SIDDHARTH COLLEGE OF LAW

Subject: COMPANY LAW

Topic: WINDING UP OF COMPANIES

“A Project submitted to Siddharth College of Law for the 2nd Year

LL. B Degree Course”

Submitted by: -

PRADNYA DEVRAO KAMBLE

ROLL NO 102
2020-2021

Date: - 17th November 2020

 INDEX

Sr. No. Particular Page No.

1. Introduction 1

2. Reasons for winding up of 2

company

3. Modes of Winding up: 2-6

1. Voluntary Winding Up
2. Compulsory Winding Up

4. Procedure for Winding up of 7 - 10

Company

5. Case Law 11

6. Conclusion 12
INTRODUCTION

Winding up of a company

Winding up is the process of dissolving a company. While winding up, a

company ceases to do business as usual. Its sole purpose is to sell off stock,
pay off creditors, and distribute any remaining assets to partners
or shareholders. The term is used primarily in Great Britain, where it is
synonymous with liquidation, which is the process of converting assets to cash.

Winding up a business is a legal process regulated by corporate laws as well as

a company's articles of association or partnership agreement. Winding up can
be compulsory or voluntary and can apply to publicly and privately held
companies.

In the words of Pennington winding up is the procedure by which the affairs

and management of company’s assets are taken from the directors, its
properties are managed by a liquidator, and its debts and liabilities are
discharged out of the proceeds of realization and any surplus of assets
remaining is returned to its members or shareholders. At the end of the winding
up the Company it will have no assets or liabilities, and it will take the formal
step of dissolution.

With the enactment of the Insolvency and Bankruptcy Code, 2016, it has
become difficult to apply provisions simultaneously and to decide precedence.
The IBC has also included a lot of amendments to the Act. The Code provides
a constructive framework for companies. With the passing of the Insolvency
and Bankruptcy Code, there are now two modes of winding up; either under
the Companies Act of 2013 or the IBC Code of 2016. Under Section 2(94A)
winding up under this Act.

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Reasons for Winding Up a Company

The winding up of the company may arise by any one or more of the following
reasons:

1. If the object of the company for which t was established have been
accomplished.
2. If company unable to carry out its main object.
3. If company has to dispose of its business or the undertaking to another
company or an individual.
4. If company is unable to pay its creditors in full.

Modes of Winding Up

Chapter XX of the Companies Act, 2013 regulates the winding-up of

companies in India. Under s. 270, it enumerates broadly two modes of winding
up of a company

1. VOLUNTARY
2. TRIBUNAL

Voluntary Winding up

The winding up of a company can also be done voluntarily by the members of

the Company, if:

1. If the company passes a special resolution for winding up of the Company.

2. The company in general meeting passes a resolution requiring the company
to be wound up voluntarily as a result of the expiry of the period of its
duration, if any, fixed by its articles of association or on the occurrence of
any event in respect of which the articles of association provide that the
company should be dissolved.
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Procedures involved in Voluntary Winding up of a Company

 1 - Conduct a board meeting with 2 Directors and thereby pass a resolution

with a declaration given by directors that they are of the opinion that
company has no debt or it will be able to pay its debt after utilizing all the
proceeds from sale of its assets.
 2 - Issues notices in writing for calling of a General Meeting proposing the
resolution along with the explanatory statement.

3 - In General Meeting pass the ordinary resolution for the purpose of winding
up by ordinary majority or special resolution by 3/4th majority
 4 - Conduct a meeting of creditors after passing the resolution, if majority
creditors are of the opinion that winding up of the company is beneficial
for all parties then company can be wound up voluntarily.
 5 - Within 10 days of passing the resolution, file a notice with the registrar
for appointment of liquidator.
 Step 6 - Within 14 days of passing such resolution, give a notice of the
resolution in the official gazette and also advertise in a newspaper.
 7 - Within 30 days of General meeting, file certified copies of ordinary or
special resolution passed in general meeting.
 8 - Wind up the affairs of the company and prepare the liquidators account
and get the same audited.
 9 - Conduct a General Meeting of the company.
 10 - In that General Meeting pass a special resolution for disposal of books
and all necessary documents of the company, when the affairs of the
company are totally wound up and it is about to dissolve.
 11 - Within 15 days of final General Meeting of the company, submit a
copy of accounts and file an application to the tribunal for passing an order
for dissolution.

