MEANING OF WINDING UP CLAUSE(94-A) OF SECTION 2

IT IS A PROCESS NY WHICH THE ASSETS OF THE COMPANY ARE COLLECTED AND REALISED, ITS
LIABILITIES ARE DISCHARGED AND THE NET SURPLUS, IF ANY, IS DISTRIBUTED IN ACCORDANCE WITH
THE COMPANY’S ARTICLE OF ASSOCIATION.

GOWER HAS DEFINED – 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 WHO TAKES CONTROL OF THE COMPANY, COLLECTS ITS ASSETS, PAYS ITS DEBT AND
FINALLY DISTRIBUTES ANY SURPLUS AMONG THE MEMBERS IN ACCORDANCE WITH THEIR RIGHTS.

MODES OF WINDING UP SECTION 270:

1. BY THE TRIBUNAL
2. VOLUNTARY (NOT THERE ACCORDING TO THE INSOLVENCY AND BANKRUPTCY CODE,2016)

WINDING UP BY TRIBUNAL SECTION 271

THE COMPULSORY WINDING UP OF A COMPANY WHICH IS ALSO CALLED WINDING UP BY THE

TRIBUNAL, IS INITIATED BY AN APPLICATION BY WAY OF PETITION TO THE TRIBUNAL FOR A
WINDING UP ORDER.

CIRCUMSTANCES UNDER WHICH A COMPANY MAY BE WOUND UP BY THE TRIBUNAL

1.INABILITY TO PAY DEBTS

A COMPANY MAY BE ORDERED TO BE WOUND UP IF IT IS UNABLE TO PAY ITS DEBTS. THE

EXPRESSION “UNABLE TO PAY” HAS TO BE TAKEN IN COMMERCIAL SENSE OF BEING UNABLE TO
MEET CURRENT DEMANDS THOUGH THE COMPANY MAY BE OTHERWISE SOLVENT . SECTION 271
FURTHER PROVIDE THAT A COMPANY IS DEEMED UNABLE TO PAY ITS DEBTS IF A CREDITOR FOR AN
AMOUNT EXCEEDING ONE LAKH OF RUPEES DOES NOT GET HIS MONEY WITHIN TWENTY ONE DAYS
AFTER IT FELL DUE, AND THE CREDITOR IS ENTITLED TO MAKE A PETITION TO THE TRIBUNAL FOR AN
ORDER OF WINDING UP OF THE COMPANY.THE DEBT MUST, HOWEVER, BE REALLY DUE NOT UNDER
DISPUTE.

2.SPECIAL RESULATION

A COMPANY MAY BE WOUND UPMBY AN ORDER OF THE TRIBUNAL IF A SPECIAL RESOLUTION FOR
ITS WINDING UP HAS BEEN PASSED BY THE COMPANY. THE TRIBUNAL IS HOWEVER, NOT BOUND TO
ORDER WINDING UP SIMPLY BECAUSE THE COMPANY HAS SO RESOLVED. THE POWER OF THE
TRIBUNAL BEING DISCRETIONARY, IT MAY BE EXCERCISED IF THE WINDING UP IS OPPOSED TO THE
PUBLIC INTEREST OR THE INTEREST OF THE COMPANY.

3.COMPANY ACTED AGAINST NATIONAL INTEREST

THE TRIBUNAL HAS POWER UNDER SECTION 271(C)OF COMPANIES ACT 2013 IF IT IS FOUND THAT
THE COMPANY HAS ACTED AGAINST THE INTERESTS OF THE SOVEREIGNTY AND INTEGRITY OF INDIA,
THE SECURITY OF THE STATE , FRIENDLY RELATIONS WITH FOREIGN STATES, PUBLIC ORDER,
DECENCY OR MORALITY.

4.WINDING UP ON APLLICATION MADE BY REGISTRAR

if an application made by the registrar of the companies of or any other person authorised by the
central government by the notification under this act, the Tribunal is of the opinion that the affairs
of a company have been conducted in a fraudulent manner or the company has been formed for a
fraudulent or unlawful purpose or person 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 may be wound up.

5.default of company in filling with registrar its financial statement etc

where the company has made a default in filling with the registrar its financial statement or
annual returns for immediately preceding five consecutive years, the Tribunal may order winding
up where a company.
where a company has not commenced its business within one year from the date of its
incorporation, or has suspended its business for a whole year, it may be ordered to be wound up.
the power of Tribunal being discretionary, it will not exercise unless there are indications that the
company has no internet commence or continue its business.

