Delinquency and Public Examination

In one line

A liquidation is also an inquiry: the Tribunal may summon anybody who has the company's property or can inform it about the company's affairs, may publicly examine those the liquidator's report accuses of fraud, may arrest a contributory about to abscond, and may make those who carried on the business fraudulently personally liable without limit, and those guilty of misfeasance liable to repay with interest.

In exam wording: under section 339(1), if in the course of the winding up 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 Tribunal may, on the application of the Official Liquidator, the Company Liquidator, or any creditor or contributory, declare that any person who is or has been a director, manager or officer of the company, or any persons who were knowingly parties to the carrying on of the business in that manner, shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Tribunal may direct.

Why the law has this at all

A winding up asks two questions, not one. The first is where the assets are. The second is why there are so few of them, and that question cannot be answered from the books alone, because the people who kept the books are the people whose conduct is in issue.

The Act therefore gives the Tribunal an investigative jurisdiction inside the liquidation, and it has three parts.

Getting information. Section 299 lets the Tribunal summon anybody known or suspected to have the company's property or books, known or suspected to be indebted to the company, or capable of giving information about its promotion, formation, trade, dealings, property, books or affairs, and to examine him on oath.

Public examination. Section 300 lets the Tribunal, on a liquidator's report of fraud in the promotion, formation, business or conduct of affairs, direct the person to attend and be examined about it.

And preventing escape. Section 301 lets the Tribunal detain a contributory and seize his books, papers and movable property where he is about to leave India, abscond, or remove or conceal property to evade calls or examination.

Then it provides consequences, and they are of three kinds: offences in ss.336, 337 and 338, civil liability in ss.339, 340 and 341, and prosecution in s.342. The civil and the criminal run together, and s.340(3) says so expressly: the section applies notwithstanding that the matter is one for which the person concerned may be criminally liable.