COMPANY LAW

WINDING UP OF COMPANY:-
 Winding up a company under the Companies Act,
2013, is the process through which a company’s
legal existence is brought to an end.
 This involves selling off the company’s assets to
pay its liabilities and distributing any remaining
assets to shareholders.
 The process can be either voluntary or compulsory.
According to section 2(94A) of the Companies Act,
2013, “Winding up means winding up under this
Act or liquidation under the Insolvency and
Bankruptcy Code, 2016.
 Thus, winding up ultimately leads to the
dissolution of the company.
 In between winding up and dissolution, the legal
entity of the company remains, and it can be sued
in a Tribunal of law.
 Winding up does not necessarily mean that the
company is insolvent.
 A perfectly solvent company may be wound up
with the approval of members in a general
meeting.
  Chapter XX of the Companies Act, 2013 deals with
the winding up of a company.
 Part I provides for winding up by the tribunal,
while Part II provides provisions for the voluntary
winding up of a company.
 However, Part II has been omitted by the
Insolvency and Bankruptcy Code, 2016.
 It’s important to note the difference between
winding up, liquidation, and dissolution:
 Winding Up: The entire process of closing a
company.
 Liquidation: The sale of a company’s assets to
settle its debts.
 Dissolution: The final stage, where the company is
legally closed, and its name is removed from
official record.

MODES OF WINDING UP:-

The Act provides only for one kind of winding up:
1. Compulsory winding up under the order of the
tribunal or court.
2. Voluntary winding up which itself is of two kinds
namely:-
a) Member’s voluntary winding up
b)Creditor’s voluntary winding up.
[these two types of winding up are now covered under
IBC].

1.BY COURT (COMPULSORY WINDING UP) (National

Company Law Tribunal):-
 Chapter XX of the Companies Act, 2013 in part I
deals with the winding up of a company by a court
or tribunal.
 When a company is wound up by the order of a
court or tribunal, it is called winding up by the
court or tribunal.
 This mode of winding up is also called compulsory
winding up of a company.
 A petition to the NCLT can begin the process of
winding down a firm.
 Only the NCLT will accept a petition for winding up.
Since going out of business is a last resort, there
needs to be good justification for it.
 The cases in which a company may be wound up
are given under section 271 of the companies act
2013.
 Section 271 empowers the tribunal in its discretion
to order a binding up of a company in the
following cases:
a) If the company has resolved by a special resolution
that it wound up by the tribunal:- If the company
has by special resolutions, resolved that it wound up
by the tribunal. The tribunal is however not bound to
order winding up simply because the company has so
resolved. The power is discretionary and may not be
exercised where winding up would be opposed to
the public or company’s interests.

b)If the company has acted against the interests of

sovereignty and integrity of India, the security of
the State, friendly relations with foreign states,
public order, decency, or morality

c) If the tribunal is of opinion that the affairs of the

company have been conducted in a fraudulent
manner or the company was formed for fraudulent
or unlawful purpose persons concerned in its
formation or management of its affairs have been
guilty of fraud or misfeasance in those connections
and that it is proper to the company be wound up:-
This clause can be activated by an application by the
registrar or by any other person authorized by the
central government by notification.
d)If the company has made a default in filing with the
registrar its financial statements or annual returns for
immediately preceding 5 consecutive financial years.

e)Company has acted against national security or

sovereignty
If a company threatens India’s sovereignty, integrity,
security, or foreign relations, the Tribunal may order
winding up.

f) If the tribunal is of opinion that it is just and

equitable that the company should be wound up:-
 This gives the tribunal a very wide discretionary
power to order winding up whenever it appears to
be desirable.
 The tribunal may give due weight to the interests
of the company and its employees and creditors
and shareholders and general public interest
should also be considered.
This includes cases where:
 Deadlock in management
 Continuous losses with no hope of recovery
 Loss of substratum (the main objective of the
company is no longer achievable)
The Tribunal may refuse to make an order of widening
up if it is of the opinion that some other remedies
available to the petitioner and he is acting
unreasonably in seeking to have the company wound
up instead of pursuing that other remedy .

PETITION FOR WINDING UP [U/S 272 ]

 An application to the children for the winding up of
a company is made by a petition.
 A petition may be presented by any one of the
following persons:-
1. Petition by Company[section 272(1)(a)]:-
 The company may itself present a petition for
winding up.
 Petition by the company will be particularly
necessary when the only ground for winding up
is that the company has passed a special
resolution to that effect.
 There must be a valid resolution to enable the
company to take this step.
 Thus, where a judge passed an order for winding
up on the ground that the majority of the
shareholders at a meeting were In favour of
winding up it was held that was not In the
 absence of a valid special resolution a sufficient
ground for compulsory winding up.
 We are a winding up petition was filed on behalf
of the company by a person who is not
authorized by the board of directors the petition
was held to be incompetent.

