This article is written by Chandana pursuing B.Com.LLB(Hons) from The Tamil Nadu Dr. Ambedkar Law University (SOEL). This article deals with Companies (winding up) Rules, 2020 and its impact on the National Company Law Tribunal.

Introduction

Winding up is the process by which a company is brought to an end where the assets are realised and the payment of debts are distributed. The properties of the company are administered for the benefit of the members and the creditors. Under Companies Act, 2020 a Company may be wound up by the tribunal under Section 272 of Companies Act, 2013. On Companies (amendment) Act, 2002 NCLT and NCLAT were formed. 

Reasons for Companies (winding up) Rules, 2020

On January 24, 2020, the Ministry of Corporate Affairs notified rules governing the procedure for winding up and which shall take effect from April 1, 2020. This rule shall be applicable only when a petition is filed with the tribunal for winding up on grounds other than the inability to pay debts as mentioned under Section 271 of Companies Act, 2013.

Prior to the enactment of these winding up rules under Section 361 of Companies Act, 2013 which deals with the summary of proceeding, only the following class of companies would be wound up:

• Companies whose book value of assets is not more than one crore;
• A certain class of companies which has been mentioned by the central government.
• The central government shall appoint the liquidator of the company and he shall take all the assets and actionable claims of the company into his custody and within thirty days he shall submit the report to central government including the statements showing that no fraud has been committed either in its: 

1. Promotion.
2. Formation and management of the affairs of the company.

And, once the central government is satisfied shall issue the order of winding up of the company. With the introduction of Companies (winding up) Rules, 2020 the following classes of Companies can directly file a petition with the central government for the wound up. These classes of companies are exempt from filing an application with NCLT for winding up. Companies (winding up) Rules, 2020.

Companies (winding up) Rules, 2020

A company shall wind up as per provisions of Section 271(a) rule 3 Companies (winding up) rules.

The petition for winding up of the company shall be presented in form WI fiN 1 or in, form WIN 2 to the tribunal.

The rules are called Companies (winding up) Rules, 2020.

Below are some of the important rules that have been extracted from the Companies (winding up) Rules, 2020

Winding up by Tribunal

Petition for winding up (Rule 3)

• Petitions for winding up as per Section 272(1) of Companies Act, 2013 shall be filed with the tribunal either in the form WIN 1 or form WIN 2 and it shall be presented in triplicate.
• Affidavit presented by the petitioner shall be in the form WIN 3.

Statement of affairs (Rule 4)

• The statements of affairs which are required to be filed under Section 272(4) of Companies Act, 2013 is required to be filed in form WIN 4 and it is to be filed within thirty days before filing the petition.
• Affidavit of statement of affairs shall be in the form WIN 5. 

Advertisement of petition (Rule 7) 

The advertisement of the petition shall be filed in the form WIN 6 and it is to be advertised within fourteen days before the date of hearing and the advertisement shall be in English newspaper and vernacular language.

Application for leave to withdraw petition (Rule 8) 

• Without the Tribunal permission a petition which has been filed for winding up shall not be withdrawn.
• An application for leave to withdraw a petition shall not be heard before the date is fixed in the advertisement for hearing the petition.

Liquidator 

Appointment of provisional liquidator or Company liquidator (Rule 14) 

• A provisional liquidator is appointed as per Section 273(1) of Companies Act, 2013 for hearing the winding up petition.
• Where the company is not the applicant a notice for appointment of provisional liquid shall be given to the company in the form WIN 7. 
• The person who is in possession of property, books, papers, cash or any other benefits derived therefrom shall surrender them to the provisional liquidator.
• Where an order has been made for appointing the provisional liquidator or Company liquidator the registrar shall within seven days intimate to the company liquidator or provisional liquidator in the form WIN 9 and shall send it by post or by another possible means. And it shall send the copy of appointment to the registrar of Companies along with the copy of petition and affidavit.
• In case there is any conflict of interest or lack of independence, the provisional liquidator or the Company liquidator may disclose it by filing a declaration in form WIN 10 within seven days of appointment.

Winding up order

Order to be sent to liquidator and form of order (Rule 17) 

• The winding up order shall be sent to the registrar after its signed and sealed and it shall be sent within seven days and the order is to be in form WIN 11 and the order be sent to Company liquidator and the registrar of companies in form WIN 12 and WIN 13 and it is also to he accompanied by a copy of petition and affidavit.
• The order made by the Tribunal shall be filed by liquidator within thirty days with the registrar of companies in form INC-28 of the companies ( Incorporation) Rules, 2014.

