Companies Act Section 345

Companies Act, Section 345: Evidentiary Value of Company Records During Winding Up 

Section 345 of the Companies Act, 2013 establishes the evidentiary status of the books and papers of a company and its Company Liquidator during the process of winding up. The provision holds that these documents shall serve as prima facie evidence that is, initial proof of the truth of the matters recorded in them, particularly in relation to the contributories of the company.

This section plays a crucial role in resolving disputes, maintaining transparency, and ensuring accountability during the winding-up process, especially when questions arise about the conduct of the company’s affairs or the liabilities and rights of contributories.

1. Applicability of the Provision

This provision comes into effect only when a company is undergoing the process of winding up, whether:

Compulsorily (i.e. by an order of the Tribunal), or Voluntarily (by a resolution passed by the members or as per statutory provisions). The section concerns the books and papers maintained:

By the company before or during the winding up, and by the Company Liquidator, who is responsible for administering the affairs of the company during its dissolution.
2. Meaning and Scope of “Books and Papers”

The phrase "books and papers" includes, but is not limited to:

Statutory registers maintained under the Companies Act (e.g. register of members, register of directors), Books of accounts and financial records, Minutes of meetings of the board or shareholders, Contracts and agreements, Correspondence, invoices, and business letters.

Any records maintained by the Company Liquidator, such as:
Details of assets and liabilities, Records of claims and payments,Minutes of meetings held during liquidation.
These records are assumed to have been maintained in the ordinary course of business and are expected to reflect true and accurate entries.

3. Prima Facie Evidence Among Contributories

Who Are Contributories?

"Contributories" are persons who are liable to contribute to the assets of the company in the event of its winding up. This generally includes:

Present members of the company, Past members, under certain conditions, Legal representatives of deceased members, Persons liable in respect of unpaid share capital.
Evidentiary Effect

Section 345 stipulates that all the books and papers of the company and the Company Liquidator shall be treated as prima facie evidence of the truth of the matters recorded in them between contributories.

In legal terms, "prima facie evidence" means that:

The records will be accepted as correct unless proven otherwise, The burden of proof lies on the party challenging the truthfulness of the entries, It creates a presumption in favour of the accuracy of the company's internal records during proceedings involving contributories.
For example, if a contributory claims that he is not liable for a particular amount, but the company's records show otherwise, the records will stand as valid evidence unless the contributory provides concrete proof to the contrary.

4. Importance and Purpose of the Provision

The intent behind Section 345 is to ensure:

Clarity and certainty in the liquidation process, Administrative efficiency, by avoiding unnecessary delays in legal proceedings due to challenges to the authenticity of company records.
Fair treatment of all contributories, by giving due weight to official records that reflect their liabilities or entitlements, Accountability of the Company Liquidator, as their maintained records are also open to scrutiny and used as evidence.
This provision is especially relevant when:

Disputes arise between contributories regarding shareholding, liabilities, or entitlements, A contributory challenges the calculation of assets or distribution as made by the Liquidator, The Tribunal or Liquidator must determine the correct status of claims or contributions owed.
5. Legal Effect and Limitations

While the books and papers serve as prima facie evidence, they are not conclusive proof. A contributory or other stakeholder retains the right to:

Challenge the accuracy of entries with valid counter-evidence, Request an inspection or audit of specific records if they suspect misrepresentation or omission, Seek the Tribunal’s intervention in case of disputes over the truth of the matters recorded.
The Tribunal, in such cases, has the authority to examine the matter further, summon witnesses, or order a forensic review of the records.