Sections 340 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 340 lets the Tribunal, in a winding up, inquire into the conduct of promoters, directors, managers, Company Liquidators and officers who misapplied or retained company money or property, or committed misfeasance or breach of trust, and order them to repay or pay compensation. Section 341 extends the reach to partners and directors of firms and companies, and section 342 lets the Tribunal direct the liquidator to prosecute offenders or refer the matter to the Registrar.
Under section 340, the Tribunal can order a person to repay or restore money or property with interest, or contribute compensation, where he misapplied or retained it or was guilty of misfeasance or breach of trust. The application must be made within five years from the winding-up order, the first appointment of the Company Liquidator, or the wrongful act, whichever is longer. Section 342 lets the Tribunal direct prosecution or a reference to the Registrar, and imposes a duty to assist the prosecution.
Context
These sections sit in the chapter on winding up by the Tribunal. After the Insolvency and Bankruptcy Code, 2016, insolvency liquidations are dealt with 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 consolidated text shows section 340 unamended. If a liquidator is pursuing you, or you are a creditor weighing a claim against past directors, our legal dispute resolution team can help you assess the position.
Section 340: the inquiry and order
| Element | What the text says |
|---|---|
| Stage | In the course of winding up of a company |
| Persons | Any person who has taken part in the promotion or formation of the company, or who is or has been a director, manager, Company Liquidator or officer |
| Conduct | (a) misapplied, retained, or become liable or accountable for any money or property of the company; or (b) guilty of misfeasance or breach of trust in relation to the company |
| Who applies | The Official Liquidator, the Company Liquidator, or any creditor or contributory |
| Tribunal's power | Inquire into the conduct and order the person to repay or restore the money or property (or part) with interest at a rate the Tribunal considers just, or contribute a sum to the assets by way of compensation |
| Time limit (sub-section 2) | Within five years from the date of the winding-up order, or the first appointment of the Company Liquidator, or the misapplication, retainer, misfeasance or breach of trust, as the case may be, whichever is longer |
| Criminal liability (sub-section 3) | The section applies even if the matter is one for which the person may be criminally liable |
Reading the five-year limit
The period is five years from whichever of the three starting points gives the longer time. So a claim about an old misapplication can still be brought if the winding-up order or the liquidator's first appointment is recent enough. The choice of the longest period is written into the sub-section. Keep track of the dates in your own case, because the section does not give the Tribunal a power to extend time beyond what it says.
What the Tribunal may order
The Tribunal can order repayment or restoration with interest, or a contribution by way of compensation. It decides the amount and the rate of interest as "just and proper". This is the usual route to recover from a director who took company money for personal use, or who breached trust in dealing with company assets. See also misfeasance proceedings against directors in winding up.
Section 341: firms and bodies corporate
Section 341 sits between the two and says that where a declaration under section 339 or an order under section 340 is made in respect of a firm or body corporate, the Tribunal may also make a declaration or pass an order in respect of any person who was at the relevant time a partner in that firm or a director of that body corporate. So a director cannot avoid liability by acting through a firm or a corporate vehicle.
Section 342: prosecution of delinquent officers
Section 342(1) applies if it appears to the Tribunal, in the course of a winding up by the Tribunal, that any person who is or has been an officer, or any member, of the company has been guilty of any offence in relation to the company. The Tribunal may, on the application of any person interested in the winding up or on its own motion (suo motu), direct the liquidator to prosecute the offender or to refer the matter to the Registrar.
The consolidated text shows:
- Sub-sections (2), (3) and (4) omitted by the Insolvency and Bankruptcy Code, 2016 (Act 31 of 2016) with effect from 15 November 2016.
- Sub-section (6) omitted by the Companies (Amendment) Act, 2020 (Act 29 of 2020) with effect from 21 December 2020.
- Sub-section (5) remains: when a prosecution is instituted under the section, it is the duty of the liquidator and of every person who is or has been an officer and agent of the company to give all assistance in connection with the prosecution that he is reasonably able to give. The Explanation says "agent" includes any banker or legal adviser of the company and any person employed by the company as auditor.
Do not rely on the omitted sub-sections; they are no longer part of the Act as consolidated.
Practical examples
Example 1: diverted funds. A director transferred company money to a personal account before the company was wound up. The Company Liquidator applies under section 340 within the five-year period. The Tribunal inquires and orders him to restore the money with interest.
Example 2: misfeasance by an officer. An officer sold company property at a price far below its worth to a friend, in breach of trust. The Tribunal can order him to contribute compensation to the company's assets.
Example 3: old wrongdoing, recent winding up. The misapplication happened six years ago, but the winding-up order was made last year. The application is within five years of the winding-up order, which is the longer route.
Example 4: direction to prosecute. The Tribunal sees material suggesting an officer committed an offence relating to the company. It directs the liquidator to prosecute or to refer the matter to the Registrar. The company's auditor and banker must give reasonable assistance.
Example 5: through a firm. A declaration is made against a partnership firm that dealt with the company's money. Under section 341, the Tribunal can also make an order against a partner in that firm.
Proposed change (Corporate Laws (Amendment) Bill, 2026)
No clause of the Bill amends sections 340, 341 or 342. The Bill is pending and not law as on 30 September 2026.
Need help with a recovery or prosecution matter?
Claims under these sections depend on dates, records and proof of what happened to company money. We can help you review the facts and understand the options open to a creditor, liquidator or officer. Reach our legal dispute resolution team to discuss.
Key takeaways
- Section 340 lets the Tribunal order repayment with interest or compensation from promoters, directors, managers, Company Liquidators and officers for misapplication, retainer, misfeasance or breach of trust.
- The Official Liquidator, the Company Liquidator, any creditor or any contributory may apply.
- The application must be made within five years from the winding-up order, first appointment of the Company Liquidator or the wrongful act, whichever is longer.
- The section applies even where the person may be criminally liable.
- Section 341 extends orders to partners of firms and directors of bodies corporate.
- Section 342 lets the Tribunal direct prosecution or a reference to the Registrar; sub-sections (2) to (4) and (6) are omitted.
- The Bill, 2026 does not amend these sections.
Read next
- Section 339: Fraudulent conduct of business
- Sections 343–348: Liquidator sanction, books and records
- Misfeasance proceedings against directors in winding up
- Sections 299–300: Summons and examination of directors
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.