This article has been written by Shruthi Praful, pursuing the Certificate Course in Introduction to Legal Drafting: Contracts, Petitions, Opinions & Articles from LawSikho.
The main motive behind a business apart from a monetary aspect is its growth and flourishment in the market, but at the same time due to various reasons one has to shut down his business and that stage is known as winding up of a company. The closing down is the last stage of a company in which its existence is dissolved, and all its assets are used to pay off the shareholders, creditors and other liabilities.
As per section 270 of the Companies Act 2013, the procedure for winding up of a company can be instituted either –
- By the tribunal or,
Winding Up by a Tribunal
As per Companies Act 2013 (“Act”), a company can be wound up by a tribunal in the following circumstances:
- Non-Payment of Debts.
- Special Resolution.
- Acted against the interest of the security of the state, integrity or morality of India, or has impaired any kind of friendly relations with neighbouring or foreign countries.
- Not filed financial statements or annual returns for preceding 5 (five) consecutive financial years.
- If the tribunal has legitimate reasons for wounding up the company, i.e., just and equitable.
- A company involved in fraudulent activities or any other business for unlawful purposes or any person connected to the company is found to be guilty of fraud, or any misconduct.
Filing a Winding-Up Petition
As per Section 272 of the Act, a winding-up petition is to be filed in the prescribed forms 1,2 or 3 whichever is applicable and is to be submitted in 3 sets. The petition can be presented by the following persons:
- The Company;
- The Creditors;
- Any Contributory/Contributories;
- The Central/State Government;
- The Registrar authorized by central govt for that purpose.
The filing of the petition shall be accompanied by the Statement of Affairs in form no 4. The petition shall contain facts up to a specific date which shall not be more than 15 days prior to the date of making the statement. After the preparation of the statement, it shall be certified by the Practicing Chartered Accountant.
Final Order and its Content
The tribunal has the power to dismiss or to make an interim order after hearing the petition, as it may deem fit and appropriate, or the tribunal can appoint the professional liquidator of the company till the passing of the order. The order for winding up of a company is given in form 11.
Voluntary Winding Up of a Company
The voluntary winding up of a company requires the mutual decision of the company, if:
- A special resolution is passed stating the same
- A resolution is passed in its general meeting as a result of the expiry of the term as fixed by its Articles of Association (AOA) or at the occurrence of any event where the articles provide for the dissolution of the company.
Procedure for Voluntary Winding Up
- Passing a resolution with a declaration by conducting a board meeting with two Directors and are of the opinion that the company has no debt or that they will be able to pay off its debt after utilization of its assets.
- Issuance of notice in writing calling a General Meeting suggesting the resolution along with an explanatory statement.
- The special resolution has to be passed by 3/4th majority and so, the winding-up shall start from the date of passing of the resolution. After the general meeting of passing the resolution, if a majority of the creditors are of the opinion that winding of the company is beneficial for all the parties of the company, then it can be wound up voluntarily.
- A notice has to be filed with the registrar for the appointment of liquidator within 10 days of passing the resolution.
- A notice of the resolution has to be given to the official gazette and also to be advertised in a newspaper within 14 days.
- Certified copies of the special or ordinary resolution passed in the general meeting to be filed within 30 days of the meeting.
- Wind up the affairs of the company by preparing the account of the liquidators and get the same audited.
- Conduct a General meeting of the company where a special resolution needs to be passed for the disposal of books and all other necessary documents.
- Submission of a copy of accounts within 15 days of the general meeting, and file an application to the tribunal for passing such order.
- The tribunal shall pass an order for dissolution within 60 days of receiving the application once they are of the opinion that the accounts are in order.
- A copy of the same shall be filed with the registrar by the appointed liquidator.
- Upon receiving the order passed by the tribunal, the registrar then shall publish a notice to the official gazette declaring the dissolution of the company.
The Karnataka High Court in Arasor Corporation v. Xalted Information Systems (P.) Ltd., refused to admit a winding-up petition by the petitioner as the petitioner’s certificate of incorporation had become void because of failure to pay franchise taxes. It was held that the petitioner not being in existence on the date of filing winding-up petition had lost its right to be sued and heard and, therefore, winding up petition filed by it was not maintainable.
When the defence raised by the respondent is based on falsity in terms of documents produced as regards the status of the debt claimed by the petitioner, the court held that the respondent is liable to be wound up not only for non-payment of debt but also for lack of commercial morality on the ‘just and equitable’ ground – Friends Tea Co. Ltd.
Powers of Common Liquidator (CL) upon Winding-Up Order
- CL can take charge of assets and books & papers of the Company.
- When the promoters or directors of the Company do not cooperate, CL can file an application against them.
- CL may make an application before Tribunal seeking direction upon contributory or trustee etc. to pay the definite sum to which the company is entitled to.
- The Rules are available for small companies to make final decisions having asset value in books not exceeding Rs 1 crore; no have taken deposits beyond Rs. 25 lakhs or have not secured loans beyond Rs. 50 lakhs or turnover beyond Rs. 50 crore or paid-up capital beyond Rs. 1 crore.
- A major part of the procedure continues to be applicable to regular companies that can opt for the summary procedure.
- Currently, voluntary liquidation cases are primarily taken up under the IBC (Insolvency and Bankruptcy Code).
Contents of a Winding Up Petition (Form 19)
- Jurisdiction- Between insolvent/debtor AND Insolvency Act,2011
- Heading- Petition for Winding Up a Company
- Insert full name, title, etc. of petitioner
- Details of the company- along with the date of incorporation
- The location of the Registered office of the company (Full address)
- The nominal capital of the company-division of shares each and amount of capital paid up
- The company’s objective behind the establishment, also objectives stated under the MOA (the statements that the petitioner relies on)
- The company is indebted to the petitioner in the sum of _____ (the consideration of debt, particulars, in order to establish the amount in due).
- Date of issuance of statutory demand for the payment of the debt- in case the company has failed to pay the debt or has neglected to comply with the statutory demand.
- The statements set forth in the petition is to the best of the parties’ knowledge and belief and hence, there is no application to set aside pending before this Hon’ble Court or any other court.
- The Petitioner obtained a judgment or order of the court against a debtor and execution has been returned unsatisfied (state particulars relating to the judgment or order).
- The company is unable to pay its debts- insolvency
(Statement of assets where necessary)
(a) Wounding up by the court; or
(b) An order for the liquidation of the company shall be made by the court (any such orders that may deem fit and just in the concerned case)
The procedure of winding-up of a company is not very simple, it includes many technicalities and complexities. Such petition is also subject to various conditions, including thresholds on paid-up capital and turnover. The Companies Act, 2013 governs this area, however, the enactment of the Insolvency and Bankruptcy Code, 2016, has made the application of such provisions more difficult as well as to decide precedence simultaneously. Nowadays, the area of company law has become a specialized field, but it penetrates other drawbacks because of the linkage with the legal functioning of the company. Hence, the process of a compulsory winding-up under the Companies Act, 2013 is a favourable framework for winding up of companies.
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