TOPIC – CRITICAL ANALYSIS OF WINDING UP OF A COMPANY

INTRODUCTION
Winding up of the Company is a legal mechanism of permanently shutting down a company. It is
a process by which the Company's corporate existence comes to an end post which the Company
goes in for dissolution under the surveillance of a Liquidator. The Liquidator monitors and
administers the Company's assets during this crucial stage of the Company's lifetime, to make
sure the stakeholders' interest is not hampered. Ultimately, dissolution kicks in, wherein the
Company is dissolved and the name is struck off by the Registrar of Companies. Hence, the
Company's life comes to an end.

The provisions of winding up for the first time were introduced into the legal fraternity through
the Companies Act, 1956, and later were retained by the Companies Act, 2013. Under the
Companies Act, 1956 there were three modes of winding up:

a. Winding Up by Court or Compulsory Winding Up;

b. Voluntary Winding Up and
c. Winding Up subject to the supervision of the Court

But through the Companies (Second Amendment) Act, 2002, the third provision was omitted,
and the word 'Court' was substituted by 'Tribunal'.

A circumstance under which a company is unable to pay its debts used to fall under the category
of winding up by Court. The Company's inability to pay debts was considered when it failed to
pay off debt amounting to more than Rs.500 (Five Hundred Rupees), which was subsequently
changed to a sum exceeding Rs.1,00,000 (One Lakh rupees) through the Companies (Second
Amendment) Act, 2002.

Under such a situation, the creditors initially used to issue a demand notice, which the Company
had to reply within 21 days. Still, if the Company fails and neglects to pay the due amount, the
winding-up proceedings would initiate. The Companies Act, 1956 was revised, and an amended
Companies Act was introduced as the Companies Act, 2013,but the winding up provisions
remained the same, till the Legislature introduced the new Code i.e. Insolvency and Bankruptcy
Code, 2016. Interestingly, neither the Companies Act, 1956 nor the Companies Act, 2013 ever
defined the term winding up. It was only on 15th November 2016; a definition section was
inserted under the Companies Act, 2013, when IBC was introduced, as Section 2(94A) of the
Act, which now defines winding up as "winding up under this Act or liquidation under the
Insolvency and Bankruptcy Code, 2016, as applicable."
The process of winding-up of a company is not very simple, it includes within it many
complexities and technicalities. Earlier there was just the Companies Act, 2013, which governed
this area, however with the enactment of the Insolvency and Bankruptcy Code, 2016, it has
become more difficult to apply these provisions simultaneously and to decide precedence.
However, the process of compulsory winding up under the Company Act, 2013 a favourable
framework for companies for winding up.

RESEARCH METHODOLOGY
The research is based upon doctrinal and analytical form of research.

AIM AND OBJECTIVES

 To study the meaning of winding up of a company.
 To study the need for winding up of company.
 To analyse the mode of winding up by tribunal
 To find out provisions regarding the voluntary winding up
 To find out the impact of insolvency & bankruptcy code 2016 on winding up

HYPOTHESIS

Sometimes it became necessary to close the companies for several reasons. Liquidation and
winding up of them are the procedures laid out in the said Act. It may be required due to a
number of reasons including closure of business, loss, bankruptcy, passing away of promoters,
etc. The Code and Regulations provide a favourable framework for companies and limited
liability partnerships. Though the process remains almost similar to previous regime, but the
major change has taken place in initiation of winding up process.

RESEARCH QUESTIONS

1. Whether non payment of debts and non compliance to companies act leads to winding up?
2. Whether the insolvency of a company is the main reason behind its liquidation and winding
up?

MODE OF CITATION

This research project follows Blue Book 20th Edition citation style.