Powers Of Court During Reconstruction Of A Company


In terms of the law, the company generally means that registered under the Companies Act, or any earlier or existing company law. It’s a legal entity or bound by the law which is formed by the different individuals or groups to have a profit through some other commercial activities.

The parliament of India passed an Act called the Companies Act in the year 2013 on Indian company law regulates incorporation of a company, directors and dissolution of a company.


Whenever there is a transfer of a company or several companies to a new company then it is termed as the reconstruction of a company. In that case, the old company will be kept into liquidation and some shareholders will also agree to take shares of some equivalent value in the new company that is basically called reconstruction of the company.

Powers of Court for Company Reconstruction


According to the Companies Act 2013, Control of Central Government over liquidators.

  1. The Central Government shall take cognizance of the conduct of liquidators of companies which are being wound up by the Court, and, if a liquidator does not faithfully perform his duties and duly observe all the requirements imposed on him by this Act [1] or by the Indian Companies Act, 1913 ], (7 of 1913) the rules thereunder, or otherwise, with respect to the performance of his duties, or if any complaint is made to the Central Government by any creditor or contributory in regard thereto, the Central Government shall inquire into the matter, and take such action thereon as it may think expedient:
  2. Provided that where the winding up of a company has commenced before the commencement of this Act, the Court may, on the application of the Central Government, appoint in place of such liquidator the Official Liquidator as the liquidator in such winding up.]
  3. The Central Government may at any time require any liquidator of a company which is being wound up by the Court to answer any inquiry in relation to any winding up in which he is engaged, and may, if the Central Government thinks fit, apply to the Court to examine him or any other person on oath concerning the winding up.
  4. The Central Government may also direct a local investigation to be made of the books and vouchers of the liquidation.


According to section 560 of the companies Act the court has the power to stay or restrain proceedings, with respect to staying and restraining suits as well as other legal proceedings at a time against a particular company after the presentation of a petition.


By sale of the undertaking. According to section 394, where an application is made to the Court under section 391 and it is shown to the Court that the compromise or arrangement has been proposed for the purpose of a scheme of reconstruction of any company or amalgamation of two or more companies and that under the scheme the whole or any part of the undertaking, property or liabilities of any company is to be transferred to another company, the court many make provisions for all or any of the following matters:

(a) the transfer to the transferee company of the whole or any part of the undertaking, property or liability of any transferor company;

(b) the allotment or appropriation by the transferee company of any shares, debentures, policies or other like interests in that company which under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person;

(c) the continuation by or against the transferee company of any legal proceeding pending by or against any transferor company;

(d) the dissolution, without winding up of any transferor company;

(e) the provision to be made for any person who within such time and in such manner as the Court directs, dissents from the compromise or arrangement; and

(f) such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out.

However, the Court shall not sanction any compromise or arrangement for the amalgamation of a company, which is being wound up, with any other company unless the Court has received a report from the CLB or the Registrar that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interests.

Thus, where the only purpose for which the transferor company was created was to facilitate the transfer of a building to the transferee company without attracting the capital gains tax and the dissolution of the transferor company was sought without winding up, the Court refused to sanction the scheme [wood polymer Ltd., In re (1977) 47 Comp. Cas. 597].

A certified copy of the Court’s order should be filed by the company with the Registrar within 30 days of the passing of the order.

According to section 395. sale of shares is the simplest process of amalgamation or takeover. shares are sold and registered in the name of the purchasing company. The selling shareholders receive either compensation or shares in the acquiring company. In case of certain shareholders dissent, Section 395 contains provisions for the compulsory acquisition by the transferee company of shares of the dissenting minority. The shares may be acquired on the same terms on which the shares of the approving shareholders are to be transferred to it. This will prevent the minority shareholders from demanding too high a price for their shares. section 395 lays down as follows:

Where the transferee company has offered to acquire the shares or any class of shares of the transferor company, the scheme or contract embodying such an offer has to be approved by the shareholders concerned within 4 months. The approval must be given by the holders of not less than 9/10ths in value of the shares whose transfer is involved. In computing the 9/10ths value of shares, the shares already Held by the transferee company or its nominee or subsidiary are excluded.

[1] Ins. By Act 65 of 1960, s. 172

This Article is Authored by Sneha, 2nd Year BALLB Student at Christ Academy Institute of Law, Bengaluru.

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