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

Ratnam Foods Ltd merged into a foreign company under an approved Section 234 scheme. Before the merger, an officer in default of Ratnam had committed an offence under the Companies Act, 2013. After the merger takes effect, what is the position of that officer's liability?

The officer's liability continues. 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 afterwards. Neither the transferor's extinction nor RBI approval of the scheme removes it.

  1. AIt lapses because the transferor company ceases to exist
  2. BIt transfers entirely to the foreign transferee company's directors
  3. CIt continues after the merger, as provided in Section 240Correct
  4. DIt is extinguished once the Reserve Bank of India approves the scheme

Explanation

Section 240 says 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 merger. The transferor's disappearance or RBI approval does not wipe it out, and the liability stays with those officers.

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