Section 328: Fraudulent preference
This section is for preventing and remedying fraudulent preferences given by a company to its creditors or sureties within six months of a winding-up application.
The section, clause by clause
What the section says
In plain terms
(1)Where a company has given preference to a person who is one of the creditors of the company or a surety or guarantor for any of the debts or other liabilities of the company, and the company does anything or suffers anything done which has the effect of putting that person into a position which, in the event of the company going into liquidation, will be better than the position he would have been in if that thing had not been done prior to six months of making winding up application, the Tribunal, if satisfied that, such transaction is a fraudulent preference may order as it may think fit for restoring the position to what it would have been if the company had not given that preference.
If a company gives preference to a creditor, surety, or guarantor within six months of a winding-up application, and this puts them in a better position than they would have been in otherwise, the Tribunal can order a restoration of the original position if it determines the transaction was a fraudulent preference.
(2)If the Tribunal is satisfied that there is a preference transfer of property, movable or immovable, or any delivery of goods, payment, execution made, taken or done by or against a company within six months before making winding up application, the Tribunal may order as it may think fit and may declare such transaction invalid and restore the position.
The Tribunal can declare a transaction invalid and restore the original position if it occurs within six months of a winding-up application and involves a preference, such as a transfer of property, delivery of goods, or payment.
The right-hand column is written from the section text, not quoted from it, and it has no legal force. Where the two differ, the left-hand column is the law.
Amendment notes
- 1. Ins. by Act 31 of 2016, s. 255 and the Eleventh Schedule (w.e.f. 15-11-2016).
- 2. Subs. by s. 255 and the Eleventh Schedule, ibid., for clause (c) (w.e.f. 15-11-2016).
- 3. Subs. by Act 31 of 2016, s. 255 and the Eleventh Schedule, for section 329 (w.e.f. 15-11-2016).
Referred to by
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Reproduced from the official India Code print for reference. Check the current text on India Code before you rely on it, and read the section alongside its Rules. Nothing here is legal advice.