Section 240 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A merger does not wipe out the past. Section 240 states that the liability of the "officers in default" of a transferor company, for offences under the Companies Act committed before its merger, amalgamation or acquisition, continues after that event.
"Notwithstanding anything in any other law for the time being in force", the liability in respect of offences committed under this Act by the officers in default of the transferor company before its merger, amalgamation or acquisition continues after the merger, amalgamation or acquisition. The merger is not a defence, and the section overrides other laws that might suggest otherwise. It does not itself create a penalty; the penalty is whatever the section breached provides.
The text and what each part does
Section 240 reads: "Notwithstanding anything in any other law for the time being in force, the liability in respect of offences committed under this Act by the officers in default, of the transferor company prior to its merger, amalgamation or acquisition shall continue after such merger, amalgamation or acquisition."
| Phrase | Meaning in practice |
|---|---|
| "Notwithstanding anything in any other law" | The section prevails over any other law that might be read as ending the liability when the company ceases to exist |
| "offences committed under this Act" | Only offences under the Companies Act, 2013 are covered. Offences under other laws are not addressed by this section |
| "by the officers in default" | The liability is that of the officers who were in default, not of the transferee company as a new liability under this section |
| "of the transferor company" | The company that was merged, amalgamated or acquired |
| "prior to its merger, amalgamation or acquisition" | The offence must pre-date the event |
| "shall continue after" | The liability survives. It is not created afresh, and it is not wiped out |
Who is an "officer in default"
The Act defines "officer who is in default" in section 2(60). For the purposes of provisions that make an "officer who is in default" liable, it lists categories that include the whole-time director, key managerial personnel, where there is no key managerial personnel the directors specified by the Board (or all directors), persons charged under the authority of the Board or a key managerial person with responsibility for records, filings or accounts who authorise, actively participate in or knowingly permit a default, persons on whose advice or directions the Board is accustomed to act (other than professional advisers), and directors aware of a contravention through Board proceedings. Read the full definition in the Act, because it decides which individual is exposed for a specific default.
Section 240 works through that definition. It does not add new categories of officer. It states that the liability of those who were officers in default at the time the offence was committed continues after the transferor's merger.
Why the section is needed
When a transferor company is merged into another, the transferor normally ceases to exist as a separate legal entity. Without a rule like section 240, an argument could be made that proceedings tied to that company, such as a prosecution for a filing default, lose their footing once it is dissolved without winding up under the scheme. The section closes that argument for offences under the Act. The individuals who were in default remain answerable.
For anyone planning a merger, this shapes the diligence exercise. If you are acquiring or merging with a company, find out what defaults it has: late filings, unfiled charge satisfaction, unpaid dividends, deficient registers. The history does not vanish on the appointed date. Our legal consultation team can help you review it before a scheme is filed.
What section 240 does not do
- It does not state a penalty. The punishment for each offence is found in the section of the Act that was breached.
- It does not move the liability to the transferee company. The text speaks of the liability of "the officers in default, of the transferor company". Whether and how a transferee company is exposed on other grounds, for example as successor to the company's liabilities under the scheme, depends on the scheme and on the relevant law, and is outside this section.
- It does not cover offences under other Acts. The text is limited to "offences committed under this Act".
- It does not say how the prosecution is conducted. The ordinary provisions on complaints and courts apply. Where the Act cites the Code of Criminal Procedure, 1973, the Indian Penal Code or the Indian Evidence Act, 1872, those references are now read as references to the Bharatiya Nagarik Suraksha Sanhita, 2023, the Bharatiya Nyaya Sanhita, 2023 and the Bharatiya Sakshya Adhiniyam, 2023, which have replaced them from 1 July 2024.
How it works alongside neighbouring sections
Section 239 stops the books and papers of an amalgamated company from being disposed of without the Central Government's permission. Section 240 is the companion rule on liability. One preserves the evidence; the other preserves the exposure. Together they mean that a merger does not shelter a transferor company's past conduct. Section 238, on circulars for share-transfer offers, is covered in our article on offers involving transfer of shares.
Proposed change
We checked the Corporate Laws (Amendment) Bill, 2026 for an amendment to section 240 and found none. The Bill's clauses on sections 230 to 233 and the proposed section 233A do not alter it. The Bill is pending and is not law as on 30 September 2026.
Practical examples
Example 1: late annual return. A transferor company filed its annual return late in a year before the merger. The officers who were in default then remain liable for that default after the merger, under section 240.
Example 2: the director who has moved on. A director of the transferor company resigned when the merger became effective. Resigning does not end liability for an offence committed while he was an officer in default.
Example 3: acquisition without merger. A company's shares are acquired and the company continues. Section 240 still speaks of offences before the "acquisition", so earlier offences by the officers in default continue to be answerable.
Need help reviewing pre-merger risk?
Before a merger or acquisition, the target's compliance history is part of the price you are paying, and the people who were officers in default remain exposed afterwards. We can help you work through a compliance review and plan steps to cure defaults before a scheme is filed. Reach out to our team for a legal consultation.
Key takeaways
- Liability of officers in default of a transferor company for offences under the Act committed before merger, amalgamation or acquisition continues afterwards.
- The section applies "notwithstanding anything in any other law".
- It covers offences under the Companies Act, 2013 only.
- It creates no new penalty; the penalty is in the section that was breached.
- Review the target's defaults before a merger or acquisition.
- The Bill, 2026 has no clause amending section 240.
Read next
- Section 239: Preservation of books after amalgamation
- Section 238: Offers involving transfer of shares
- Section 232: Merger and amalgamation
- Fraud under the Companies Act: definition, penalties and protection
Disclaimer: Based on the Companies Act, 2013 as amended up to 1 April 2021 (official consolidated text), read with later developments noted in the article; proposals in the Corporate Laws (Amendment) Bill, 2026 are pending and not law as on 30 September 2026. Verify current notifications and rules before acting.