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CS Professional · Corporate Restructuring, Valuation and Insolvency · Fast Track Mergers

Rao Engineering Pvt Ltd (transferor) merged into Zentra Inc., a foreign company, under a scheme under Section 234. Before the merger, officers in default of Rao Engineering had committed an offence under the Companies Act, 2013. Which view is correct?

Liability continues. Section 240 states that the liability under the Act of officers in default of the transferor company for offences committed before its merger, amalgamation or acquisition continues after the merger. The scheme need not say so, and the transferor's disappearance does not extinguish it.

  1. ALiability ends on the merger because the transferor ceases to exist
  2. BLiability continues after the merger under Section 240, which preserves liability of officers in default of the transferor for pre-merger offencesCorrect
  3. CLiability passes only to the directors of Zentra Inc. and not the earlier officers
  4. DLiability continues only if the scheme expressly says so

Explanation

Section 240 provides that, notwithstanding any other law, the liability of officers in default of the transferor company for offences under the Act committed before merger, amalgamation or acquisition continues after it. It operates regardless of the scheme wording, so the other views are wrong.

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