Sections 285 and 286 of the Companies Act, 2013: Contributories, Application of Assets and Obligations of Directors and Managers
Sections 285 and 286 form part of Chapter XX of the Companies Act, 2013 dealing with winding up. Section 285 governs settlement of the list of contributories and application of company assets after a winding up order. Section 286 deals with additional contribution by a director or manager of a limited company where that person's liability is unlimited under the Act.
Section 285 - Settlement of list of contributories and application of assets
Meaning: After the National Company Law Tribunal passes a winding up order, Section 285 requires the Tribunal to determine who must contribute to the company's assets, rectify the register of members where required, and cause the assets to be applied towards the company's liabilities. The Tribunal may dispense with settling a list where calls on contributories or adjustment of their rights are unnecessary.
Text and effect of Section 285
(1) As soon as may be after the passing of a winding up order by the Tribunal, the Tribunal shall settle a list of contributories, cause rectification of register of members in all cases where rectification is required in pursuance of this Act and shall cause the assets of the company to be applied for the discharge of its liability.
Proviso: Where it appears to the Tribunal that it would not be necessary to make calls on or adjust the rights of contributories, the Tribunal may dispense with the settlement of a list of contributories.
(2) In settling the list, the Tribunal distinguishes persons who are contributories in their own right from persons who are contributories as representatives of, or are liable for the debts of, others.
(3) The list may include present and former members liable to contribute enough to meet debts, liabilities, winding-up costs and adjustment of rights among contributories, subject to the statutory limits below.
(a) A former member is not liable if that person ceased to be a member one year or more before commencement of winding up.
(b) A former member is not liable for a debt or liability contracted after that person ceased to be a member.
(c) A former member is not required to contribute unless the Tribunal finds that present members cannot satisfy the contributions required from them.
(d) For a company limited by shares, the contribution of a present or former member cannot exceed the amount unpaid, if any, on the shares for which that person is liable.
(e) For a company limited by guarantee, contribution cannot exceed the amount undertaken to be contributed on winding up. If the company also has share capital, the member is additionally liable for unpaid amounts on shares as in a company limited by shares.
Section 286 - Obligations of directors and managers
Meaning: Section 286 applies where a person is or has been a director or manager of a limited company and that person's liability is unlimited under the Companies Act, 2013. In addition to any liability as an ordinary member, the person may be required to make a further contribution as though that person were a member of an unlimited company when winding up commenced.
A director or manager whose liability is unlimited under the Act is, in addition to any ordinary member contribution, liable to make a further contribution as if that person were a member of an unlimited company at the commencement of winding up.
(a) No such further contribution is required from a former director or manager who ceased to hold office one year or more before commencement of winding up.
(b) A former director or manager is not liable for such further contribution in respect of a debt or liability contracted after that person ceased to hold office.
(c) Subject to the company's articles, a director or manager is not liable to make the further contribution unless the Tribunal considers it necessary to satisfy the company's debts and liabilities and the costs, charges and expenses of winding up.
Key legal terms and practical meaning
What is a contributory?
In winding up, a contributory is a person liable to contribute to the assets of the company. Under Section 285, the Tribunal identifies the persons whose contribution may be required and determines the applicable statutory limits.
What does settlement of the list mean?
Settlement of the list is the Tribunal's process of identifying and classifying persons who may be required to contribute to the company's assets. The process also permits rectification of the register of members where the Act requires it.
What is the significance of limited liability?
Section 285 preserves the statutory limits applicable to members of companies limited by shares or guarantee. Section 286 is narrower: it addresses a director or manager whose liability is unlimited under the Act and allows a further contribution only within the conditions stated in that section.
Role of the Tribunal
References to the Tribunal in these provisions mean the National Company Law Tribunal in the statutory winding-up framework. The Tribunal settles the list under Section 285 and determines whether a further contribution under Section 286 is necessary in the circumstances specified by law.
Official legal resources
For the latest statutory text, amendments and notifications, refer to the Companies Act, 2013 published by the Ministry of Corporate Affairs. For insolvency and liquidation materials under the Insolvency and Bankruptcy Code, 2016, refer to the Insolvency and Bankruptcy Board of India legal framework.
This page is an informational explanation of the statutory provisions. In a specific winding-up or insolvency matter, the applicable Act, rules, notifications, Tribunal orders and current case law should be checked together.