a

WINDING UP OF COMPANY BY TRIBUNAL AND IMPACT OF

INSOLVENCY AND BANKRUPTCY CODE 2016

A SEMINAR PAPER SUBMITTED TO

SAVITRIBAI PHULE PUNE UNIVERSITY (FACULTY OF LAW)

SUBMITTED BY

ANWAR KHAN
I YEAR LL.M, SEMESTER-I, ROLL NO.06

UNDER THE GUIDANCE OF

DR. RESHMA AHIRE
(ASST. PROFESSOR)

POST GRADUATION TEACHING DEPARTMENT OF LAW

AND

Ph.D. RESEARCH CENTRE

A. K. K. New Law Academy & Ph.D. (Law) Research

Center
2390 B, K. B. Hidayatullah Rd, Azam Campus, Pune, Maharashtra 411001

DECEMBER, 2022
 Table of Contents

1. WINDING UP OF COMPANY: AN INTRODUCTION………………......02

1.1 Aims and Objectives of the Study
2.2 Research Question
2.3 Hypothesis of Research Study
2.4 Research Methodology
2.5 Scope of the Study
2.6 Statement of Problem

2. CONCEPT OF WINDING UP OF COMPANY ………………………….05

2.1 Concept of Winding up
2.2 Meaning of Winding Up of Company
2.3 Difference between Winding Up and Dissolution

3. MODES OF WINDING UP OF COMPANY ………………….………….07

3.1 Winding Up by the Tribunal
3.2 Voluntary Winding Up
3.2.1 Members’ Voluntary Winding Up
3.2.2 Creditors’ Voluntary Winding Up

4. PETITION FOR WINDING UP OF THE COMPANY................................15

5. POWERS AND FUNCTIONS OF TRIBUNAL…………………………...18

6. LIQUIDATION UNDER INSOLVENCY AND

BANKRUPTCY CODE 2016………………………………………………21

7. PROCEDURE FOR WINDING UP UNDER NEW REGULATIONS……22

8. CONCLUSION…………………………………………………………….24

9. SUGGESTIONS……………………………………………………………25

10. BIBLIOGRAPHY….....................................................................................26

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 CHAPTER 1

WINDING UP OF A COMPANY

1. INTRODUCTION

Winding up or liquidation is the process by which the management of a

company's affairs is taken out of its directors hands, its assets are realised by a
liquidator, and its debts and liabilities are discharged out of the proceeds of realisation
and any surplus of assets remaining is returned to its members or shareholders.

According to Halsbury's Laws of England," Winding up is a proceeding by

means of which the dissolution of a company is brought about & in the course of
which its assets are collected and realized; and applied in payment of its debts; and
when these are satisfied, the remaining amount is applied for returning to its members
the sums which they have contributed to the company in accordance with Articles of
the Company"

Winding up of a company might be required because of various reasons

including conclusion of business, misfortune, bankruptcy, passing endlessly of
promoters, and so forth. The methodology for winding up of a company can be
initiated intentionally by the shareholders or creditors or by a Tribunal. On
introduction of the winding up application, the court in the wake of hearing the
request of has the ability to either expel it or to make an interim request as it thinks
suitable. It can even appoint the temporary liquidator of the company till the passing
of winding up arrange. It can even appoint the temporary liquidator of the company
till the passing of winding up arrange. It might even make a request for winding up
with or without cost. It is a procedure by which the properties of the company are
directed for the advantage of its members and creditors. The individual designated for
directing the advantages and liabilities is called Liquidator. If there should be an
occurrence of obligatory winding up. the outlet is delegated by the Tribunal under
section 275 of the Act; or, if there should be an occurrence of voluntary winding up,
the outlet is selected by the company itself under section 310 of the Act.

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The Insolvency and Bankruptcy code. 2016 has also included a lot of amendments to
the Act. The Code and Regulations provide a favorable 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. This
research summarizes the provisions of compulsory winding up by the Tribunal,
governed by the Companies Act, 2013.

1.1 AIMS AND OBJECTIVES OF THE STUDY

The major objective of the study is to understand and analyse the Winding up of
Company under Act of 2013. The specific objectives are:

 To study the meaning of winding up of a company.

