INDIA Law and Practice Contributed by: Shardul Shroff, Misha, Kritika Poddar and Aishwarya Satija, Shardul Amarchand Mangaldas & Co
7.3 Duties and Personal Liability of Officers See 7.1 Duties of Directors . 7.4 Other Consequences for Directors and Officers Under the CA 2013, a person may be disqualified from acting as a director in a company on various grounds such as if they: • are of unsound mind and have been declared as such by a competent court; • are an undischarged insolvent; • have been convicted of an offence of moral turpi - tude whereby they have been sentenced to impris - onment for at least six months; or • have been sentenced to imprisonment for a period of seven years or more. A director may be disqualified from acting as a direc - tor in any company where criminal liabilities have been imposed on a director as per the provisions of the Code that satisfy the disqualification criteria contained in the CA 2013. An application to set aside an avoidance transaction may be filed by the RP or the liquidator with the NCLT. The Code provides for avoidance of four categories of transactions. • Preferential transactions that put any person in a better position than they would have been in the distribution waterfall. • Undervalued transactions in which the CD has gifted or transferred property to a person for a value that is significantly less than the value of con - sideration provided by the CD. • Transactions defrauding creditors in which the CD deliberately entered into undervalued transac - tions to keep the assets beyond the reach of any claimant or to adversely affect the interests of such person in relation to the claim. 8. Setting Aside or Annulling a Transaction 8.1 Circumstances for Setting Aside a Transaction or Transfer The Code
• Extortionate credit transactions where credit has been extended on extortionate terms. Preferential transactions and undervalued transac - tions are vulnerable to being set aside if they are entered into: • within the two years preceding the insolvency com - mencement date with related parties; and • within one year preceding the insolvency com - mencement date with persons other than related parties. Transfers made in the ordinary course of business are excluded from the meaning of preferential transac - tions and undervalued transactions. The Code does not prescribe any suspect period for transactions defrauding creditors. Extortionate credit transactions within the two years preceding the insol - vency commencement date are liable to be set aside. The CA 2013 The liquidator has the authority to examine all trans - actions since the commencement of winding up and initiate appropriate proceedings to declare such trans - actions as void or invalid by the court. These are as follows. • Fraudulent preference – transactions between the company and a creditor in preference to other creditors within six months prior to the presenta - tion of a winding-up petition. • Avoidance of voluntary transfer – transfer of prop - erty not made in the ordinary course of business, in good faith or for real and valuable consideration where such transfer was made within one year prior to the presentation of a winding-up petition. • Floating charge – a floating charge on the under - taking or property of a company created within 12 months before commencement of winding up unless the company was solvent immediately after creation of the charge.
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