” w.e.f. 31-5-1991.

10 Ibid.

11 Ibid.

399. Right to apply under section 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 member 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.

¹(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 ²[Company Law Board] under section 397 or 398, notwithstanding that the requirements of clause (a) or (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 ³[Company Law Board] dealing with the application, may order such member or members to pay to any other person or persons who are parties to the application.

400. Notice to be given to Central Government of applications under sections 397 and 398⁴

The ⁵[Company Law Board] shall give notice of every application made to it under section 397 or 398 to the Central Government, and shall take into consideration the representations, if any, made to it by that Government before passing a final order under that section⁶.

1 See rule 13, Companies (Central Government’s) General Rules and Forms, 1956.

2 Substituted by the Companies (Amendment) Act, 1988 for the word “Court” w.e.f. 31-5-1991.

3 Ibid

4 Powers delegated to Regional Directors vide Notification No. GSR 288(E), dated 31-5-1991.

5 Substituted by the Companies (Amendment) Act, 1988 for the word “Court” w.e.f. 31-5-1991.

6 Fees prescribed is Rs. 500.

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

The Central Government may itself apply¹ to the ²[Company Law Board] for an order under section 397 or 398, or cause an application to be made to the ³[Company Law Board] for such an order by any person authorised by it in this behalf.

402. Powers of ⁴[Company Law Board] on application under section 397 or 398⁵

Without prejudice to the generality of the powers of the ⁶[Company Law Board] 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;

(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,

(iii) ⁷[***],

(iv) ⁸[***] and

(v) the manager,

upon such terms and conditions as may, in the opinion of the ⁹[Company Law Board] 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;

1 Ibid.

2 Substituted by the Companies (Amendment) Act, 1988 for the word “Court” w.e.f. 31-5-1991.

3 Ibid.

4 Ibid.

5 Fees prescribed is Rs. 500.

6 Substituted by the Companies (Amendment) Act, 1988 for the word “Court” w.e.f. 31-5-1991.

7 Redundant after abolition of the system of managing agent, secretaries ad treasurers by Act 17 of 1969, w.e.f. 3-4-1970.

8 Ibid.

9 Substituted by the Companies (Amendment) Act, 1988 for the word “Court” w.e.f. 31-5-1991.

(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[Company Law Board] it is just and equitable that provision should be made.

403. Interim order by ²[Company Law Board³]

Pending the making by it of a final order under section 397 or 398, as the case may be, the ⁴[Company Law Board] 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.

404. Effect of alteration of memorandum or articles of company by order under section 397 or 398⁵

(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 ⁶[Company Law Board] any alteration whatsoever 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 ⁷[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 five thousand rupees.

1 Ibid.

2 Ibid.

3 Fees Prescribed is Rs. 500.

4 Substituted by the Companies (Amendment) Act, 1988 for the word “Court” w.e.f. 31-5-1991.

5 Fees prescribed is Rs. 500.

6 Substituted by the Companies (Amendment) Act, 1988 for the word “Court” w.e.f. 31-5-1991.

7 Substituted by Act 31 of 1965, section 62 and Schedules, for “fifteen” w.e.f. 15-10-1965.

405. Addition of respondents to application under section 397 or 398¹

If the managing director or any other director ²[***] 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 ³[Company Law Board] shall, if it is satisfied that there is sufficient cause for doing so, direct that he may be added as a respondent accordingly.

406. Application of sections 539 to 544 to proceedings under sections 397 or 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 ⁴[***] made under section 397 or 398 terminates, sets aside, or modifies an agreement such as is referred to in clause (d) or (e) 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, ⁵[***] or manager whose agreement is so terminated or set aside ⁶[***] shall, for a period of five years from the date of ⁷[the order terminating or setting aside the agreement, without the leave of the ⁸[Company Law Board], be appointed or act, as the managing or other director, managing agent, secretaries and treasurers, or manager of the company⁹.

(2) (a) Any person who knowingly acts as a managing or other director, ¹⁰[***]or manager of a company in contravention of clause (b) of sub-section (1);

1 Fees prescribed is Rs. 500.

2 Reference to managing agent, secretaries and treasurers redundant after abolition of the system by Act 17 of 1969, w.e.f. 3-4-1970.

3 Substituted by the Companies (Amendment) Act, 1988, section 66, for the word “Court” w.e.f. 31-5-1991.

4 The word “of a Court” omitted by the Companies (Amendment) Act, 1988, section 66, w.e.f. 31-5-1991.

5 Reference to managing agent, secretaries and treasurers redundant after abolition of the system by Act 17 of 1969, w.e.f. 3-4-1970.

