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Section 287 Of Companies Act, 2013: Advisory Committee

Updated: Jun 23


Introduction

Section 287 of the Companies Act of 2013, which is part of Chapter XX-Part I, establishes the advisory committee, its composition, and functions during the winding up of a company. This committee ensures that all parties involved in the liquidation process are informed, as well as the tribunal, about the status of the procedure as it is being handled by the company liquidator. 


Section 287: Advisory Committee

  • While passing an order for the company's direct winding up, the tribunal will appoint an advisory committee to:

  1. Give advice to Company Liquidator

  2. And report to the tribunal on such matters as the tribunal may direct.

  • The company liquidator is the chairperson of the advisory committee

  • Within 30 days of his appointment, he will conduct a meeting of contributories/creditors to determine the person who may be a member of the advisory committee and give the list to the tribunal.

  • The tribunal will appoint not more than 12 members being:

  1. Creditors or Contributories of the company

  2. Or such other person in such proportion

  • This committee has the right to inspect the book of account, other documents, assets, and properties of the company at a reasonable time.

  • Procedure for conduct of meeting and business shall be prescribed by rule.


Constitution and Proceedings of Advisory Committee

The Advisory Committee's constitution and proceedings are outlined in Rule 11 of the draught companies (winding up) rules, 2013. The following are the provisions:

  1. Membership- The advisory committee would have a maximum of 12 members. The tribunal will determine how many will come from creditors and how many will come from contributories if they are unable to determine the proportion themselves. The meeting will be called by the liquidator of the company. The company liquidator must notify the tribunal of the meeting's outcome within seven days of the meeting.

  2. Right to inspect accounts of the liquidator- The committee has the right to inspect the liquidator's accounts at any reasonable time.

  3. Frequency of meetings- The committee shall meet at such times as it may appoint from time to time, and the company liquidator or any committee member may call a meeting of the committee as and when he deems necessary.

  4. Quorum- A quorum for a committee meeting must be one-third of the total number of members. or two, depending on which is higher.

  5. Rule of the majority- A majority of the committee's members present at a meeting may act, but no action can be taken unless a quorum is present.

  6. Resignation by members- A committee member may resign by giving written notice to the company liquidator, which must be signed by him.

  7. Office falling vacant- If a member of the committee is declared insolvent, if he compounds or arranges with his creditors, or if he misses five consecutive committee meetings without the permission of those members who, together with him, represent the creditors or contributories, as the case may be, his position becomes vacant.

  8. Removal of a member- A member of the committee may be removed by an ordinary resolution passed at a meeting of creditors if he represents creditors, or at a meeting of contributories if he represents contributories, after 7 days' notice and stating the meeting's purpose.

  9. Filling of vacancy- When a vacancy in the committee occurs, the company liquidator shall convene a meeting of creditors or contributories, as the case may be, within 7 days to fill the vacancy; and the meeting may, by resolution, reappoint the same creditor or contributory to fill the vacancy, or appoint another creditor or contributory to fill the vacancy. However, if the company liquidator believes that the vacancy must be filled due to the position in the winding up, he may apply to the tribunal, and the tribunal may issue an order prohibiting the vacancy from being filled, or prohibiting it from being filled except in the circumstances specified in the order. In the event of a vacancy on the committee, the remaining members, if there are not less than two, may act.

  10. Dealing with the company's assets- The company liquidator or any member of the committee cannot buy the company's assets, either directly or indirectly, unless the tribunal grants permission. The tribunal has the power to overturn any such purchase.

  11. Fiduciary position of the members- A committee member has a fiduciary relationship with both the company/creditor and the contributors. In Durga Prasad v. Official Liquidator, Banaras Bank ltd. AIR 1959, the army purchase of the properties by a member of the committee was thus hell to be bad.

Conclusion

This section establishes the requirements for the formation of an advisory committee. This committee ensures that all stakeholders' interests are protected during the liquidation process and that the tribunal is informed about all important aspects as required. This committee ensures that a company's liquidation process under the act of 2013 goes smoothly.


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