This article is written by Monesh Mehndiratta. The article explains the provisions related to the winding up of a company, its meaning, modes of winding up, grounds of winding up by the tribunal, voluntary winding up as given under Insolvency and bankruptcy code, 2016 and other related provisions given under the Companies Act, 2013. The article also deals with provisions related to the official liquidator under the companies Act, dissolution of company and further provides the recent case laws on the same. The article was originally written by Anjali Sharma. 

Introduction

Imagine, you bought a phone from a shop of XYZ company. For some months, it functioned properly, but then there were some technical issues. You decided to file a complaint, but when you tried reaching out to the shopkeeper, you got to know that the company had been closed. 

Shocking, right? 

You might be wondering how this happens and whether it is possible for a company to be closed suddenly. Well, yes. A company can cease to exist, but this happens only after it is wound up and dissolved. 

Winding up is a process whereby the assets of a company are realised, creditors are paid, and its surplus is distributed among the members of the company in order to finally dissolve it. Now, you must be wondering what is the procedure of winding up of a company and who does it. Do not worry, the present article will help resolve all of your queries in this regard. The article explains the procedure of winding up of a company and the provisions related to it as given under the Companies Act, 2013. It further deals with the provisions for the establishment of a tribunal and its power with respect to the winding up of a company. 

Meaning of winding up of a company

The process of ending the life of a company by administering its properties for the benefit of shareholders & creditors of the company is known as winding up of a company. A company is a corporate body which is an association of people for some common purpose of carrying on the business and earning profits. A company has to be incorporated and registered according to the Companies Act 2013. Chief Justice Marshall defines a company as “a corporation which is an artificial being, invisible, intangible and exists only in contemplation of law.” A company, being a corporate body has the following characteristics:

• It has a separate legal entity.
• It is an artificial person.
• It has limited liability.
• It can own separate properties and assets.
• It has a common seal.
• It has perpetual succession.
• It can sue and be sued in its own name. 
• In a public company, shares can be transferred freely. 

From the above definition, it is clear that a company has to be incorporated according to the provisions of the Act. Similarly, when a company is to be closed, a proper procedure has to be followed. This process of realisation of assets, payment to creditors and distribution of surplus among the shareholders in order to finally dissolve the company is called winding up. Thus, it can be said that winding up is the last stage after which a company ceases to exist and is finally dissolved. 

Evolution of provisions of winding up of a company

In the British Era, the company law was introduced by the Joint Stock Company Act, 1850. This Act was based on the English Companies Act, 1844. This Act laid down the procedure for the incorporation of a company for the first time. It also recognised companies as having separate legal entities, but the concept of limited liability was not added. This concept was introduced in India in 1857. In 1858, this concept was made applicable to banking companies as well. In 1866, a consolidated Companies Act was enacted which provided provisions for incorporation, regulation and winding up of the companies. This Act was further amended in 1882 in order to make the Act in conformity with the English Companies Act, 1862. 

Further, the Act was replaced by the Companies Act, 1913 passed in accordance with the English Companies Consolidation Act, 1908. This Act was amended extensively in 1936 due to the enactment of a new English law. Finally, a committee was set up under the Chairmanship of Shri H.C. Bhaba for the revision of company law in the country. The committee recommended enacting a new legislation. Thus, Companies Act 1956 was enacted and implemented. This Act was also amended several times till 1991 when the government tried to recast the Act. However, the bill was withdrawn, and certain amendments were made in the existing Act. The Companies (Second Amendment) Act, 2002 is important for provisions related to winding up of the companies. It provides for a speedy winding-up process and facilitates the rehabilitation of sick companies. It also established the National Company Law Tribunal in this regard. The Companies Act 1956 was finally replaced by the Companies Act, 2013 which is more rationalised and simplified. The Act also introduced corporate social responsibility, fixed terms for independent directors etc. Another major development in the field of Company Law was the implementation of the Insolvency and Bankruptcy Code, 2016 which omitted the provisions for voluntary winding up in the Companies Act, 2013. The provisions of voluntary winding are now dealt with under the IBC Code. 

Modes of winding up of a company

According to Section 270 of the Act, a company can be wound up by either of the two modes. These are:

• Winding up by the Tribunal ( NCLT)/ Compulsory winding-up
• Voluntary winding up of a company

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. These are further explained in detail below. 

Winding up by court/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. The provisions with respect to the same are explained below. 

Who can file a petition for the winding up of a company

According to Section 272 of the Companies Act, 2013, the following persons can present a petition for the winding up of a company to the Tribunal:

Company

According to Section 272(1)(a), a petition for winding up can be presented by a company itself. However, before presenting a petition, the company must pass a special resolution in this regard. In the case of BOC India Ltd. Zinc Products & Co. (P) Ltd. (1996), a petition for winding up was presented by a person not authorised to do so by the board of directors and hence, the petition was declared as incompetent. 

Any contributory

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. 

All or any persons mentioned above 

The petition for winding up can also be presented by the company and the contributories together or separately. 

Registrar

The registrar can file a petition for the winding up of a company under the following circumstances:

• Actions of the Company were against the interests of sovereignty and integrity of the country, Security of States, friendly relations, morality etc.
• If the tribunal is of the opinion that the company was formed with a fraudulent aim and unlawful purpose or its affairs have been conducted in a fraudulent manner or the persons who formed the company are guilty of fraud or misconduct.
• There was a default in filing the financial statements or annual returns of the company with the Registrar. 
• It is just and equitable for the tribunal to wound up the company. 

However, a registrar cannot file a petition for winding up of a company to a tribunal, if a company has decided that it will be wound up by a tribunal by a special resolution.