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 12 - If the tribunal is of the opinion that the accounts are in order and all
the necessary compliances have been fulfilled, the tribunal shall pass an
order for dissolving the company within 60 days of receiving such
application.
 13 - The appointed liquidator would then file a copy of order with the
registrar.
 14 - After receiving the order passed by tribunal, the registrar then
publish a notice in the official Gazette declaring that the company is
dissolved.

Winding Up by the Tribunal (Compulsory Winding up)

Section 271 lays down that a tribunal may order for winding-up a company, if
a petition under section 272 is presented to the court, with any of the grounds
provided under section 271. The grounds provided therein are:

1. If the company is unable to pay its debts

2. If the company has resolved by special resolution that the
company be wound up by the Tribunal
3. If the company has acted against the interests of the sovereignty
and integrity of India, security of the State, friendly relations with
foreign states, public order, decency or morality;
4. If the tribunal has ordered the winding up of the company under
Chapter XIX, which relates to ‘Revival and Rehabilitation of Sick
Companies’.
5. If on an application made by the Registrar or any other person
authorized by the Central Government by notification under this
Act, the Tribunal is of the opinion that the affairs of the company

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 have been conducted in a fraudulent manner or the company was
formed for fraudulent and unlawful purpose 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;
6. If the company has made a default in filing with the Registrar its
financial statements or annual returns for immediately preceding
five consecutive financial years;
7. If the tribunal is of the opinion that it is just and equitable that the
company should be wound up.
The ground (g) is very broad in its words. ‘Just’ means legally valid or lawful;
and ‘equitable’ means valid in equity (impartial or fair right or claim), as
distinct from common law or statute law. What is ‘just and equitable’ ground
or cause calling for winding-up of a company, will depend upon the facts,
information, and circumstances of each particular case. Such just and equitable
grounds may be different from, when the main object of the company has
failed; when the company proposed to acquire some running business but the
vendor refused to sell it to the company.

The petition to the Tribunal for the winding up of a company shall be presented
by the company, or any creditor or creditors, (including any contingent or
prospective creditors), any contributory or contributories, the Registrar, any
person authorized by the Central Government in that behalf, or by the Central
Govt. or state govt. in a case falling under clause (c) of subsection (1) of s.
271. (s.272, Companies Act, 2013).

The Tribunal may, on receipt of a petition for winding up under section 272
pass any of the following orders, namely: (a) dismiss it, with or without costs;
(b) make any interim order as it thinks fit; (c) appoint a provisional liquidator
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of the company till the making of a winding-up order; make an order for the
winding up of the company with or without costs; or any other order as it thinks
fit. The order has to be made within 90 days from the date of presentation of
the petition. (S.273). Tribunal shall direct the company to file its objections
along with a statement of its affairs if a prima facie case for winding up exists
in the eyes of the Tribunal.

Petition for winding up

(1) Subject to the provisions of this section, a petition to the Tribunal for the
winding up of a company shall be presented by—
(a) the company;
(b) any creditor or creditors, including any contingent or prospective creditor
or creditors;
(c) any contributory or contributories;
(d) all or any of the persons specified in clauses (a), (b) and (c) together;
(e) the Registrar;
(f) any person authorised by the Central Government in that behalf; or
(g) in a case falling under clause (c) of sub-section (1) of section 271

Power of the Court to dispose of Petition of Winding Up

On hearing a petition for the winding up of the company, the court may take
the following steps;

1. It may dismiss the application with or without costs.

2. It may adjourn the hearing conditionally/ unconditionally.
3. It may dispose of the application in any way it thinks fit.
4. It may make an interim order.

