Section 246: Application of Provisions to Oppression

Section 246 application of provisions is the last section of Chapter XVI of the Companies Act, 2013 and the shortest. It creates no remedy of its own. Its whole work is to carry five winding up sections into a proceeding that is not a winding up, so that a member bringing an oppression petition or a class action can reach the same personal liability provisions a liquidator could.

What does the section 246 application of provisions clause say?

The whole section is one sentence: The provisions of sections 337 to 341 (both inclusive) shall apply mutatis mutandis, in relation to an application made to the Tribunal under section 241 or section 245.

Three drafting choices in that sentence decide everything about how far it reaches.

• The applied block is identified by sections 337 to 341 (both inclusive), so it is a range rather than a list of features, and the parenthesis removes any argument about the endpoints.
• The application is mutatis mutandis, meaning the sections operate with the changes necessary to fit the setting, rather than being re-enacted for it.
• The trigger is an application made to the Tribunal under section 241 or section 245, which are the oppression petition and the class action. No winding up has to be running.

What is inside the block that section 246 carries across?

Five consecutive sections, and each one is about making an individual answerable rather than the company.

Two of them are set out in full elsewhere in this corpus: liability where proper accounts not kept covers the two year look back and the single defence in section 338, and liability for fraudulent conduct of business covers the personal responsibility for the company's debts under section 339.

What does section 340 add that section 242 does not?

Section 340 is the reason the bridge matters most, and it is worth reading in its own words because it is the only one of the five that assesses and orders a specific sum against an individual.

It reaches any person who has taken part in the promotion or formation of the company, or any person, who is or has been a director, manager, Company Liquidator or officer of the company, on either of two findings: that the person has misapplied, or retained, or become liable or accountable for, any money or property of the company, or has been guilty of any misfeasance or breach of trust in relation to the company.

On either finding the Tribunal may inquire into the conduct of the person and order him to repay or restore the money or property or any part thereof respectively, with interest at such rate as the Tribunal considers just and proper, or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust, as the Tribunal considers just and proper. Two remedies, then, and the second is measured by the Tribunal's view of what is just and proper in respect of the wrong rather than by the amount misapplied.

Sub-section (2) sets the window, and it is generous because it runs to whichever endpoint falls latest. An application must be made within five years from the date of the winding up order, or of the first appointment of the Company Liquidator in the winding up, or of the misapplication, retainer, misfeasance or breach of trust, as the case may be, whichever is longer. Sub-section (3) then puts the civil route beyond a criminal one: the section applies notwithstanding that the matter is one for which the person concerned may be criminally liable.

Section 341 carries both section 339 and section 340 through a firm or a body corporate to any person who was at the relevant time a partner in that firm or a director of that body corporate, so an intermediate entity does not absorb the order.

Why does an oppression petition need these sections at all?

Because section 242 is drafted around orders that fix the company, and this block is drafted around orders that reach people. Section 242(2) lets the Tribunal regulate future conduct, order a buyout, remove a managing director and recover undue gains. It is a remedial list. Sections 337 to 341 add personal liability for past conduct, including the assessment of damages under section 340.

Without section 246 a petitioner under section 241 would have to argue for those consequences by analogy from a Chapter the proceeding is not under.

The mutatis mutandis instruction is what makes that work in practice. Sections 337 to 341 are drafted around a winding up: section 340 speaks of an application by the Official Liquidator, or the Company Liquidator, or of any creditor or contributory, and its five year clock runs from the winding up order or the liquidator's first appointment. In a section 241 or section 245 proceeding there is no liquidator and no winding up order. Section 246 does not rewrite those references; it directs that they be read with the changes the new setting requires, which is why the section is one sentence rather than a re-enactment of five. The grounds and the orders on the oppression side are set out in oppression and mismanagement, and the class route is covered in a class action suit under the Companies Act.

Where does this leave a reader tracking a listed company?

At the same place any Tribunal proceeding leaves them. A section 241 or section 245 application is a matter for the National Company Law Tribunal, described in the national company law tribunal, and the record sits with the Tribunal rather than with an exchange. What reaches the market is usually the order and any consequent board change, not the pleadings.

The value of reading the section 246 application of provisions clause is that it tells you what a petitioner can ask for. An oppression petition that seeks damages against a director is not reaching outside its Chapter. It is using the bridge the Act built.

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.