Companies Act Section 274

Companies Act, Section 274: Directions for Filing Statement of Affairs

Section 274 of the Companies Act, 2013 sets out the procedure and obligations relating to the filing of a statement of affairs by a company when a petition for its winding up has been presented before the National Company Law Tribunal (NCLT). The provision ensures transparency, facilitates a fair hearing, and enables the Tribunal to assess the financial condition and internal records of the company to make an informed decision. This section also introduces penalties for non-compliance and provides safeguards against frivolous petitions by empowering the Tribunal to direct cost securities.

Sub-section (1): Tribunal’s Direction to File Objections and Statement of Affairs

When a petition for winding up of a company is filed before the Tribunal by any person other than the company itself such as a creditor, contributory, Registrar, or other authorised persons the Tribunal is required to assess whether the petition prima facie (on the face of it) appears to have merit.

If the Tribunal is satisfied that there is a prima facie case justifying consideration of the winding up of the company, it shall pass an order directing the company to do the following within thirty (30) days from the date of such order:
File its objections to the winding up petition, and Submit a statement of its affairs, which must be prepared in the form and manner prescribed under the rules.
This statement of affairs typically includes:

A detailed summary of the company’s assets and liabilities, Information about creditors, loans, and advances, Details of any pending litigation, and Any other relevant financial or legal disclosures.
Extension of Time

The Tribunal has discretion to grant a further extension of up to 30 days if the company is unable to meet the initial 30-day deadline due to:

Unforeseen circumstances, or Other special or compelling reasons.
This allows flexibility where strict compliance may be impractical due to genuine difficulties.

Security for Costs

To prevent misuse of the judicial process and discourage frivolous or vexatious petitions, the Tribunal may also require the petitioner to deposit an amount as security for costs. This security acts as a safeguard and may be imposed as a precondition before directing the company to respond to the petition.

Sub-section (2): Consequences of Non-Compliance by the Company

If the company fails to file the statement of affairs and objections within the specified or extended time frame, the consequences are significant:

The company shall forfeit its right to oppose the winding up petition. In other words, the company loses the opportunity to defend itself in the winding up proceedings.
Additionally, any director or officer of the company who is found responsible for such non-compliance shall be held liable for punishment, as detailed in sub-section (4).
This provision ensures that companies and their management take Tribunal directions seriously and respond with full disclosure and cooperation.

Sub-section (3): Submission of Books of Account After Winding Up Order

When the Tribunal passes an order for winding up the company under clause (d) of sub-section (1) of Section 273 (i.e., a final order for winding up), further responsibilities arise for the company’s officers:

The directors and officers of the company must, within 30 days of such order:
Submit the books of account of the company, which must be:
Completed and audited up to the date of the winding up order, and
Submitted at the cost of the company, not at the expense of the Tribunal or liquidator.
These documents must be handed over to the appointed liquidator, and the manner of submission must comply with the directions of the Tribunal.
This step ensures the liquidator has access to complete and accurate financial records for the purposes of overseeing the winding up and asset distribution.

Sub-section (4): Penalties for Contravention

In the event that any director or officer of the company fails to comply with the requirements laid down in Section 274, including non-filing of the statement of affairs or failure to submit books of account, they will be treated as being in default and are subject to penal consequences:

The punishment may include:
Imprisonment for a term which may extend up to six months, or
Fine which shall be not less than ?25,000, but may extend up to ?5,00,000, or
Both imprisonment and fine, depending on the gravity of the offence and Tribunal’s discretion.
This ensures that corporate officers are held accountable for non-compliance with statutory obligations and discourages delay or concealment of material financial information.

Sub-section (5): Filing of Complaint

To facilitate enforcement and initiate prosecution for non-compliance under this section, specific persons are authorised to file complaints before the Special Court, namely:

The Registrar of Companies (RoC), The Provisional Liquidator, The Company Liquidator, or Any person authorised by the Tribunal.
This provision streamlines the process for initiating legal action against defaulting directors or officers and provides multiple channels for redressal.