The registrar is also required to obtain previous sanction from the Central Government before filing a petition. The government will not accord the sanction unless the company is given a reasonable opportunity to make the representations. Also, a petition presented by a company for winding up will be admitted by the tribunal only if it is accompanied by a statement of affairs. 

Person authorised by central government

Section 272(1)(e) provides that a petition for winding up can also be filed by any person who is authorised by the Central Government to do so. 

Central or State government

The Central or State government can also present a petition for winding up of a company if its actions are against the sovereignty and integrity of the country, public order, morality, decency, foreign relations etc. 

Grounds for winding up by court

Section 271 deals with circumstances under which a tribunal can order for winding up of a company. These are:

Special resolution

According to Section 271(a), a petition for the winding up of a company can be prevented if a special resolution has been passed by the company in this regard. 

Sovereignty, integrity, and other factors 

A company can be wound by a tribunal if it acts against the sovereignty and integrity of India, the security of the state, foreign relations, public order, morality etc. This is given under Section 271(b) of the Act. 

Fraudulent conduct of the company.

According to Section 271(c), if the tribunal on the application filed by the registrar is of the opinion that the company was formed with a fraudulent aim and unlawful purpose or its affairs have been conducted in a fraudulent manner or the persons who formed the company are guilty of fraud or misconduct, it can order for winding up of the company. 

Default in filing financial statements or audit returns

Section 271(d) provides that where the company defaults in filing its financial statements or audit returns with the registrar, the tribunal can order for winding up of the company. 

Just and equitable

A tribunal can order for winding up of a company if it is just and equitable to do so in the following circumstances:

• Deadlock: When two or more people cannot agree with each other and reach an agreement, the situation is known as deadlock. In case of deadlock between the management of the company, it is just and equitable for the tribunal to wind up the company. In the case of Etisalat Mauritius Ltd. V. Etisalat DB Telecom (P) Ltd. (2013), there was a deadlock and irretrievable breakdown between major shareholders of the company which further hampered its performance and work and no scheme or solution could be propounded, the tribunal ordered to wind up the company. 
• Loss of Substratum: When the object of the company fails, it leads to loss of substratum. In the case of Dunlop India Ltd. re (2013), the company was unable to show its long or short term business plans and the company was not conducting its business for quite some time and so the company was ordered to wind up. In the case of Seth Mohan Lal v. Grain Chambers Ltd. (1968), the Supreme Court observed that when the object of the company for which it was formed fails substantially, it leads to loss of substratum. 
• Losses: if a company is suffering loss and cannot carry on its business, it is just and equitable to wind up the company. A company was asked to wind up on this ground in the case of Bachharaj Factories v. Hirjee Mills Ltd. (1955).
• Oppression of minority: another just and equitable ground for a tribunal to order winding up is where the principal shareholders adopt aggressive or oppressive policies towards the minority shareholders. 
• Fraudulent purpose: a tribunal can also order for winding up of a company if it has been formed for an unlawful or illegal purpose. 
• Public interest: if it is in the public interest to wind up a company, it is a just and equitable ground. In the case of Millennium Advanced Technology Ltd., re, (2004), the company was ordered to wind up due to multiple undesirable practices like false invoicing etc. 
• Company was a bubble: When the company was a bubble, i.e. it was never in real business, then also it classifies as just and equitable ground of winding up.

Steps for compulsory winding up or winding up by a tribunal

The Companies (Winding Up) Rules, 2020 provides the rules governing compulsory winding up process of a company along with required forms and particulars. This, the steps involved in the process are:

• Step 1- the petition for winding up must be presented in Form WIN 1 or Form WIN 2. The petition must be verified by an affidavit by a person making the petition or if the petition is made by the company by its director, secretary or any other authorised person. The affidavit must be in accordance with Form WIN 3. 
• Step 2- the statement of affairs has to be filed within 30 days in accordance with Section 274 of the Companies Act, 2013. It must contain the information till the date when the statement is filed. The statement must be filed in Form WIN 4 and accompanied by an affidavit of concurrence of the statement.
• Step 3- the petition will be posted before the tribunal and a date will be fixed for hearing the petitioners. If the petition is not made by the company, notice will be sent to the company and an opportunity to be heard must be given before advertisement directions to be given with respect to the petition.
• Step 4- according to Rule 6, every contributories will be served a copy of the petition by the person making the petition within 24 hours of making payment in this regard. 
• Step 5- notice of the petition will be given in advertisement 14 days before fixing a date of hearing in a daily newspaper which is widely circulated in the state where the office of registrar is located. The newspaper must be either in English or any vernacular language of such area. Further, rule 8 provides that an application for winding up cannot be withdrawn without the permission of the tribunal 
• Step 6- Any objection can be filed in the form of an affidavit in objection within 30 days from the date of order and the same will be served to the petitioner. 
• Step 7- The reply to the objection must be filed in the form of an affidavit within 7 days before the date fixed for hearing of petition. 
• Step 8- provisional liquidator will be appointed after the admission of petition by the tribunal and upon sufficient grounds for his appointment in accordance with Rule 14. The order of appointment of provisional liquidator will also contain restrictions and limitations on his powers. The same will also be intimated to the provisional liquidator and the registrar of companies within 7 days from the date of order of appointment. 
• Step 9- order of winding up by the tribunal will be in accordance with Form WIN 11 and will be sent by the registrar to the company liquidator and the registrar of the companies within 7 days and the same will also be advertised. 
• Step 10- after the affairs of the company have wound up completely, the company liquidator will apply for the dissolution of the company within 10 days along with audited final accounts and auditors certificates and the tribunal will order for dissolution. The process of winding up will be concluded on the day on which the order of dissolution has been reported to the registrar of the company. 

