Section 331: Liabilities and rights of certain persons fraudulently preferred
This section is for determining the liabilities and rights of people who have been fraudulently preferred in transactions related to a company being wound up.
The section, clause by clause
What the section says
In plain terms
(1)Where a company is being wound up and anything made, taken or done after the commencement of this Act is invalid under section 328 as a fraudulent preference of a person interested in property mortgaged or charged to secure the company’s debt, then, without prejudice to any rights or liabilities arising, apart from this provision, the person preferred shall be subject to the same liabilities, and shall have the same rights, as if he had undertaken to be personally liable as a surety for the debt, to the extent of the mortgage or charge on the property or the value of his interest, whichever is less.
If a company is being wound up and a transaction is found to be a fraudulent preference under section 328, the person who benefited from it will be liable as if they were a personal surety for the debt, up to the value of the mortgage or charge or their interest, whichever is less.
(2)The value of the interest of the person preferred under sub-section (1) shall be determined as at the date of the transaction constituting the fraudulent preference, as if the interest were free of all encumbrances other than those to which the mortgage or charge for the debt of the company was then subject.
The value of the person's interest will be determined as of the date of the transaction, assuming it is free of all encumbrances except those already affecting the mortgage or charge.
(3)On an application made to the Tribunal with respect to any payment on the ground that the payment was a fraudulent preference of a surety or guarantor, the Tribunal shall have jurisdiction to determine any questions with respect to the payment arising between the person to whom the payment was made and the surety or guarantor and to grant relief in respect thereof, notwithstanding that it is not necessary so to do for the purposes of the winding up, and for that purpose, may give leave to bring in the surety or guarantor as a third party as in the case of a suit for the recovery of the sum paid.
The Tribunal can hear cases about payments that were fraudulent preferences of a surety or guarantor and grant relief, even if it's not necessary for the winding up, and can add the surety or guarantor as a third party to the case.
(4)The provisions of sub-section (3) shall apply mutatis mutandis in relation to transactions other than payment of money.
The rules in sub-section (3) also apply to transactions that aren't just payments of money.
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).
This section refers to
Search the whole Act, or ask it a question, in the interactive browser.
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.