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

Sunrise Textiles Ltd acquired the business of Kaveri Mills Ltd, and later it emerged that two officers in default of Kaveri Mills had committed an offence under the Companies Act, 2013 before the acquisition. Kaveri Mills' officers argue that their liability ended once the acquisition took place. Under the Companies Act, 2013, what is the position?

The liability continues. Section 240 of the Companies Act, 2013 says the liability of the transferor company's officers in default for offences committed before the merger, amalgamation or acquisition survives it, so the acquisition does not extinguish it and no Tribunal direction is needed.

  1. ALiability ends because the transferor company ceases to exist after acquisition
  2. BLiability shifts to the directors of Sunrise Textiles Ltd as the acquirer
  3. CLiability continues after the merger, amalgamation or acquisitionCorrect
  4. DLiability continues only if the Tribunal specifically directs it in the scheme

Explanation

Section 240 provides that, notwithstanding anything in any other law, the liability of the officers in default of the transferor company for offences committed under the Act before its merger, amalgamation or acquisition continues afterwards. So the argument fails. The option shifting liability to the acquirer's directors is wrong because the section keeps liability on the transferor's officers in default.

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