Section 336: Offences by Officers of Companies in Liquidation

Introduction

Section 336 of Companies Act, 2013 is part of chapter XX-Part III and lays down the provision for offences by the officers of companies in liquidation. This section makes sure that the liquidation process of the company runs smoothly, and the directors do not hinder the process in any way by committing offences and not giving a true picture of the assets of the company. This analysis will give a brief about the important aspects of this section.

Purpose of Section 336

This section is a very important section that comes into play during the winding up procedure of a company and briefly lays down the following:

Section 336 of the act, 2013 provides that if any past or present officer commits any offence as stated in clauses (a) to (i), would be subject to penal provisions as provided in sub-section (2) of section 336. The offences described in clauses (a) to (i) have been summarized below:
The aforesaid officer: (a) does not truly and fully disclose details of all movable and immovable property, doesn’t deliver to liquidator all such parts of movable or immovable property and books and accounts as is his duty to (b) fraudulently or by false representation or under a false pretense that the company is carrying on a business obtains any property on credit which the company subsequently doesn’t pays for or pawns, pledges or disposes of any property obtained on credit and hasn’t been paid for unless it is done so in the ordinary course of business (c) conceals or fraudulently removes any property worth rupees thousand or more or any debt due, conceals, destroys, mutilates or makes false entry in books of account, etc., within 12 months next before commencement of winding up (d) makes any material omission or is guilty of any false representation or fraud for obtaining consent of one or more creditors to an agreement with reference to affairs of company or winding up.
Where an officer pawns, pledges or disposes of the property as stated above, he should be liable for a fine of Rs. 3-5 lakh or imprisonment of 3-5 years or both.
The officer is entitled to defend his actions on the ground that he had no intention to defraud, conceal the truth or defeat the law.
An ‘Officer’ includes any person in accordance with whose directions or instructions the directors of the company have been accustomed to act.

Also Read Scope and Importance of Corporate Governance

Situation Before Enactment of Section 336

This section corresponds to section 538 (Offences by officers of companies in liquidation) of the 1956 Act. Under the new act, 2013 the offence as enumerated under section 336 is non-compoundable in nature as sub-section (2) provides punishment by way of imprisonment and fine, however, in the old act, 1956 the same was compoundable in nature.

Application of Section 336

This section comes into play during winding up proceedings of a company. During the liquidation it prohibits directors against certain acts and lays down punishments for the same.l

Cases at a Glance

Following cases are important for this section:

Official Liquidator of R.C. Abrol and Co. Pvt. Ltd. (In Liquidation) v. R.C. Abrol [1]: In this case the court held that the high court has no jurisdiction to take cognizance of an offence under section 538 of the act, 1956 (Similar to section 336 of the act, 2013). There is nothing in the criminal procedure code or in the companies’ act, 1956 to indicate that the High court has original jurisdiction to try the offence complained of under section 538 of the act, 1956.
Ajanta Lucky Scheme and Investments Pvt. Limited v. Dharam Bir Bhalla[2]: In this case the directors found to be not in possession of the records required by the official liquidator and the case was filed but court in earlier company petition arrived at the factual conclusion that records were handed over to the voluntary liquidator and it was the liquidator who was untraceable for more than 16 years. Here the court finally held that if there is no sufficient material to establish the guilt of the accused in order to punish them then proceeding against the directors have to be dropped.

Concluding Summary

This section lays down certain offences and their punishment. These are the offences that an officer of a company commits during liquidation. It is important that the officers of the company act in god faith and not fraudulently during liquidation, so that a true picture of the assets and liabilities of the company can be put forth and all the creditors can get their due.

Also Read Private Companies in India: An overview

[1] Official Liquidator of R.C. Abrol and Co. Pvt. Ltd. (In Liquidation) v. R.C. Abrol, 1976 SCC Online Del 68.

[2] Ajanta Lucky Scheme and Investments Pvt. Limited v. Dharam Bir Bhalla 2000 SCC Online P&H 1210.

Also read, Functions of the Board of Directors in a Company: meaning, types of directors, functions.