Winding up can be defined as a means by which a company can be dissolved. The main purpose of it is to realize the assets, pay the debts which have been incurred by the company and if there is any surplus then it shall be distributed among the members in accordance with their rights. Winding up of as company is basically the first stage where the assets of the company are realized the company at this point of time does not lose its legal status, but at the final stage which is the stage of dissolution the legal status of a company ceases to exist. And a Company comes to an end on dissolution.
Winding up can be done in two ways firstly winding up by the Tribunal which is dealt by the Companies Act, 2013 and Secondly Voluntary Liquidation which is now dealt by the Insolvency and Bankruptcy Code, 2016. This Article shall only deal with the winding up by the tribunal laid down by the Companies Act, 2013.
Also Read: Cross-Border Insolvency: India’s Conundrum
Grounds of Winding up
A petition for winding up of a company has to be filed under Section 272 of the Companies Act, 2013, the grounds of winding up are specified under Section 271 of the Companies Act, 2013 they are
- If a special resolution has been passed by the company that it shall be wound up by the tribunal.
- If the Company has acted against the Security and Integrity of India
- If on the application of the Registrar or any authority of the Central Government has made an application and the tribunal is of the opinion that the company has been conducting its affairs fraudulently or the company has been formed fraudulently and it is better to dissolve it.
- If there has been a default in filing with the registrar the financial statements or annual returns have not been filed preceding 5 consecutive financial years.
- If the tribunal thinks fit that on just and equitable grounds its better that the company is dissolved.
As per Section 272 of the Companies Act, 2013 a petition of winding can be filed to the tribunal by
- The Company
- Any Contributory
- The Registrar
- Any person authorized by the Central Government in that behalf
- If it falls under clause (b) of Section 271, then by Central or State Government.
Powers of the Tribunal (Section 273)
On receiving a petition for winding up the Company Law Tribunal can pass the following orders
- It can dismiss the petition with or without cost.
- It can make interim orders.
- It can appoint a provisional liquidator of the Company till giving an order for Winding up.
- Make an order for winding up
- Can pass any other order as it thinks fit.
Before appointing a provisional liquidator the tribunal has to give notice to the company in order to provide them an opportunity to make its representation.
Appointment of Company Liquidator (Section 275)
- The Provisional liquidator or the Company Liquidator shall be appointed by the company law tribunal; the liquidator has to be a registered professional under the Insolvency and Bankruptcy Code, 2016.
- A provisional liquidator shall have the same power as a company liquidator unless it is restricted by the Company Law Tribunal.
- The Terms and Condition, the payment of fee everything shall be specified by the tribunal.
- The liquidator has to disclose to the tribunal by means of declaration if there is a conflicting interest or lack of Independence in respect of his appointment if any.
Intimation of Winding up (Section 277)
If the tribunal has made an order for winding up or appointment of provisional liquidator for the company, within 7 days of such an order the tribunal has to inform it to the Registrar of Companies who shall thereafter notify it to the official gazette after keeping a record of the same, in case of listed companies the stock exchange has to be informed by the registrar.
Powers and Responsibilities of the Liquidator (Section 290)
The liquidator of a company has the following powers in case of winding up they are
- To carry on Business which are necessary for Beneficial Winding up.
- To carry out all activities in the name and in behalf of the Company, it can also use the seal of the company as and when required.
- To sell the properties of the Company by means of auction or by private contracts, it shall also have the authority to transfer a property.
- To raise money on the security of assets of the company.
- Can file and defend a civil suit or criminal proceeding on behalf of the country.
- To invite the creditors for settling the claims.
- To take all the necessary steps or to sign or execute a document or any petition which are required for winding up, distribution of assets and discharge his duties and obligation as company liquidator.
Custody of Companies Property
As per Section 283 of the Companies Act, 2013 from the day when the order of winding up is passed by the tribunal all the properties of the company goes under the control of the liquidator its he who retains the custody of those properties as well.
Submission of Report (Section 281)
An order of winding up has been made by the Tribunal, within 60 days of such an order the liquidator has to submit a report which shall contain,
- The Nature of the assets of the company, the amount of cash and bank balance left.
- It shall include the details of the paid up capital and subscribed capital even unpaid capital.
- The liabilities of the Company including the debts from its creditors.
- Details of the existing contracts including joint ventures and collaboration
- Details of holding and subsidiary companies
- Details of legal Cases filed by the Companies, and any other relevant details which the liquidator thinks it necessary to inform.
Dissolution of Company by Tribunal (Section 302)
When the affairs of the company gets completed the liquidator makes an application to the tribunal for dissolution of the company, if the tribunal thinks fit it gives an order for dissolution of the Company, with this the company ceases to become a legal personality.
The order of dissolution within 30 days has to be sent to the Registrar of Companies who shall record the dissolution and if the liquidator fails to do so it will be punished.
Some Case Laws
Pierce Leslie & Co Ltd vs. Violet Ouchterlony [1969 SCR (3) 2031]
In this Particular Case, it was held that winding up precedes the dissolution of a company when a company is dissolved the members of the company will not get the properties as they cannot be regarded as the legal heirs of the company the properties shall be used to repay the debts and if left it shall go to the government.
Narotamdas Trikamdas Toprani vs. Bombay Dyeing and Manufacturing Co Ltd (1990) 68 Comp Case 300 (Bom)
In this case, it was held that a debenture holder who can be regarded as a creditor of a company , if required can file a petition for winding up of a company.
By winding up a company comes to an end, and this process of winding up is well recognized under the Companies Act, 2013. The Company comes to an end legally and all the rights and liabilities of that company cease to exist once an order for dissolution is passed by the Company Law Tribunal.
- Company law, By Dr. Avtar Singh.
- Elements of Mercantile Laws by ND Kapoor.
- Winding Up under Company Law, www.legalservicesindia.com
- ICSI, Study material on Corporate Restructuring, Insolvency and Winding up of a Company.