 To analyse the mode of winding up.
 To interpret the provisions regarding the compulsory finding up and
 To understand the grounds of Compulsory winding up by National Company Law
Tribunal (NCLT).

1.2 RESEARCH QUESTION

• What is the procedure of Compulsory winding up of a company?

• What are the modes of winding up of a company?

• What are the effects of compulsory winding up of a company?

• What are the changes came in winding up of companies after Insolvency and
Bankruptcy Code, 2016.

1.3 HYPOTHESIS

 A director owes fiduciary duties towards the company, individual shareholders,

creditors or fellow directors in the event of winding up.
 With the advent of Bankruptcy and Insolvency code 2016, the interest of
stakeholders has been upgraded.
 The company courts have majorly been active in protecting the rights of the
stakeholders.

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1.4 RESEARCH METHODOLOGY

The methodology used in this study is Doctrinal. It is based on the information

and data collected from secondary source. They include publication research,
Journals, historical information of both past and present. When a research is
concerned with some legal problem issue or question, it is referred to as doctrinal,
theoretical or pure legal research Doctrinal research is a theoretical study where
mostly secondary source of data are used to seek to answer one or two legal
propositions or questions or doctrines. Its scope is very narrow and there is no such
need of field work.

1.5 THE SCOPE OF STUDY

The scope of study includes the purview within which the project work lies.
The subject explores the meaning of compulsory winding up of a company. Further, it
elucidates the modes of winding up under the company act. It also tries to understand
the impact of insolvency & bankruptcy code 2016 on winding up. This topic has been
clearly enunciated with the help of articles from magazines, newspapers, books and
other such e-article databases that have been explored.

1.6 STATEMENT OF PROBLEM

Liquidation is the process where a firm's assets and liabilities are terminated,
realized and subsequently distributed. In many cases, the firm ceases to exist.
Members of the firm sometimes voluntarily initiate the liquidation process. Other
times it is compelled by a creditor's petition to the courts for failure to uphold
contractual payments.

Since we believe in Going Concern Assumption, as we want our business to

flourish more & more, but at some point of time due to several reasons one has to
close down his business and that stage is known as winding up of a company.

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 CHAPTER 2
CONCEPT OF WINDING UP OF A COMPANY

2.1 CONCEPT
The winding up of a company is the last stage of a companies' existence. It is
the process by which the company is put to an end ie, the process through which its
corporate existence comes to an end. And it is finally dissolved. As per section 270 of
the Companies Act, 2013 a company can be wound up either by a National Company
Law Tribunal ("Tribunal") or by way of voluntary winding up. There may be several
reasons for winding up of the company including mutual agreement among
stakeholders, loss, bankruptcy, death of promoters etc.

With a view to systemize the procedure of winding up of a Company under

Companies Act, 2013. The Ministry of Corporate Affairs (MCA") vide notification,
has notified the Companies (Winding Up) Rules, 2020.1 The said Rules are applicable
to " companies going into winding up for the circumstances mentioned under section
271 "and" Summary procedure for liquidation under section 361 "of the Companies
Act, 2013 and shall be applicable with effect from April 01, 2020.It is pertinent to
mention here that the proceedings pertaining to voluntary winding up and winding up
on the grounds of inability to pay debts fall within the ambit of Insolvency and
Bankruptcy Code, 2016 since its enforcement.

2.2 MEANING OF WINDING UP OF COMPANY: -

 “Winding up is a means by which the dissolution of a company is brought about

and its assets are realised and applied in the payment of its debts. After
satisfaction of the debts, the remaining balance, if any, is paid back to the
members in proportion to the contribution made by them to the capital of the
company.”

1
Voluntary winding up now came under IBC, 2016 Notification by MCA on Jan 24, 2020

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 As per Section 2(94A) of the Companies Act, 2013,

“Winding up” means winding up under this Act or liquidation under the
Insolvency and Bankruptcy Code, 2016. Thus, winding up ultimately leads to the
dissolution of the company. In between winding up and dissolution, the legal
entity of the company remains and it can be sued in a Tribunal of law In either
case the company moves toward becoming vanishing company that at last
outcomes in the conclusion of the organizations.

