Sections 339 and 340 of the Companies Act, 2013: Fraudulent Conduct of Business and Tribunal's Power to Assess Damages
Sections 339 and 340 form part of the winding-up provisions of the Companies Act, 2013. They enable the National Company Law Tribunal (NCLT) to impose personal financial consequences where company business has been carried on fraudulently, or where persons connected with the company have misapplied property, committed misfeasance or breached trust.
Updated: 17 September 2026
Section 339 - Liability for Fraudulent Conduct of Business
Section 339 addresses fraudulent trading during the winding up of a company. In substance, where it appears that the company's business was carried on with intent to defraud creditors or other persons, or for any fraudulent purpose, the Tribunal may declare specified persons personally responsible, without limitation of liability, for such debts or liabilities of the company as the Tribunal directs.
Who may apply?
An application may be made by the Official Liquidator, Company Liquidator, a creditor or a contributory of the company.
Who may be made personally liable?
The provision extends to a person who is or has been a director, manager or officer of the company, and to other persons who were knowingly parties to carrying on the business in the fraudulent manner contemplated by the section.
Tribunal's consequential powers
After making a declaration, the Tribunal may issue further directions to give effect to it. This includes making the liability a charge on specified debts, obligations, mortgages, charges or interests connected with the person liable, and making orders necessary to enforce that charge.
Action under Section 447
Under Section 339(3), every person who was knowingly a party to carrying on the business with the fraudulent intent or purpose referred to in Section 339(1) is liable for action under Section 447 of the Companies Act, 2013, which deals with punishment for fraud.
Other laws and statutory explanation
Section 339 applies even where the person concerned may also be punishable under another law. Its Explanation defines "assignee" for the purposes of the section and gives an extended meaning to "officer", including a person in accordance with whose directions or instructions the directors have been accustomed to act.
Section 340 - Power of Tribunal to Assess Damages Against Delinquent Directors and Others
Section 340 is a remedial provision dealing with company money or property and misconduct during winding up. It applies where a promoter or person involved in formation, or a present or former director, manager, Company Liquidator or officer, has misapplied or retained company money or property, become liable or accountable for it, or committed misfeasance or breach of trust in relation to the company.
Orders the Tribunal may make
On an application by the Official Liquidator, Company Liquidator, creditor or contributory, the Tribunal may inquire into the conduct concerned and order repayment or restoration of money or property, with such interest as it considers just and proper. It may alternatively or additionally require a contribution to the company's assets by way of compensation for the misapplication, retainer, misfeasance or breach of trust.
Limitation under Section 340(2)
The application must be made within five years from the date of the winding-up order, the first appointment of the Company Liquidator in the winding up, or the relevant misapplication, retainer, misfeasance or breach of trust, whichever period gives the longer time.
Criminal liability does not prevent Section 340 proceedings
Section 340(3) expressly provides that the section applies notwithstanding that the matter may also expose the person concerned to criminal liability.
Section 339 and Section 340: Key Difference
Section 339 focuses on carrying on the company's business with intent to defraud or for a fraudulent purpose and can result in unlimited personal responsibility for company debts or liabilities as directed by the Tribunal. Section 340 focuses on misapplication or retention of company assets, accountability for company property, misfeasance and breach of trust, and permits restorative or compensatory orders.
The provisions can therefore address different aspects of misconduct in winding up, and the facts of a case determine which statutory remedy may be invoked.