Winding Up
Friday, May 24, 2024 2:34 AM
Introduction
Winding up of a company is a process by which the life of a company is brought to an end and its property administered for the benefit of its members
and creditors. It involves the appointment of a liquidator who takes control of the company, collects its assets, pays its debts, and distributes any surplus
among the members according to their rights.
Definitions
Halsbury’s Laws of England
"Winding up is a proceeding by means of which the dissolution of a company is brought about and in the course of which its assets are collected,
realized, applied in payment of its debts, and any remaining amount is distributed among its members."
Legal Provisions for Winding Up of Companies
• Companies Act, 2013
○ Section 2(94A): Winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016.
• Insolvency and Bankruptcy Code, 2016
2 types of winding up
1. By tribunal
2. Voluntary winding up
Winding Up by the Tribunal -Section 270
• The provisions of Part I of Chapter XX of the Companies Act, 2013 apply to the winding up of a company by the Tribunal.
• Circumstances for Winding Up by Tribunal (Section 271)
○ Special Resolution: The company resolves by special resolution to wind up by the Tribunal.
○ Acting Against State Interests: The company acts against the sovereignty, integrity, security of the state, friendly relations with foreign states,
public order, decency, or morality.
○ Fraudulent Conduct : Affairs conducted in a fraudulent manner or formed for fraudulent purposes.
○ Default in Filing: Default in filing financial statements or annual returns for five consecutive years.
○ Just and Equitable: Tribunal’s opinion that it is just and equitable to wind up the company.
▪ Deadlock- when 2 or more people cant come to an agreement
Case- Etisalat Mauritius Ltd. v. Etisalat D.B.Telecom, 2013
▪ Loss of Substratum - when object of the company is not happening or fails
▪ Losses when a company is suffering loss and cannot carry on its business
Case - Banchhara Factories v. Hirjee Mills Ltd.
▪ Operation of minority- where principle shareholders adopt aggression policies towards the minority shareholders
▪ Fraudulant purpose of business
▪ Public interest
▪ Company as a bubble
• Petition for Winding Up (Section 272): Who Can Petition:
○ The company itself
○ Any contributory or contributories [sec. 2(26)]- any person who is liable to contribute towards the assets of the company
○ Registrar or authorized person by the Central Government
○ Central or State Government (in specific cases)
○ Registrar’s Petition: Requires prior sanction of the Central Government, and the company must be given a reasonable opportunity to make
representations.
• Steps for compulsory winding-up by a tribunal
○ Petition should be filled in form WIN 1 or WIN 2 and affidavit prepared as per WIN 3
○ Sec. 274 statement filled as per form WIN 4. The statement filled within 30 days
○ Petition posted before the tribunal and date fixed for hearing. Notice sent to Company and opportunity to be heard
○ Rule 6 every contributors served a copy of the petition within 24 hrs of payment
○ Notice of petition published in local newspaper within 14 days before fixing of a date of hearing
○ Any obligation filled within 30 days from the date of order and same will be served to the petitioner
○ Reply to objection within 7 days
○ Provisional liquidator will be appointed after admission of petition by the tribunal
○ Order of winding up in according to form WIN 11 which is to be sent to registrar
○ Liquidator will apply for dissolution within 10 days
• Appointment of Liquidator
○ Sec. 275 tribunal appoints from a panel maintained by the central government
○ Having atleast 10 years of experience in matters relating to company
• Removal of Liquidator and their grounds - Sec. 276
New Section 1 Page 1
• Removal of Liquidator and their grounds - Sec. 276
○ Misconduct
○ Professional incompetency
○ Fraud
○ Conflict of interest
○ Inability to act as a liquidator
• Powers of liquidator s. 277(5), (6), (7)
• Powers of the Tribunal (Section 273)- Orders - Tribunal can:
○ Dismiss the petition
○ Make interim orders
○ Appoint a provisional liquidator
○ Order the winding up of the company
○ Make any other order as it thinks fit
○ Order Time Frame: Orders to be made within ninety days of the petition presentation.
Voluntary Winding Up
• Insolvency and Bankruptcy Code, 2016: Chapter V (Section 59)
• Initiation: A corporate person intending to liquidate itself voluntarily and has not committed any default can initiate voluntary liquidation.
• Conditions
○ Declaration by majority of directors, verified by an affidavit.
○ Accompanied by audited financial statements, a valuation report of assets, and necessary documents.
○ A special resolution or a resolution by members requiring the company to be liquidated voluntarily.
○ Notification to Registrar of Companies and the Board within seven days of the resolution.
• Commencement and Procedure
○ Commencement: Voluntary liquidation proceedings commence from the date of the special resolution.
○ Liquidation Process: Provisions of sections 35 to 53 of Chapter III and Chapter VII apply to voluntary liquidation proceedings with necessary
modifications.
• Dissolution
○ Application for Dissolution: The liquidator makes an application to the Adjudicating Authority once the affairs are completely wound up.
○ Order of Dissolution: The Adjudicating Authority passes an order for the dissolution of the corporate debtor, effective from the date of the
order.
○ Notification: A copy of the dissolution order is forwarded to the registering authority within fourteen days.
New Section 1 Page 2
