Corporate Restructuring, Valuation and Insolvency · Documentation - Merger and Amalgamation

Section 240: Liability of Officers for Pre-Merger Offences

Updated 11 October 2026 · Fact-checked

Section 240 of the Companies Act, 2013 says that officers in default of a transferor company stay liable for offences under the Act committed before its merger, amalgamation or acquisition. The liability continues after the transaction. A merger does not wipe out prosecution. You solve questions by finding the offence, date, officer and Act.

Understand Section 240: Liability of Officers for Pre-Merger Offences

A merger or amalgamation usually ends the legal life of the transferor company. A student may think its offences and the people behind them are cleared along with it. Section 240 shuts that door.

The section opens with "notwithstanding anything in any other law for the time being in force". So it overrides any other law that might suggest the liability ends. The liability of the officers in default of the transferor company for offences under the Companies Act, 2013 committed prior to the merger, amalgamation or acquisition shall continue after it.

The reason is simple. Without this rule, officers could avoid prosecution by merging the company away. The section protects the enforcement of the Act and the public interest.

Note the limits. The section speaks of offences under this Act. It speaks of officers in default, not every employee or shareholder. It covers the transferor company's officers. And it covers offences committed before the transaction, not those after it.

In an exam, treat it as a short provision. Name the rule, test each fact against its conditions, and conclude. Do not add rules that the text does not contain, such as who the prosecuting authority is or what the penalty is.

Key rules to remember

Core rule of section 240: Offence under the Act by officer in default of transferor company before merger, amalgamation or acquisition → liability continues after it; It applies notwithstanding anything in any other law for the time being in force.
Conditions to test: (1) Offence under the Companies Act, 2013 (2) Committed before the transaction (3) By an officer in default (4) Of the transferor company (5) Merger, amalgamation or acquisition; All five must be present for section 240 to apply.
Related rule for Producer Companies: Section 378ZN(14): merger, amalgamation or division does not affect pre-existing rights or obligations; proceedings may be continued against the resulting or merged company; This is a separate provision for Producer Companies. Do not confuse it with section 240.

How to solve Section 240: Liability of Officers for Pre-Merger Offences questions

Use this method for any case question on liability after a merger. It keeps your answer in the provision, analysis, conclusion format.

1State the rule: under section 240, the liability of officers in default of the transferor company for offences under the Act committed before its merger, amalgamation or acquisition continues after it.
2Identify the transferor company and the transaction. Confirm it is a merger, amalgamation or acquisition.
3Identify the offence and check that it is an offence under the Companies Act, 2013.
4Fix the date of the offence. Compare it with the date the transaction took effect. Only earlier offences are covered.
5Identify the person. Check whether the person is an officer in default of the transferor company.
6Apply the overriding words: the merger, or a clause in the scheme, does not end the liability.
7Conclude clearly: liability continues or section 240 does not apply, with the reason in one line.

Quickest way: Five-point check

When to use it: Use it when you have only a few minutes for a short-answer or an MCQ-style fact pattern in a written paper.

Write the rule in one sentence.
Tick the five conditions: Act, timing, officer in default, transferor, transaction.
Mark any condition that fails.
Write: liability continues, or does not under section 240.
Add one line that the merger does not erase pre-merger offences.

Common mistakes in Section 240: Liability of Officers for Pre-Merger Offences

Saying the offence ends because the transferor company is dissolved.
Students think a company's disappearance removes everything connected with it.
Fix: Quote section 240: the liability of the officers continues after the merger, notwithstanding any other law.
Applying section 240 to offences committed after the merger.
Students skip the timing condition.
Fix: Check the date. The section covers offences committed prior to the merger, amalgamation or acquisition.
Making the transferee company's officers liable for the transferor's old offences under section 240.
Students confuse the transferor with the transferee.
Fix: The section names the officers in default of the transferor company. Read the text for who is covered.
Extending the section to any law, such as tax or labour laws.
Students read it as a general rule.
Fix: It speaks of offences committed under this Act, the Companies Act, 2013.
Treating every employee as liable.
Students ignore the words officers in default.
Fix: Only officers in default are covered. Identify the person and their role.
Mixing section 240 with section 378ZN(14) on Producer Companies.
Both deal with continuity after a merger.
Fix: Section 378ZN(14) is about pre-existing rights, obligations and legal proceedings in Producer Company mergers. Section 240 is about officers' liability for offences.

Worked examples

Example 1

Alpha Textiles Ltd failed to file a return as required under the Companies Act, 2013 for FY 2023-24, which is an offence. In 2025, it amalgamated into Beta Industries Ltd. Mr Rao was the officer in default of Alpha. Can he claim that the amalgamation ended his liability?

Show the solution

Rule: under section 240, the liability of officers in default of the transferor company for offences under the Act committed before the amalgamation continues after it.
Facts: Alpha is the transferor company. The offence is under the Companies Act, 2013. It was committed for FY 2023-24, before the 2025 amalgamation.
Person: Mr Rao is the officer in default of the transferor company.
All conditions are met. The section applies notwithstanding anything in any other law.

Answer: No. Mr Rao remains liable under section 240 for the pre-amalgamation offence. The amalgamation does not end his liability.

Example 2

Gamma Ltd merged into Delta Ltd on 1 April 2026. An officer of Gamma committed a default under the Companies Act, 2013 on 10 June 2026 in the course of closing its books. Does section 240 apply?

Show the solution

Rule: section 240 covers offences committed prior to the merger, amalgamation or acquisition.
Facts: the merger took effect on 1 April 2026. The default occurred on 10 June 2026, after that date.
The timing condition fails. The offence was not committed before the merger.
Conclusion: section 240 does not make the liability continue, because the offence is not a pre-merger offence.

Answer: Section 240 does not apply to this default because it was committed after the merger. Any liability would have to be considered on other provisions and the facts, not under section 240.

Exam tips

Quote the section's key words: officers in default, transferor company, prior to, shall continue.
Always test timing. Examiners often change the date to see whether you notice.
Write the answer as provision, analysis, conclusion, even for a short fact pattern.
Do not state penalties or procedures that are not in the section. Stay with what you know.
Keep section 240 apart from section 378ZN(14), which deals with Producer Companies.

Practice questions from Documentation - Merger and Amalgamation

Section 240: Liability of Officers for Pre-Merger Offences: frequently asked questions

What does section 240 of the Companies Act, 2013 say?

It says that the liability of officers in default of the transferor company for offences under the Act, committed before its merger, amalgamation or acquisition, continues after the transaction. It applies notwithstanding anything in any other law.

Can officers be prosecuted after amalgamation of a company?

Yes, for offences under the Companies Act, 2013 committed before the amalgamation, if they were officers in default of the transferor company. Section 240 keeps that liability alive.

Does section 240 cover offences committed after the merger?

No. It speaks of offences committed prior to the merger, amalgamation or acquisition. Later offences fall outside it.

Does section 240 apply to offences under other laws?

The text refers to offences committed under this Act, that is, the Companies Act, 2013. Do not extend it to other laws in your answer.