Question

Sec 253 of the Companies Act, 2013 deals with

• A. Determination of Sickness
• B. Liability of Directors
• C. Promoters
• D. Memorandum

Hint:

While the Insolvency and Bankruptcy Code, 2016, is now the primary law for corporate insolvency, it is still important to know the corresponding provisions in the Companies Act, 2013, like Chapter XIX on the revival of sick companies, for a complete understanding of the legislative history.

Answer 1

The Correct Option is A

The quickest route here is to place Section 253 within its chapter before matching it to a subject.

1. Locate the chapter: Section 253 belongs to Chapter XIX of the Companies Act, 2013, titled "Revival and Rehabilitation of Sick Companies," which immediately narrows the subject matter to financial distress, not directors, promoters or the memorandum.
2. Pin down the specific role: Within that chapter, Section 253 is the provision setting out how a company can be determined to be sick, based on secured creditors holding a defined share of outstanding debt taking recovery action.
3. Eliminate the rest: Directors' liability, promoters and the memorandum are all governed by wholly different chapters of the Act, none of which overlaps with Chapter XIX's sick-company framework.

The correct answer is Determination of Sickness.

Answer 2

It also helps to think about why a provision like this would even need to exist, a company must first be formally identified as sick before any revival process can begin.

1. Determination of Sickness: Before the Tribunal can order any scheme of revival or rehabilitation, there has to be a threshold finding that the company actually qualifies as sick in the first place, and that gatekeeping function is exactly what Section 253 performs.
2. Liability of Directors: This concerns wrongdoing or negligence by individual directors, a question entirely separate from whether the company as an entity qualifies as financially sick.
3. Promoters: Provisions on promoters concern their role at incorporation and their contribution to the company's capital, not the company's later-stage financial health or its qualification for rehabilitation proceedings.
4. Memorandum: This document defines the company's objects and scope at formation, a foundational document unrelated to the financial distress framework that Chapter XIX addresses.

Recognising that a threshold "sickness" finding must precede any revival proceeding again points to Section 253's actual subject.

So, the correct answer is Determination of Sickness.