Module VI

Winding up
Introduction

The process of ending the life of a company by administering its properties for the
benefit of shareholders & creditors of the company is known as winding up of a
company. Winding up essentially is a process of liquidating the assets of a corporation,
firm, or other legal entity which is followed by subsequent payment to its creditors and
distribution and issuance of assets to its partners or shareholders upon dissolution.
Generally, winding up is done when it is ordered by the tribunal or when it is decided by the
creditors or members. There are many reasons for winding up by a company or business
i.e., insolvency or bankruptcy, death of promoters, or mutual agreement among
stakeholders.

Winding up is a process in which the company is dissolved by clearing all the debts or
liabilities, dissolution of its assets is collected, and other important items are returned to the
creditors and if any contributions are made by the members, they are also returned.
Therefore, winding up we can say is a process of putting an end to the life of a company.
Subsequent to ending up, the disintegration cycle happens. The disintegration of an
organization is recorded by the enlistment center of organizations.

“According to Section 2(94A) of the Companies Act, 2013 or Insolvency and Bankruptcy
Code, 2016, “Winding up” means winding up under this Act or liquidation under the
Insolvency and Bankruptcy Code, 2016, as applicable.” Chapter XX Sections 270–378 of
the Companies Act, 2013 deals with winding up and other aspects of it.

Definition:

In the words of Professor Gower, "Winding up of a company is the process whereby its life is ended
and its Property is administered for the benefit of its members & creditors. An Administrator, called a
liquidator, is appointed and he takes control of the company, collects its assets, pays its debts and
finally distributes any surplus among the members in accordance with their rights."
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 realised; 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.”

When a company is to be closed, a proper procedure has to be followed. This process

of realization of assets, payment to creditors and distribution of surplus among the
shareholders in order to finally dissolve the company is called winding up. Thus, it can
be said that winding up is the last stage after which a company ceases to exist and is
finally dissolved.

Evolution of provisions of winding up of a company

In the British Era, the company law was introduced by the Joint Stock Company Act,
1850. This Act was based on the English Companies Act, 1844. This Act laid down
the procedure for the incorporation of a company for the first time. It also recognised
companies as having separate legal entities, but the concept of limited liability was not
added. This concept was introduced in India in 1857. In 1858, this concept was made
applicable to banking companies as well. In 1866, a consolidated Companies Act was
enacted which provided provisions for incorporation, regulation and winding up of the
companies. This Act was further amended in 1882 in order to make the Act in
conformity with the English Companies Act, 1862.

Further, the Act was replaced by the Companies Act, 1913 passed in accordance with
the English Companies Consolidation Act, 1908. This Act was amended extensively
in 1936 due to the enactment of a new English law. Finally, a committee was set up
under the Chairmanship of Shri H.C. Bhaba for the revision of company law in the
country. The committee recommended enacting a new legislation. Thus, Companies
Act 1956 was enacted and implemented. This Act was also amended several times till
1991 when the government tried to recast the Act. However, the bill was withdrawn,
and
certain amendments were made in the existing Act. The Companies (Second
Amendment) Act, 2002 is important for provisions related to winding up of the
companies. It provides for a speedy winding-up process and facilitates the rehabilitation
of sick companies. It also established the National Company Law Tribunal in this
regard. The Companies Act 1956 was finally replaced by the Companies Act, 2013
which is more rationalized and simplified. The Act also introduced corporate social
responsibility, fixed terms for independent directors etc. Another major development in
the field of Company Law was the implementation of the Insolvency and Bankruptcy
Code, 2016 which omitted the provisions for voluntary winding up in the Companies Act,
2013. The provisions of voluntary winding are now dealt with under the IBC Code.

Modes of winding up of a company

According to Section 270 of the Act, a company can be wound up by either of the two
modes. These are:

I. Winding up by the Tribunal ( NCLT)/ Compulsory winding-up

II. Voluntary winding up of a company

Chapter XX of the Companies Act, 2013 deals with the winding up of a company. Part I
provides for winding up by the tribunal, while Part II provides provisions for the voluntary
winding up of a company. However, Part II has been omitted by the Insolvency and
Bankruptcy Code, 2016.

Winding up by court/tribunal

Chapter XX of the Companies Act, 2013 in part I deals with the winding up of a
company by a court or tribunal. When a company is wound up by the order of a court or
tribunal, it is called winding up by the court or tribunal. This mode of winding up is also
called compulsory winding up of a company. The provisions with respect to the same
are explained below.
Who can file a petition for the winding up of a company

According to Section 272 of the Companies Act, 2013, the following persons can
present a petition for the winding up of a company to the Tribunal:

I. Company: According to Section 272(1)(a), a petition for winding up can be

presented by a company itself. However, before presenting a petition, the
company must pass a special resolution in this regard. A petition for winding up
of a company shall be presented in Form WIN 1 or Form WIN 2, as the case may
be, with such variations as the circumstances may require, and shall be
presented in triplicate. From WIN 1 is filed by anyone other than the company,
whereas WIN 2 is used when the winding up is filed by the company itself.

