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CS Professional · Corporate Restructuring, Valuation and Insolvency · Acquisition of Company or Business

Nirmal Foods Ltd is acquired by Zenith Agro Ltd. Before the acquisition, an officer in default of Nirmal Foods had committed an offence under the Companies Act, 2013. The acquirer argues that the liability ended with the acquisition. What is the position under section 240 as given?

The liability continues. Under section 240, the liability of officers in default of the transferor company for offences under the Companies Act committed before its merger, amalgamation or acquisition survives the transaction, so the acquisition does not wipe it out.

  1. AThe liability ends because Nirmal Foods has been acquired
  2. BThe liability passes only to Zenith Agro's directors
  3. CThe liability of the officer in default for the offence continues after the acquisitionCorrect
  4. DThe liability continues only if the Tribunal so directs

Explanation

Section 240 provides that liability of officers in default of the transferor company for offences under the Act committed before merger, amalgamation or acquisition continues after it. The text has no requirement of a Tribunal direction and does not shift the liability to the acquirer's directors.

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