Companies Act Section 343

Companies Act, Section 343: Powers of the Company Liquidator Subject to Tribunal Sanction 

Section 343 of the Companies Act, 2013, lays down the framework within which the Company Liquidator may exercise certain significant powers during the winding up of a company by the Tribunal. These powers are not to be exercised unilaterally but are subject to prior sanction from the National Company Law Tribunal (NCLT), except in specified cases where the Central Government has issued rules permitting otherwise.

This provision is designed to ensure that the liquidation process remains fair, transparent, and properly supervised, especially when it involves compromises, settlements, or financial dealings that may affect the interests of creditors, contributories, or other stakeholders.

1. Objective of Section 343

The key objectives of this section are to:

Prevent misuse of powers by the Liquidator by placing critical financial decisions under judicial supervision, Empower the Tribunal to oversee and approve compromises, settlements, or full payments to particular classes of creditors.
Provide a mechanism through which stakeholders can challenge or seek clarity on the actions proposed by the Liquidator, Ensure that the interests of all parties creditors, contributories, and the company itself are protected during the winding-up process.
2. Powers of the Company Liquidator Requiring Tribunal Sanction 

When a company is being wound up by the Tribunal, the Company Liquidator may perform certain actions, but only with the prior approval (sanction) of the Tribunal. These powers include:

(i) Paying Any Class of Creditors in Full

The Liquidator may propose to pay a particular class of creditors the entire amount owed to them.
This may arise in cases where the assets are sufficient to satisfy some classes in full, such as secured creditors or employees, or where payment in full to one class is in the interest of quicker resolution.
However, the payment must not prejudice other creditors or violate the principles of equitable treatment, hence the requirement for Tribunal approval.
(ii) Making Compromises or Arrangements with Creditors or Claimants

The Liquidator can negotiate settlements or arrangements with:
Existing creditors, Persons claiming to be creditors, Individuals or entities alleging they have present or future, certain or contingent claims against the company.
These claims may be disputed, unascertained, or contingent in nature, such as pending lawsuits or contractual obligations.
Any such arrangement must be sanctioned by the Tribunal to ensure it is fair, reasonable, and in line with the interests of all parties.
(iii) Compromising Calls, Liabilities, and Debts Involving Contributories or Others

The Liquidator may settle or compromise any:
Calls or liability to make calls on shares not fully paid, Debts, or Claims (present or future, whether fixed or contingent, ascertained or unascertained) involving:
Contributories (members liable to contribute to assets in winding up), Debtors of the company, Persons who fear future liabilities from the company.
This also includes compromise of claims involving damages, disputes affecting the company’s assets and liabilities, and other matters impacting the winding-up process.
With Tribunal sanction, the Liquidator may:
Enter into agreements on such terms as are reasonable, Take security for repayment, Issue complete discharges upon settlement.
3. Exception: Powers Exercisable Without Tribunal Sanction

Although Tribunal approval is the default requirement, sub-section (2) grants the Central Government the authority to make rules that allow the Company Liquidator to exercise certain powers without prior Tribunal sanction. Specifically:

The rules may permit the Liquidator to exercise powers listed in clause (ii) and clause (iii) of sub-section (1) under specified conditions, such as:
Particular value thresholds, Classes of creditors or claimants, Simplified settlement mechanisms.
This provision introduces administrative flexibility into the liquidation process and helps reduce delays when dealing with small or uncontested claims or liabilities. However, the use of such powers without sanction is subject to strict compliance with the conditions, restrictions, and limitations prescribed in the rules issued by the Central Government.

4. Right to Apply to the Tribunal by Creditors or Contributories 

To ensure accountability and transparency, Section 343(3) allows any creditor or contributory to approach the Tribunal if they have concerns regarding:

Any exercise or proposed exercise of powers by the Company Liquidator under this section, Whether due process and fairness are being followed, The appropriateness of settlements, payments, or compromises proposed. Upon receiving such an application, the Tribunal must:

Give a reasonable opportunity to both the applicant (creditor or contributory) and the Liquidator to present their case, Examine whether the proposed actions are in accordance with law and fair to all stakeholders, Pass appropriate orders as it considers fit in the circumstances of the case.
This provision provides a check-and-balance mechanism and strengthens stakeholder protection, ensuring that the Liquidator's decisions are not arbitrary or detrimental to the interests of the company’s stakeholders.

5. Practical Implications of Section 343

Protects creditor rights by requiring judicial oversight before paying any class of creditors in full or entering into settlements, Prevents abuse of power by the Liquidator by subjecting significant financial decisions to scrutiny.
Enhances transparency by allowing creditors and contributories to question or challenge decisions, Streamlines minor transactions by allowing the Central Government to notify rules permitting some powers to be exercised without Tribunal sanction, Balances efficiency with accountability during liquidation.