2. Creditor’s Petition [Section 272 (1)(b)]:-

 A creditor may apply for winding up.
 Agenda who is proceeding against the company on
the ground of the companies in the ability to pay
its debts has to proceed under the insolvency and
bankruptcy code 2016.
 His petition under the company’s act is not going
to be entertained.
 A creditors petition can be entertained under the
section only if it is based upon any of the grounds
now available under the section.
 Sometimes a creditor’s petition is opposed by
other creditors
 In such cases the tribunal may assert in the wishes
of the majority of the creditors but their opinion
does not bind it.
 The question will ultimately depend upon the state
of the company and if the company is
 commercially insolvent and the objective trading at
a profit cannot be attained widening of order
would follow.
 A foreign creditor can also apply for winding up.
 A foreign arbitration award can be a good ground
for winding up when it has been declared by the
competent jurisdiction to be enforceable in India
under section 49 arbitration and Conciliation Act
1996.
 A guarantor is a prospective creditor and has a
right to apply for winding up.
 Where the claim of a creditor is enforceable at the
time of the petition it does not matter if it sees to
be enforceable by the time of the order.
 An unpaid worker is not a creditor for this purpose
and the union of workers has also no local standi
to file a petition because there are alternate
remedies under industrial law.
 Whether petition is to be filed through an agent he
must be specifically authorized for the purposes of
the petition a general authorization for suits and
proceedings against the company is not going to
be sufficient.
3. Contributory’s Petition:-
According to Section 2(26) of the Act, a contributory is
a person who is liable to contribute towards assets of
the company in case it is wound up. However,
according to Section 272(2), a contributory will be
allowed to present a petition for winding in spite of him
being the holder of fully paid up shares or the company
has no surplus assets left for distribution among its
shareholders after satisfying all the liabilities. One
important requirement is that the shares in respect of
which a person is a contributory were allotted or
registered under him for at least 6 months during the
period of 18 months before the commencement of
winding up or such shares devolved on him by the
death of the former holder.

4.Registrar’s Petition[section 272(1)(e)and(4)]:-

 The Registrar of companies is also entitled to
present a petition for winding up on any of the
grounds of winding up by the tribunal
 But he shall not present the petition on the ground
of the company’s inability to pay its debts unless it
appears to him either from the financial condition
of the company as disclosed in its balance sheet or
from the report of an inspector under section 210
  In all cases however the registrar has to obtain
sanction of the central government to the
presentation of a petition and the central
government shall not grant the sanction unless the
company has been afforded an opportunity to
make its representations if any.

5.Central Government’s Petition:-

 The central government is also authorized by the
act in certain cases to present a petition for
winding up.
 Section 224 enables the government to petition for
winding up where it appears from the report of
inspectors appointed to investigate the affairs of a
company under section 206 that the business of
the company has been conducted for fraudulent or
unlawful purposes.

6.Employee’s Petition:-
 Outstanding or unpaid wages are salary of a
workman or an employee is a debt to be paid by
the company and employee of company is credit of
the company in respect of his unpaid emoluments
and can file a petition.
WINDING UP UNDER IBC, 2016
Voluntary winding up is a controlled closure of a
business initiated by the company itself rather than by
a court order and it is a way to shut down a solvent
company in orderly manner.

In what circumstances does it take place?

Voluntary winding up occurs when:-
 The company passes a special resolution to wind
up voluntarily
 The company resolves to wind up by an ordinary
resolution due to expiry of the period fixed for its
duration or on the occurrence of any event in
respect of which the articles provide for its
dissolution.

WINDING UP UNDER THE

SUPERVISION OF COURT
 Company decides to shut down (winding up)
 Court can oversee the closing process to make
sure it’s done fairly.
  Anyone involved like creditor or shareholder or the
person handling the closure can ask the court to
watch over things.
 This helps protect everyone the company itself, the
shareholders and the creditors.
BENEFITS
 Increased transparency and accountability.
 Easier for creditors and contributors or
shareholders or others to seek court intervention if
needed.

MAJORITY POWERS AND

MINORITY RIGHTS

SHAREHOLDER’S DEMOCRACY:-
 Democracy means the rule of people by people
and for the people
 The shareholders democracy means the rule of
shareholders by the shareholders and for the
shareholders in the corporate enterprise to which
the shareholders belong.
 The concept of shareholder’s democracy in the
present day corporate world denotes the
 shareholder supremacy in the governance of the
business and affairs of corporate sector either
directly or through their elected representatives.

