30.

WINDING UP OF A COMPANY
Winding up of a company – a means by which a company is dissolved. It is an unwarranted
event whereby:
• Its life for some unavoidable circumstances is put to an end; and
• Its property is administered for the benefit of its creditors and members.

Modes of Winding up: A company may be wound up either:

(i) Compulsorily i.e. by the Tribunal (NCLT) Or (ii) Voluntarily Compulsory
COMPULSORY WINDING UP
Winding up takes place by an order of the National Company Law Tribunal (NCLT).
Grounds for Compulsory Winding Up:
Tribunal may order winding up of a company (on a petition submitted before it) on the following
two basic grounds:
1. Inability to pay its debts i.e. the realizable value of its existing assets is not sufficient to
discharge its existing liabilities.
2. Special resolutions by the members’ .i.e. where at least 75% of members attending and voting
resolve to put an end to the life of their company.
When is a company deemed to be unable to pay its debts?
1. If a creditor to whom Rs.1 lakh or more is due to be paid by the company and after 21 days of
servicing demand notice, if the company is unable to pay debt.
2. If any decree or execution is issued in favour of a creditor by the Tribunal or any court to the
company and is returned unsatisfied in whole or in part.
3. If it is proved to the satisfaction of the Tribunal that the company is unable to pay its debts
(Contingent and prospective).

Special resolution by members for winding up by Tribunal

1. Shareholders can pass a special resolution with at least 75 percent of members attending and
voting, for winding up.

Implication of winding up:

During this process the company ceases to carry on its usual business, the assets are realized, the
proceeds are utilized in paying off the debts and the surplus, if any, is distributed amongst the
contributories on pro rata basis.
Some instances, where the Tribunal had ordered wing up of a company under “Just &
Equitable” clause:
1. When substratum of the company has disappeared, i.e., company is unable to achieve any of
its main objects i.e. unable to establish the business for which it was formed.
2. It is impossible to carry on business except at a loss and there is no reasonable hope of making
profits.
3. Existing or probable assets are insufficient to meet known existing liabilities.
4. Complete deadlock in the management due to hostility among directors which cannot be
resolved in General or Board meetings.
5. If the company is only a ‘bubble’, i.e., it does not have any real business or property to carry
on.
6. It is in public opinion that the company be wound up. As a corollary, wind up can be declined
if it is against public interest
Other Grounds for Compulsory Winding Up: Tribunal may order winding up of a
company on the basis of the following grounds also:
1) 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.
2) If a scheme of revival and rehabilitation of a sick company is not approved by the creditors in
the manner specified
3) If the affairs of the company have been conducted in a fraudulent manner/company was
formed for fraudulent and unlawful purposes or the persons concerned in the formation of the
company 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.
4) If the company has defaulted in filing with the ROC its financial statements or annual returns
for immediately preceding the five consecutive financial years
5) The Tribunal is of the opinion that it is just and equitable to wind up the company.

Who can file petition for winding up by the Tribunal?

1. Company itself
2. Any creditor or creditors, including any contingent or prospective creditor or creditors;
3. Any contributory or contributories
4. Any combination of creditors, company, or contributories acting jointly or separately;
5. The Registrar
6. Any person authorized by the Central Govt. in consequence of investigation

By the Central Govt. or State Govt

where the company has acted against the interest of the sovereignty and integrity of India, the
security of the State, friendly relations with foreign states, public order, decency or morality.
Commencement of winding up and appointment of an official liquidator
Proceedings of winding up are conducted by an official administrator, called ‘liquidator’ under
the supervision of the Tribunal. The liquidator is attached to each High Court. He/she is
appointed by the Central Govt. and works under the supervision of the Regional Director of
Department of Company Affairs.
Rules governing the appointment of a liquidator.
1. The Tribunal will appoint an Official Liquidator for a panel maintained by the Central
Government consisting of names of CAs, Cost accountants, Advocates, Company Secretaries
and such other professional as notified by the Central Govt
2. The Tribunal has the power to limit or restrict the powers of the liquidator.
3. Central Govt. has the right to remove from the panel the names of any professional on the
grounds of misconduct, fraud, misfeasance and breach of duties.
4. The terms and conditions of appointment of a provisional liquidator and the fee payable to him
shall by fixed by the Tribunal.
5. Provisional liquidator shall file a declaration within seven days from the date of appointment
in the prescribed form disclosing conflict of interest or lack of independence in respect of his
appointment.
Removal and replacement of a liquidator
The Tribunal can remove a provisional liquidator on the following grounds:
1. Misconduct
2. Fraud or misfeasance
3. Professional incompetence or failure to exercise due care and diligence in performance of
the powers and functions
4. Conflict of interest or lack of independence during the term of his appointment that
would justify removal.
5. Where the Tribunal is of the opinion that any liquidator is responsible for causing any
loss or damage to the company due to fraud or misfeasance or failure to exercise due care
and diligence in the performance of his or its powers and functions, the Tribunal may
recover or cause to be recovered such loss or damage from the liquidator and pass such
other orders as it may think fit.

VOLUNTARY WINDING UP OF A COMPANY

Voluntary Winding Up implies winding up of a company by the members in a predefined
manner and subject to fulfillment of certain conditions by the company.
A company can be wound up voluntarily:
• If the company in general meeting passes a resolution requiring the company to be wound
up voluntarily as a result of the expiration of its duration, if any, fixed by its ‘Articles’ or on the
occurrence of any event in respect of which the articles provide that the company should be
dissolved
• If the company passes a special resolution that the company be wound up voluntarily.
[Section 304]

VOLUNTARY WINDING UP - PROCESS

1. Declaration of solvency: Where it is proposed to wind up a company voluntarily, its
director/(s) shall at a Board meeting make a declaration (on the basis of their full enquiry into the
affairs of the company) that the company is solvent to discharge its external liabilities, if any.
2. Meeting of creditors
3. Appointment of company liquidator
4. Liquidator to submit his report on the progress of winding up
5. Report of the liquidator to the Tribunal
6. Final meeting of members and dissolution of the company