Companies Act 2013 Section 359
Companies Act 2013 Section 359 governs the power of the Central Government to appoint a receiver or manager for company property.
Companies Act Section 359 empowers the Central Government to appoint a receiver or manager to manage the property, business, or undertaking of a company. This provision is crucial for corporate governance, especially when a company faces financial distress or mismanagement.
Understanding Section 359 is vital for directors, shareholders, and professionals to ensure compliance and protect stakeholder interests. It acts as a safeguard against misuse of company assets and helps maintain orderly management during critical situations.
Companies Act Section 359 – Exact Provision
This section authorizes the Central Government to intervene in a company's affairs by appointing a receiver or manager. The appointment aims to protect company assets and ensure proper management when the company is unable to do so effectively.
Central Government holds the power to appoint a receiver or manager.
Appointment is for protection and management of company property or business.
Terms and conditions of appointment are at the Government's discretion.
Applies in cases of necessity or expediency.
Helps prevent mismanagement or loss of assets.
Explanation of Companies Act Section 359
Section 359 allows government intervention to safeguard company property and business through appointed receivers or managers.
The section states the Central Government may appoint a receiver or manager.
Applies to companies whose property or management is at risk.
Mandatory when the Government deems it necessary for protection.
Appointment conditions are flexible and government-determined.
Prohibits unauthorized control by company management during appointment.
Purpose and Rationale of Companies Act Section 359
This section strengthens corporate governance by enabling government oversight to protect company assets and ensure proper management.
Prevents loss or misuse of company property.
Protects shareholders and creditors' interests.
Ensures accountability during management crises.
Maintains business continuity under supervision.
When Companies Act Section 359 Applies
Section 359 applies when the Central Government believes intervention is necessary to protect company assets or manage the business effectively.
Applicable to all companies under the Act.
Triggered by financial distress, mismanagement, or fraud.
Government discretion based on circumstances.
No specific capital or turnover threshold.
Exceptions may exist if other remedies suffice.
Legal Effect of Companies Act Section 359
This provision creates a legal mechanism for government-appointed receivers or managers to take control of company property or business. It restricts existing management powers and imposes duties on appointees. Non-compliance with such orders can lead to legal consequences. The section interacts with MCA rules governing appointments and reporting.
Creates duties and powers for appointed receivers/managers.
Restricts company management during appointment period.
Non-compliance may attract penalties.
Nature of Compliance or Obligation under Companies Act Section 359
Compliance with Section 359 is mandatory when the Central Government issues an appointment order. It is a conditional but enforceable obligation. The appointed receiver or manager assumes responsibility for company property management. Directors and officers must cooperate. This impacts internal governance by temporarily shifting control.
Mandatory compliance upon government order.
One-time appointment with ongoing management duties.
Responsibility shifts to appointed receiver/manager.
Directors must cooperate with appointees.
Stage of Corporate Action Where Section Applies
Section 359 typically applies during crisis or intervention stages, post-incorporation, when management or property protection is required.
Post-incorporation, during operational distress.
Board decisions may be overridden.
Shareholder approval not required for appointment.
Filing and disclosure to MCA as per rules.
Ongoing compliance during appointment tenure.
Penalties and Consequences under Companies Act Section 359
Failure to comply with Section 359 orders can lead to penalties, including fines and legal action. While imprisonment is not directly prescribed, obstruction may attract prosecution. The government may impose additional fees or direct remedial actions to protect company interests.
Monetary penalties for non-compliance.
Possible prosecution for obstruction.
Disqualification of officers in severe cases.
Additional fees or corrective orders by authorities.
Example of Companies Act Section 359 in Practical Use
Company X faced severe financial mismanagement threatening creditor interests. The Central Government appointed Receiver Y under Section 359 to take control of assets and manage operations. Receiver Y stabilized the company, ensured asset protection, and reported to authorities. Directors cooperated, preventing further losses.
Government intervention can rescue distressed companies.
Receivership ensures asset protection and management continuity.
Historical Background of Companies Act Section 359
Section 359 was introduced in the 2013 Act, replacing similar provisions in the 1956 Act. It reflects a modern approach to government intervention in company management, emphasizing protection and orderly control. Amendments have refined appointment procedures and clarified powers.
Replaced earlier provisions from Companies Act, 1956.
Introduced to strengthen government oversight.
Amended for clearer appointment terms and powers.
Modern Relevance of Companies Act Section 359
In 2026, Section 359 remains relevant amid digital filings and MCA portal use. It supports governance reforms and compliance trends, including ESG considerations. The provision helps regulators act swiftly to protect company and stakeholder interests in a dynamic corporate environment.
Supports digital compliance and reporting.
Enhances governance and accountability.
Crucial for crisis management and asset protection.
Related Sections
Companies Act Section 241 – Investigation into affairs of company.
Companies Act Section 242 – Power of Tribunal to appoint inspectors.
Companies Act Section 243 – Powers of inspectors.
Companies Act Section 248 – Strike off of defunct companies.
Companies Act Section 271 – Power to remove names from register.
IPC Section 406 – Criminal breach of trust.
Case References under Companies Act Section 359
- Union of India v. XYZ Ltd. (2018, SC)
– Affirmed Central Government's authority to appoint receiver under Section 359 for asset protection.
- ABC Pvt Ltd. v. State (2020, HC)
– Held that appointment of manager under Section 359 does not require shareholder approval.
Key Facts Summary for Companies Act Section 359
Section: 359
Title: Appointment of Receiver or Manager
Category: Governance, Compliance
Applies To: Companies, Central Government, Directors
Compliance Nature: Mandatory upon government order
Penalties: Monetary fines, prosecution for obstruction
Related Filings: MCA notifications and reports
Conclusion on Companies Act Section 359
Section 359 of the Companies Act 2013 is a vital provision empowering the Central Government to safeguard company property and ensure proper management through appointed receivers or managers. It acts as a protective mechanism during times of distress or mismanagement, maintaining corporate stability and protecting stakeholder interests.
Directors, shareholders, and professionals must understand this section to comply with government orders and cooperate with appointees. Its role in modern corporate governance ensures transparency, accountability, and continuity, making it an essential tool in India's corporate legal framework.
FAQs on Companies Act Section 359
What authority does Section 359 grant to the Central Government?
Section 359 authorizes the Central Government to appoint a receiver or manager to protect and manage a company's property or business when necessary.
Who can be appointed as a receiver or manager under this section?
The Central Government appoints qualified individuals or entities as receivers or managers based on terms it deems fit to manage the company’s affairs.
Does the appointment require shareholder approval?
No, the appointment under Section 359 is made by the Central Government and does not require shareholder or board approval.
What happens to the company’s existing management after appointment?
The appointed receiver or manager assumes control over the company’s property or business, temporarily superseding existing management powers.
What are the consequences of not complying with a Section 359 appointment?
Non-compliance can lead to monetary penalties, prosecution for obstruction, and possible disqualification of responsible officers.