 Meaning of winding up by the Court:-

Winding up a company by an order of the Tribunal is known as compulsory winding

up. Winding up by the court or obligatory winding up is initiated by application by
method for request of to fitting Court for a winding up arrange. Section 10 of the
Companies Act, 1956 manages the purview of for entertaining winding up request.
The High court has locale in connection to the place at which the enrolled office of
the company is arranged, or The District Court in which locale has been vested either
by the Act or by warning of Central Government. GTC Industries Ltd v.
Parasrampuria Trading2, it was held that exclusive High Court where the enrolled
office is arranged has ward in winding up, regardless of whether there was assertion
between gatherings will be settled under the watchful eye of High Court where
enlisted office isn't arranged.

2.3 DIFFERENCE BETWEEN WINDING UP AND DISSOLUTION

WINDING UP DISSOLUTION
1. Winding up is a proceeding by means 1. The legal existence of company is
of which company is dissolved and in brought to an end by dissolution Winding
course of dissolution, assets are realized, up precedes the dissolution.
liabilities are paid off and surplus is
distributed among members.

2. Winding up precedes the dissolution. 2. It is the final stage where the existence
of company is withdrawn by law.

3. The liquidator can present the 3. Once the order of dissolution is made
company in winding up proceeding. by the Court, liquidator cannot represent
the company.

4. Winding up proceeding can be started 4. For the dissolution of the company,

without the intervention of the court. order of the court is essential.

2
2001 104 compcas 368 All

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 CHAPTER 3

MODES OF WINDING UP OF COMPANY

3. MODES OF WINDING UP
There are two modes of winding up of a company,

1. Winding up under the order of the Tribunal3

2. Voluntary winding up, (which itself of two kinds, namely):-
I Members’ voluntary winding up, and
II Creditors’ voluntary winding up.

3.1 WINDING UP BY THE TRIBUNAL

Winding up of a company under the order of a Court is also known as compulsory
winding up.

3.1.1 GROUNDS FOR COMPULSORY WINDING UP [Section 271(1)]

A company may be wound up by the Court in the following cases:-

1. Special resolution of the company

If the company has, by special resolution, resolved that it be wound up by the
court. The court is, however, not bound to order winding up simply because the
company has so resolved. The power is discretionary and may not be exercised where
winding up would be opposed to the public or company’s interests.

In Bombay Metropolitan Transport Corpn Ltd v. Employees 4 where the company

itself was the petitioner and the financial position of the company was eroded, the
court ordered for its winding up in public interest.

3
Substituted for court by companies (second amendment )act,2002 (11 of 2003),
4
(1991) 71 Comp Cas 473 Bom.

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2. Default in delivering the statutory report to the Registrar or in holding
statutory meeting
If a company has made a default in delivering the statutory report to the
registrar or in holding the statutory meeting, it may be ordered to be wound up. A
petition on this ground can be made either by the Registrar or by a contributory. In the
latter case the petition for winding up can filled only after the expiry of 14 days from
the day on which the statutory meeting ought to have been held. If it is brought by any
other person e.g., a creditor, it must be filed before the expiration of fourteen days
after the last day on which the statutory meeting ought to have been held. The Court
may, instead of making a winding up order, direct that the statutory report be
delivered or that a statutory meeting be held. The Court may order the costs to be paid
by any persons who are responsible for the default.

3. Failure to commence, or suspension of, business

The Court exercises power in this case only if the company has no intention of
carrying on its business or if it is not possible for it to carry on its business.

If a company has not begun to carry on business within a year from its
incorporation or suspend its business for a whole year, the Court will not wind it up
if—
(a) There are reasonable prospects of the company starting business within a
reasonable time, and
(b) There are good reasons for the delay, i.e., the suspension of business are
satisfactorily accounted for and appear to be due to temporary causes.

4. Reduction in membership
If, at any time, the number of members of a company is reduced in the case a
public company, below seven or in the case of a private company, below two, the
company may be ordered to be wound up by the Court.

