Companies Act Section 336

Companies Act, Section 336: Offences Committed by Officers of Companies in Liquidation

Section 336 of the Companies Act, 2013 lays down stringent criminal provisions to deal with fraudulent, dishonest, or non-cooperative conduct by officers of companies that are undergoing winding up proceedings under the supervision of the Tribunal. This section seeks to ensure full transparency, accountability, and honesty on the part of those who have been responsible for managing the affairs of the company prior to or during its liquidation.

It recognizes that officers, by virtue of their position and access to sensitive information and assets, are capable of committing serious wrongdoings that could frustrate the liquidation process, harm creditors' interests, or obstruct the fair distribution of company assets. To deter such misconduct, Section 336 provides for criminal penalties, including imprisonment and fines, for specific offences.

1. Applicability of Section 336

Any person who is or has been an officer of the company. The company must be undergoing winding up by the Tribunal at the time of the alleged offence or must have subsequently been ordered to be wound up by the Tribunal.
The term "officer" is broadly defined to include not only directors and key managerial personnel but also any person who instructs or influences directors, making them liable if they have effectively controlled the company’s actions.

2. Enumerated Offences under Section 336(1)

The section lists various acts or omissions which, if committed by an officer of a company during the winding-up process, are considered criminal offences punishable by law.

(a) Failure to Disclose Full Details of Company Property

An officer commits an offence if he fails to:

Fully and truthfully disclose all company property (movable and immovable) to the Company Liquidator.
Explain how, to whom, for what consideration, and when any part of the property was disposed of, unless such disposal occurred in the ordinary course of business.
(b) Failure to Hand Over Company Property

If the officer does not deliver to the Company Liquidator (or as directed):

Any part of the company’s property under his control that he is legally required to surrender during liquidation, he is guilty of a punishable offence.

(c) Failure to Deliver Books and Records

An offence is committed if the officer fails to:

Hand over all books, documents, and papers related to the company that are in his custody or control, and which he is legally bound to deliver to the Liquidator.
(d) Fraudulent Acts Before or After Winding Up (Within 12 Months)

Within the twelve months before the commencement of winding up or at any time after:

i) Concealing Company Property or Debts: Concealing any property worth ?1,000 or more, Concealing any debt due to or from the company.
ii) Fraudulent Removal of Property: Illegally removing any company property worth ?1,000 or more.
iii) Tampering with Company Records: Concealing, destroying, mutilating, or falsifying any books or papers, Being privy to such acts.
iv) False Entries in Records: Making or being party to false entries in books or records.
v) Fraudulent Alteration or Omission: Illegally altering or omitting entries in books, Participating in or allowing such fraudulent acts.
vi) Fraudulent Credit Transactions: Obtaining goods or property on credit by false representation, without intending to pay. Misleading others into providing credit by falsely representing that the company is carrying on business.
vii) Disposing of Unpaid Goods: Pawning, pledging, or disposing of goods obtained on credit and not paid for, unless done in the ordinary course of business.
(e) Material Omission in Financial Statements: Making a significant omission in any document or statement relating to the affairs of the company constitutes an offence.

(f) Failing to Report False Debts: If the officer is aware that someone has fraudulently claimed a debt in the winding up and fails to report it to the Liquidator within one month, he is liable for prosecution.
(g) Preventing Production of Books or Records: If, after the commencement of winding up, the officer prevents or obstructs the production of company books and papers related to its property or affairs, it is a punishable offence.
(h) Fictitious Losses or Expenses: If the officer attempts to justify missing property by showing fictitious expenses or losses either after the commencement of winding up or during any meeting of creditors in the 12 months preceding winding up, he is criminally liable.
(i) Fraud to Obtain Creditor Consent: Using false representations or fraud to induce creditors to agree to an arrangement regarding the company’s affairs or the winding up itself is also punishable.
3. Punishment for Offences under Subsection (1)

Any officer found guilty of any of the above offences shall be subject to:

Imprisonment for a term not less than 3 years, which may be extended up to 5 years, and A fine of not less than ?1,00,000, which may be extended up to ?3,00,000.
4. Defence Available to the Accused

The section provides a legal safeguard to the accused by stating that: This "absence of intent" defence must be clearly established by the accused through evidence.

5. Offences Relating to Receivers of Fraudulent Property- Subsection (2)

Not only the officers but third parties who participate in wrongful acts may also be punished.

If any person knowingly accepts, pawns, or pledges property that has been disposed of by an officer fraudulently under clause (d)(viii), and they are aware of the fraudulent circumstances under which the property was pawned or pledged, they are subject to:
Imprisonment of not less than 3 years, extendable to 5 years, and a Fine of not less than ?3,00,000, extendable to ?5,00,000.
6. Explanation: Who Qualifies as an 'Officer'

For the purpose of this section, the term “officer” includes:

Any person in accordance with whose directions or instructions the directors of the company have been accustomed to act.
This broadens the scope of liability to shadow directors or advisors who exercise effective control, ensuring that persons acting behind the scenes are not able to escape criminal liability.