Notice of resolutions passed by creditors’ meeting to be given to Registrar.

501.   (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 ⁵⁶[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.

Appointment of liquidator.

502.   (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 ⁵⁷[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.

Appointment of committee of inspection.⁵⁸

503.   (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 ⁵⁹[Tribunal] otherwise directs, be qualified to act as members of the committee.

(4) On any application to the  ⁵⁹[Tribunal] for a direction under sub-section (3), the ⁵⁹[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 ⁵⁹[Tribunal].

Fixing of liquidators’ remuneration.

504.   (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 ⁵⁹[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 ⁵⁹[Tribunal].

Board’s powers to cease on appointment of liquidator.

505.   On the appointment of a liquidator, all the powers of the Board of directors shall cease, except in so far as the committee of inspection, or if there is no such committee, the creditors in general meeting, may sanction the continuance thereof.

Power to fill vacancy in office of liquidator.

506.   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 ⁶⁰[Tribunal]), the creditors in general meeting may fill the vacancy.

Application of section 494 to a creditors’ voluntary winding up.

507.   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 ⁶⁰[Tribunal] or of the committee of inspection.

Duty of liquidator to call meetings of company and of creditors at end of each year.

508.   (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 Government⁶¹ 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 ⁶²[one thousand] rupees.

Final meeting and dissolution.

509.   (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 newspaper 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 ⁶³[Registrar and the Official Liquidator ⁶⁴[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 ⁶⁵[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.

⁶⁶[(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 Official Liquidator ⁶⁴[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 Official Liquidator ⁶⁴[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 Official Liquidator ⁶⁴[referred to in clause (c) of sub-section (1) of section 448] makes a report to the ⁶⁷[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 ⁶⁷[Tribunal] the company shall be deemed to be dissolved.

(6A) If on such scrutiny the Official Liquidator ⁶⁴[referred to in clause (c) of sub-section (1) of section 448] makes a report to the ⁶⁷[Tribunal] that the affairs of the company have been conducted in a manner prejudicial as aforesaid, the ⁶⁷[Tribunal] shall by order direct the Official Liquidator ⁶⁴[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 ⁶⁷[Tribunal] deem fit.

(6B) On the receipt of the report of the Official Liquidator ⁶⁴[referred to in clause (c) of sub-section (1) of section 448] on such further investigation the ⁶⁷[Tribunal] may either make an order that the company shall stand dissolved with effect from the date to be specified by the ^67a[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 ⁶⁸[five thousand] rupees.

Provisions applicable to every voluntary winding up

Provisions applicable to every voluntary winding up.

510.   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.

Distribution of property of company.

511.   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.

⁶⁹[Application of section 454 to voluntary winding up.

511A. 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 ⁷⁰[Tribunal] except that references to—

(a)     the ⁷⁰[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.]

Powers and duties of liquidator in voluntary winding up.

512.   (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 ⁷⁰[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 ⁷¹[clauses (a) to (d) of sub-section (1)] of section 457 to a liquidator in a winding up by the ⁷⁰[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 ⁷⁰[Tribunal];

(c)     exercise the power of the ⁷²[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 ⁷²[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 ⁷²[Tribunal]; and any creditor or contributory may apply to the ⁷²[Tribunal] with respect to any exercise or proposed exercise of any of the powers 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.

Body corporate not to be appointed as liquidator.

513. (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 every director ⁷³[***] or a manager thereof, shall be punishable with fine which may extend to ^73a[ten] thousand rupees :

^73b[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.]

Corrupt inducement affecting appointment as liquidator.

514. 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 ^73a[ten] thousand rupees.

⁷⁴[Power of Tribunal to appoint and remove liquidator in volun­tary winding up.

515. (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.]

Notice by liquidator of his appointment.

516.   (1) The liquidator shall, within ⁷⁵[thirty] days after his appointment publish in the Official Gazette, and deliver to the Registrar for registration, a notice of his appointment in the form prescribed.

(2) If the liquidator fails to comply with sub-section (1), he shall be punishable with fine which may extend to ⁷⁶[five hundred] rupees for every day during which the default continues.

Arrangement when binding on company and creditors.

517.   (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 ⁷⁷[Tribunal] against it and the ⁷⁷[Tribunal] may thereupon, as it thinks just, amend, vary, confirm or set aside the arrangement.

⁷⁸[Power to apply to Tribunal to have questions determined or powers exercised.

518.   (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 applications 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.

Application of liquidator to Tribunal for public examination of promoters, directors, etc.

519. (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.]

Costs of voluntary winding up.

520.   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.

Saving of right of creditors and contributories to apply for winding up.