Appointment of official liquidator

The official liquidator is an officer who is appointed to proceed with the winding up of a company and its affairs. Section 275 provides that in order to wind up a company, the tribunal will appoint an official liquidator from a panel maintained by the Central Government which consists of names of advocates, Chartered Accountants, Company Secretaries, Cost Accountants etc. having at least ten years of experience in the matters related to the company. However, if a provisional liquidator is appointed, his powers will be restricted by an order of appointment by the tribunal. A provisional liquidator is a person appointed by the court or tribunal to carry on the process of winding up of a company. 

The central government also has the power to remove the name of any person from the panel on the grounds of misconduct, fraud, breach of duties, professional incompetence etc, but before doing so an opportunity to be heard must be given to him. The liquidator so appointed must within seven days of appointment make a declaration regarding conflict of interest or lack of independence with respect to his appointment with the tribunal. 

According to Section 276, a provisional liquidator or a company liquidator appointed by the tribunal can be removed by the tribunal on the following grounds:

• Misconduct;
• Fraud or misfeasance;
• Professional incompetence or failure to exercise due care and diligence;
• Inability to act as a liquidator;
• Conflict of interest or lack of independence during the term of appointment 

Appointment of advisory committee

According to Section 287, the tribunal can direct the appointment of an advisory committee in order to advise the company liquidator. The committee will consist of a maximum of 12 members. The company liquidator will convene a meeting of creditors and contributories within thirty days from the date order or winding up has been passed by the tribunal in order to determine the member of the committee. 

The committee has been empowered to inspect the books of accounts and other documents along with assets and properties of the company under liquidation. The Section provides that the committee will be chaired by the company liquidator and the provisions related to convening of meetings, the procedure to be followed in the meetings and conduct of the business of the committee will be prescribed accordingly. 

Powers of liquidator 

According to Section 277(5), a company liquidator will be the convener of meetings of the winding up committee which will assist in the liquidation proceedings and related functions like:

• Take over the assets.
• Examination of statement of affairs.
• Recovery of property and other assets of the company.
• Review of audit reports and accounts.
• Sale of assets.
• Finalising the list of creditors and contributories.
• Compromise and settlement of claims.
• Payment of dividends.
• Any other function.

The company liquidator is also required to submit a report along with minutes of meetings of the committee before the tribunal. The report will be submitted on a monthly basis and will be signed by the members present in the meeting till a report for dissolution of the company is submitted (Section 277(6)). He will also prepare a draft final report for the approval of the winding up committee (Section 277(7)). 

According to Section 290, the Company liquidator will have the power to:

• Manage the business of the company for the process of winding up.
• Execute deeds, receipts and other documents on behalf of the company and use its seal if necessary.
• Sell the immovable and movable property and actionable claims of the company, either by public auction or private contract.
• Sell the undertaking of the company.
• Raise money required for the security of assets of the company.
• Institute or defend suits or other legal proceedings, whether civil or criminal, on behalf of the company.
• Settle claims of creditors, employees or any other claimant and distribute the sale proceeds.
• Inspect the records and returns of the company.
• Draw, accept, make and endorse any negotiable instrument which includes a cheque, bill of exchange, hundi or promissory note on behalf of the company. 
• Obtain any professional assistance from any person or appoint any professional for the protection of assets of the company.
• Take actions and steps and sign, execute and verify papers, deeds, documents, applications etc for winding up of the company, distribution of assets and discharge of duties and obligations of liquidator. 

Duties of company liquidator

According to Section 288, it is the duty of the company liquidator to make periodical reports to the Tribunal and make reports at the end of each quarter regarding the progress of winding up of the company. Section 292 deals with the exercise and control of powers of company liquidators. The company liquidator is required to give regard to the directions given by the creditors or contributories in a resolution at any general meeting or by the advisory committee. The directors of creditors and contributories will override those given by the advisory committee in case of conflict. The company liquidator can also:

• Summon the meetings of creditors or contributories.
• Summon meetings as and when directed or requested by the contributories and creditors in writing by not less than one-tenth. 

If a person is aggrieved by the decision or any act of the company liquidator, he can make an application to the tribunal, which can further confirm, reverse or modify the decision. Section 294 of the Act further provides another duty of the company liquidator to maintain proper and regular books of accounts, receipts and payments which will be presented to the tribunal two times in each year during his tenure. The tribunal can cause the accounts to be audited, and the company liquidator will have to furnish such vouchers and information to the tribunal as required. One copy of the audited accounts will be filed with the tribunal and the other will be delivered to the registrar. If the account refers to a government company, the company liquidator will give a copy to the:

• Central Government if it is a member of the government company.
• State government if it is a member of the company
• Both the governments, if they are members of the company. 

Submission of reports by the liquidator 

According to Section 281, when the tribunal has made an order for the winding up of a company or appointed a liquidator in this regard, he will within sixty days, submit a report to the tribunal containing the following particulars:

• Nature and details of assets of the company which includes their value and also state the cash balance separately. However, the valuation must be obtained from the registered valuers.
• Amount of capital issued, paid up and subscribed.
• Existing and contingent liabilities of the company which include names, addresses, and occupations of the creditors. The amount of secured and unsecured debts must also be stated separately. For secured debts, particulars of securities and their value and dates on which they were given must also be provided.
• All debts due to the company along with the necessary details like names, addresses and occupations of persons to whom they are due along with the amount. 
• Guarantees extended by the company.
• List of contributories and dues to be paid by them and details of unpaid calls.
• Details of trademarks and intellectual properties owned by a company.
• Legal cases filed by or against the company and their details. 
• Any other information which the tribunal or company liquidator considers necessary. 

