Section 340 of Companies Act, 2013 – Power of Tribunal to assess damages against delinquent directors, etc

  • Updated Till : April 12, 2024

SECTION 340. Power of Tribunal to assess damages against delinquent directors, etc.

[Effective from 9th September, 2016 (to the extent of their applicability to Section 246), complete section effective from 15th December, 2016]

(1) If in the course of winding up of a company, it appears that any person who has taken part in the promotion or formation of the company, or any person, who is or has been a director, manager, Company Liquidator or officer of the company—

(a)   has misapplied, or retained, or become liable or accountable for, any money or property of the company; or

(b)   has been guilty of any misfeasance or breach of trust in relation to the company,

the Tribunal may, on the application of the Official Liquidator, or the Company Liquidator, or of any creditor or contributory, made within the period specified in that behalf in sub-section (2), inquire into the conduct of the person, director, manager, Company Liquidator or officer aforesaid, and order him to repay or restore the money or property or any part thereof respectively, with interest at such rate as the Tribunal considers just and proper, or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust, as the Tribunal considers just and proper.

(2) An application under sub-section (1) shall be made within five years from the date of the winding up order, or of the first appointment of the Company Liquidator in the winding up, or of the misapplication, retainer, misfeasance or breach of trust, as the case may be, whichever is longer.

(3) This section shall apply, notwithstanding that the matter is one for which the person concerned may be criminally liable.

Applicable Rules

Companies (Winding Up) Rules, 2020

[Effective from 1st April, 2020]

APPLICATION AGAINST DELINQUENT DIRECTORS, PROMOTERS AND
OFFICERS OF THE COMPANY

Rule 153. Application under section 339 or section 340.—An application under sub-section (1) of section 339 or under sub-section (1) of section 340, shall be made by a summons returnable in the first instance in chambers and the summons shall state the nature of the declaration or order for which the application is made, and the grounds of the application, and shall be served on every person against whom an order is sought not less than seven days before the day named in the summons for the hearing of the application, and it shall not be necessary to file any affidavit or report before the return of the summons and the summons shall be in Form WIN 72 or Form WIN 73 with such variations as may be necessary.

Rule 154. Directions at preliminary hearing of summons.—On the return of the summons, the Tribunal may give such directions as it shall think fit as to whether points of claim and defence are to be delivered, as to the taking of evidence wholly or in part by affidavit or orally, as to the cross-examination, on the hearing, before the Tribunal or of any deponents to affidavits in support of or in opposition to the application, as to any report, the Tribunal may require the liquidator to make, and generally as to the procedure on the summons and for the hearing thereof, and points of claim to be delivered shall be in Form WIN 74 or Form WIN 75 with such variations as may be necessary.

Rule 155. Liberty to apply for further directions.— Where the Tribunal has directed that points of claim and defense shall be delivered, it shall be open to either party who wishes to apply for any further direction as to any interlocutory matter, to apply, by restoration of the summons, before the summons has been set down for trial, for such direction, upon giving two clear days’ notice in writing to the other party stating the grounds of the application and a copy of the notice shall be filed with the Registry, two clear day’s before the day fixed for the hearing of the application.

 

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