521.   [Omitted by the Companies (Amendment) Act, 1960. For the original section, refer  Appendix I].

Chapter IV

Winding up subject to supervision of Court

Power to order winding up subject to supervision.

522. ⁷⁹[Omitted by the Companies (Second Amendment) Act, 2002.]

Effect of petition for winding up subject to supervision.

523. ⁷⁹[Omitted by the Companies (Second Amendment) Act, 2002.]

Power of Court to appoint or remove liquidators.

524. ⁷⁹[Omitted by the Companies (Second Amendment) Act, 2002.]

Powers and obligations of liquidator appointed by Court.

525. ⁸⁰[Omitted by the Companies (Second Amendment) Act, 2002.]

Effect of supervision order.

526. ⁸⁰[Omitted by the Companies (Second Amendment) Act, 2002.]

Appointment in certain cases of voluntary liquidators to office of liquidators.

527. ⁸⁰[Omitted by the Companies (Second Amendment) Act, 2002.]

Chapter V

Provisions applicable to every mode of winding up

Proof and ranking of claims

Debts of all descriptions to be admitted to proof.

528.   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.

Application of insolvency rules in winding up of insolvent compa­nies.

529.   (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 :

⁸¹[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 :

⁸²[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 pay ⁸¹[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.]

⁸³[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.]

⁸³[(3) For the purposes of this section, section 529A and section 530,—

(a)     “workmen”⁸⁴, 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.]

⁸⁵[Overriding preferential payments.

529A. (1) Notwithstanding anything contained in any other provi­sion of this Act or any other law for the time being in force, in the winding up of a company—

(a)     workmen’s dues; and

(b)     debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub-section (1) of sec­tion 529 pari passu  with such dues,

shall be paid in priority to all other debts.

(2) The debts payable under clause (a) and clause (b) of sub-section (1) shall be paid in full, unless the assets are insuffi­cient to meet them, in which case they shall abate in equal propor­tions.]

Preferential payments.

530.   (1) In a winding up, ⁸⁵[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 ^86-87[* * *], 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 com-pany, 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 14⁸⁸ 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, ⁸⁹[exceed such sum as may be notified⁹⁰ by the Central Govern­ment in the Official Gazette].

⁹¹[* * *]

(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 effects 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; ⁹²[* * *]

⁹³[(bb)     the expression “employee” 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.

Effect of winding up on antecedent and other transactions

Fraudulent preference.

531.   (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 ⁹⁴[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.

⁹⁵[Avoidance of voluntary transfer.

531A. 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 ⁹⁴[the Tribunal] or the passing of a resolution for voluntary winding up of the company, shall be void against the liquidator.]

Transfers for benefit of all creditors to be void.

532.   Any transfer or assignment by a company of all its property to trustees for the benefit of all its creditors shall be void.

Liabilities and rights of certain fraudulently preferred persons.

533.   (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 provision), 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 ⁹⁶[Tribunal]  with respect to any payment on the ground that the payment was a fraudulent prefer­ence of a surety or guarantor, the ⁹⁶[Tribunal] 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.

Effect of floating charge.

534.   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.

Disclaimer of onerous property in case of a company which is being wound up.

535.   (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 possessor 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 ⁹⁷[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 ⁹⁷[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 ⁹⁷[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 ⁹⁷[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 ⁹⁷[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 ⁹⁷[Tribunal], given notice to the applicant that he intends to apply to the ⁹⁷[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, ⁹⁸[he shall be deemed to have adopted it].

(5) The ⁹⁷[Tribunal] may, on the application of any person who is, as against the liquidator, entitled to the benefit or subject to the burden of a contract made with the company, make 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 ⁹⁷[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 ⁹⁷[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 ⁹⁹[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 leasehold nature, the ⁹⁹[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 ⁹⁹[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 ⁹⁹[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.

Avoidance of transfers, etc., after commencement of winding up.

536.   (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, unless the ⁹⁹[Tribunal] otherwise orders, be void.

²[Avoidance of certain attachments, executions, etc., in winding up by Tribunal.

537. (1) Where any company is being wound up by the 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.]

Offences antecedent to or in course of winding up

Offences by officers of companies in liquidation.

538.   (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 ³[the Tribunal]  or voluntarily, or which is subsequently or­dered to be wound up by the ⁴[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 part 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 circumstan-ces 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.

Penalty for falsification of books.

539.   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 secrets, 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.

Penalty for frauds by officers.

540.   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 ^4a[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.

Liability where proper accounts not kept.

541.   (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 stock takings 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 the sellers thereof in sufficient detail to enable those goods and those buyers and sellers to be identified.