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Section 284 & 286- The Companies Act, 2013

Updated: May 9


Introduction

Winding up is a method to put a company to an end. It is a process where the life of a company comes to an end and its property is administered for the benefit of its creditors and its members. Section 284 imposes explicit obligations on both current and former founders, directors, and employees to expand full cooperation with the company's liquidators. Any default will result in the defaulter being punished with imprisonment for up to 6 months, a fine of up to Rs 50,000, or both. Section 286 of the Companies Act 2013 provides for the duties of directors and managers. The obligations of both current and past directors are implicit and will only be liable if the company is liquidated within one year of its dismissal as a director or manager.


Promoters, directors, etc., to cooperate with Company Liquidator [Section 284]


Section 284 imposes explicit obligations on both current and former founders, directors, and employees to expand full cooperation with the company's liquidators. Any default will result in the defaulter being punished with imprisonment for up to 6 months, a fine of up to Rs 50,000, or both.

  • Promoters, directors, officers, and employees, who are or have been in the employment of the company or associated with the company shall extend full cooperation to complete liquidator in the discharge of his functions and duties.

  • If any person required to assist or cooperate with the company liquidator, does not assist or cooperate, the company liquidator may make an application to the tribunal for necessary directions.

  • On receiving an application above, the tribunal shall, by an order, direct the person required to assist or cooperate with the company liquidator to comply with the instructions of the company liquidator and to cooperate with him in discharging his functions and duties.

Obligations of directors and managers [Section 286]


The liability of directors and managers shall be unlimited. In addition to their normal liability, they may be liable for making contributions, as if they were a member of an unlimited company.

(Example- in case of Fraud)


However, he shall be liable-

  • If he sees to be a director/manager for one year or more before the commencement of winding up

  • In respect to debt and liability of the company contracted after he ceased to be a director/manager.

  • Person not liable unless tribunal deems it necessary


Directors and managers are key persons in the company and play a very important role in the company because they are involved in the day-to-day operations of the company.

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