The manner in which the company was promoted or formed and whether there has been any fraud by any officer of the company must be included in the report. He will also make a report on the viability of the business of the company or steps for maximising the value of assets of a company. According to Section 281(4), a company liquidator can also make further reports. Further subsection 5 provides that a person who describes himself as a creditor or contributory can inspect the report submitted under the Section and take copies or extracts. 

Section 282 of the Act deals with the directions of the tribunal on the report submitted by the company liquidator and provides that on the basis of the report submitted by the liquidator, a time limit will be fixed by the tribunal to complete the entire proceedings and can revise the same. It will also order for sale of the company as a going concern or its assets on examination of the report and can also appoint a sale committee consisting of creditors, promoters, and officers of the company to assist the company liquidator in the sale. If the report discloses that fraud has been committed in the company, the tribunal will order for investigation or direct the company liquidator to file a criminal complaint. The tribunal will also take necessary steps to protect, preserve or enhance the value of the assets of the company. 

Consequences of winding up

According to Section 278 of the Act, the order of winding up will operate in favour of all creditors and contributories as if it has been made on their joint petition. Section 279 further provides that no suit or any other legal proceeding can be initiated against a company against whom an order of winding up has been passed without any permission from the tribunal, against whom the order of winding up has been passed. An application in this regard will be decided within 60 days. 

Voluntary winding up of a company

Corporate Insolvency Resolution Process (CIRP) is a process to resolve the corporate insolvency of a corporate debtor. It can be initiated by filing an application to the Adjudicating Authority under Chapter II of Part II of the Code. If this process fails, the company initiates the process of liquidation. The process of voluntary winding up under IBC may be started by a corporate debtor, financial creditor or operational creditor. 

When a company decides to wind up its affairs and proceed further with the required proceedings on its own, this Act is called the voluntary winding up of a company. Part II of Chapter XX of the Act deals with the voluntary winding up of the companies.

Circumstances in which a company can be wound up voluntarily 

Section 304 provides the circumstances under which a company can be wound up voluntarily:

• Company passes a resolution in a general meeting regarding voluntary winding up due to the expiry of its duration fixed by its articles or due to the occurrence of any event for which articles provide that the company should be dissolved;
• Company passes a special resolution regarding voluntary winding up. 

However, this Section and the provisions related to the voluntary winding up of a company were omitted in 2016. Now, the Insolvency and Bankruptcy Code, 2016 deals with the voluntary winding up process. 

Meeting of creditors 

It is necessary to inform the creditors of the company which can be done through the post. A meeting is conducted where they are notified about the amount of money due to each creditor. The board of directors will then put forth the statement of affairs and if the majority opines that the company should be wound up voluntarily, the process is initiated. However, if the majority opt for compulsory winding up of the company or winding up by a tribunal, application must be sent in this regard to the tribunal within 14 days and inform the same to the registrar within 10 days. A company liquidator is appointed to carry on the process of voluntary winding up according to the Insolvency and Bankruptcy Code, 2016 who finally evaluates the assets of the company and submits the report to the tribunal. 

Procedure of voluntary winding up

Further, Section 59 of the Insolvency and Bankruptcy Code, 2016 deals with the voluntary liquidation of corporate persons. It provides that a corporate person who wants to liquidate itself voluntarily and has not committed any default may initiate the liquidation proceedings under the Act. However, the proceedings of a registered corporate person must satisfy the following conditions:

• There must be a declaration from the majority of the directors of the company which must be verified by an affidavit and must state that:
  • A full inquiry into the affairs of the company has been made and an opinion has been formed that the company has no debt or will be able to pay its debts in full from selling its assets in the voluntary liquidation.
  • The company is not liquidated in order to defraud any person.
• The declaration must be accompanied by the following documents:
  • Financial statements and record of the company’s operations for the preceding two years or since its incorporation.
  • Valuation report of the assets of the company which is prepared by a registered valuer. 
• A special resolution regarding the voluntary winding up of the company must be passed within four weeks of declaration or a general resolution must be passed in a general meeting regarding voluntary winding up due to the expiry of its duration fixed by its articles or due to occurrence of any event for which articles provide that the company should be dissolved. 

Further, the Section provides that the company must notify the Registrar and Board about the resolution being passed for the liquidation of the company within seven days from the date such resolution is approved by the creditors. With the approval of creditors, the liquidation proceedings of the company will be deemed to have commenced from the date such resolution is passed. When the affairs of a company have wound up completely and its assets have been liquidated completely, an application will be made by the liquidator to the Adjudicating Authority for the dissolution of such a company. The Authority will pass an order regarding dissolution of the company and it will be dissolved accordingly and the copy of said order must be given to the required authority with which the company is registered within fourteen days.  

Powers and duties of company liquidator under the Code

According to Section 35 of the IBC, a liquidator will perform the following functions and duties:

• Verify the claims of creditors of the company.
• Take into custody all the assets, properties and actionable claims belonging to the company.
• Evaluate the assets and property of the company and prepare a report in this regard.
• Take measures to protect and preserve the assets and properties of the company. 
• Carry on the business for beneficial liquidation. 
• He can also sell the immovable or movable property of the company.
• Draw, accept, make and endorse any negotiable instrument including the bill of exchange, hundi or promissory note on behalf of the company. 
• He can also obtain any professional assistance in order to discharge his duties. 
• Institute or defend the suits by or against the company. 
• Investigate the financial affairs of a company. 