5. Inability to pay its debts

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 A company may be wound up by the Court if it is unable to pay its debts. The
test is whether the company has reached a stage where it is commercially insolvent
that is to say, that its existing and probable assets would be insufficient to meet the
existing liabilities.
“Commercially insolvent” means that the company is unable to pay debts or liabilities
as they arise in the ordinary course of business.

 When is a company unable to pay its debts?

According to section 271(2), a company shall be deemed to be unable to pay its
debts in the following cases:

I. Statutory Notice: If a creditor to whom the company is indebted for a sum

exceeding one lakh rupees has served on the company at its registered office, a
demand for payment and the company has for three weeks thereafter neglected to pay
or otherwise satisfy him, the company is unable to pay its debts. But here the debt
must be presently payable and the title of demand be complete, bonafide and
substantial and not a disputed title.

II. Decreed debt unsatisfied: If execution or other process issued on a decree or

order of any Court in favour of a creditor of the company is returned unsatisfied in
whole or in part the company is deemed to be unable to pay its debt.

III. Commercial insolvency: A company is deemed to be unable to pay its debts,

if it is proved to the satisfaction of the Court that the company is unable to pay its
debts. In determining whether a company is unable to pay its debts, the Court shall
take into account the contingent and prospective liabilities of the company also.

6. Just and equitable

The words ‘just and equitable’ are of the widest significance and do not limit the
jurisdiction of the Court to any particular case.

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The principle of just and equitable clause baffles a precise definition. It was held in
the Hind Overseas (Pvt.) Ltd. v. R.P. Jhunjhunwalla5, must rest with the judicial
discretion of the Court depending upon the facts and circumstances of each case.

 What is ‘just and equitable’ clause:-

It depends upon the facts of each case. The Court may order winding up under the
‘just and equitable’ clause in the following cases:

I. Loss of substratum: The substratum of a company can be said to have disappeared

only when the object for which it was incorporated has substantially failed, or when it
is impossible to carry on the business of the company except at a loss, or the existing
and possible assets are insufficient to meet the existing liabilities.

 The substratum of a company disappears:-

(i) When the very basis for the survival of the company is gone.
In Pirie v. Stewart6 a shipping company lost its only ship, the remaining asset being a
paltry sum of £363. A majority in number and value of shareholders petitioned for its
compulsory winding up but a minority shareholder opposed this and desired to carry
on the business as charterer. Held, it was ‘just and equitable’ that the company should
be wound up.

(ii) When the main object of the company has substantially failed or
become Impracticable: Where a company’s main object fails, its substratum is gone
and it may be wound up even though it is carrying on its business in pursuit of a
subsidiary object.

In German Date Coffee Co., Re7 , the objects clause of the German Date
Coffee Co. stated that it was formed for the working of a German patent which would
be granted for making a partial substitute for coffee from dates and for the acquisition
of inventions incidental thereto and also other inventions for similar purposes. The

5
(1976) 46 Comp. Cas. 91 (S.C.)
6
(1904) 6 F. 847
7
(1882) 20 Ch. D. 169

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German patent was never granted but the company did acquire and work a Swedish
patent and carried on business at Hamburg where a substitute coffee was made from
dates, but not under the protection of a patent. Held, on a petition by 2 shareholders,
that the main object could not be achieved and, therefore, it was ‘just and equitable’
that the company should be wound up.

II. Losses:
Secondly, it is considered to wind up the company when it cannot carry on
business except at losses. It will be needless indeed, for a company to carry on
business when there is no hope of achieving the object of trading at a profit. But a
mere apprehension on the part of some shareholders that the assets of the company
will be frittered away and that loss instead of gain will result has been held to be no
ground.

III. Oppression of Minority

When the management is carried on in such a way that the minority is
disregarded or oppressed. Oppression of minority shareholders will be a ‘just and
equitable’ ground where those who control the company abuse their power to such an
extent as to seriously prejudice the interest of minority shareholders.

IV. Where there is a deadlock in the management of the company:

When shareholding is more or less equal and there is a case of complete
deadlock in the company on account of lack of probity in the management of the
company and there is no hope or possibility of smooth and efficient continuance of
the company as a commercial concern, there may arise a case for winding up on the
just and equitable ground.