 It is a right to speak and communicate with co

shareholders and to learn about what is going on
in the company

POWERS OF MAJORITY
 It is a cardinal rule of company law that primacy a
majority of members of a company are entitled to
exercise the powers of the company and generally
to control its affairs.
 The title ‘Majority Rule’ suggests that the power to
manage the affairs of the company lies with the
majority people i.e., majority shareholders.
 The members of the company who hold more than
50% of the power of voting are called majority
shareholders.
 This power puts the rights of the minority
shareholder at risk and render them vulnerable in
front of the majority shareholders.
 The resolution of the majority of shareholders
passed at a duly convened and held general
meeting upon any question with which the
 company’s legally competent to deal is binding
upon the minority and consequently upon the
company.
THE PRINCIPLE OF NON-INTERFERENCE
(Rule in Foss v. Harbottle)
 The court will not usually interfere and the
instance of shareholders in matters of internal
administration
 And will not interfere with the management of the
company by its directors so long as they are acting
within the powers conferred on them under the
Articles of the company.
 The basic principle of noninterference with the
internal management of company by the court is
laid down in the case of Foss v. Harbottle.
 The justification for the rule laid down in this case
is that the will of the majority prevails.
 The rule really preserves the right of majority to
decide how the companies affairs shall be
conducted.
 If any wrong is done to the company it is only the
company itself acting as it must always act through
its majority that can seek to redress and not an
individual shareholder.
PROTECTION OF MINORITY RIGHTS AND
SHAREHOLDERS REMEDIES
Exceptions to the rule in Foss vs Harbottle
The case in which the majority rule does not prevail are
commonly known as exceptions to the role in Foss v.
Harbottle and are available to the minority. In all these
cases an individual member may sue for declaration
that the resolution complained of is word or for an
injunction to restrain the company from passing it.
They said rule will not apply in the following cases:-

1.Ultra-Vires Acts:-
 Where the directors representing the majority of
shareholders perform an illegal or ultra wires act
for the company.
 The majority of shareholders have no right to
confirm an illegal or ultra wires transaction of the
company.
 The rule lay down in the case of Foss vs. Harbottle
applies only as long as the company is acting
within its powers.
 Since the minority shareholders action in which
the plaintiff shareholders sues on behalf of the
company is a procedural device for the purpose of
doing justice for the benefit of the company where
 it is controlled by miscreant directors or
shareholders the court is entitled to look at the
conduct of the plaintiff to satisfy itself that the
plaintiff is a proper person to bring the action, That
is to say one must come to the court with clean
hands.
 Thus if the plaintiffs conduct was tainted as to bar
equitable relief or if there was an unacceptable
delay in bringing the action the plaintiff might well
be held not to be a proper person to bring the
action.

2.Fraud on Minority:-
 Where an act done by the majority amounts to a
fraud on the minority an action can be brought by
an individual shareholder.
 It means a kind of discriminatory action.
 This should have resulted in gross unfairness to the
minority. Further, it also includes scenarios where
the majority shareholders appropriated the
money, property and so on belonging to the
company.
 In the case of Menier v. Hooper Two companies A
and B were in rivalry. The majority of the members
of company A were also the members of company
 B. Company A had commenced an action against
Company B and at a meeting of company A the
majority passed a resolution to compromise the
action in a manner favorable to company B and
unfavorable to A. Thus the attempted to deprive
the company of the benefits which could have
been recovered from company B. Consequently in
an action by the minority the resolution was held
invalid. The court heard that it would be a shocking
thing because the majority have put something
into their pockets at the expense of minority.
3.Acts requiring Special Majority;-
 A shareholder concealed if an act requires a special
majority but it is passed by a simple majority.
 There are certain acts which can only be done by
passing a special resolution at a general meeting of
shareholders.
 Accordingly if the majority purports to do any such
act by passing only an ordinary resolution or
without passing special resolution in the manner
required by law any member can bring an action to
restrain the majority.

4.Wrongdoers in Control:-
  Sometimes an obvious wrong may have been done
to the company but the controlling shareholders
would not permit an action to be brought against
the wrongdoer.
 In such cases to safeguard the interest of the
company any member or members may bring an
action in the name of the company.

