Examination of Promoters in Winding Up: S. 300

The examination of promoters in winding up is not a routine step. Section 300 of the Companies Act, 2013 opens only once the Company Liquidator has told the Tribunal, in a report, that in his opinion a fraud has been committed. Section 301 sits beside it for the person who tries to leave before the questions start. This page reads both sections as printed.

What is examination of promoters in winding up, and what triggers it?

A fraud opinion already on the record. Section 300(1) applies Where an order has been made for the winding up of a company by the Tribunal, and the Company Liquidator has made a report to the Tribunal under this Act, stating that in his opinion a fraud has been committed by any person in the promotion, formation, business or conduct of affairs of the company since its formation.

Both limbs have to be present: a winding up order, and a report carrying that opinion. The report is the one section 281 requires, whose sub-section (2) asks the liquidator to say whether in his opinion any fraud has been committed, and it is covered in the Company Liquidator's report. Without that sentence, section 300 has nothing to act on.

Where both are present, the Tribunal may, after considering the report, direct that such person or officer shall attend before the Tribunal on a day appointed by it for that purpose, and be examined as to the promotion or formation or the conduct of the business of the company or as to his conduct and dealings as an officer thereof. The power is a discretion, and it is exercised after considering the report rather than on its filing.

How is the examination conducted?

On oath, with the liquidator present. Section 300(3) requires that the person shall be examined on oath and shall answer all such questions as the Tribunal may put, or allow to be put, to him, which covers questions the Tribunal asks and questions it permits.

Section 300(2) puts the liquidator in the room: he shall take part in the examination, and for that purpose he or it may, if specially authorised by the Tribunal in that behalf, employ such legal assistance as may be sanctioned by the Tribunal. Taking part is a duty; employing counsel needs specific authorisation and sanction.

Section 300(4) gives the person being examined two things, both at his own cost. Clause (a) entitles him, before his examination, to be furnished with a copy of the report of the Company Liquidator. Clause (b) lets him employ chartered accountants or company secretaries or cost accountants or legal practitioners entitled to appear before the Tribunal under section 432, who are at liberty to put to him such questions as the Tribunal may consider just for the purpose of enabling him to explain or qualify any answers given by him.

Read clause (b) precisely. The professional's questions go to the person being examined, and their stated purpose is to let him explain or qualify his own answers.

Can the person clear himself during the examination?

There is a route, and the liquidator has a duty inside it. Section 300(5) states that If any such person applies to the Tribunal to be exculpated from any charges made or suggested against him, it shall be the duty of the Company Liquidator to appear on the hearing of such application and call the attention of the Tribunal to any matters which appear to the Company Liquidator to be relevant.

The duty is expressed as shall, and it is not framed as a duty to oppose. The liquidator has to put relevant matters before the Tribunal, whichever way they point.

Section 300(6) then deals with costs: if the Tribunal, after considering any evidence given or hearing witnesses called by the Company Liquidator, allows the application, it may order payment to the applicant of such costs as it may think fit.

What record does the examination leave?

A signed, inspectable one that can be used later. Section 300(7) requires that Notes of the examination shall be taken down in writing, and shall be read over to or by, and signed by, the person examined, a copy be supplied to him and may thereafter be used in evidence against him, and shall be open to inspection by any creditor or contributory at all reasonable times.

Four things sit in that sentence: the person examined signs the notes, a copy is supplied to him, the notes may thereafter be used in evidence against him, and they are open to inspection by any creditor or contributory.

Section 300(8) lets the Tribunal adjourn the examination from time to time. Sections 300(9) and (10) allow it to be held elsewhere: the examination may, if the Tribunal so directs, be held before any person or authority authorised by the Tribunal, and that person or authority may exercise the Tribunal's powers as to the conduct of the examination, but not as to costs. The costs carve out is express.

What stops a person leaving before the examination?

Section 301, and it works at both ends of the timeline. At any time either before or after passing a winding up order, if the Tribunal is satisfied that a contributory or a person having property, accounts or papers of the company in his possession is about to leave India or otherwise to abscond, or is about to remove or conceal any of his property, it may act.

The stated purpose is narrow: the conduct must be for the purpose of evading payment of calls or of avoiding examination respecting the affairs of the company. Where it is, clause (a) lets the Tribunal cause the contributory to be detained until such time as the Tribunal may order, and clause (b) lets it cause his books and papers and movable property to be seized and safely kept until such time as the Tribunal may order.

Note the asymmetry the section prints. Clause (a) speaks only of the contributory, while the opening words of section 301 also cover a person having property, accounts or papers of the company in his possession. Calls on contributories, which the opening purpose words refer to, are made under section 296 and sit with the list of contributories.

An examination of promoters in winding up is therefore downstream of a document, not of a suspicion: it starts with a liquidator's written fraud opinion, and the personal consequences that follow it run through the separate liability sections rather than through section 300 itself, including fraudulent conduct of business.

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.