6 Ibid.

7 Substituted by Act 65 of 1960, section 154, for “the order terminating the agreement”.

8 Substituted by the Companies (Amendment) Act, 1988, section 66, for the word “Court” w.e.f. 3-5-1991.

9 Fees prescribed is Rs. 500.

10 Reference to managing agent, secretaries and treasurers redundant after abolition of the system by Act 17 of 1969, w.e.f. 3-4-1970.

(b) ¹[***]; and

(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 extend to one year, or with fine which may extend to five thousand rupees, or with both.

(3) ²[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.

B. Powers of Central Government

408. Powers of Government to prevent oppression or mismanagement³

⁴[(1) Notwithstanding anything contained in this Act, the Central Government, may appoint such number of persons as the Company Law Board 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 Company Law Board, 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:

1 Redundant after abolition of the system of managing agent, secretaries and treasurers by Act 17 of 1969, w.e.f. 31-4-1970.

2 Substituted by the Companies (Amendment) Act, 1988, for the word “No Court shall grant leave” w.e.f. 31-5-1991.

3 Fees prescribed is Rs. 500.

4 Substituted by the Companies (Amendment) Act, 1988, Section 53, w.e.f. 15-6-1988 for sub-sections (1) and (2) which read as under:

“(1) Notwithstanding anything contained in this Act, the Central Government may appoint such number of persons as the Central Government may, by order in writing, specify as being necessary to effectively safeguard the interests of the company, or its shareholders or the public interest to hold office as directors thereof for such period, not exceeding three years on any one occasion, as it may think fit, if the Central Government of its own motion or, on the application of not less than one hundred members of the company or of 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.”

¹[Provided that in lieu of passing an order as aforesaid, the Company Law Board 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 fresh appointments of directors in pursuance of the articles as so amended, within such time as may be specified in that behalf by the Company Law Board.]

²[(2) In case the Company Law Board 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 Company Law Board 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 his place to hold 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[Company Law Board].

1 Provided that in lieu of passing an order as aforesaid, the Central Government 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 fresh appointments of directors in pursuance of the articles as so amended, within such time as may be specified in that behalf by the Central Government.

2 (2) In case the Central Government 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 Central Government may, by order in writing, specify as being necessary to effectively safeguard the interest of the company, or its shareholders or the public interest specified by the Central Government shall hold office as additional directors of the company.

3 Inserted by Act 65 of 1960, Section 155.

4 Substituted by the Companies (Amendment) Act, 1988, section 53, for the words “Central Government” w.e.f. 15-6-1988.

¹[(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 ²[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.]

409. Power of ³[Company Law Board] to prevent change in Board of directors likely to affect company prejudicially⁴

(1) Where a complaint⁵ is made to the ⁶[Company Law Board], by the managing director or any other director, ⁷[***] ⁸[or the manager], of 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 ⁹[Company Law Board] 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 ¹⁰[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 ¹¹[Company Law Board]; 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.

1 Inserted by Act 41 of 1974, section 31, w.e.f. 1-2-1975.

2 Inserted by the Companies (Amendment) Act, 1988, section 53 w.e.f. 15-6-1988.

3 Substituted by the Companies (Amendment) Act, 1988 for the words “Central Government” w.e.f. 31-5-1991.

4 Fees prescribed is Rs. 500.

5 See Form 35B, Companies (Central Government’s) General Rules and Forms, 1956.

6 Substituted by the Companies (Amendment) Act, 1988 for the words “Central Government” w.e.f. 31-5-1991.

7 Reference to managing agent, secretaries and treasurers redundant after abolition of the system by Act 17 of 1969, w.e.f. 3-4-1970.

8 Substituted by Act 65 of 1960, section 156, for “or the secretaries and treasurers”.

9 Substituted by the Companies (Amendment) Act, 1988, section 66 w.e.f. 31-5-1991, for the words “Central Government”.

10 Substituted by Act 65 of 1960, section 156 w.e.f. 31-5-1991, for “no resolution passed or action taken”.

11 Substituted by the Companies (Amendment) Act, 1988, section 66 w.e.f. 31-5-1991, for the words “Central Government”.

(2) The ¹[Company Law Board] 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.

CHAPTER VII

CONSTITUTION AND POWERS OF ²[ADVISORY COMMITTEE]

³[410. Appointment of Advisory Committee

For the purpose of advising the Central Government and the Company Law Board on such matters arising out of the administration of this Act as may be referred to it by that Government or Board, the Central Government may constitute an Advisory Committee consisting of not more than five persons with suitable qualifications.]

[Sections 411 to 415 omitted by Act 31 of 1965, w.e.f. 15-10-1965.]

CHAPTER VIII

MISCELLANEOUS PROVISIONS

Contracts where company is undisclosed principal

416. Contracts by agents of company in which company is undisclosed principal

(1) Every person, being the ⁴[***] 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.