6.just and equitable cause

The Companies Act provides that the Tribunal can order winding up of a company when the
Tribunal is of the opinion that it is just and equitable that the company should be wound up. it is
the remedy of The Last Resort. in this case the Tribunal has wide powers and has a complete
descretion to decide when it just and equitable to order winding up of a company. the
discretionary authority of the Tribunal Even enables it to subject the exercise of legal rights to
equitable consideration. the expression just and equitable is General in nature and it is undesirable
to to define the circumstances in which it will apply.

the discretion of the Tribunal under this Clause is very wide and the courts have exercised this
description on a variety of grounds which may be generalized in the following categories:-

I deadlock in the management of a company :- where there is complete that deadlock in

management company, the Tribunal may order winding up on just and equitable ground.
ii where the company has lost hits substratum :- the substratum of a company is Deemed to have
been lost where:
1. subject matter of the company is gone, or
2. the main object for which the company was formed fail to materialize; or
3. it is impossible to carry on the business of the company except at a loss; or
4. the existing and possible future assets are insufficient To meet the liabilities of the company.

iii mismanagement and losses :- the Tribunal is justified in ordering winding up Of a

company under the just and equitable clause where it is not possible for the company to
carry on business except at losses and there are no prospects of achieving profits.

iv oppression minority shareholders by the majority :- it would be just and equitable on the
part of the Tribunal to order winding up of a company where majority shareholders have
adopted oppressive or squeezing policy towards the majority shareholder.

v fraudulent or illegal purpose :- where company has been conceived for brought into
existence fraudulently for some illegal purpose it is just and equitable to order its winding
up.

who may file petition for winding up section 272(1)

1. the company

2. any contributory or contributories

3. the registrar of Companies

4. any person authorised by central government in that behalf

5. petition by creditors

DATE OF COMMENCEMENT OF WINDING UP

In any other case, the winding- up of the company by the Court shall be deemed to commence at the time

of the presentation of the petition for the winding-up UNDER SECTION 357(2).

Consequences of Winding Up
The most important consequences of the winding up of a company are as follows −

As Regards the Company Itself

 Winding up doesn’t take away the existence of the company completely.
 The company continues to exist as a corporate entity till its dissolution.
 All the ongoing business of the company is administered by the liquidator
during the phase of liquidation.

As Regards the Shareholders

 Contributors − a new statutory liability comes into existence.
 Every transaction of share during the liquefaction done without the approval of
the liquidator is termed void.

As Regards the Creditors

 The creditors cannot file a case against the company except with the consent
of the court.
 If the creditors already have decrees, they cannot proceed with the execution.
 They must explain their claims and justify their claims to the liquidator.

As Regards the Management

 With the appointment of the liquidator, all the powers of the directors, chief
executives and other officers tend to cease.
 Only the powers to give notice of resolution and the power of appointment of
the liquidator upon winding up of the company are given to the members.

As Regards the Disposition of the Company’s Property

All the dispositions of the company’s properties are void if the dispositions are not
approved by the court or the liquidator.
What is Winding up of Company?
The first question we will address is- What is the Winding up of a
company? Winding up of a company essentially means that a
company is in the process of ending up its life. It is a method
wherein the dissolution of a company is brought out. It will not
make a company lose its entity, though. A company continues to
exist until dissolved. The underlying winding up idea is to call up
for liquidation where the company pays off creditor, dealt its
asset, and distributes remaining assets and surplus among its
shareholders.

Winding up can be put into motion by two methods, including

compulsory winding up under Tribunal and voluntary winding
up. We must note that Tribunal’s compulsory winding is regulated
under Company Act, 2013, whereas voluntarily winding up (which
was abolished from the Companies Act, 2013) is now under
the Insolvency and Bankruptcy Code, 2013. 

Who is “company liquidator”?

Before we embark on the winding-up let’s know who administers
this process. A company liquidator is a person appointed for
controlling and regulating the winding-up process. A company
liquidator in the case of winding up by the Tribunal, is appointed
by the Tribunal itself. Whereas in case of voluntary winding up,
the company or creditor appoints the company liquidator.

Winding up by Tribunal
When the court is satisfied that a company cannot continue its
business, it orders winding up. This is also known as compulsory
winding up.

Grounds for Winding up by Tribunal

Company Act, 2013, sets out a basic rationale for the Tribunal to
pass the order to wind up a company. The following are the
grounds on which Tribunal can order winding up.

(a) Special resolution-

When the company is in the position where it is resolved that it

should wind up, it can go to the Tribunal. The company makes a
special resolution for this purpose. However, this method of
winding up is not preferable as it is comparatively more time-
consuming and costly than voluntary winding up.

(b) Acts against sovereignty-

The court orders winding up of the company when it acts against

India’s sovereignty.

(c) Default in submitting final statements to the

registrar-

When the company does not file with the registrar its financial
statement for immediately preceding five consecutive financial
years, the Registrar or contributary can file a petition against the
company for winding up.

(d) Fraudulent conduct-

No fraudulent conduct! This happens to be the most important

point in the formation of any company. If the Tribunal finds out
that the company is carrying out its business in a fraudulent
manner or the purpose on which the company is formed is
fraudulent and highly unconventional, winding up is only the best
course of action it can take. Even if a person associated with the
company’s formation or management has been guilty of fraud,
misfeasance, or misconduct, it is proper that the company be
wound up.