V. Where public interest is likely to be prejudiced.

Having regard to the provisions of section 241 to 246 (dealing with prevention
of oppression and mismanagement) where the concept of prejudice to public interest
is introduced, would appear that the Court winding up a company will have to take
into consideration not only the interest of shareholders and creditors but also public
interest in the shape of need of the community, interest of the employees, etc.

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3.2 VOLUNTARY WINDING UP

Voluntary winding up means winding up by the members or creditors of a

company without interference by the Court. The object of a voluntary winding up is
that the company, i.e. the members as well as the creditors, are left free to settle their
affairs without going to the Court. They may however apply to the Court for any
directions, if and when necessary.

 Circumstances in which a company may be wound up voluntarily

I. By passing an ordinary resolution:

When the period, if any fixed for the duration of a company by the Articles
has expired, the company in general meeting may pass an ordinary resolution for its
voluntary winding up. The company may also do so when the event, if any, on the
occurrence of which the Articles provide that the company is to be dissolved, has
occurred.

II. By passing a special resolution:

A company may at any time pass a special resolution that it be wound up
voluntarily. No reasons need be given where the members pass a special resolution for
the voluntary winding up of the company. Even the Articles cannot prevent the
exercise of this statutory right.

3.2 TYPES OF VOLUNTARY WINDING UP

3.2.1 MEMBERS’ VOLUNTARY WINDING UP

 Declaration of solvency:
In a voluntary winding up of a company if a declaration of its solvency is
made in accordance with the provisions of section 325, it is a members’ voluntary
winding up. The declaration shall be made by a majority of the directors at a meeting
of the Board that the company has no debts or that it will be able to pay its debts full

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within 3 years from the commencement of the winding up. The declaration shall be
verified by an affidavit.

The declaration shall have effect only when it is —

(a) Made within five weeks immediately before the date of the resolution, and
delivered to the Registrar for registration before that date; and
(b) Accompanied by a copy of the report of the auditors of the company on:-

(i) The profit and loss account of the company from the date of the last profit and
loss account to the latest practicable date immediately before the declaration of
solvency,
(ii) The balance sheet of the company, and
(iii) A statement of the company’s assets and liabilities as on the last mentioned
date.

A winding up in the case of which a declaration has been made and delivered is
referred to as a member voluntary winding up and a winding up in the case of which a
declaration has not been so made and delivered is referred to as a creditors’ voluntary
winding up.

3.2.2 CREDITORS’ VOLUNTARY WINDING UP:

A voluntary winding up of a company in which declaration of its solvency is
not made is referred to as a creditors’ voluntary winding up.

3.2.3 Members’ and creditors’ voluntary winding up compared

1. Declaration of solvency: In case of a members’ voluntary winding up, there is

declaration of solvency. In case of a creditors’ voluntary winding up, there is no such
declaration.

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2. Appointment of liquidator: In a members’ voluntary winding up, the liquidator is
appointed by the company and his remuneration is fixed by the company. In a
creditors’ voluntary winding up, he is appointed by the creditors and his remuneration
is fixed by the committee of inspection or, if there is no such committee, by the
creditors.

3. Committee of inspection: There is no committee of inspection in a members’

voluntary winding up; in a creditors’ voluntary winding up the creditors may appoint
a committee of inspection.

4. Powers of liquidator: In a members’ voluntary winding up, the liquidator can

exercise certain powers with the sanction of a special resolution of the company; in a
creditors’ voluntary winding up, he can do so with the sanction of the Court or the
committee of inspection or of a meeting of the creditors

In Rasik Lal S. Mardia v. OL of Mardia Chemicals LTD 8, Court applied

the principle of natural justice. Since during the course of winding up,th protection of
interest of all concerned and the protection of property of the company is the main
concern of the court, court held that although the powers and authority are vested in
the official liquidator to represent the company in liquidation, the Act does not debar
the promotors, shareholders of guarantor from rendering proper and effective
assistance to the official liquidator. Preventing persons from the assisting official
liquidator would be violative of principles of natural justice.

It has rightly been observed in Ratna Commercial enterprises P. Limited v.