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 5. It may order the winding up of the company with or without
coats or make any other orders as it thinks fit.

Procedure for Winding up of Company

 The petition to the Tribunal for the winding up of a company shall be

presented by the company, or any creditor or creditors, any person
authorized by the Central Government in that behalf, or by the Central
Govt. or state govt. The winding up of a company by tribunal is deemed
to begin at the time of the filing of petition for winding up. On receipt of
a petition for winding up under section 272, the Tribunal may pass any
of the following orders, namely:
1. Dismiss it, with or without costs;
2. Make any interim order;
3. Appoint a provisional liquidator of the company during the pendency
of winding up petition;
4. Make an order for the winding up of the company with or without
costs; or any other order as it thinks fit.
The order has to be made within 90 days from the date of presentation
of the petition. The Tribunal shall direct the company the opposite party
before appointing a provisional liquidator and give them opportunity to
make their representations and file any objections if any. Such shall be
filed according to Form No. NCLT. 5.
Since the powers of the tribunal are discretionary, if it is satisfying that
a prima facie case exists for winding up, the tribunal may direct the
company which is bound to be wound up, to file its objections along with
a statement of affairs within 30 days of order under section 274 of The
Act. The tribunal shall also appoint a provisional liquidator or a company
liquidator at the time of passing an order for winding up of the company.
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 Such a liquidator on appointment under section 275 of the Act, such shall
file a declaration within 7 days from the date of appointment if he has
any conflicting interests in respect of his appointment. If an order for
winding up has been passed by the tribunal under section 273 (1) (d) ,
then the directors and such other officers of the company are mandated
by law to submit the completed and audited books of accounts of the
company within 30 days of such order being passed by the tribunal to
the provisional liquidator. If the same is contravened, the director shall
be personally liable for fine and imprisonment under the Act.
3. Once the tribunal appoints a provisional liquidator or passes an order for
winding up, the tribunal within 7 days from the date of passing such
order, shall intimate the same to the liquidator and the registrar. The
registrar has the duty to endorse and notify about the order in the official
gazette. If the company is a listed company, then the registrar has to
notify it in the stock exchange where the securities of the company are
listed. The liquidator has to submit a report to the tribunal within 60 days
of passing of order of winding up. The report must consist of particulars
such as the nature and details of the assets of the company, valuation of
the assets, amount of capital issues etc. The liquidator may also have to
make a report on the feasibility of the commercial aspects of the
company and make any further reports as he deems fit.
4. While passing the order of winding up, the tribunal shall pass an order
to set up an advisory committee to advice the liquidator and report to the
tribunal as directed. It shall consist of 12 members of which are
shareholders, contributories and creditors of the company. The company
liquidator shall convene a meeting of creditors and contributories of the
company within 30 days from the date of order of winding up so that the
tribunal can decide the composition of the committee. This committee
shall be headed by the Company Liquidator.
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5. Within 3 weeks of such order of winding up, the liquidator shall also
make an application to the tribunal to constitute a Winding up committee
to assist and monitor the process of liquidation. The liquidator shall be
the convener. He has the duty to place monthly reports before the
tribunal and prepare a draft final report for approval of the committee.
The final report will be submitted by the Company liquidator to the
tribunal to pass dissolution order for the company. The tribunal after
careful scrutiny of the report of the company liquidator, shall fix a time
within which the entire proceedings shall be completed and the company
is to dissolved. It may also order the sale of the company. If the sale has
to be affected a sale committee can be appointed to assist the company
liquidator. The company liquidator on the order of winding up of
company shall take into his custody and control all the property,
actionable claims to which the company is entitled. The property of the
company shall be deemed to be in the custody of the tribunal from the
date of passing of winding up order. [xxi] Along with this, he has to
submit periodic reports to the tribunal to update and keep the tribunal in
loop of the progress.
6. The liquidator is mandated by law under Section 294 to present the
tribunal with account of receipts and payments of the company. These
will then go through audit and one copy of the audit has to be given to
the tribunal and to the registrar by the company liquidator. The summary
of the audit shall also be given to every creditor and every contributory
through post.
7. The next stage called as set off is conducted whereby the contributories
are called upon to pay debt. The tribunal orders the contributories to pay
to the extent of their liabilities. Further it may even issue summons to
persons who are suspected of having company property and examine
such person summoned, reduce his answers to writing and require him
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 to sign them. Apart from this, if any other person has some property of
the company, a report of the same has to be filed by the Liquidator.
8. Within 60 days of his appointment, the official liquidator shall dispose
all assets of the company. He shall serve a notice to the debtors to submit
any outstanding amount. The amount that he receives has to be deposited
in RBI and the company account money in no circumstance be deposited
in his own private accounts. He shall also call the creditors to prove their
claims within 30 days of his appointment. Upon the claims, he shall
prepare a list and each creditor shall be communicated as to whether their
claims have been accepted or rejected. If any creditor is aggrieved, he
can appeal to the central government. The official liquidator shall pay to
those creditors whose claims have been enlisted and accepted. After all
the formalities, once the affairs of the company have been completely
wound up, the company liquidator shall will submit a report to the central
government and tribunal and make an application to the tribunal for
dissolution of such company. The tribunal shall make an order that the
company be dissolved from the date of the order and the company shall
be dissolved accordingly. The registrar will strike off the company from
the register of companies and publish a notification that the same has
been removed. A copy of the order will be sent to the registrar by the
company liquidator within 30 days and it is recorded in the register.
Every invoice, order or business letter when the company is being wound
up should contain a statement that the company is being wound up.
When the affairs of the company have been completely wound up, and
it is about to be dissolved, its books and papers have to be completely
disposed in the manner as the tribunal directs.

