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The Companies Act, 1956

Schedules

Schedule - XI - Form in which sections 539 to 544 of the Act are to apply

SCHEDULE XI

[See Section 406]

FORM IN WHICH SECTIONS 539 TO 544 OF ACT ARE TO APPLY TO CASES WHERE AN APPLICATION IS MADE UNDER SECTION 397 OR 398

539.  Penalty for falsification of books - If with intent to defraud or deceive any person, any officer or member of a company in respect of which an application has been made under section 397 or 398

(a)  destroys, mutilates, alters, falsifies or secrets any books, papers or securities, or is privy to the destruction, mutilation, alteration, falsification, or secreting of any books, papers or securities; or

(b)  makes, or is privy to the making of, any false or fraudulent entry in any register, books of account or document belonging to the company,

he shall be punishable with imprisonment for a term which may extend to seven years, and shall also be liable to fine.

540.  Penalty for frauds by officers - If any person, being at the time of the commission of the alleged offence, an officer of a company in respect of which the [Tribunal] subsequently makes an order under section 397 or 398

(a)  has, by false pretences or by means of any other fraud, induced any person to give credit to the company;

(b)  with intent to defraud creditors of the company, has made or caused to be made any gift or transfer of or charge on, or has caused or connived at the levying of any execution against the property of the company; or

(c)  with intent to defraud creditors of the company, has concealed or removed any part of the property of the company since the date of any unsatisfied judgment or order for payment of money obtained against the company, or within two months before that date;

he shall be punishable with imprisonment for a term which may extend to two years and shall also be liable to fine.

541.   Liability where proper accounts not kept - (1) Where an application has been made to the [Tribunal] under section 397 or 398 in respect of a company, if it is shown that proper books of account were not kept by the company throughout the period of two years immediately preceding the making of the application, or the period between the incorporation of the company and the making of the application, whichever is shorter, every officer of the company who is in default shall, unless he shows that he acted honestly and that in the circumstances in which the business of the company was carried on, the default was excusable, be punishable with imprisonment for a term which may extend to one year.

(2) For the purposes of this section, proper books of account shall be deemed not to have been kept in the case of any company, if there have not been kept

(a)  such books of account as are necessary to exhibit and explain the transactions and financial position of the business of the company, including books containing entries made from day to day in sufficient detail of all cash received and all cash paid; and

(b)  where the business of the company has involved dealings in goods, statements of the annual stock takings and (except in the case of goods sold by way of ordinary retail trade) of all goods sold and purchased showing the goods and the buyers and sellers thereof in sufficient detail to enable those goods and those buyers and sellers to be identified.

542. Liability for fraudulent conduct of business - (1) If in the course of the proceedings on an application made to the [>Tribunal] undersection 397 or 398 in respect of a company, it appears that any business of the company has been carried on with intent to defraud creditors of the company, or any other persons, or for any fraudulent purpose, the [Tribunal] may, if it thinks it proper so to do, declare that any persons who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the [Tribunal] may direct.

(2)(a) Where the[Tribunal] makes any such declaration, it may give such further directions as it thinks proper for the purpose of giving effect to that declaration.

(b) In particular, the [Tribunal] may make provision for making the liability of any such person under the declaration a charge on any debt or obligation due from the company to him, or on any mortgage or charge or any interest in any mortgage or charge on any assets of the company held by or vested in him, or any person on his behalf, or any person claiming as assignee from or through the person liable or any person acting on his behalf.

(c) The [Tribunal] may, from time to time, make such further orders as may be necessary for the purpose of enforcing any charge imposed under this sub-section.

(d) For the purpose of this sub-section, the expression assignee includes any person to whom or in whose favour, by the directions of the person liable, the debt, obligation, mortgage or charge was created, issued or transferred or the interest was created, but does not include an assignee for valuable consideration (not including consideration by way of marriage) given in good faith and without notice of any of the matters on the ground of which the declaration is made.

(3) Where any business of a company is carried on with such intent or for such purpose as is mentioned in sub-section (1), every person who was knowingly a party to the carrying on of the business in the manner aforesaid, shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to five thousand rupees, or with both.

(4) This section shall apply, notwithstanding that the person concerned may be criminally liable in respect of the matters on the ground of which the declaration is to be made.

543.  Power of [Tribunal]to assess damages against delinquent directors, etc. - (1) If, in the course of the proceedings on an application made to the [Tribunal] under section 397 or 398 it appears that any person who has taken part in the promotion or formation of the company, or any past or present director, managing agent, secretaries and treasurers, manager or officer of the company

(a)  has misapplied or retained or become liable or accountable for any money or property of the company; or

(b)  has been guilty of any misfeasance or breach of trust in relation to the company.

The[Tribunal] may, on the application of any creditor or member, examine into the conduct of such person, director, managing agent, secretaries and treasurers, manager or officer aforesaid, and compel him to repay or restore the money or property or any part thereof respectively, with [Tribunal] thinks just 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] thinks just.

(2) This section shall apply notwithstanding that the matter is one for which the person concerned may be criminally liable.

544.  Liability under sections 542 and 543 to extend to partners or directors in firm or company - Where a declaration under section 542 or an order under section 543 is or may be made in respect of a firm or body corporate, the[Tribunal] shall also have power to make a declaration under section 542 or pass an order under section 543 as the case may be, in respect of any person who is a partner in that firm or a director of that body corporate.