Vasu Tech. Ltd9, that winding up was not a mode of recovery of debt or amount
payable by company. It was the discretion of the court to order winding up which
should be the last resort.

8
(2009)149 Comp cas278 (Guj)
9
2008 Latest Caselaw 755 Del

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 CHAPTER 4

PETITION FOR WINDING UP OF THE COMPANY

 WHO MAY FILL THE PETITION: - A petition for compulsory winding up of

a company may be filed in the Tribunal by any of the following persons (Sec.
272).

 Petition by the Company - A company can file a petition to the Tribunal for
its winding up when the members of the company have resolved by passing a
Special Resolution to wind up the affairs of the company. Managing Director
or the directors cannot file such a petition on their own account unless they do
it on behalf of the company and with the proper authority of the members in
the General Meeting.

 Petition by the Contributories - A contributory shall be entitled to present a

petition for the winding up of the company, notwithstanding that he may be
the holder of fully paid-up shares or that the company may have no assets at
all, or may have no surplus assets left for distribution among the holders after
the satisfaction of its liabilities. It is no more required of a contributory
making petition to have tangible interest in the assets of the company.

 Petition by the Registrar - Registrar may with the previous sanction of the
Central Government make petition to the Tribunal for the winding up the
company only in the following cases:

(a) 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;

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 (b) If 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;
(c) 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 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.

 Petition by the Central Government or a State Government- on the ground

that 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.

 Any person authorized by the Central Government in that behalf.

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 CHAPTER 5

POWERS AND FUNCTIONS OF TRIBUNAL

Section 273(1) Companies Act ,2013 provides 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 of the company till the making of a winding up
order;
(d) Make an order for the winding up of the company with or without costs; or
(e) Any other order as it thinks fit:

Provided that an order under this sub-section shall be made within ninety days
from the date of presentation of the petition: Provided further that before appointing a
provisional liquidator under clause (c), the Tribunal shall give notice to the company
and afford a reasonable opportunity to it to make its representations, if any, unless for
special reasons to be recorded in writing, the Tribunal thinks fit to dispense with such
notice.

Provided also that the Tribunal shall not refuse to make a winding up order on
the ground only that the assets of the company have been mortgaged for an amount
equal to or in excess of those assets, or that the company has no assets.

Section 273(2) Companies Act, 2013 provides where a petition is presented on

the ground that it is just and equitable that the company should be wound up, the
Tribunal may refuse to make an order of winding up, if it is of the opinion that some
other remedy is available to the petitioners and that they are acting unreasonably in
seeking to have the company wound up instead of pursuing the other remedy.

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 As per Section 274 of the Companies Act, 2013 on the filing of petition for
winding up by any person other than the company, if the tribunal is satisfied, it shall
direct the company by an order to file objections along with statement of affairs
within 30 days, which could get extended by another 30 days in special
circumstances.

As per Section 275 of the Companies Act, 2013 an official liquidator or a

liquidator from panel shall be appointed by the Tribunal at the time of passing of
winding up order. A panel consisting of CS/CS/Advocates and other notified
professionals with at least 10 years’ experience in company matters is maintained by
the Central Government.

As per Section 281 of the Companies Act, 2013, a report shall be submitted by
Liquidator within 60 days to the Tribunal, containing details such as-

Nature and details of assets of company with their location and value; amount
of capital issued, subscribed & paid up, the existing and contingent liabilities of the
company including names and other details, the debts due to company and names,
address; list of contributories with amount details; details of trademark, intellectual
properties, if owned by company; details of contracts, joint ventures and
collaborations, if any, details of holding and subsidiary company, if any, details of
legal cases filed by or against the company, any information which the tribunal may
direct or liquidator may consider necessary.

On consideration of the report of Liquidator. Tribunal shall fix the time limit
within which entire proceedings shall be completed and company be dissolved. The
Tribunal may also order a sale of Company as a going concern or its assets or part
thereto. After passing of winding up order by the Tribunal, the Tribunal shall settle
list of contributries, cause rectification of register of members in all cases where
required and shall cause assets of the company to be applied to discharge its liability.

