Section 333 of Companies Act, 2013 – Disclaimer of onerous property

SECTION 333. DISCLAIMER OF ONEROUS PROPERTY

[Effective from 15th December, 2016]

(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 stocks in companies;

(c)   any other property which is not saleable or is not readily saleable by reason of the possessor thereof being bound either to the performance of any onerous act or to the payment of any sum of money; or

(d)   unprofitable contracts,

the Company Liquidator may, 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, with the leave of the 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 Tribunal, disclaim the property:

Provided that where the Company Liquidator had not become aware of the existence of any such property within one month from 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 Tribunal.

(2) The disclaimer shall operate to determine, as from the date of disclaimer, the rights, interest and liabilities 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, interest or liabilities of any other person.

(3) The 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 Tribunal considers just and proper.

(4) The Company 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 Company 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 Tribunal, give notice to the applicant that he intends to apply to the Tribunal for leave to disclaim, and in case the property is under a contract, if the Company Liquidator after such an application as aforesaid does not within the said period or extended period disclaim the contract, he shall be deemed to have adopted it.

(5) The Tribunal may, on the application of any person who is, as against the Company 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 Tribunal considers just and proper, 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 Tribunal may, on an application by any person who either claims any interest in any disclaimed property or is under any liability not discharged under 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 Tribunal considers just and proper, and on any such vesting order being made, the property comprised therein shall vest accordingly in the person named therein in that behalf without any conveyance or assignment for the purpose:

Provided that where the property disclaimed is of a leasehold nature, the 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 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 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 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 covenants of the lessee in the lease, free and discharged from all estates, encumbrances and interests created therein by the company.

(7) Any person affected 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 such effect, and may accordingly prove the amount as a debt in the winding up.

Applicable Rules

Companies (Winding Up) Rules, 2020

[Effective from 1st April, 2020]

DISCLAIMER

Rule 156. Application for disclaimer.—(1) An application for leave to disclaim any part of the property of a company pursuant to sub-section (1) of section 333 shall be made by an application supported by an affidavit setting out the full facts relating to the property, the parties interested, the nature of their interests, and stating whether the company is solvent and whether any notice has been served on the liquidator by any person referred to in sub-section (4) of the said section requiring him to elect whether or not he will disclaim.

(2) The notice and application referred to in sub-rule (1) shall be in Forms WIN 76 to 82 with such variations as may be necessary.

Rule 157. Preliminary hearing of application.—The application referred to in rule 156 shall be posted before the Tribunal ex-parte in the first instance for directions as to the persons on whom notice of the application should be served, and the Tribunal shall thereupon fix a date for the hearing of the application and give such directions as may be necessary as to the persons on whom notice of the application should be served.

Rule 158. Claimant to furnish statement of his interest.—Where a person claims to be interested in any part of the property of the company which the Company Liquidator wishes to disclaim, such person shall, if so required by the liquidator, furnish a statement of the interest claimed by him.

Rule 159. Service of notice.— Notice of the date fixed for the hearing of the application referred to in rule 156 shall be in Form WIN 83 and shall be served not less than seven days before the date fixed for the hearing, together with a copy of the application and of the affidavit filed in support thereof, and the notice shall require that any affidavit-in-opposition to the application shall be filed in Tribunal and a copy thereof served on the Company Liquidator not later than two days before the date fixed for the hearing

Rule 160. Order granting leave to disclaim.—On the hearing of the application referred to in rule 156, the Tribunal may after hearing the Company Liquidator and such parties as may appear in response to the notices issued, and such other persons appearing and interested as the Tribunal may think fit to hear, grant leave to the liquidator and to disclaim on such terms and conditions if any, as to the Tribunal may deem just and the order granting leave to disclaim shall be in Form WIN 84.

Rule 161. Disclaimer to be filed in Tribunal.—Every disclaimer shall be filed in Tribunal by the Company Liquidator and shall not be operative until it is so filed and where the disclaimer is in respect of a leasehold interest, it shall be filed in Tribunal forthwith; the notice of the filing of the disclaimer shall be given to the persons interested in the property; the disclaimer shall contain particulars of the interest disclaimed and a statement of the persons to whom notice of the disclaimer has been given; a disclaimer shall be in Form WIN 85, and a notice of disclaimer in Form WIN 86, and where a disclaimer has been filed in Tribunal, the Company Liquidator shall file a copy thereof with the Registrar of Companies.

Rule 162. Vesting of disclaimed property.—(1) Where the disclaimed property is a leasehold interest and an application is made under sub-section (6) of section 333 for an order vesting the property in any person and it appears that there is an under- lessee or mortgagee or holder of a charge by way of demise in respect of such property, claiming under the company, the Tribunal may direct that notice shall be given to such under-lessee, mortgagee or holder of charge, that if he does not elect to accept and apply for a vesting order upon the terms required by the abovementioned sub-section and such other terms as the Tribunal may think just, within a time to be fixed by the Tribunal and stated in the notice, he will be excluded from all interest in and security upon the property and the Tribunal may adjourn the application for such notice to be given and for such under-lessee, mortgagee or holder of charge, to be added as a party to and served with a copy of the application, and to make, if he deem fit, such election and application as is mentioned in the notice, and if at the expiration of the time so fixed by the Tribunal, such under-lessee, mortgagee or holder of charge, fails to make such election and application, the Tribunal, may make an order vesting the property in the applicant or other person who, in the opinion of the Tribunal, may be entitled thereto, and excluding such under-lessee, mortgagee or holder of charge, from all interest in or security upon the property.

(2) An order requiring parties interested in a disclaimed lease to apply for a vesting order or to be excluded from all interest in the lease shall be in Form WIN 87, and an order vesting lease and excluding persons who have not elected to apply, shall be in Form WIN 88.