Section 319 Companies Act: Power of Company Liquidator to accept shares, etc., as consideration for sale of property of company

Section 319 of Companies Act: Corporate Governance & Statutory Compliance

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

1. Where a company (the transferor company) is proposed to be, or is in the course of being, wound up voluntarily and the whole or any part of its business or property is proposed to be transferred or sold to another company (the transferee company), the Company Liquidator of the transferor company may, with the sanction of a special resolution of the company conferring on him either a general authority or an authority in respect of any particular arrangement,

a. receive, by way of compensation wholly or in part for the transfer or sale of shares, policies, or other like interest in the transferee company, for distribution among the members of the transferor company; or

b. enter into any other arrangement whereby the members of the transferor company may, in lieu of receiving cash, shares, policies or other like interest or in addition thereto, participate in the profits of, or receive any other benefit from, the transferee company:

Provided that: no such arrangement shall be entered into without the consent of the secured creditors.

2. Any transfer, sale or other arrangement in pursuance of this section shall be binding on the members of the transferor company.

3. Any member of the transferor company who did not vote in favour of the special resolution and expresses his dissent therefrom in writing addressed to the Company Liquidator, and left at the registered office of the company within seven days after the passing of the resolution, may require the liquidator either—

a. to abstain from carrying the resolution into effect; or

b. to purchase his interest at a price to be determined by agreement or the registered valuer.

4. If the Company Liquidator elects to purchase the member's interest, the purchase money, raised by him in such manner as may be determined by a special resolution, shall be paid before the company is dissolved.

Statutory Defined Terms in this Section: (Click any term for official legal definition)

Company Sec 2(20) Director Sec 2(34) Tribunal Sec 2(90)

Legal Commentary & Landmark Judgments: Section 319

Section 319 of the Companies Act, 2013 permitted a voluntary liquidator to transfer the company's business to another corporate entity in exchange for shares, subject to strict protections for dissenting members; omitted by the IBC 2016, reconstruction is now handled under Sections 230-232 of CA 2013 or going-concern liquidation sales.

Reconstruction and Asset Transfer in Exchange for Securities: Authorized the liquidator, pursuant to a special resolution, to sell the company's undertaking or business to another entity in consideration of shares, debentures, or policies in the transferee.
Mandatory Special Resolution Sanction: Required express sanction by a special resolution passed by members of the transferor company, binding general members to the corporate reconstruction.
Indefeasible Buyout Rights of Dissenting Shareholders: Conferred an absolute statutory right upon any member who voted against the scheme to serve written dissent within seven days, compelling the liquidator either to abandon the scheme or purchase the dissenting interest at fair valuation.

Key Landmark Precedents:

Bisgood v. Henderson's Transvaal Estates Ltd., [1908] 1 Ch 743: The Court of Appeal held that Articles cannot deprive dissenting shareholders of their statutory right to be bought out under voluntary reconstruction provisions.
Wall v. London and Northern Assets Corp., [1898] 2 Ch 469: The Court affirmed that statutory safeguards for dissenting members are mandatory and cannot be evaded by complex corporate restructuring clauses.
B.V.S. Lakshmi v. Geetha Trust, (1991) 71 Comp Cas 590 (Kar): The Karnataka High Court affirmed that valuation of a dissenting member's interest must reflect fair commercial value of assets.

Courtroom Practice & Strategic Litigation Guidance:

In corporate restructuring schemes involving transfer of undertakings, safeguard minority shareholder rights: any arrangement conditioning exit on purchasing shares of another entity without fair cash exit options violates basic company law protections enunciated in Bisgood.

Section 319: Power of Company Liquidator to accept shares, etc., as consideration for sale of property of company

Section 319 of Companies Act: Corporate Governance & Statutory Compliance

Legal Commentary & Landmark Judgments: Section 319