1 Ibid.

2 Substituted by Act 31 of 1965, section 53, for “Advisory Commission” w.e.f. 15-10-1965.

3 Substituted by section 53, ibid, for sections 410 to 415, w.e.f. 15-10-1965.

4 Reference to managing agent, secretaries and treasurers redundant after abolition of the system by Act 17 of 1969, w.e.f. 3-4-1970.

(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 two hundred rupees.

Employees' securities and provident funds

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 utilised 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).

418. Provisions applicable to provident funds of employees

³[(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 -

1 Substituted by Act 65 of 1960, section 153, for sub-section (1).

2 The words “with a Scheduled Bank” omitted by section 153, for sub-section (1).

3 Substituted by section 159, ibid., for sub-section (1).

(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, 1922¹, 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.

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 417 and 418.

1 See now Income-tax Act, 1961, section 2(38).

2 The word “separate” omitted by Act 65 of 1960, section 159.

3 Inserted, ibid.

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 one thousand rupees].

Receivers and Managers

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 form² 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 two hundred rupees.

For the purposes of this section, the receiver shall be deemed to be an officer of the company.

424. Application of sections 421 to 423 to receivers and managers appointed by Court and managers appointed in pursuance of an instrument³

The provisions of sections 421, 422 and 423 shall apply to the receiver of, or any person appointed to manage, the property of a company, appointed by a Court 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.

1 Substituted by Act 65 of 1960, section 160, for "fine which may extend to five hundred rupees".

2 See Form 36, Companies (Central Government’s) General Rules and Forms, 1956.

3 See Form 36, Companies (Central Government’s) General Rules and Forms, 1956.

PART VII

WINDING UP

CHAPTER I

PRELIMINARY

Modes of Winding Up

425. Modes of winding up

(1) The winding up of a company may be either -

(a) by the Court; or

(b) voluntary; or

(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.

Contributories

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 Court 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 ¹[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.

427. Obligations of directors, ²[***] and managers whose liability is unlimited

In the winding up of a limited company, any director ³[***] 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 ⁴[***] 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;

1 Substituted by Act 65 of 1960, section 161, for certain words.

2 Reference to managing agent, secretaries and treasurers redundant after abolition of the system by Act 17 of 1969, w.e.f. 3-4-1970.

3 Ibid.

4 Ibid.

(b) a past director ¹[***] 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 Court 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.

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.

1 Ibid.

2 Ibid.

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. Contibutories 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 contributor, -

(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

Cases in which company may be wound up by the Court

433. Circumstances in which company may be wound up by Court

A company may be wound up by the Court, -

(a) if the company has, by special resolution, resolved that the company be wound up by the Court;

(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 Court is of opinion that it is just and equitable that the company should be wound up.

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 five hundred 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 any Court 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 Court that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the Court 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.

Transfer of Proceedings

435. Transfer of winding up proceedings to District Court

Where a High Court Makes an order for winding up a company under this Act, the High Court may, if it thinks fit, direct all subsequent proceedings to be had in a District Court subordinate thereto or, with the consent of any other High Court, in such High Court or in a District Court subordinate thereto; and thereupon for the purposes of winding up the company, the Court in respect of which such direction is given shall be deemed to be "the Court" within the meaning of this Act, and shall have all the jurisdiction and powers of a High Court under this Act.

436. Withdrawal and transfer of winding up from one District Court to another

If during the progress of a winding up in a District Court, it appears to the High Court that the same could be more conveniently proceeded with in the High Court or in any other District Court, the High Court may, as the case may require, -

(a) withdraw the case and proceed with the winding up itself; or

(b) transfer the case to such other District Court, whereupon the winding up shall proceed in that District Court.

437. Power of High Court to retain winding up proceedings in District Court

The High Court may direct that a District Court in which proceedings for winding up a company have been commenced, shall retain and continue the proceedings, although it may not be the Court in which they ought to have been commenced.

438. Jurisdiction of High Court under sections 435, 436 and 437 to be exercised at any time and at any stage

The High Court shall have jurisdiction to pass orders under section 435, 436 or 437 at any time and at any stage and either on the application of or without application from, any of the parties to the proceedings.

Petition for Winding Up

439. Provisions as to applications for winding up

(1) An application to the Court 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

(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 authoised by the Central Government in that behalf.

(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 shareholders 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 ¹[clauses (b), (c), (d), (e) and (f) 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 ²[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.

1 Substituted by Act 65 of 1960, section 162, for “clauses (b), (c) and (e)”.

2 Substituted by section 162, ibid, for “an inspector”.

3 Powers delegated to Regional Directors vide Notification No. GSR 288(E), dated 31-5-1991.

(6) The Central Government¹ 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 Court shall be obtained for the admission of the petition and such leave shall not be granted -

(a) unless, in the opinion of the Court there is a prima facie case for winding up the company; and

(b) until such security for costs has been given as the court thinks reasonable.

