A company in winding up may hold property that is burdened with onerous covenants, unprofitable contracts, or shares in other companies that cannot be sold. Section 333 of the Companies Act, 2013 ("the Act") permits the Company Liquidator to disclaim such property, subject to the leave of the Tribunal. The disclaimer is a tool for freeing the estate from liabilities that would otherwise consume the assets.
The Property That Can Be Disclaimed
Section 333(1) permits the liquidator to disclaim land of any tenure burdened with onerous covenants, shares or stocks in companies, unprofitable contracts, and any other property that is unsaleable or not readily saleable because it is bound by a charge or because it is subject to a contract that the company cannot perform.
The Procedure
The liquidator must apply to the Tribunal for leave to disclaim. The application must be supported by an affidavit stating whether the company is solvent and whether any notice has been served on the liquidator requiring him to elect whether to disclaim. The Tribunal may grant leave subject to conditions, including the vesting of the property in a person who has an interest in it.
The Consequences
The disclaimer operates to determine the rights and liabilities of the company in the property. A person who is affected by the disclaimer is deemed to be a creditor of the company to the extent of the loss suffered. The disclaimer does not affect the rights of third parties except as provided in the section.
The disclaimer is a powerful tool, but it is not available where the property is required for the beneficial winding up of the company or where the disclaimer would prejudice the creditors unfairly. The liquidator must exercise the power judiciously.
Call to Action
Anuj Desai & Associates advises liquidators and creditors on the Section 333 disclaimer—from the identification of onerous property to the Tribunal application and the consequences for affected persons. If you are involved in a winding up with onerous property, we can help you navigate the disclaimer process.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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