Duties related to dissolution of a company under the Companies Act, 2013 prior to 2016

Before 2016, the Companies Act, 2013, under Section 318 provided that once the affairs of a company are wound up completely, the company liquidator is required to prepare a report of the same showing that the assets of the company have been disposed of and the debts have been discharged and then call a general meeting of the company in order to finally wind up the accounts. If in case the majority of the members decide to wind up the company after considering the report of the company liquidator, they may pass a resolution for its dissolution. 

Within two weeks of this meeting, the company liquidator must send the following documents to the registrar and file an application along with a report related to the winding up of the company before the tribunal in order for it to pass an order for dissolution of the company:

• Copy of final accounts related to winding up of the company and make a return with respect to each meeting.
• Copy of resolutions passed in such meetings. 

Power to accept shares

Under Section 319, if a company is to be wound up voluntarily and the whole or part of its business is to be sold or transferred to any other company, the company liquidator of the transfer or company may with the sanction of a special resolution which conferred on him a general authority:

• Receive shares, policies or other interest in the transferee company by way of compensation.
• Enter into any other arrangement wherein the members of the transferor company participate in the profits or receive any other benefit from the transferee company with respect to cash, shares, policies or any other like interest received. 

However, these arrangements must be entered into with the due consent of the secured creditors. The Section further provided that any transfer, sale or arrangement will be binding on the members of the transferor company. If any member of the transferor company expressed his dissent in writing and addressed the same to the company liquidator within seven days after such resolution is passed and also did not vote in favour of the special resolution, may require the liquidator to:

• Abstain from carrying such resolution into effect or
• Purchase his interest at a price which will be determined by the agreement or registered valuer. 

Further, if the liquidator decides to buy a member’s interest, such money raised by him will be determined by a special resolution and paid before the company is dissolved. However, the provision has been omitted in 2016. 

Winding up of unregistered companies

Part II of Chapter XXI deals with the winding up of unregistered companies. Section 375 of the Act provides that an unregistered company cannot be wound up voluntarily under the Act. It provides that such a company will be wound up under the following circumstances:

• The company is dissolved or ceases to carry on the business or is continuing to carry on the business only for the purpose of winding up.
• The company is not able to pay its debts.
• It is just and equitable in the opinion of the tribunal to wind up the company. 

The Section further provides that an unregistered company will include any partnership firm, limited liability partnership, society or cooperative society, association etc but will not include:

• A railway company incorporated under any Act of Parliament or any other Indian law.
• Any company registered under the Act.
• Any company registered under the previous company law but not a company whose office was in Burma, Aden, or Pakistan. 

According to Section 376, a foreign company incorporated outside India but carrying business in India can be wound up as an unregistered company if it ceases to carry business in India. 

Official liquidators under the Companies Act

Section 359 provides for the appointment of official liquidators for the winding up of companies by the tribunal. It provides that the Central Government can appoint official liquidators, joint liquidators, and deputy or assistant official liquidators in order to discharge the functions of an official liquidator. Section 360 further provides that the official liquidator will person such duties and exercise such powers as prescribed by the Central Government. It can also conduct inquiries or investigations as directed by the tribunal or the Central Government. 

Summary procedure for winding up of a company

Section 361 provides that if a company which is to be wound up has assets of a book value not exceeding one crore rupees and belongs to prescribed classes of companies, the central government may order for winding up of such company. After the order is made, the central government will appoint an official liquidator in this regard. He will further take into his custody all the assets, effects and actionable claims belonging to the company. He will also submit a report to the central government in this regard and whether any fraud is committed in the company within thirty days of his appointment. 

On receiving the report, the central government can order an investigation into the affairs of the company in case any fraud has been committed. After taking into consideration the investigation report, the government can finally order for winding up of the company according to part I of Chapter XX. 

Establishment of tribunal under Companies Act

Chapter XXVII of the Act provides for the establishment of the National Company Law Tribunal and Appellate Tribunal. The relevant provisions in this regard have been discussed below.

Constitution of National Company Law Tribunal 

Section 408 of the Act provides that the National Company Law Tribunal will be established by the Central Government in order to discharge powers and functions conferred upon it by this Act or any other law. It further provides that the President of the tribunal and its judicial and technical members will also be appointed by the Central Government. The tribunal is a quasi-judicial body constituted by the Central Government on 1st June 2016 and deals with all the matters related to companies. 

Further, it must be noticed that civil courts have no jurisdiction to entertain any proceeding or suit in the matters tried by the tribunal and no injunction can be granted with respect to action of the tribunal or appellate tribunal constituted under the Companies Act, 2013. It is also empowered to deals with matters related to insolvency resolution of companies and limited liabilities arising under IBC, 2016.

Qualifications of the President of the tribunal and its members 

According to Section 409 of the Act, a person who is a judge of a High Court or has been the one for five years is eligible to be appointed as the President of the tribunal. However, a person will be disqualified from being appointed as a judicial member unless:

• He is or has been a High Court Judge.
• He is or has been a District Court judge for a minimum of 5 years.
• Has been an advocate for a minimum of 10 years in a court. 

A person will be disqualified from being a technical member if:

• He has not been a member of Indian Corporate Law Service or Indian Legal Service for at least 15 years and not holding the Post of Secretary or Additional Secretary in the Indian Government;
• He has not been in practice for a minimum period of 15 years as a Chartered Accountant.
• He has not been in practice for a minimum period of 15 years as a Cost Accountant.
• He has not been in practice for a minimum period of 15 years as a Company Secretary.  
• He is not a person of proven ability, integrity and does not have any special knowledge and experience in law, finance, industrial management or administration, investment, accountancy etc related to the winding up of companies for a minimum period of 15 years. 
• He has not been a presiding officer for a minimum period of five years in a Labour Court, tribunal or National Tribunal constituted under the Industrial Dispute Act, 1947. 