Company liquidator to take charge of assets, books and papers of Company (Rule 22) 

• When a winding up order is made it shall be the duty of the company liquidator to take the books, actionable claims, papers from the company who was having custody of them earlier.
• If the company, promoters, key managerial personnel or any person fails to cooperate with the liquidator then the liquidator can file an application to the tribunal for an order.
• The tribunal on receiving such order shall order the company, promoters and key managerial personnel to provide with the information as has been requested by the liquidator or cooperate with him in collecting the information.

Application for stay of suits on winding up order (Rule 24) 

Application for leave to commence or continue suit or proceedings

Application can be made to the tribunal to commence or continue suit or proceedings against the company and it shall be made in the form WIN 15.

Winding up by Tribunal ( other than summary winding up debts and claims against company)

Notice for proving debts (Rule 100) 

The company liquidator within the thirty days from the directions of the tribunal fix a day and give a notice of fourteen days and:

1. Give an advertisement in Form WIN 43 and issue in English language and vernacular language which has wide circulation where the registered office is situated and to the creditors of the company to prove their debts or claims.
2. It shall also be given to every person mentioned in the statement of affairs.

Examination of proof (Rule 111) 

Examination of proof

The liquidator within thirty days may examine every debt which is lodged within him and if necessary he may the creditor to investigate and he may send a notice to creditor by post within seven days and in the form WIN 46. 

Company liquidator right to call any person in connection with the investigation (Rule 112) 

Company liquidator right to call any person in connection with the investigation.

The Company liquidator shall have absolute power to call anyone as he thinks who would be capable of providing information regarding the debts to be proved in liquidation and he may require such person to produce documents in his custody and in case such a person fails to take up the orders of liquidator then the company liquidator may report the same to the tribunal.

Termination of winding up

Company liquidator to apply for dissolution (Rule 174)

The liquidator may be wound after the affairs of the company have been completely wound up and final accounts have been audited and within ten days the liquidator may apply for the tribunal for the orders of dissolution.

Dissolution of Company (Rule 175) 

After hearing the orders from the company liquidator and all required persons to whom the notice has been served may pass such orders for dissolution of the company.

Summary Procedure For Liquidation

According to Part V of Companies (winding up) Rules, 2020 provides the Summary Procedure For Liquidation.

As per Rule 190 of Companies (winding up) Rule, 2020 provides the Powers and functions of the official liquidator.

• The official liquidator shall exercise the powers and perform the duties as provided under the act.
• The official liquidator shall maintain the registers and books of accounts.
• The official liquidator shall dispose of all the assets.
• The class of the companies as mentioned below can wind up the companies with the approval of the Central Government.

Impact on National Company Law Tribunal on the introduction of Companies (winding up) Rules, 2020

When the Ministry of Corporate affairs introduced Companies (winding up) Rules, 2020 it provided a summary of procedures for winding up the companies which meet the specified threshold limits.

The significant positive impact on the National Company Law Tribunal is that it reduces the burden of NCLT in winding up the companies that meet the specified threshold limits. Those companies before winding up need to obtain the approval of the Central Government instead of NCLT to wind up their companies. 

Various expert views on the Companies (winding up) 2020 which is brought by the Ministry of Corporate Affairs

Harish Kumar, a Partner in L&L Partners gave his opinion that the summary procedures which have been prescribed will accelerate the process and result in the fast disposal of matters pertaining to liquidation and ultimate winding up.

Akila Agarawal, a Partner and head – M&A, Cyril Amarchand Mangaldas & Co, gave her opinion that winding up procedures on the ground other than the inability to pay debts have been pending for a very long time. With the introduction of the Companies (winding up) Rules, 2020 it reduces the burden of NCLT which now the procedure for liquidation can be filed with the central government.

Atul Pandey, a Partner in Khaitan and Co, said the striking feature of the new rules notified by the MCA is the summary procedure for liquidation introduced through Part V of the winding up Rules. By obtaining approval from the central government for winding up of companies instead of NCLT it shortens the overall winding up timelines.

Conclusion

Companies (Winding up) rules 2020 introduced by the Ministry of Corporate Affairs on January 24, 2020, has brought significant change in the process of winding up of companies, reducing the burden of the tribunal, and providing exit opportunities to classes of companies. Tribunals should give the order to wound up the company only when all the alternatives are extinguished otherwise it should advise the companies to revise or restore their companies.

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