In the case of BOC India Ltd. Zinc Products & Co. (P) Ltd. (1996), a petition
for winding up was presented by a person not authorized to do so by the board of
directors and hence, the petition was declared as incompetent.

II. Any contributory: According to Section 2(26) of the Act, a contributory is a

person who is liable to contribute towards assets of the company in case it is
wound up. However, according to Section 272(2), a contributory will be allowed
to present a petition for winding in spite of him being the holder of fully paid up
shares or the company has no surplus assets left for distribution among its
shareholders after satisfying all the liabilities. One important requirement is that
the shares in respect of which a person is a contributory were allotted or
registered under him for at least 6 months during the period of 18 months before
the commencement of winding up or such shares devolved on him by the death
of the former holder.
III. All or any persons mentioned above: The petition for winding up can also
be presented by the company and the contributories together or separately.
IV. Registrar: The registrar can file a petition for the winding up of a company
under the following circumstances:
 ● Actions of the Company were against the interests of sovereignty and
integrity of the country, Security of States, friendly relations, morality etc.
● If the tribunal is of the opinion that the company was formed with a
fraudulent aim and unlawful purpose or its affairs have been conducted in
a fraudulent manner or the persons who formed the company are guilty of
fraud or misconduct.
● There was a default in filing the financial statements or annual returns of
the company with the Registrar.

The registrar is required to obtain previous sanction from the Central

Government before filing a petition. The government will not accord the sanction
unless the company is given a reasonable opportunity to make the
representations.

However, a registrar cannot file a petition for winding up of a company to a

tribunal, if a company has decided that it will be wound up by a tribunal by a
special resolution. Moreover, a petition presented by a company for winding up
will be admitted by the tribunal only if it is accompanied by a statement of affairs.

V. Person authorized by central government: Section 272(1)(e) provides

that a petition for winding up can also be filed by any person who is authorized
by the Central Government to do so.
VI. Central or State government: The Central or State government can also
present a petition for winding up of a company if its actions are against the
sovereignty and integrity of the country, public order, morality, decency, foreign
relations etc.

Grounds for winding up by tribunal:

Section 271 deals with circumstances under which a tribunal can order for winding up of
a company. These are:
● If the company is unable to pay its debts: The company will be considered
unable to pay its debts in the following scenario [Section 271 (2)]:

(a) If a creditor, to whom the company owes an amount exceeding one

lakh rupees, has served a formal notice for payment at the company’s
registered office, and the company fails to remit the owed sum within
twenty-one days of receiving such demand, or does not provide
adequate security or negotiate a satisfactory restructuring or settlement of
the debt.

(b) if any execution or other process issued on a decree or order of any

court or tribunal in favor of a creditor of the company is returned
unsatisfied in whole or in part; or

(c) If it is demonstrated to the satisfaction of the Tribunal that the company

is unable to pay its debts, the Tribunal shall consider both contingent and
prospective liabilities of the company in its assessment.

● Special resolution: According to Section 271(a), a petition for the winding

up of a company can be prevented if a special resolution has been passed
by the company in this regard.
● Sovereignty, integrity, and other factors: A company can be wound by
a tribunal if it acts against the sovereignty and integrity of India, the
security of the state, foreign relations, public order, morality etc. This is
given under Section 271(b) of the Act.
● Fraudulent conduct of the company: According to Section 271(c), if the
tribunal on the application filed by the registrar is of the opinion that the
company was formed with a fraudulent aim and unlawful purpose or its
affairs have been conducted in a fraudulent manner or the persons who
formed the company are guilty of fraud or misconduct, it can order for
winding up of the company.
● Default in filing financial statements or audit returns: Section 271(d)
provides that where the company defaults in filing its financial statements
 or audit returns with the registrar, the tribunal can order for winding up of
the company.
● Just and equitable: A tribunal can order for winding up of a company if it
is just and equitable to do so in the following circumstances:
● Deadlock: When two or more people cannot agree with each other and
reach an agreement, the situation is known as deadlock. In case of
deadlock between the management of the company, it is just and
equitable for the tribunal to wind up the company. In the case of Etisalat
Mauritius Ltd. V. Etisalat DB Telecom (P) Ltd. (2013), there was a
deadlock and irretrievable breakdown between major shareholders of the
company which further hampered its performance and work and no
scheme or solution could be propounded, the tribunal ordered to wind up
the company.
● Loss of Substratum: When the object of the company fails, it leads to
loss of substratum. In the case of Dunlop India Ltd. re (2013), the
company was unable to show its long or short term business plans and
the company was not conducting its business for quite some time and so
the company was ordered to wind up. In the case of Seth Mohan Lal v.
Grain Chambers Ltd. (1968), the Supreme Court observed that when the
object of the company for which it was formed fails substantially, it leads to
loss of substratum.
● Losses: if a company is suffering loss and cannot carry on its business, it
is just and equitable to wind up the company. A company was asked to
wind up on this ground in the case of Bachharaj Factories v. Hirjee Mills
Ltd. (1955).
● Oppression of minority: another just and equitable ground for a tribunal
to order winding up is where the principal shareholders adopt aggressive
or oppressive policies towards the minority shareholders.
● Fraudulent purpose: a tribunal can also order for winding up of a
company if it has been formed for an unlawful or illegal purpose.
 ● Public interest: if it is in the public interest to wind up a company, it is a
just and equitable ground. In the case of Millennium Advanced
Technology Ltd., re, (2004), the company was ordered to wind up due to
multiple undesirable practices like false invoicing etc.
● Company was a bubble: When the company was a bubble, i.e. it was
never in real business, then also it classifies as just an equitable ground of
winding up.

