Section 339 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 339 lifts the protection of limited liability from people who ran a company's business to defraud creditors. In the course of a winding up, the Tribunal can declare that a director, manager or officer, or anyone who was knowingly a party to the fraudulent carrying on of the business, is personally responsible, without any limitation of liability, for all or any of the company's debts or other liabilities as the Tribunal directs.
If, in a winding up, it appears that any business of the company was carried on with intent to defraud creditors or any other persons, or for any fraudulent purpose, the Tribunal may, on application of the Official Liquidator, the Company Liquidator or any creditor or contributory, declare the persons responsible personally liable without limit for the debts it directs. Those knowingly parties to the fraud are also liable for action under section 447. The section applies even if the person is punishable under another law.
Where section 339 fits
Section 339 sits in the chapter on winding up by the Tribunal. Insolvency liquidations now run under the Insolvency and Bankruptcy Code, 2016, which has its own provisions on fraudulent and wrongful trading (see Section 66 fraudulent transactions and the IBC). Winding up by the Tribunal under the Companies Act continues on the grounds left in section 271, and there section 339 remains available. The text of the section shows no amendment. If you are a director or creditor in such a case, our legal dispute resolution team can help you evaluate a claim or a defence.
Sub-section (1): the declaration
| Element | What the text says |
|---|---|
| When | In the course of the winding up of a company |
| Trigger | It appears that any business of the company has been carried on with intent to defraud creditors or any other persons, or for any fraudulent purpose |
| Who can apply | The Official Liquidator, the Company Liquidator, or any creditor or contributory |
| Who can be declared liable | Any person who is or has been a director, manager or officer of the company, or any persons who were knowingly parties to the carrying on of the business in that manner |
| Effect | Personal responsibility, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Tribunal may direct |
| Discretion | The Tribunal "may, if it thinks it proper so to do" make the declaration |
The proviso lets the Official Liquidator or the Company Liquidator give evidence or call witnesses at the hearing.
Two points stand out. First, liability extends beyond the board to any person "knowingly" a party, which can include outsiders such as a lender, supplier or adviser who took part with knowledge. Second, the Tribunal decides how much of the debts each person must bear, so liability can be for "all or any" of them.
Sub-section (2): giving effect to the declaration
Once the Tribunal declares liability, it can give further directions to make the declaration effective. In particular, it may:
- (a) make the liability of the person a charge on any debt or obligation due from the company to him, or on any mortgage or charge (or interest in it) on the company's assets held by or vested in him, or in any person on his behalf, or an assignee from or through him or a person acting for him; and
- (b) make further orders needed to enforce any charge imposed.
The Explanation defines "assignee" to include a person to whom, or in whose favour, by the directions of the person liable, the debt, obligation, mortgage, charge or interest was created, issued or transferred. It excludes an assignee for valuable consideration (not marriage consideration) given in good faith and without notice of the matters on which the declaration is made. So a genuine buyer is protected, while a relative who received assets by the director's direction is not.
Sub-section (3): criminal exposure under section 447
Where the business is carried on with such intent or purpose, "every person who was knowingly a party" is liable for action under section 447. Section 447 is the general provision on punishment for fraud (see Section 447: Punishment for fraud). In the consolidated text, fraud involving at least ten lakh rupees or one per cent. of turnover (whichever is lower) carries imprisonment of six months to ten years and a fine of not less than the amount involved, up to three times that amount, with a higher minimum imprisonment where public interest is involved. A lower-value fraud without public interest attracts up to five years, or fine up to fifty lakh rupees, or both. The declaration of civil liability and the criminal process are separate.
Sub-section (4) and the Explanation
Section 339 applies "notwithstanding that the person concerned may be punishable under any other law" for the same matters. The Explanation says "officer" includes any person in accordance with whose directions or instructions the directors have been accustomed to act, so a controlling person behind the board is covered.
Practical examples
Example 1: trading while knowing it cannot pay. A company keeps taking goods on credit from suppliers, while its directors divert sale proceeds to a family firm. The company is wound up by the Tribunal. A supplier applies, and the Tribunal, finding that the business was carried on with intent to defraud creditors, may declare the directors personally responsible without limit for the debts it directs.
Example 2: an outsider as party. A financier knowingly helps route funds out of the company to defeat creditors. The declaration can reach "persons who were knowingly parties", not only directors.
Example 3: charge on the director's own claim. A director who fraudulently ran the business is also a creditor of the company for a loan. Under sub-section (2)(a), the Tribunal can make his liability a charge on the debt the company owes him.
Example 4: good-faith buyer. A buyer paid full value for a mortgage interest transferred from the director, without notice of the fraud. The Explanation excludes such an assignee.
Proposed change (Corporate Laws (Amendment) Bill, 2026)
No clause of the Bill amends section 339. Clause 99 of the Bill, which is pending, would amend section 447, to which section 339(3) refers: it proposes replacing "ten lakh rupees" with "twenty-five lakh rupees" and, in the second proviso, "fifty lakh rupees" with "one crore rupees". The Bill is not law as on 30 September 2026, so section 447 continues as described above.
Need help with a personal-liability claim?
Section 339 can turn on what the directors knew, how funds moved and who benefited. We can go through the records with you and explain how a claim could be made or defended. Speak to our legal dispute resolution team.
Key takeaways
- The Tribunal may declare persons personally liable, without limit, where business was carried on to defraud creditors or for any fraudulent purpose.
- The Official Liquidator, the Company Liquidator, any creditor or any contributory can apply.
- Directors, managers, officers and persons knowingly parties to the fraud can be reached.
- The Tribunal can make the liability a charge on debts or security the person holds and enforce it.
- Persons knowingly parties are also liable for action under section 447.
- The section applies even if the person is punishable under another law.
- The Bill, 2026 does not amend section 339; its clause 99 would change section 447 if enacted.
Read next
- Section 338: Liability where proper accounts not kept
- Sections 340 and 342: Damages and prosecution of delinquent officers
- Section 447: Punishment for fraud
- Misfeasance proceedings against directors in winding up
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.