Section 340 of the Companies Act, 2013
Section 340 of the Companies Act, 2013 – Liability of Delinquent Directors, Promoters, etc.
Purpose:
This section empowers the Tribunal (NCLT) to hold directors, promoters, or other officers personally liable for any fraudulent conduct or misfeasance (wrongdoing) during the affairs of a company that is under winding up.
Key Provisions:
🧑⚖️ Who Can Be Held Liable:
Present or past directors, managers, officers, or promoters of the company.
💼 Grounds for Liability:
If, in the course of winding up, it appears that:
They have misapplied or retained company property,
Committed misfeasance (breach of duty), or
Caused loss to the company through fraud or breach of trust,
📆 Time Limit for Action:
An application under this section must be made within 5 years:
From the date of winding up order or appointment of the liquidator, or
From the date of the alleged misconduct,
whichever is later.
📝 Who Can Apply:
The Official Liquidator, the Company Liquidator, or any contributory or creditor of the company.
Objective:
To deter fraudulent or negligent conduct by people in power and to ensure they do not escape liability when the company is being wound up.
✅ Example:
If during liquidation, it is found that a former director siphoned off ₹10 lakh of company funds to a personal account, the Tribunal can order him under Section 340 to repay the amount with interest and possibly additional penalties.
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