Disposal of Company Books in Winding Up: S. 347

The disposal of company books after a winding up is governed by a section with a direction, a deadline and a penalty that lost its prison limb in 2020. Section 347 of the Companies Act, 2013 puts the manner of disposal in the Tribunal's hands, ends everyone's responsibility five years after dissolution, and lets the Central Government make rules that hold the destruction back.

Who directs the disposal of company books?

The Tribunal, at a specific moment. Section 347(1) reads: When the affairs of a company have been completely wound up and it is about to be dissolved, the books and papers of such company and those of the Company Liquidator may be disposed of in such manner as the Tribunal directs.

Two conditions gate the direction, and both are stated in the past or imminent tense: the affairs have been completely wound up, and the company is about to be dissolved. Disposal under this sub-section is therefore an end of proceedings step, not something available while the liquidation is running and the books are still doing work under the inspection right in section 346.

Sub-section (1) is printed in square brackets. The footnote records that it was Subs. by Act 31 of 2016, s. 255 and the Eleventh Schedule, for sub-section (1) (w.e.f. 15-11-2016), so the text above is substituted text. Sub-section (1) is the only sub-section bracketed as a whole; the square brackets later in sub-section (4) enclose a substituted phrase rather than a whole sub-section.

When does responsibility for the books end?

Five years after dissolution, for everyone who held them. Section 347(2) states that After the expiry of five years from the dissolution of the company, no responsibility shall devolve on the company, the Company Liquidator, or any person to whom the custody of the books and papers has been entrusted, by reason of any book or paper not being forthcoming to any person claiming to be interested therein.

Three holders are released by name, and the release is tied to one event: dissolution, the point reached under dissolution of a company by the Tribunal. The trigger for the release is a book not being forthcoming, and the person it is released against is anyone claiming to be interested therein.

What can the Central Government do about destruction?

Hold it back, and give creditors a say. Section 347(3) lets the Central Government, by rules, do two things: (a) prevent for such period as it thinks proper the destruction of the books and papers of a company which has been wound up and of its Company Liquidator; and (b) enable any creditor or contributory of the company to make representations to the Central Government in respect of the matters specified in clause (a) and to appeal to the Tribunal from any order which may be made by the Central Government in the matter.

Clause (b) is the part worth noticing. It routes the objection to the Central Government first and the appeal to the Tribunal second, which is the reverse of sub-section (1), where the Tribunal directs at first instance. A creditor or contributory is the applicant in both places, the same two classes that section 346(1) admits to inspection.

What is the penalty, and what changed in 2020?

The penalty is now money only. Section 347(4) applies where any person acts in contravention of any rule framed or an order made under sub-section (3). The penalty that follows is not printed as a continuous sentence: the consolidation sets a row of asterisks after he shall be punishable and square brackets around fifty thousand rupees, each carrying a footnote marker. The first records that the words with imprisonment for a term which may extend to six months or were omitted by Act 29 of 2020, s. 49 (w.e.f. 21-12-2020). The second records that the closing amount was substituted by s. 49, ibid., for "fifty thousand rupees, or with both".

Read together, those two footnotes describe a single decriminalising edit: the imprisonment option and the "or with both" tail went, leaving the fine standing alone at the same ceiling. That edit is one of a series Act 29 of 2020 made across this Chapter, including the omission of section 348(7) by section 50 of the same Act, covered in information as to pending liquidations.

The disposal of company books is therefore the last thing that happens to a liquidation's paper trail, and section 347(2) is the line after which nobody has to produce it. Until then the books remain evidence between contributories under section 345, covered in company books as evidence in a winding up.

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