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 CASE LAWS

1. In Shanti Prasad Jain V. Kalinga Tubes Limited’ (1965) 35 Com cases

351 in which it was held that it is not enough to show that there is just and
equitable cause for winding up the company through that must be shown
as a preliminary to the application of Section 397.

2. In N.R.Murty v. Industrial Development Corporation of Orissa, it was

observed that the concept of “public interest” takes the company outside
the conventional sphere of being a concern in which the shareholders
alone are interested. It emphasizes the idea of the company functioning
for the public good. However, it is important to note that it is difficult to
sustain an application under section 397on the ground of being prejudicial
to public interest as the condition in clause(b)of subsection(2) cannot be
satisfied in such case, as conducting the affairs of a company in a manner
prejudicial to public interest cannot be a just and equitable ground for
ordering the winding up of the company, unless it should be considered
illegal or opposed to public policy.

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CONCLUSION

The process of winding up of company is very complex process due to

enactment of various act the process has become little easier. As it provides
favourable conditions for winding up.

however, giving a restrictive meaning to section 397/398 of the Companies

Act, 1956 is not in the interests of the minority shareholders. It is also
equally true that the frivolous litigation misusing section 397/398 of the
Companies Act, 1956 is to be discouraged at the initial stage itself
considering the market dynamics and the impact.

1. The CLB can certainly look into the concluded proceedings, but cannot
give a different finding on the same issue concluded by a Competent Court.
2. The Petitioners approaching the CLB can refer to the concluded
proceedings; however, the petitioners may not be able to get a relief with
the similar or same grievances raised in the concluded proceedings.

3. Irrespective of pendency of any proceedings between the majority and

the minority, the CLB can entertain a petition under section 397/398 of the
Act and the CLB will take an appropriate decision as to the issue of grant
of relief or the maintainability of a petition under those circumstances.

4. When it comes to the issue of applicability of settled legal principles like

Res Judicata or Res Judice, the CLB will exercise its discretion based on
the facts of the case and no hard and fast rule can be laid in this regard.

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