Section 339 of CA 2013 : Section 339: Liability For Fraudulent Conduct Of Business

Explanation using Example

Imagine a situation where a company named "QuickTech Solutions" is undergoing liquidation. During this process, it is discovered that the director, Mr. John, along with a few senior managers, had been engaging in transactions that were designed to defraud the company's creditors. For example, they were selling company assets at significantly undervalued prices to a sister company they also controlled, thereby depleting QuickTech's assets and leaving little for the creditors.

The Company Liquidator, upon uncovering these transactions, files an application with the Tribunal under Section 339 of the Companies Act, 2013. The Tribunal, after reviewing the evidence, finds that there was indeed intent to defraud. Consequently, it declares that Mr. John and the involved managers are personally responsible for the debts owed to the defrauded creditors, without any limitation on their liability.

Furthermore, the Tribunal, utilizing its powers under Section 339(2), orders that any debts owed by QuickTech to these individuals be charged against their personal assets. It also imposes a charge on their personal assets that are equivalent to the value of the company assets they had undervalued and sold. This ensures that the creditors can recover some of their losses directly from the personal assets of those who were responsible for the fraud.

Additionally, because their actions were knowingly fraudulent, Mr. John and the managers may face further legal action under Section 447, which deals with punishment for fraud.

This example illustrates how Section 339 of the Companies Act, 2013 can be applied to hold individuals personally accountable for fraudulent business practices during the winding up of a company.