5.Oppression and Mismanagement

[Sections 241-246 of Companies Act 2013]
 The Companies Act provides the provisions
concerning oppression and mismanagement in
companies and the prevention of the same.
 This is to ensure remedy in the cases of oppression
and mismanagement against the minority and
combat the same. This acts as an exception to the
majority rule as well.
 Oppression is defined in the case of Elder v. Elder
& Watson Ltd. Case, involves conduct that
significantly departs from fair dealing, violating the
trust shareholders place in the company.
Mismanagement refers to the detrimental changes
in a company’s management or control,
prejudicing its members.
  This exception had been laid down in the case of
Kanika Mukherji v. Rameshwar
Dayal Dubey.
 Section 397(1) of the Companies Act provides that
any member of a company who complains that the
affairs of the company are being conducted in a
manner prejudicial to the public interest or it is
oppressive to any member or members may apply
to the tribunal for order thus to protect his or her
statutory rights.
 Section 397(2) of the Companies Act states that
the tribunal may grant relief in Section 397 if it is
of the opinion that-
 If the company’s affairs are handled in a manner
prejudicial to the public interest or in a manner
oppressive to any member or members.
 To wind up the company that would be unfair to its
member or members, but that otherwise, the facts
would justify the making of a winding-up order on
the ground that it was just and equitable that the
company should be wound.
The tribunal with the view of all the matters that were
complained to them, may then afterwards give their
final decision as they may deem fit.
PREVENTION OF
OPPRESSION OF
MISMANAGEMENT
 In addition to the protection afforded to the
minority by the exceptions to the rule of the
supremacy of majority the modern companies act
contain special provisions for prevention of
oppression and Mismanagement.
 The aim of such provisions contained in chapter 16
of the company’s act 2013 is to safeguard the
interest of investors in Company’s act and also to
protect the public interest.
 The rides conferred on shareholders by this
chapter are also known as qualified minority
rights.
 On chapter 16 also provides for judicial as well as
administrative remedies.

PREVENTION OF OPPRESSION
 Oppression and mismanagement are critical
principles safeguarding shareholders’ rights in
company law.
  In India these protections are outlined in Chapter
XVI of the companies act ,2013 sections 241 to
246.
 Oppression is defined in the case of Elder v. Elder
& Watson Ltd. Case, involves conduct that
significantly departs from fair dealing, violating the
trust shareholders place in the company.
Mismanagement refers to the detrimental changes
in a company’s management or control,
prejudicing its members.
 But these terms as such are not defined in the act.
 The terms Oppression & Mismanagement are not
defined under the Companies Act.
 2. It is decided by the Court on the basis of facts &
merits of the cases.
Oppression & Mismanagement refer to the practices of
managing dishonestly, or any violation of MOA & AOA,
Statutory Provisions, Rules, Regulations, or Any
fraudulent Practices etc.
The provision of these section invoked only when
something prejudice is caused-
(a) to the interest of the Company, or
(b) to the interest of the members.
The following are the grounds for making an
application under Section 241:
(a) that the company’s affairs are being conducted in a
manner that is prejudicial or oppressive to a member
or members, or in a manner that is prejudicial to the
public interest, or in a manner that is prejudicial to the
company’s interests;
(b) that a material change has occurred in the
company’s management or control, whether by an
alteration in the Board of Directors or management;