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5.1 CIRCUMSTANCE IN WHICH COMPANY MAY BE WOUND BY
TRIBUNAL:-

Section 271 of the Companies Act, 2013 gives different grounds based on
which a request of can be filled in the Tribunal for the winding up of the company:
Inability to pay debts: Subsection (2) of section 271 gives that the inability to pay
debts essentially emerge under three conditions.

Where the company neglects to clear the obligation of the creditor within three
weeks instantly preceding the date of demand for payment being made; Where
execution or different process issued on an announcement or request of any court for
the company is returned unsatisfied in entire or part; and Where it is demonstrated to
the satisfaction of the court that the company is unfit to pay its debts.

A request of for winding up on the ground of inability to pay debts must

contain all the significant information about the obligation. The request of must unveil
the resources of the company and whether they are adequate to meet the liabilities
including contingent and forthcoming liabilities. Further, the request of must
additionally uncover the situation of settled resources and additionally valuation of
plant and machinery of the company. Where an obligation is true blue debated by the
company and the court is fulfilled with the company's resistance a winding up request
won't be made.

In K. Appa rao v. Sarkar Chemicals (P) Ltd 10 , the Andhra Pradesh High Court
held that where a company has an at first sight sustainable safeguard or a true blue
question of its commitments to release the asserted debts or liabilities, the court may
not entertain proceedings for the winding up, considerably less request winding up.

10
1995 84 Comp Case 670 AP

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 CHAPTER 6

LIQUIDATION UNDER INSOLVENCY AND BANKRUPTCY

CODE 2016

 Changes In Winding Up After The Insolvency And Bankruptcy Code 2016

The Insolvency & Bankruptcy Code, 2016 consolidate and amend the laws
relating to insolvency of companies, partnership firms, limited liability partnership
into a single legislation. It aims to provide time bound resolution and empowered the
creditors to initiate the insolvency resolution process if default occurs.

After the MCA wide notification no. S.O. 3453 E of November 15th, 2016,
section 255 of Insolvency & Bankruptcy Code, 2016 amended following sections of
the Companies Act, 2013. In the definition of Winding up, new insertion was made
which makes it as winding up means winding up under this Act or liquidation under
the Insolvency & Bankruptcy Code, 2016 as applicable.

Section 270 of the Companies Act, 2013 regarding the Modes of winding up, has
been deleted after the enforcement of this Code. It has been substituted by Winding
up by Tribunal Section 271, companies Act, 2013 which deals with Circumstances in
which company may be wound up by Tribunal has been substituted namely-A
company may be wound up by the Tribunal, on petition under Section 272.

If the company has resolved by special resolution that company be wound up

by the Tribunal; if the company has acted against sovereignty, integrity, security of
India friendly relations with foreign states, public order, decency, modlity; if the
tribunal is of opinion that acts of the company are fraudulent or the object for which it
was formed was fraudulent or unlawful or persons concerned in formation and
management have been held guilty of fraud, misconduct and it would be proper for it
to be wound up; if the company defaulted in filing financial statement for the
immediately preceding last financial years with the Registrar; if Tribunal is of opinion
that company should be wound up on just and equitable grounds.

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 The sub-section has been substituted in Section 275 of the Companies Act,
2013 as Section 275(2) which deals with Company Liquidators and their appointment
as per which Tribunal shall appoint the provisional or the Company Liquidator from
amongst the insolvency professionals registered under the Insolvency & Bankruptcy
Code, 2016.

Section 304 of the Companies Act, 2013 that deals with the circumstances in
which company may be wound up voluntarily has been omitted by the Insolvency &
Bankruptcy Code, 2016 along with other sections relating to voluntarily winding up
under the Act

The Insolvency and Bankruptcy Code, 2016 relates to re-organization and

insolvency resolution of companies, partnership firms and individuals in a time bound
manner. The Insolvency and Bankruptcy Code, 2016 applies to matters relating to the
insolvency and liquidation of a company where the minimum amount of the default is
Rs. 1 lakh (may be increased up to Rs.1 cr by the Government, by notification).