According to Section 413, the term of office of the president and other members of the tribunal will be five years and will be eligible for re-appointment. The president of the tribunal will hold office until he attains the age of sixty-seven years and the members will hold office until they attain the age of sixty-five years. It further provides that a person who has not attained the age of fifty years will not be appointed as a member. 

Jurisdiction of tribunal 

According to Section 280, the tribunal has the jurisdiction to entertain or dispose:

• Any suit or proceeding filed by or against a company;
• Any claim made by the company or against it including the claims of its branches in India;
• Application made under Section 233 of the Act which deals with merger or amalgamation between small companies or a holding company and its subsidiary or other classes of company as prescribed;
• Question of priorities or questions of law or facts related to assets, business, actions, rights, entitlements, privileges, benefits, duties etc related to winding up of a company. 

Powers of tribunal with respect to winding up of a company 

According to Section 273, the tribunal can pass the following orders with respect to a petition filed for winding of a company:

• Dismiss the petition with or without costs;
• Any interim order;
• Appointment of provisional liquidator till the order of winding up is made;
• Order of winding up of a company either with or without costs;
• Any other order. 

Any such order must be passed within ninety days from the date the petition is presented in the tribunal. The Section also provides that before appointing a provisional liquidator, the tribunal will give a notice and reasonable opportunity to the company to make the representations. It further provides that if a petition is presented on the ground that it is just and equitable for the company to wind up, the tribunal can refuse to order for winding up if any other remedy for the same is available and the petitioners are not acting reasonably. 

According to Section 274, when a petition for winding up is made, the tribunal is satisfied if the case can order the company to file its objections along with its statement of affairs within 30 days. The tribunal can also direct the petitioner to deposit security for costs as a precondition to the issuance of directions to the company. If a company fails to file the statement of affairs, its right to oppose the petition will be forfeited and the directors and officers of the company who are found responsible for the non-compliance will be liable for punishment. If any director or officer of the company contravenes the provisions of this Section, he will be punished with imprisonment extending up to six months or a fine not less than twenty-five thousand rupees extending up to five lakh rupees or both. 

Section 282 further provides that the tribunal can after considering the report of the liquidator, fix a time limit within which the proceedings of winding up will be completed and the company will be dissolved. However, it can also revise the time limit if it is not advantageous and economical to continue the proceedings. If a report regarding the commission of fraud is submitted to the tribunal, it will order for investigation of the same and pass any other order and give necessary directions. It can also direct the company liquidator to file a criminal complaint against people involved in the commission of fraud. 

According to Section 285, after the order of winding up of a company has been passed by the tribunal, it will also settle a list of contributories, rectify the register of members required and apply for the discharge of assets of the company. It will also differentiate between contributories in their own rights and those who are representatives of or liable for the debts of others. While settling the list, the tribunal must include every person who is or has been a member, a person liable to contribute an amount sufficient for payment of debts and liabilities to the assets of the company upon satisfying the following conditions:

• A person will not be liable to contribute if he ceases to be a member for preceding one year before the process of winding up commenced.
• A person will not be liable for any debt or liability of the company which is contracted after he ceases to be a member.
• A person will not be liable unless  the present members are not able to satisfy the required contributions.
• If a company is limited by shares, a person will not be liable for an amount exceeding the amount unpaid of the shares for which he is liable. 
• If a company is limited by guarantee, no contribution will be taken from the member exceeding the amount to be contributed by him to the assets of the company if it was being wound up. But if the company has a share capital, the member has to contribute to the extent of such sum unpaid on shares held by him if the company was limited by shares. 

Constitution of Appellate Tribunal 

Section 410 provides that an Appellate tribunal known as the National Company Law Appellate Tribunal will be constituted by the Central Government. It will consist of a chairperson and judicial and technical members and will be appointed by the Central Government.  

A party who is not satisfied with the decisions of the National Company Law Tribunal (NCLT) can file an appeal in the appellate tribunal. The appellate tribunal has the power to set aside, modify or confirm the decision of NCLT. Further, a part can also file an appeal in the Supreme Court against the decision of appellate tribunal within 60 days. However, an appeal to the Supreme Court can only be made if there is a question of law. The case must be decided by NCLT & NCLAT  within 3 months otherwise reasons have to be recorded for the same within 90 days.

Qualifications of Chairperson and its members

According to Section 411 of the Act, a person who is or has been a judge of the Supreme Court or Chief Justice of a High Court is eligible to be appointed as the Chairperson of the Appellate Tribunal. It further provides that a Judicial member will be the one who is or has been a judge of a High Court or is a Judicial Member of the tribunal for 5 years. A technical member must be a person of proven ability, and integrity and must have special knowledge and experience of a minimum of 25 years in the area of law, industrial finance, industrial management, investment, accountancy, labour matters and other disciplines related to management, revival, rehabilitation etc. 

Section 412 further provides that the members of the tribunal and technical members of the Appellate Tribunal will be appointed on the recommendation of a Selection Committee. This Committee consists of:

• Chief Justice of India or his Nominee as the Chairperson.
• The following persons will be its members:
  • A senior judge of the Supreme  Court or Chief Justice of the High Court;
  • Secretary in the Ministry of Corporate Affairs;
  • Secretary in the Ministry of Law and Justice;
  • Secretary in the Department of Financial Services of the Ministry of Finance. 

