You must be aware that section 3A of the Companies Act, 2013 was not part of this act originally at the time of introduction of the Companies Act, 2013, however this section has been inserted in Companies Act, 2013 through Companies (Amendment) Act, 2017 w.e.f. 9.2.2018.

Section 3A of the Companies Act, 2013 corresponds to section 45 of the Companies Act, 1956

This section takes care of the situation where minimum number of members falls below statutory limit as fixed by section 3 of the Companies Act, 2013 i.e 7 members for public companies and 2 members of private company Now you may think why it has not taken care of OPC where maximum and minimum number of member in one now if you can recall provision relating to OPC then you will find that there is requirement of nominee who will be member of OPC in case of death of sole member or incapacity to such person to contract and that is why this section 3A has not covered OPC.

Now you might think why this section has not covered cases where number of directors falls below minimum statutory limit so in this regard you can refer section 168(3) which provides mechanism for increasing director and section 174(2) of the Companies Act, 2013 which allows continuing director(s), even if their number are below statutory limit, to do following two act

1. They can increase the number of director up to the number of fixed quorum

2. They can summon a general meeting

Section 174(2) has clearly stated remaining directors cannot act for any other purpose except above two.

Section 3A has been exactly corresponds to section 45 of the Companies Act, 1956 there is no difference between two and section 3A provides as follows:

If at any time the number of members of a company is reduced, in the case of a public company, below seven, in the case of a private company, below two, and the company carries on business for more than six months while the number of members is so reduced, every person who is a member of the company during the time that it so carries on business after those six months and is cognisant of the fact that it is carrying on business with less than seven members or two members, as the case may be, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefor

This section 3A is applicable in case where number of members falls below 7 in case of public company and 2 in case of private company otherwise this section has no application and this provides that if company carries on business for more than six month when number of members is below statutory limit the every has knowledge of this fact that company is carrying on business when its number of members has reduced below statutory limit then in that case every person who is members shall be severally liable for payment of whole debts of the  company contracted during that time and may be severally sued.

If you carefully see this section then you will find that this section has provided maximum time limit i.e upto 6 months within which members must be increased to seven in case of public or two in case of private company as the case may be and therefore this is a kind of relief to remaining members to avoid any unnecessary liability because of non-compliance with this maximum time frame of 6 months.

Disclaimer – Author has exercised utmost care while writing this article, but still this article may contain some error or mistake and no part of this article/writing should be construed or considered as any advice or consultancy whether professional or otherwise.

Author may be reached at [email protected]

Author Bio

More Under Company Law

One Comment

  1. Manu says:

    Hi Rahul!
    what would “contracted during that time” means. Does it only imply during and after those six months. What if the number of members is reduced just after a lawsuit is filed? is there a way where the continuing director can be made personally liable using this section

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

January 2021