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

Orchid Foods Ltd (transferor) was merged into Banyan Foods Ltd under a sanctioned scheme clause stating that 'all liabilities, civil or criminal, of the transferor shall stand discharged on the effective date'. Before the merger, Orchid's officer in default, Meera Shah, had committed an offence under the Companies Act, 2013. Which statement is correct?

Meera remains liable. Section 240 operates notwithstanding any other law and continues the liability of the transferor's officers in default for pre-merger offences under the Act, so a scheme clause purporting to discharge all liabilities cannot extinguish it.

  1. AThe scheme clause prevails, so Meera is discharged
  2. BSection 240 applies notwithstanding any other law, so Meera's liability for the offence continuesCorrect
  3. CMeera is liable only if Banyan Foods Ltd ratifies the offence
  4. DHer liability continues only for one year after the effective date

Explanation

Section 240 begins with 'notwithstanding anything in any other law for the time being in force' and provides that the liability of officers in default of the transferor for pre-merger offences continues. A discharge clause in a scheme cannot override this statutory continuation. No time limit or ratification is mentioned in the section.

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