Chapter XV - Compromises, Arrangements and Amalgamations
Section 240
Section 240: liability of officers in respect of offences committed prior to merger, amalgamation, etc.
Section 240 makes sure a merger, amalgamation or acquisition does not wipe out the criminal exposure of the transferor company’s officers in default for offences committed under the Act before the transaction.
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Need advice on Section 240?
This article is for general information. Refer to the Companies Act, 2013 official text for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
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.
Introduction
The section applies notwithstanding anything in any other law. It commenced on 15 December 2016 under S.O. 3677(E). The India Code text shows no amendment and matches the 2013 Gazette.
Key takeaways
Liability survives
Liability for offences under the Act committed by officers in default of the transferor company before the merger, amalgamation or acquisition continues after it.
Overrides other laws
The rule applies notwithstanding anything in any other law for the time being in force.
Personal exposure
Officers cannot rely on the transferor company ceasing to exist to avoid liability.
What the section says
Notwithstanding anything in any other law for the time being in force, the liability in respect of offences committed under the Act by the officers in default of the transferor company before its merger, amalgamation or acquisition continues after the merger, amalgamation or acquisition.
Practical preparation
In due diligence, list known defaults and pending notices of the transferor company; consider compounding or rectifying defaults before closing where the Act allows; and tell officers of the transferor company that their exposure continues after the deal.
Procedure, forms, fees and timelines for applications under this provision are set out in rules made under the Act and in the Tribunal’s procedure; check the current text of those rules, and any exemption notification for your class of company, before relying on this guide.
Practical checklist
Do
- Identify and address past defaults of the transferor company as part of the transaction.
Avoid
- Do not assume a merger extinguishes liability of the transferor’s officers in default.
Illustrative example
Hypothetical: a pending default at merger
A transferor company had not filed certain returns before its amalgamation, and its former directors were officers in default.
Merger completes
The transferor company is dissolved under the scheme.
Liability continues
The former directors’ liability for the offence committed before the merger continues.
Outcome
- The deal team should deal with such defaults before closing.
Glossary
- Officer in default
- The officers described in section 2(60) who are liable for a default by the company.
- Transferor company
- The company that merges into, or is acquired by, another company.
Frequently asked questions
Does a merger end prosecutions of the old company’s officers?
No. Liability for offences under the Act committed by officers in default before the merger, amalgamation or acquisition continues after it.
Does another law override section 240?
The section applies notwithstanding anything in any other law for the time being in force.
Need help applying this provision to your situation?
Contact BizeneedLast updated 12 October 2026