Meetings to Ascertain Creditors' Wishes: Section 354

Meetings to ascertain creditors wishes are the Tribunal's optional consultation step in a winding up. Section 354 of the Companies Act, 2013 lets the Tribunal take account of what creditors or contributories want, call a meeting to find out, and put a chairman in the room to report back. The section is three sub-sections long and the last two decide how the room is counted.

When can the Tribunal call meetings to ascertain creditors wishes?

In any matter in the winding up, if it thinks fit. Section 354(1) opens In all matters relating to the winding up of a company and gives the Tribunal three powers in sequence:

1. (a) have regard to the wishes of creditors or contributories of the company, as proved to it by any sufficient evidence.
2. (b) if it thinks fit for the purpose of ascertaining those wishes, direct meetings of the creditors or contributories to be called, held and conducted in such manner as the Tribunal may direct.
3. (c) appoint a person to act as chairman of any such meeting and to report the result thereof to the Tribunal.

Each is a may, so none of the three is compulsory. Clause (a) also shows that a meeting is not the only route: wishes may be proved to it by any sufficient evidence, and the meeting in clause (b) is one way of producing that evidence rather than the required way.

Clause (b) leaves the mechanics entirely with the Tribunal. The meeting is to be called, held and conducted in such manner as the Tribunal may direct, so notice, venue and procedure come from the direction and not from the section.

Who counts the room, and how?

A chairman the Tribunal appoints, on two different measures. Clause (c) puts an appointed person in the chair with one stated duty: to report the result thereof to the Tribunal. The report goes to the Tribunal, which keeps the decision where clause (a) left it.

The weighting then splits by class. Section 354(2) states that While ascertaining the wishes of creditors under sub-section (1), regard shall be had to the value of each debt of the creditor. Section 354(3) states that While ascertaining the wishes of contributories under sub-section (1), regard shall be had to the number of votes which may be cast by each contributory.

Both sub-sections use shall, unlike the three permissive limbs of sub-section (1). So the Tribunal decides whether to consult, and the section decides how the answer is weighed once it does.

Why does the creditor measure differ from the contributory measure?

Because the two classes hold different things. A creditor's stake in a winding up is the size of the claim admitted against the company, which is why section 354(2) reaches for debt value. Admission of that claim is governed by section 324, covered in debts provable in a winding up, and its rank is set by the preferential payment provisions covered in preferential payments in a winding up.

A contributory's stake is a shareholding, so section 354(3) reaches for votes castable rather than rupees. Who is on that list, and for how much, is settled under the contributory provisions covered in the list of contributories. Neither sub-section says what happens when a person is both a creditor and a contributory; the section addresses the two capacities separately and says nothing about combining them.

What is section 354 not?

It is not a vote that binds, and it is not a hearing right. The Tribunal may have regard to the wishes; nothing in the section obliges it to follow them or to call a meeting at all. A chairman's report records the result, and the Tribunal then decides the matter it was consulting on.

It is also not the only place a creditor or contributory is heard in Chapter XX. Section 348(4) gives either an inspection right over the periodic statement in information as to pending liquidations, and section 346 gives either access to the company's books on prescribed terms, covered in inspecting company books in a winding up. Meetings to ascertain creditors wishes are the part of that machinery where the two classes get to say what they want rather than only read what has happened.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.