According to Section 413, the term of office of the chairperson and other members of the Appellate Tribunal will be five years and will be eligible for re-appointment. The chairperson of the Appellate Tribunal will hold office until he attains the age of seventy years, and the members will hold office until they attain the age of sixty-seven years. It further provides that a person who has not attained the age of fifty years will not be appointed as a member. 

Resignation and removal of members 

Section 416 provides that the President, Chairperson or any Member may address his resignation in writing to the Central Government. However, they will continue to hold their office until:

• The expiry of three months from the date such notice has been received by the Central Government or
• A person who is appointed as his successor enters the office or
• Until the expiry of his term of office. 

Section 417 of the Act deals with the removal of members. It provides that the Central Government can remove the President, Chairperson or any Member after consultation with the Chief Justice of India on the following grounds:

• Person is adjudged as insolvent;
• Person has been convicted of an offence which involves moral turpitude;
• Person has become incapable of being the President, Chairperson or Member either physically or mentally;
• Person has acquired any financial or other interest which is likely to prejudicially affect his functions as president, chairperson, or member. 
• Person has abused his position which is against the interest of the public. 

Difference between winding up and dissolution of a company

Dissolution means that something ceases to exist. Thus, the dissolution of the company means that its existence has come to an end. Section 302 of the Act deals with the dissolution of a company by the tribunal. It provides that when a company and its affairs have wound up completely, the company liquidator can apply to the tribunal for dissolution of the company. The tribunal if satisfied can order for dissolution of a company. A copy of the order is to be sent to the registrar within 30 days. This will be done by the company liquidator, but if he fails to do so he will be punished. 

However, winding up and dissolution are not the same but different terms with different meanings. Winding up doesn’t mean that the company has dissolved. It only paves the way for the dissolution of the company, which further means that the company has ceased to exist. The difference between the two is as follows:

Basis of difference	Winding up	Dissolution of company
Meaning	It is the process by which the dissolution of a company is initiated.	Dissolution of the company means that the company has ceased to exist.
Existence of company	After winding up, the legal entity of a company continues to exist, and it can be sued.	Dissolution means that even the legal entity of a company comes to an end.
Business of company	Under the process of winding up, a company is allowed to continue its business for the benefit of winding up.	Ceases on dissolution.

Provisions applicable to every mode of winding up

Part III of Chapter XX of the Act provides provisions that are applicable to every mode of winding up. Section 324 of the Act provides that in every winding up all the debts, and claims against the company whether present or future, certain or contingent, ascertain or sounding will be admissible to prove against the company of the value of such debts or claims subject to any contingency or sound only in damages or any other reason not bearing a certain value. Sections 326 & 327 further provide overriding preferential payments and preferential payments respectively that will be paid on priority to all other debts like dues of workmen, revenues, taxes etc due to the central or state government, provident funds, pension funds of employees etc. 

Section 329 of the Act provides that transfers that are not in good faith are void. Further, Section 330 provides that any transfer or assignment of the properties of assets of a company to trustees for the benefit of its creditors will be void. According to Section 334, any disposition of the property of the company including actionable claims and any transfer of shares or alteration of the status of the members of the company made after the commencement of the winding-up process will be void unless the tribunal orders for the same. 

Section 337 provides a penalty for fraud by the officers of the company in the following circumstances:

• False pretences or inducing any person to give credit to the company.
• Made any gift or transfer of the property or charge on or caused or connived the levying of any execution against the property with the intention to defraud the creditors.
• Concealed or removed any part of the property since the date of unsatisfied judgement or order for payment of money against the company with the intention to defraud the creditors of the company 

Part III also provides the liability for not keeping proper accounts and fraudulent conduct of business under Sections 338 and 339 respectively. Further, Section 346 provides that the creditors and contributories of the company can inspect the books and papers of the company after an order for winding up has been made by the tribunal. Section 351 prohibits an official liquidator or the company liquidator from depositing any money received by them into any private bank accounts. Section 356 provides that when a company has been dissolved, the tribunal can within 2 years from the date of dissolution make an order declaring the dissolution to be void on the application of the company liquidator or by any other person. The copy of the order will be sent to the registrar within 30 days, and direct the liquidator to file a certified copy of the order within 30 days from the period allowed by the tribunal. 

Case laws surrounding winding up of a company

IL & FS Engineering and Construction Company Ltd. v. Government of Karnataka (2019)

Facts of the case

The petitioner in this case is a company which carries on the business of construction of infrastructure and is registered under the Companies Act, 1956. The petitioner and respondent entered into a contract for construction work, but had certain disputes during the execution. Arbitration was invoked by the parties and an award was passed, but the respondent failed to settle the payments according to the terms of the award. The present petition was filed seeking the direction to the Government of Karnataka to wind up the respondent i.e., Bangalore Development Authority (BDA) due to non-compliance of the arbitral award and to further appoint an official liquidator. 

Issues involved in the case

Whether Bangalore Development Authority is a company?

Whether winding up has to be ordered against the authority?

Judgement of the court

The petitioner in this case contended that the authority is like a company of the state government and is a body corporate. On the other hand, the respondent contended that BDA is a local authority and so the provisions of winding up do not apply. The Karnataka High Court observed the ingredients of winding up as:

• The court is not bound to order for winding up of a company merely on any one of the circumstances enumerated under the Companies Act. 
• The effect of winding up is that it will put an end to the business or industry resulting in loss of employment to several employees. 
• Winding up means a commercial death of the company and the court must take into consideration not only the inability to pay debts but the entire position. 
• Unpaid creditors can aspire for an order of winding up. 
• Winding up cannot be adopted as a recourse to recovery of the debt.
• Winding is the last thing a court can do and leads to:
  • Closing of a company.
  • Employment of numerous people ceases.
  • Loss of revenue to the state.
  • Scarcity of goods and employment opportunities. 
• Petition of winding up is not an alternative form of resolving the dispute related to debt. 

