Sections 330 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.
Section 330 declares void any transfer or assignment by a company of all its properties or assets to trustees for the benefit of all its creditors. Section 331 deals with a different problem: when a payment or act in favour of a person holding a mortgage or charge is invalid as a fraudulent preference under section 328, that person is treated as if he had stood surety for the company's debt.
Under section 330, a company cannot escape the winding-up process by assigning all its assets to trustees for all its creditors; such a transfer or assignment is void. Under section 331, a person interested in mortgaged or charged property who was fraudulently preferred takes on the liabilities and rights of a surety, up to the lesser of the mortgage or charge amount and the value of his interest. The Tribunal can also sort out disputes with sureties and guarantors.
Why these sections still matter
Both sections sit in the chapter on winding up by the Tribunal. Since the Insolvency and Bankruptcy Code, 2016, insolvency and voluntary liquidation are handled under the Code, while winding up by the Tribunal under the Companies Act continues on the grounds left in section 271 (see grounds for winding up by the Tribunal). The text of sections 330 and 331 shows no amendment. They remain part of the Act that a liquidator, a creditor or a director may have to deal with. If you are facing a dispute over a transfer made shortly before a winding up, our legal dispute resolution team can help you assess the position.
Section 330: assignment of all assets to trustees
The section is one sentence: "Any transfer or assignment by a company of all its properties or assets to trustees for the benefit of all its creditors shall be void."
Two features of the wording matter.
- All assets, all creditors. The rule catches a general assignment, where the whole of the company's property goes to trustees to be used for every creditor. It does not, by its words, cover a sale of one asset or a transfer to a single creditor. Those are tested under other provisions, such as the fraudulent preference rule in section 328 and the transfers rules that apply in a winding up.
- No time limit and no "good faith" exception. Unlike some neighbouring provisions, section 330 does not mention a look-back period or a defence. The transfer is simply void.
The policy is plain. A company that cannot pay its debts should not be able to pick its own trustees and run its own private distribution outside the statutory scheme, where creditors are paid under the priorities in section 327 and the liquidator's control.
Section 331: the preferred person as surety
Section 331 applies where a company is being wound up and "anything made, taken or done after the commencement of this Act" is invalid under section 328 as a fraudulent preference of a person interested in property mortgaged or charged to secure the company's debt.
| Sub-section | What it provides |
|---|---|
| (1) | The person preferred is subject to the same liabilities and has the same rights as if he had undertaken to be personally liable as a surety for the debt, to the extent of the mortgage or charge on the property or the value of his interest, whichever is less. This is without prejudice to any other rights or liabilities. |
| (2) | The value of his interest is fixed as at the date of the transaction amounting to the fraudulent preference, as if the interest were unencumbered, apart from those to which the mortgage or charge was then subject. |
| (3) | On an application about a payment alleged to be a fraudulent preference of a surety or guarantor, the Tribunal can decide questions between the payee and the surety or guarantor and grant relief, even if that is not necessary for the winding up. It may give leave to bring in the surety or guarantor as a third party, as in a suit for recovery of the sum paid. |
| (4) | Sub-section (3) applies in the same way to transactions other than payment of money. |
What "interested in mortgaged property" means in practice
The provision is aimed at a familiar pattern. A company's debt is secured by a mortgage or charge over property belonging to a third party, often a director or relative who gave the security. The company pays off the secured debt shortly before winding up, which frees that person's property and leaves the ordinary creditors worse off. If the payment is a fraudulent preference under section 328, section 331 makes the person who benefited liable, up to the value of his interest, as a surety would be.
Practical examples
Example 1: general assignment. A company in trouble signs a deed handing all its assets to two trustees to sell and share the proceeds among all creditors. If the company is later wound up by the Tribunal, section 330 makes the assignment void. The liquidator takes charge and the statutory order of payment applies.
Example 2: director's property. A director has mortgaged his own building to a bank for the company's loan. The company repays the bank in full just before winding up, in circumstances that amount to a fraudulent preference under section 328. The director's building is released. Under section 331, he is treated as a surety to the extent of the lesser of the charge amount and the value of his interest, valued as at the date of the repayment.
Example 3: a guarantor's dispute. The bank that received such a payment and the guarantor disagree about who bears the loss. Under section 331(3), the Tribunal can decide that question in the winding up and let the guarantor be brought in as a third party.
Proposed change (Corporate Laws (Amendment) Bill, 2026)
No clause of the Bill touches section 330 or 331. The Bill is pending before Parliament and is not law as on 30 September 2026.
Need help with a pre-liquidation transfer?
Whether a transfer is void, a payment is a preference or a person has become liable as a surety depends on the dates, the documents and the value of the interest. We can review the paperwork and explain the exposure for directors, lenders and creditors. Reach out through legal dispute resolution to discuss the facts.
Key takeaways
- Section 330 voids a transfer or assignment of all a company's properties or assets to trustees for the benefit of all its creditors.
- The text contains no look-back period and no good-faith exception for section 330.
- Section 331 applies when a fraudulent preference under section 328 benefits a person interested in mortgaged or charged property.
- That person is liable as a surety, limited to the lesser of the mortgage or charge and the value of his interest.
- Value is fixed as at the date of the preference transaction.
- The Tribunal can decide disputes with sureties and guarantors and bring them in as third parties.
- The Bill, 2026 does not amend these sections.
Read next
- Section 328: Fraudulent preference
- Section 332: Effect of floating charge
- Avoidance of fraudulent preference in winding up
- Winding up by the Tribunal: grounds and process
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.