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 CHAPTER 7

PROCEDURE FOR WINDING UP UNDER NEW REGULATIONS

 STEP 1: One has to submit a declaration to Registrar of Companies, stating that

company will pay its dues and liquidation is not to defraud any person:

 STEP 2: Within 4 weeks of such declaration, special resolution has to be passed

for approval of proposal of voluntary liquidation and appointment of liquidator,

 STEP 3: Within 5 days of such approval, public announcement in newspaper and

website of company has to be made for inviting claims of stakeholders;

 STEP 4: Within 7 days of such approval, intimation should be given to ROC and
Board:

 STEP 5: Submission of preliminary report containing capital structure, estimates

of assets and liabilities, proposed plan of action within 45 days to a corporate
person:

 STEP 6: Verification of claims within 30 days and preparation of list of

stakeholders within 45 days from the last date of receipt of claims;

 STEP 7: For receipt of money due to corporate person, bank account needs to be
open in name of corporate person having words "in voluntary liquidation' after its
name..

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 STEP 8: Sale of assets and recovery of due money, uncalled capital is realised:

 STEP 9: The proceeds from realization to be distributed within 6 months from

receipt of amount to the stakeholders;

 STEP 10: The final report by the liquidator has to be submitted to corporate
person, ROC, the Board and application to NCLT

 STEP 11: The order of NCLT regarding dissolution to be submitted within 14

days of receipt of order.

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 CHAPTER 8

CONCLUSION

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.
Earlier, company or any of its creditors could file a voluntary winding up petition but
now company, directors, designated partners or persons responsible for exercising its
corporate powers can initiate the winding up process. Moreover. approval of creditors
representing two thirds of corporate debt is mandatory under the Code for initiating
voluntary winding up proceeding.

Winding up i. e. to bring to a conclusion or an end by putting in order is the

process by which the life of a company is ended and its property is administered for
the benefit of its members and creditors. It represents the last stage in life of the
company but it should be used as the last resort.

After analyzing and observing various legal propositions and situations it is

found that the right to apply for winding up is the creature of statute and not of
contract, and the winding up orders passed by the court are not judgments in rem. But
it should be marked that the winding up proceeding are greatly affected by the facts
and circumstances of a particular case.

The machinery of winding-up cannot be used as a pressure tactics, where a

suit has already been instituted for recovery of debt, under such circumstances, the
proceeding are in the nature of parallel proceedings in respect of the same cause of
action. As a result, such course should not be considered by the court more so to avoid
conflict of jurisdiction of findings by two parallel courts of competent jurisdiction.
Thus at last it can be said that a genuine case has to be made out rejecting the
malafide contention, in the interest of good faith and justice.

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 CHAPTER 9

SUGGESTIONS

Mounting cases in the court of law is a consequence of moderate development

of legal framework in the nation. Not at all like, different nations the advantage of
liquidation and winding up was not found in India. The ruin done being the moderate
development of winding up continuing which result in delay in the disintegration of
the organizations.

We are cheerful to see the change which will be purchased by the constitution
of NCLT and NCLAT. This ought to decrease the pending cases identifying with
winding up and liquidation of the company.

The move of the Government of the presentation of the Insolvency and

Bankruptcy code, 2016 is additionally ideal in diminishing the time taken in winding
up procedures. The forces to pass request of disintegration will be moved from courts
to NCLT.

In this way, the procedures of winding up are relied upon to get quickened. It
is cheerful to state that India could witness development in tackling the winding up
cases at a quick pace. In this way, the notorious winding up procedures can get some
force in India.

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 CHAPTER 10

BIBLIOGRAPHY

 REFERRED BOOKS

1. AVTAR SINGH, COMPANY LAW (2016)

2. R.K.BANGIA, COMPANY LAW (2018)

 ARTICLES

1. ESSAY ON WINDING UP OF COMPANIES, available at http://jurisonline.in/?p=27589
(Last Visited on 24th November, 2022)

2. THE ROLE OF LIQUIDATOR IN WINDING UP, available at
http://www.delhiol.com/databasefile/8ej (Last Visited on 24th September, 2022)




 WEBSITES

1. http://www.companyliquidator.gov.in/12/windingup_data.htm
2. https://acadpubl.eu/hub

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