The court observed that BDA failed to satisfy the ingredients of determination of the government company and so is not a company accordingly an order for winding up cannot be made. 

M/S Kaledonia Jute and Fibres Pvt. Ltd. v. M/S Axis Nirman and Industries Ltd. & Ors. (2020)

Facts of the case

The second respondent in this case filed a petition in 2015 before the Allahabad High Court for the winding up of the first respondent company on the ground that it was not able to pay its debts. A notice was issued to the respondent but it failed to appeal before the company court as a result of which the petition was admitted and directed to be published. The company court ordered for winding up of the company on the grounds that it was just and equitable and that the company was not able to pay its debts. The company court further appointed the official liquidator in this regard. 

Thereafter, the first respondent filed an application in order to recall the order of winding up and also paid the due amount to the creditor i.e., the second respondent. This application was opposed by the official liquidator on the grounds that money was due to a lot of creditors. The appellant who claimed to be the creditor of the company moved an application before the National Company Law Tribunal under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016). An application seeking transfer of winding up petition to the NCLT, Allahabad was also moved to the High Court. However, the application was rejected on the grounds that the order for winding up had already passed. Aggrieved by the rejection of the application, the civil appeal was filed in the Supreme Court. 

Issues involved in the case

Under what circumstances, a winding up proceeding which is pending in the High Court be transferred to the NCLT?

Judgement of the court

It was observed by the Hon’ble Supreme Court that the transfer of proceedings of winding up depends on the stage at which they are pending before the company court. The fifth proviso to Section 434 of the Act gives a choice to the party to seek transfer of winding up proceedings to the NCLT. The pending proceedings for winding up have been categorised into three types:

• Proceedings for voluntary winding up.
• Winding up on the basis of inability to pay debts.
• Grounds other than inability to pay debts. 

The court further observed that the object of IBC will be nullified if the High Court of Allahabad is allowed to proceed with the process of winding up and NCLT is allowed to proceed with the enquiry into an application filed under Section 7 of the Code. Thus, the proceedings for winding up which were pending before the High Court of Allahabad were ordered to be transferred to the NCLT. 

Conclusion 

Winding up can be understood as the last stage in the life of a company, after which it dissolves. The present Companies Act, 2013 provides for two modes of   which have been explained above. The National Company Law Tribunal (NCLT) has been established in this regard to tackle the issues of winding up. Further, the National Company Law Appellate Tribunal (NCLAT) has been established to deal with the appeals arising from the decisions of NCLT. 

It can be further concluded that NCLT plays an important role in the winding-up of a company. It takes all measures to protect the interest of the creditors and debenture holders and gives a conclusive guideline so that the process of winding up can be followed smoothly & effectively, and at the same time has made an effort to be extremely transparent and easy.

Frequently Asked Questions (FAQs)

Can a petition for winding up be filed by the workers’ union of a company?

According to Section 272 of the Companies Act, 2013, the petition for winding up of a company can be presented by:

• The company
• Contributories
• Registrar
• Person authorised by central government
• Central or State government. 

Thus, a petition cannot be presented by a workers’ union. 

Can a legal proceeding or a suit be initiated against a company if an order of winding up has been passed for that company?

No, according to Section 279 of the Companies Act, 2013 a suit or legal proceeding cannot be initiated against a company, without any permission from the tribunal, against whom the order of winding up has been passed. An application in this regard will be decided within 60 days. 

Can a promoter or director of a company against whom winding up order has been passed, be punished if they refuse to cooperate with the company liquidator?

According to Section 284 of the Companies Act, 2013, the promoters or directors of a company for whom a company liquidator has been appointed in order to proceed with the process of winding up, have to cooperate with the liquidator. In case they fail to do so, they will be punished with imprisonment which extends up to six months or a fine of up to fifty thousand, or both. 

Can a company transfer all its properties and assets to a trustee for the benefit of its creditors?

No, according to Section 330 of the Act, such a transfer will be void.

References

• https://main.sci.gov.in/supremecourt/2020/8017/8017_2020_31_1501_24702_Judgement_19-Nov-2020.pdf
• https://rajdhanicollege.ac.in/admin/ckeditor/ckfinder/userfiles/files/Winding%20up%20of%20the%20Company%20(1).pdf
• https://umeschandracollege.ac.in/pdf/study-material/company-law/Introduction%20to%20Company.pdf
• https://www.scconline.com/blog/post/2022/06/23/just-and-equitable-clause-for-winding-up-of-the-companies-in-matters-of-oppression-and-mismanagement/#:~:text=1.,on%20just%20and%20equitable%20ground.
• https://www.scconline.com/blog/post/2021/10/11/decoding-winding-up-by-special-resolution-under-the-companies-act/
• https://www.scconline.com/blog/post/2020/11/21/winding-up-v-the-insolvency-and-bankruptcy-code-2016/
• https://www.mannaniyacollege.ac.in/wp-content/uploads/2019/06/Winding-Up-of-companies.pdf
• https://www.judiciary.gov.sg/civil/company-winding-up#:~:text=Winding%20up%20(or%20liquidation)%20is,longer%20exist%20after%20winding%20up.