Section 332 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 332 protects creditors from a last-minute floating charge. If a company is being wound up and a floating charge on its undertaking or property was created within the twelve months before the winding up began, the charge is invalid unless it is proved that the company was solvent immediately after creating it. Even when it stands invalid, the lender keeps a claim for cash actually advanced, with interest.
A floating charge created in the twelve months immediately preceding the commencement of the winding up is invalid, unless it is proved that the company was solvent immediately after the charge was created. The charge holds only for cash paid to the company at or after creation, in consideration for the charge, plus interest at five per cent. per annum or such other rate as the Central Government may notify.
What the section says
The text reads: "Where a company is being wound up, a floating charge on the undertaking or property of the company created within the twelve months immediately preceding the commencement of the winding up, shall, unless it is proved that the company immediately after the creation of the charge was solvent, be invalid, except for the amount of any cash paid to the company at the time of, or subsequent to the creation of, and in consideration for, the charge, together with interest on that amount at the rate of five per cent. per annum or such other rate as may be notified by the Central Government in this behalf."
The section has no sub-sections and, in the consolidated text, no footnote showing amendment. It still forms part of the chapter on winding up.
The elements at a glance
| Element | What the text requires |
|---|---|
| Kind of security | A floating charge on the undertaking or property of the company |
| Timing | Created within the twelve months immediately preceding the commencement of the winding up |
| Default result | The charge is invalid |
| Escape route | Proof that the company was solvent immediately after the charge was created |
| Who must prove | The text says "unless it is proved". It does not name the person, but the burden is in practice on whoever wants the charge upheld, since invalidity is the default |
| What survives even if invalid | The amount of cash paid to the company at the time of, or after, creation and in consideration for the charge, with interest at five per cent. per annum or a notified rate |
If you are a lender holding a floating charge, or a liquidator testing one, our legal dispute resolution team can help you check the dates and the solvency evidence.
Understanding the moving parts
Floating charge. A floating charge hangs over a class of assets that changes from time to time, such as stock or receivables, and does not fix on any specific asset until something crystallises it. Section 332 targets only this type. A fixed charge on a specific asset is not within its words.
Twelve months before commencement. The look-back is counted back from the commencement of the winding up. Where a company is wound up by the Tribunal, the dates that matter are set by the provisions on when a winding up begins. Check the winding-up order and any provisional liquidator's appointment in your case rather than assuming a date.
Solvency immediately after creation. The question is whether the company was solvent right after the charge was created, not at some later point. The test is the company's position at that moment. A company that was solvent then can defend the charge, even if it later failed.
Cash paid in consideration. An invalid charge is not wiped out completely. It stands for cash actually paid to the company at, or after, the creation of the charge and in consideration for it. Past debts converted into security do not bring fresh cash into the company. Only new money qualifies, and interest runs on it at five per cent. per annum unless the Central Government notifies another rate.
How it fits with other winding-up rules
Floating charge holders are also affected by section 327. Where the assets available for general creditors are insufficient, the preferential debts listed there rank ahead of debenture-holders under a floating charge (see section 327). Section 332 works at an earlier stage: it asks whether the charge is valid at all. A charge that survives section 332 can still rank behind preferential debts.
A charge created by a company must also be registered; see the related material on filing of charge forms. Registration is a separate requirement and does not cure invalidity under section 332.
Practical examples
Example 1: new charge for an old loan. A company has an unsecured loan outstanding. Six months before winding up, it gives the lender a floating charge over its stock to secure that existing loan, and no new money comes in. Unless the company is proved solvent immediately after creating the charge, the charge is invalid. Since no cash was paid in consideration for the charge, nothing survives as secured.
Example 2: fresh money. Seven months before winding up, a bank advances new money against a floating charge. The company is not proved solvent afterwards. The charge is invalid except for the cash advanced plus interest at five per cent. per annum (or a notified rate).
Example 3: solvent at creation. The company shows, with its balance sheet and records at the time, that it was solvent immediately after the charge was created. The proof takes the charge outside the invalidity rule.
Example 4: charge older than twelve months. A floating charge created more than twelve months before the commencement of the winding up is not caught by section 332, though other provisions may still apply.
Proposed change (Corporate Laws (Amendment) Bill, 2026)
No clause of the Bill amends section 332. The Bill is pending and not law as on 30 September 2026.
Need help with a floating charge dispute?
Lenders and liquidators often disagree on when a charge was created, whether new cash was advanced and whether the company was solvent at that point. We can go through the charge documents and accounts with you and explain the likely position. Start a conversation with our legal dispute resolution team.
Key takeaways
- A floating charge created within twelve months before the commencement of winding up is invalid unless the company is proved solvent immediately after creation.
- An invalid charge still covers cash paid to the company in consideration for the charge, with interest at five per cent. per annum or a notified rate.
- The section targets floating charges on the undertaking or property, not fixed charges on specific assets.
- Past debts secured afresh do not count as cash paid.
- A surviving charge can still rank behind preferential debts under section 327.
- The Bill, 2026 does not amend section 332.
Read next
- Section 328: Fraudulent preference
- Section 333: Disclaimer of onerous property
- Section 327: Preferential payments in winding up
- Liquidation waterfall under section 53 of the IBC
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.