SECTION:241- Application to the Tribunal for relief in

case of Oppression-
Any member of a company who is of opinion that-
(a) The affairs of a company are conducted in prejudice
to public interest, any member or company’s interest,
or
(b) any Material change, not being a change brought
about by or interest of creditors that can be through-
 An alteration in the board of directors or managers
or in the ownership of the Company’s shares,
 If it has no share capital, in its membership, or
 In any other manner.
which will be prejudicial to the interest of
Company/members, may apply to the Tribunal,
provided such member has a right to apply under
section 244, for an order under this Chapter.
(3) Where in the opinion of the Central Government
there exist circumstances suggesting that––
(a) any person concerned in the conduct and
management of the affairs of a company is or has been
in connection therewith-
(i) guilty of fraud,
(ii) misfeasance,
(iii) persistent negligence or
(iv) default in carrying out his obligations and functions
under the law or of breach of trust;
(b) the business of a company is not or has not been
conducted and managed by such person in accordance
with sound business principles or prudent commercial
practices;
(c) a company is or has been conducted and managed
by such person in a manner which is likely to cause, or
has caused, serious injury or damage to the interest of
the trade, industry or business to which such company
pertains; or
(d) the business of a company is or has been conducted
and managed by such person with intent to defraud its
creditors, members or any other person or otherwise
for a fraudulent or unlawful purpose or in a manner
prejudicial to public interest, the Central Government
may initiate a case against such person and refer the
same to the Tribunal with a request that the Tribunal
may inquire into the case and record a decision as to
whether or not such person is a fit and proper person
to hold the office of director or any other office
connected with the conduct and management of any
company.
(4) The person against whom a case is referred to the
Tribunal under sub-section (3), shall be joined as a
respondent to the application.
(5) Every application under sub-section (3)
(a) shall contain a concise statement of such
circumstances and materials as the Central
Government may consider necessary for the purposes
of the inquiry; and
(b) shall be signed and verified in the manner laid down
in the Code of Civil Procedure, 1908, for the signature
and verification of a plaint in a suit by the Central
Government.
SECTION:242 – The Power of the Tribunal
On receipt of the application u/s 241 the Tribunal may
pass the order of the winding up of the Company on
the basis of grounds which are just and equitable to the
Winding up of the Company or may pass any other
order as it deems fit.
The Tribunal may pass the following orders other than
to windup the company.
1. Regulation of the conduct of affairs of the company
in future
2. Purchase of shares /interests of any members of the
company by other members
3. If any shares purchased its consequent reduction of
share capital
4. Restriction on the transfer/allotment of shares
5. Termination, setting aside or modification of any
agreement between the company and its Managing
Director, any other director or manager
6. Termination, setting aside or modification of any
agreement between the company and any other
person
7. The setting aside of any transfer, delivery of goods,
Payment, execution or Other act relating to property
Made /done by/against the company within 3 months
before the date of the application which would if
made /done by/against an individual, be deemed in his
insolvency to be a fraudulent preference.
8. Removal of managing director, manager or any
director of the company
9. Recovery of undue gain made by any managing
director, manager or director and the manner of
utilization of the recovery.
10. Manner of appointment of managing director or
manager of the company may subsequent to an order
removing
11. Appointment of the such number of persons as
directors.
12. Imposition of costs as may be deemed fit by the
tribunal.
13. Any other matters which the Tribunal thinks it is
just and equitable
A CTC of the order of the Tribunal shall be filed by the
company with the ROC within 30 days of the order of
the Tribunal.
The Tribunal may, on the application of any party to the
proceeding, make any interim order which it thinks fit
for regulating the conduct of the company’s affairs
upon such terms and conditions as appear to it to be
just and equitable.
At the conclusion of the hearing of the case in respect
of sub-section (3) of section 241, the Tribunal shall
record its decision stating therein specifically as to
whether or not the respondent is a fit and proper
person to hold the office of director or any other office
connected with the conduct and management of any
company.
Where an order of the Tribunal makes any alteration in
the memorandum or articles of a company, then,
notwithstanding any other provision of this Act, the
company shall not have power, except to the extent, if
any, permitted in the order, to make, without the leave
of the Tribunal, any alteration whatsoever which is
inconsistent with the order, either in the memorandum
or in the articles.
Subject to the provisions of sub-section (1), the
alterations made by the order in the memorandum or
articles of a company shall, in all respects, have the
same effect as if they had been duly made by the
company in accordance with the provisions of this Act
and the said provisions shall apply accordingly to the
memorandum or articles so altered.
A certified copy of every order altering, or giving leave
to alter, a company’s memorandum or articles,
shall within thirty days after the making thereof, be
filed by the company with the Registrar who shall
register the same.
If a company contravenes the provisions of sub-section
(5), the company shall be punishable with fine-
(A) which shall not be less than one lakh rupees
(B) but which may extend to twenty-five lakh rupees
(C) and every officer of the company who is in default
shall be punishable with imprisonment for a term
which may extend to six months or with fine which
shall not be less than twenty-five thousand rupees but
which may extend to one lakh rupees, or with both.

SECTION:244- Right to apply U/S 241

(1) The following members of a company shall have the
right to apply to the Tribunal u/s 241
(a) in the case of a company having a share capital,
(i) not less than one hundred members of the
company or
(ii) not less than one-tenth of the total number of its
members, whichever is less, or
(iii) any member or members holding not less than one
tenth of the issued share capital of the company,
subject to the condition that the applicant or applicants
has or have paid all calls and other sums due on his or
their shares;
(b) in the case of a company not having a share
capital, not less than one-fifth of the total number of its
members:
Provided that the Tribunal may, on an application made
to it in this behalf, waive all or any of the requirements
specified in clause (a) or clause (b) so as to enable the
members to apply under section 241.
Explanation. —For the purposes of this sub-section,
where any share or shares are held by two or more
persons jointly, they shall be counted only as one
member.
(2) Where any members of a company are entitled to
make an application under subsection (1), any one or
more of them having obtained the consent in writing of
the rest, may make the application on behalf and for
the benefit of all of them.