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Section 341: Liability under sections 339 and 340 to extend to partners or directors in firms or companies

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Statutory Regulation
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Act 2013
Section 340 All 470 Sections of Companies Act Section 342
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 341

Section 341 of the Companies Act, 2013 extends personal liability for fraudulent trading under Section 339 and misfeasance under Section 340 to individuals who were partners in a firm or directors of a body corporate held liable under those sections.

  • Piercing the Corporate / Partnership Veil: Extends liability beyond the immediate corporate wrongdoer, reaching natural persons who acted as partners or directors of entities engaged in fraudulent trading or misfeasance.
  • Requisite Contemporaneous Role: Applies to any person who was a partner in the firm or a director of the body corporate at the time the fraudulent business was carried on or the misfeasance committed.
  • Tribunal's Declaratory Powers: The Tribunal may make declarations and orders directly against such individuals, rendering their personal assets liable for the company's debts without separate corporate litigation.
Key Landmark Precedents:
  • Official Liquidator, Supreme Bank of India Ltd. v. P.A. Tendolkar, (1973) 1 SCC 602: The Supreme Court established that directors cannot escape liability for gross misfeasance or fraud by pleading non-participation in daily management when their gross negligence enabled the fraud.
  • Official Liquidator v. Parthasarathi Sinha, (1983) 1 SCC 538: The Supreme Court held that misfeasance proceedings can be continued against the legal representatives of deceased delinquent directors to the extent of the estate inherited.
  • D.D.A. v. Skipper Construction Co. (P) Ltd., (1996) 4 SCC 622: Reaffirmed that courts can lift the corporate veil and extend personal liability to directors and associate firms where corporate personality was used as a cloak for fraudulent conduct.
Courtroom Practice & Strategic Litigation Guidance:

When filing an application under Section 341, link the intermediate holding companies, LLPs, or partnership firms directly to the fraudulent transactions identified under Section 339/340. Formulate the petition with forensic audit trails proving fund diversion to the associate entity and identify each partner/director holding office during the diversion window.

Section 340 All 470 Sections of Companies Act Section 342