“Winding Up”

S U BJ ECT : LEGAL EN VIRON M EN T OF BU S IN ES S ;

S U B-COD E: IN M 5 82;LECTU R E- 9:
PROF.RAGHUNA T H CHAKRABOR T Y .
 INTRODUCTION:

 If incorporation is the process of bringing the

company into existence, then winding up is the
process of bringing an end to the existence of that so
called artificial person viz. Company. A company
cannot die a natural death. It has an indefinite life
span, but if such reasons have emerged which make
it desirable to bring an end to its corporate life, then
necessary legal mechanisms has to be put into
operation to get it done.
 INTRODUCTION(Cont.):

 This mechanism is the process of winding up. It is a process by which the

 properties of the company are administered for the benefit of its
members and creditors. The person appointed for administering the
assets and liabilities is called ‘Liquidator’. In case of compulsory winding
up, the liquidator is appointed by the Tribunal under section 275 of the
Act; or, in case of voluntary winding up, the liquidator is appointed by
the company itself under section 310 of the Act.
 Winding up is also referred as ‘Liquidation’. On liquidation, the
company’s name is deleted from the list of companies by the Registrar of
companies and the same is published in the official gazette.
 Prof. Gower’s definition of winding up:-

 “Winding up of a company is a process whereby its life is

ended and its property administered for the benefit of its
creditors and members. An administrator, called
liquidator, is appointed and he takes control of the
company, collects its assets, pays its debts and finally
distributes the surplus among the members in accordance
with their rights”.
Modes of Winding Up:

p
Modes of
Winding Up

Compulsory Voluntary Winding

Winding Up Up
(i.e. By Tribunal)

Members
Creditors
Voluntary
Voluntary UP
Winding Up
 Difference between Compulsory winding up and
Voluntary winding up :

 Compulsory winding up: Petition is filled before the Tribunal either by the
company, or by any creditor(s), or by contributory, or by registrar, or any
person authorised by the Central Government on that behalf (Sec. 272).
Whereas,
 Voluntary Winding up: No petition is filled before the Court. In this, the
company passes the special resolution in its meeting; or it passes a general
resolution in case of expiry of the period of its duration (Sec. 304).

 Compulsory winding up: In this case the Tribunal, at the time of passing
the order of winding up, appoint an official liquidator or the liquidator from the
panel maintained by the Central Government (Sec. 275)
Whereas,
 Voluntary Winding up: In this case the company appoint the company
liquidator from the panel prepared by the Central Government for the purpose
of winding up (Sec. 310).
 Difference between Compulsory winding up and
Voluntary winding up(Cont.) :

 Compulsory: The official liquidator can be removed

by the Tribunal on the grounds mentioned in Sec.
276.
Whereas,
 The company liquidator can be removed by the
company (if it is appointed by the company), or by
the creditors (if it is appointed by the creditors) on
the grounds mentioned in Sec. 311.
 Difference between Compulsory winding up and
Voluntary winding up(Cont.) :

 Compulsory: The order of winding up of the

company shall operate in favour of all the creditors
and all contributories of the company as if it had
been made out on the joint petition of creditors and
contributories. (Sec. 278)
Whereas,
 In this case, the company shall from the
commencement of the winding up cease to carry on
its business except as far as required for the
beneficial winding up of its business. (Sec. 309).
 Difference between Members voluntary winding up and
Creditors voluntary Winding up:

 Members voluntary winding up: Such winding up takes place only

when the company is in a position to pay its debts.
Whereas,
 Creditors voluntary winding up: Such winding up takes place in
case when the company is not in a position to pay its debts.
 Members voluntary winding up: Declaration of solvency is made
by the directors.
Whereas,
 Creditors voluntary winding up: No such declaration is made.
 Members voluntary winding up: Only meeting of members is
called.
Whereas,
 Creditors voluntary winding up: Meeting of the members and
creditors is called.
 Difference between Members voluntary winding up
and
Creditors voluntary Winding up:

 Members voluntary winding up: The liquidator is appointed and

remuneration is fixed by the company itself.
Whereas,
 Creditors voluntary winding up: The liquidator in fact is
appointed by the creditors and remuneration is fixed by the committee
of inspection.

 Members voluntary winding up: The liquidator can exercise some

powers with the sanction of a special resolution of the company.
 Whereas,
 Creditors voluntary winding up: The liquidator exercise powers
with the sanction of the Tribunal.
 Grounds of Winding Up by Tribunal:

 Inability to pay debts: Sub-section (2) of section 271

provides that the inability to pay debts primarily arise
under three circumstances:
 Where the company fails to clear the debt of the creditor
within three weeks immediately preceding the date of
demand for payment being made;
 Where execution or other process issued on a decree or
order of any court in favour of the company is returned
unsatisfied in whole or part; and
 Where it is proved to the satisfaction of the court that the
company is unable to pay its debts.
 Special Resolution:

 The Company may by special resolution resolve that

it be wound up by the Tribunal. The resolution may
be passed for any cause whatsoever. However, the
Tribunal must see that the winding up is not opposed
to public interest or the interest of the company as a
whole. Case law: New Kerala Chits & Traders (P.)
Ltd. vs. Official Liquidator [1981], it has been
observed in this matter that the Tribunal has
discretion in the matter and is under no obligation to
order winding-up merely because the company has
so resolved.
 Against National interest:

 If the company has acted against the interest of

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

 Failure of Scheme: If the scheme of revival and

rehabilitation is not approved by the creditors, then the
company administrator shall submit a report to the
Tribunal within 15 days and the Tribunal shall order for
the winding up of the sick company. The Tribunal, on
passing the order of winding up, shall conduct the
proceedings for winding up in accordance with the
provisions of Chapter XX [Sec. 271(1) (d)].
 Fraudulent and unlawful affairs:

 If on an application made by the Registrar or any other

person authorised by the Central Government by
notification under this Act, the Tribunal is of the opinion
that the affairs of the company have been conducted in a
fraudulent manner or the company was formed for
fraudulent and unlawful purposes or the persons concerned
in the formation or management of its affairs have been
guilty of fraud, misfeasance or misconduct in connection
therewith and that it is proper that the company be wound-
up; then in such a situation, the Tribunal may, on a petition
filed by any authorised person, pass an order for the
winding up of the company [Sec. 271(1) (e)].
Default in filling financial statements:

 If the company has made a default in filling with the

Registrar its financial statements or annual return
for immediately preceding five consecutive financial
years [Sec. 271(1) (f)].
 CONCLUSION:
 Dear Students today I have explained the concept of
‘Winding Up of Company’, in this Lecture I have
explained the concept of it, Modes, Difference between
Compulsory & Voluntary, Difference between Member’s
Voluntary & Creditors' Voluntary & Grounds of Winding
Up by Tribunal.
 Company Law part I have finished with this Lecture, in
the Next Lecture I will start with Law relating to Transfer
of Property.
 I am sending study Material with it for next Lecture..
Study in home & stay in home. If you have any query feel
free to call by 6:00 Pm. Everyday.