440. Right to present winding up petition where company is being wound up voluntarily or subject to Court's supervision

(1) Where a company is being wound up voluntarily or subject to the supervision of the Court, a petition for its winding up by the Court may be presented by -

(a) any person authorised to do so under section 439, and subject to the provisions of that section; or

(b) the Official Liquidator.

(2) The Court 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 or winding up subject to the supervision of the Court cannot be continued with due regard to the interests of the creditors or contributories or both.

Commencement of Winding Up

1 Powers delegated to Regional Directors vide Notification No. GSR 288(E), dated 31-5-1991.

441. Commencement of winding up by Court

(1) Where, before the presentation of a petition for the winding up of a company by the Court, 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 Court, 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 Court shall be deemed to commence at the time of the presentation of the petition for the winding up.

Powers of Court

442. Power of Court to stay or restrain proceedings against Company

At any time after the presentation of a winding up petition and before a winding up order has been made, the company, or any creditor or contributory, may -

(a) where any suit or proceeding against the company is pending in the Supreme Court or in any High Court, apply to the Court in which the suit or proceeding is pending for a stay of proceedings therein; and

(b) where any suit or proceeding is pending against the company in any other Court, apply to the Court having jurisdiction to wind-up the company, to restrain further proceedings in the suit or proceeding;

and the Court to which application is so made may stay or restrain the proceedings accordingly, on such terms as it thinks fit.

443. Powers of Court on hearing petition

(1) On hearing a winding up petition, the Court may -

(a) dismiss it, with or without costs; or

(b) adjourn the hearing conditionally or unconditionally; 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 Court 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 Court may refuse to make an order of winding up, if it is of 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 Court 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 Court, are responsible for the default.

Consequences of Winding up Order

444. Order for winding up to be communicated to Official Liquidator and Registrar

Where the Court makes an order for the winding up of a company, the Court shall forthwith cause intimation thereof to be sent to the ¹[Official Liquidator and the Registrar].

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 ²[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 one hundred 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.

1 Substituted by Act 65 of 1960, section 163, for "Official Liquidator".

2 Substituted by Act 31 of 1965, section 62 and Schedule for “one month” w.e.f. 15-10-1965.

3 Inserted by Act 65 of 1960, section 164.

4 Substituted by Act 31 of 1965, section 62 and Schedule for “one month” w.e.f. 15-10-1965.

(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.

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 Court and subject to such terms as the Court may impose.

¹[(2) The Court which is winding up the company 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);

(d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise 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.)

(3) Any suit or proceeding by or against the company which is pending in any Court other than that in which the winding up of the company is proceeding may, notwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that Court.

²[(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.]

1 Substituted by Act 65 of 1960, section 165, for sub-section (2).

2 Inserted by Act 65 of 1960, section 165.

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 had been made on the joint petition of a creditor and of a contributory.

Official Liquidators

448. Appointment of Official Liquidator

(1) For the purposes of this Act, so far as it relates to the winding up of companies by the Court, -

(a) there shall be attached to each High Court, an Official Liquidator appointed by the Central Government, who shall be a whole-time officer, unless the Central Government considers that there will not be sufficient work for a whole-time officer in which case a part-time officer may be appointed; and

(b) the Official Receiver attached to a District Court for insolvency purposes, or if there is no such Official Receiver, then, such person as the Central Government may, by notification in the Official Gazette appoint for the purpose, shall be the Official Liquidator attached to the District Court.

¹[(1A) The Central Government may appoint one or more Deputy or Assistant Official Liquidators to assist the Official Liquidator in the discharge of his functions.]

(2) All references to the "Official Liquidator" in this Act shall be construed as references to the Official Liquidator referred to in clause (a) or clause (b), as the case may be, of sub-section (1) ²[and as including references to Deputy or Assistant Official Liquidators appointed under sub-section (1A)].

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 Court may appoint the Official Liquidator to be liquidator provisionally.

1 Inserted by Act 65 of 1960, section 166.

2 Ibid.

(2) Before appointing a provisional liquidator, the Court 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 Court thinks fit to dispense with such notice.

(3) Where a provisional liquidator is appointed by the Court, the Court 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.

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 Court may impose.

(2) Where the Official liquidator 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 his sub-section shall be deemed to give validity to acts done by a liquidator after his appointment has been shown to be invalid.

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 Court.

454. Statement of affairs to be made to Official Liquidator

(1) Where the Court has made a winding up order or appointed the Official Liquidator as provisional liquidator, unless the Court 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 Court, 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.