(e)”Just and equitable”-

This point highly depends upon the opinion of the Tribunal. The
word “just and equitable” itself gives Tribunal a discretionary
power. There is no hard and fast rule regarding what is just and
equitable on which Tribunal is bound to construe.

The courts in the past have dissolved companies in

the following circumstances:

(1) Deadlock:

There is a complete deadlock in the company’s management due

to a lack of probity, and it is impossible to continue its
undertaking. Winding up on the just and equitable ground is
applicable.

In Yenidje Tobacco Co. Ltd, re (1916) 2 Ch 426, court-ordered

winding up even though its business was in a profitable state.
Hostility between the company’s partner made it difficult, in fact,
impossible for a company to carry on its business, and as a
consequence, there was a complete deadlock.

(2) Loss of substratum:

Loss of substratum means when the underlying foundation of the

company is lost. In such a case, it is subject to wind up under
just and equitable ground. Following are some of the reasons due
to which the company may lose its substratum: –

Firstly, a company lost its substratum when its main object is no

more existing. In German Date Coffee Co., re (1882) LR 20 Ch D
169, the company was established for fracturing coffee from
dates. The Government of Germany did not grant the patent for
the same, but the company embarked upon other patents. Court
hence held that the company’s substratum had failed, and
subsequently, it was ordered to wind up on the just and equitable
ground.
Secondly, where the company had come to a standstill position
because its only basis of survival has vanished, its substratum is
no more alive.

Thirdly, when the company is going through a loss which makes it

difficult to carry on its business any further even in the future, it
has lost its substratum. The order of the court relies on the
shareholder’s will. If the majority shareholder is against the
winding-up, the court cannot order the same.

Lastly, when the company’s liability is so huge that its asset is

insufficient to meet it. It was held that the company had lost its
substratum under just and equitable ground, and it should be
liquidated.

(3) Oppression of minority:

It is considered just and equitable to wind up the company where

the nature of its policy is such that it tends to oppress or
disregard the minority. Therefore, it is just and equitable to wind
up the company where the interest of the minority shareholders
is prejudiced.

(4) Losses:

It is just and equitable when the company’s losses are so

overwhelmed that there is no possibility whatsoever to get out of
its losses. In such cases a company can only have losses in its
hand if it continues to carry it business

Consequences of winding up Order

When the court orders winding up, the immediate consequence

results in the commencement of winding up. However, other
consequences are as follows: –

1. When the order of winding up is made, and the provisional

appointment is made, immediate intimation is provided to the
company liquidator, provisional liquidator, and Registrar.
2. After such an order is made, the company is obligated to
submit a certified copy of the order within 30 days to the
registrar.

3. The order of winding up shall be adjudicated as the discharge

of the company officials and employees. But in the event where
the company’s business is in operation, this rule will not apply. If
the company has hired employees for a specific period of time,
and the term has not expired when the order of winding up is
passed, the company cannot discharge such employee. Upon
such discharge, the company will be liable to a branch of
contract.

4. When the order has been made, no legal proceeding or suit

shall be commenced except with the Tribunal leave. Similarly,
any pending suits cannot be activated except with the leave of
the Tribunal. When court grant such leave, all the circumstances
of the case is taken into consideration. This is done to secure the
unsecured creditors and to preserve the assets of the company.

Voluntary winding up
Voluntary winding up is a method where the members or
creditors of the company winds up the company. The underlying
idea of voluntary winding up is to prevent the court from
intervening in the company’s matters. The company is free to
settle their affair by themselves. However, it can reach the court
to follow any direction.

Voluntary winding up is of two kinds: –

1. Members’ voluntary winding up

2. Creditors’ voluntary winding up
Grounds of voluntary winding up

1. Ordinary resolution-

Shareholders or creditors of the company can pass a resolution

for the company’s winding up by passing a simple majority vote.
An ordinary resolution is usually made when the company’s
period or fixed duration, as specified in the Article, has expired.

2. Special resolution-

If the company at any given time resolves that it should wind up,
it can pass a special resolution. Whenever voluntary winding up
occurs, members of the company shall not be liable to give any
reason for such winding up. A company can wind up even if the
Article of association does not mention any such winding up.

Consequences of voluntary winding up

1. The consequence on shareholders and members- if a company

has limited shares, its shareholders are liable to pay the full
amount up to their face value. He is not free of his obligation
even if the company is liquidated.

2. The consequence on the creditors-

i. Solvent company- where the company is solvent, all

debts payable on a contingency and all claims against
the company present or future, certain or contingent,
ascertained or sounding only in damages, shall be
admissible to proof against the company.
ii. Insolvent company- if a company is insolvent and has
wound up, it also has to follow the same rule as
provided above.