Companies Act Section 2(26) Contributory

Contributory Section 2(26)

A "Contributory" refers to a person who is liable to contribute towards the assets of a company in the event of its winding up while being a member or within the past year or whose liability to contribute arises under the Companies Act, 2013, or any previous company law.

Key Features:

1. Liability to Contribute: 

A Contributory is someone who has a legal obligation to contribute towards the assets of the company in the event it is wound up. 

This contribution typically relates to unpaid amounts on shares held by them or other liabilities as specified under the law.

2. Types of Contributories:

Members: Shareholders or members of the company are primary contributories. They are liable to contribute towards unpaid amounts on shares held by them.

Past Members: Individuals who were members of the company within the past year but are no longer members at the time of winding up may still be liable to contribute if liabilities arose during their membership.

Others: Certain individuals or entities may also become contributories under specific circumstances as prescribed by the Companies Act, 2013, or previous company laws.

3. Winding Up: 

The liability of a contributory typically arises when a company is being wound up, either voluntarily or by an order of the National Company Law Tribunal (NCLT), due to insolvency or other reasons specified under the law.

4. Extent of Liability: 

The liability of a contributory is limited to the amount unpaid on shares held by them or any other obligations specified under the company’s memorandum of association or articles of association.

Importance:

1. Creditor Protection: 

The concept of contributories ensures that creditors and other stakeholders have recourse to recover debts and liabilities owed by the company through contributions made by its members and other liable parties.

2. Fair Distribution: 

In the event of winding up, contributories ensure an equitable distribution of the company’s assets among creditors and shareholders according to their respective rights and priorities.

3. Legal Compliance: 

The identification and obligations of contributories are governed by the Companies Act, 2013, and previous company laws, ensuring clarity and adherence to legal requirements in the event of company dissolution.

Legal Framework and Compliance:

Companies Act, 2013: 

The provisions related to contributories, their rights, and obligations are specified under Section 2(26) and other relevant sections of the Companies Act, 2013.

Winding Up Procedures: 

Contributories play a crucial role in the winding up process, where their liabilities and obligations are determined and enforced under the supervision of the NCLT or as per voluntary winding up procedures.

Judicial Oversight: 

The National Company Law Tribunal (NCLT) oversees the winding up process and ensures that contributories fulfill their legal obligations in accordance with the law.