Companies Act • Official Statutory Text & Practice Guide
Statutory Regulation
Legal Standard
Competent Court / Tribunal
Act 2013
Section 320 of Companies Act: Corporate Governance & Statutory Compliance
Official Bare Act Text
Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary
Subject to the provisions of this Act as to overriding preferential payments under section 326, the assets of a company shall, on its winding up, be applied in satisfaction of its liabilities pari passu and, subject to such application, shall, unless the articles otherwise provide, be distributed among the members according to their rights and interests in the company.
Statutory Defined Terms in this Section:(Click any term for official legal definition)
Section 320 of the Companies Act, 2013 codified the fundamental rule of pari passu distribution of corporate assets among creditors in voluntary winding up; omitted by the IBC 2016, this distribution is now governed by Section 53 of the IBC.
Preferential Payments and Statutory Carve-Outs: Application of corporate property is expressly subordinated to the statutory preferential claims (such as workmen dues, taxes, and liquidation expenses) recognized under company law.
Absolute Pari Passu Equality Among Unsecured Creditors: Mandated that subject to preferential debts, all corporate property must be applied in satisfaction of liabilities equally and pari passu without fraudulent preference.
Distribution of Surplus Residual Capital to Members: Any surplus property remaining after full discharge of liabilities is distributed among members according to their respective rights, interests, and capital contributions.
Key Landmark Precedents:
Hari Prasad Jayantilal & Co. v. V.S. Gupta, AIR 1966 SC 1487: The Supreme Court established that company property in winding up is dedicated to pari passu satisfaction of liabilities, creating a statutory trust.
Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17: The Supreme Court affirmed that the waterfall mechanism under Section 53 of IBC, succeeding Section 320, enforces collective and equitable debt distribution.
Praga Tools Corp. v. C.A. Imanual, (1969) 1 SCC 585: The Supreme Court reiterated that equality among unsecured creditors is the foundational pillar of corporate liquidation.
Courtroom Practice & Strategic Litigation Guidance:
Liquidators must prepare a precise waterfall distribution statement. Under modern Section 53 IBC, pay CIRP/liquidation costs first, followed by workmen dues and secured creditors, then employee dues, unsecured financial creditors, government dues, and lastly equity shareholders.
Legal Commentary & Landmark Judgments: Section 320
Section 320 of the Companies Act, 2013 codified the fundamental rule of pari passu distribution of corporate assets among creditors in voluntary winding up; omitted by the IBC 2016, this distribution is now governed by Section 53 of the IBC.
Liquidators must prepare a precise waterfall distribution statement. Under modern Section 53 IBC, pay CIRP/liquidation costs first, followed by workmen dues and secured creditors, then employee dues, unsecured financial creditors, government dues, and lastly equity shareholders.