Sections 238, 239 and 240 of the Companies Act, 2013
Sections 238 to 240 deal with three connected consequences of corporate restructuring: registration of offer circulars in certain share-transfer schemes, preservation of books and papers after amalgamation or acquisition, and the continuing liability of officers for offences committed before the transaction.
Section 238 - Registration of offer of schemes involving transfer of shares
Section 238 applies to an offer of a scheme or contract involving transfer of shares, or a class of shares, in a transferor company to a transferee company under Section 235.
Requirements for the offer and circular
- A circular containing the offer and the directors' recommendation to members of the transferor company must be accompanied by the prescribed information and presented in the prescribed manner.
- The offer must contain a statement by or on behalf of the transferee company disclosing the steps taken to ensure that the necessary cash will be available.
- The circular must be presented to the Registrar for registration and cannot be issued until it is registered.
The Registrar may refuse registration, for reasons recorded in writing, if the circular lacks the required information or presents it in a manner likely to give a false impression. The refusal must be communicated to the parties within thirty days of the application.
Appeal and penalty
An appeal against the Registrar's refusal lies to the National Company Law Tribunal. Under the amended sub-section (3), a director who issues a circular without presentation and registration under sub-section (1)(c) is liable to a penalty of one lakh rupees.
Section 239 - Preservation of books and papers of amalgamated companies
Section 239 protects corporate records after an amalgamation or an acquisition of shares under Chapter XV. The books and papers of a company that has been amalgamated with another company, or whose shares have been acquired by another company, cannot be disposed of without prior permission of the Central Government.
Before granting permission, the Central Government may appoint a person to examine some or all of those books and papers to determine whether they contain evidence of an offence connected with the promotion or formation of the transferor company, management of its affairs, its amalgamation, or the acquisition of its shares.
Section 240 - Liability of officers for offences committed prior to merger, amalgamation or acquisition
Section 240 contains a non-obstante clause. Despite anything contained in any other law for the time being in force, liability for offences committed under the Companies Act, 2013 by officers in default of the transferor company before its merger, amalgamation or acquisition continues after that transaction.
Accordingly, a merger, amalgamation or acquisition does not extinguish statutory liability of officers in default for Companies Act offences committed before the transaction.
How Sections 238, 239 and 240 work together
These provisions address different stages and consequences of restructuring. Section 238 regulates specified offer circulars connected with a Section 235 transfer-of-shares scheme. Section 239 preserves relevant books and papers after amalgamation or acquisition unless the Central Government permits disposal. Section 240 ensures that officers' liability for earlier Companies Act offences survives the merger, amalgamation or acquisition.
Official legal sources
For the current statutory text and subordinate legislation, refer to the India Code portal, the Companies Act, 2013 published by the Ministry of Corporate Affairs, and the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.
This article is a general legal information resource. For a transaction or proceeding, check the latest Act, rules, notifications, forms and applicable orders.