Steps for compulsory winding up or winding up by a tribunal

The Companies (Winding Up) Rules, 2020 provides the rules governing compulsory
winding up process of a company along with required forms and particulars. This, the
steps involved in the process are:

Step 1- the petition for winding up must be presented in Form WIN 1 or Form WIN 2.
The petition must be verified by an affidavit by a person making the petition or if the
petition is made by the company by its director, secretary or any other authorized
person. The affidavit must be in accordance with Form WIN 3.

Step 2- the statement of affairs has to be filed within 30 days in accordance with
Section 274 of the Companies Act, 2013. It must contain the information till the date
when the statement is filed. The statement must be filed in Form WIN 4 and
accompanied by an affidavit of concurrence of the statement.

Step 3- the petition will be posted before the tribunal and a date will be fixed for
hearing the petitioners. If the petition is not made by the company, notice will be sent to
the company and an opportunity to be heard must be given before advertisement
directions to be given with respect to the petition.
Step 4- according to Rule 6, every contributories will be served a copy of the petition
by the person making the petition within 24 hours of making payment in this regard.

Step 5- notice of the petition will be given in advertisement 14 days before fixing a date
of hearing in a daily newspaper which is widely circulated in the state where the office of
registrar is located. The newspaper must be either in English or any vernacular
language of such area. Further, rule 8 provides that an application for winding up cannot
be withdrawn without the permission of the tribunal

Step 6- Any objection can be filed in the form of an affidavit in objection within 30 days
from the date of order and the same will be served to the petitioner.

Step 7- The reply to the objection must be filed in the form of an affidavit within 7 days
before the date fixed for hearing of petition.

Step 8- provisional liquidator will be appointed after the admission of petition by the
tribunal and upon sufficient grounds for his appointment in accordance with Rule 14.
The order of appointment of provisional liquidator will also contain restrictions and
limitations on his powers. The same will also be intimated to the provisional liquidator
and the registrar of companies within 7 days from the date of order of appointment.

Step 9- order of winding up by the tribunal will be in accordance with Form WIN 11 and
will be sent by the registrar to the company liquidator within 7 days and the same will
also be advertised.

Step 10- According to Section 281, when the tribunal has made an order for the
winding up of a company or appointed a liquidator in this regard, he will within sixty
days, submit a report to the tribunal
Step 11- Section 282 of the Act deals with the directions of the tribunal on the report
submitted by the company liquidator and provides that on the basis of the report
submitted by the liquidator, a time limit will be fixed by the tribunal to complete the entire
proceedings and can revise the same. It will also order for sale of the company as a
going concern or its assets on examination of the report and can also appoint a sale
committee consisting of creditors, promoters, and officers of the company to assist the
company liquidator in the sale. If the report discloses that fraud has been committed in
the company, the tribunal will order for investigation or direct the company liquidator to
file a criminal complaint. The tribunal will also take necessary steps to protect, preserve
or enhance the value of the assets of the company.

Step 12- After the affairs of the company have wound up completely, the company
liquidator will apply for the dissolution of the company within 10 days along with audited
final accounts and auditors certificates and the tribunal will order for dissolution. The
process of winding up will be concluded on the day on which the order of dissolution
has been reported to the registrar of the company.

Appointment of advisory committee

According to Section 287, the tribunal can direct the appointment of an advisory
committee in order to advise the company liquidator. The committee will consist of a
maximum of 12 members. The company liquidator will convene a meeting of creditors
and contributories within thirty days from the date order or winding up has been passed
by the tribunal in order to determine the member of the committee.

The committee has been empowered to inspect the books of accounts and other
documents along with assets and properties of the company under liquidation. The
Section provides that the committee will be chaired by the company liquidator and the
provisions related to convening of meetings, the procedure to be followed in the
meetings and conduct of the business of the committee will be prescribed accordingly.
Submission of reports by the liquidator

According to Section 281, when the tribunal has made an order for the winding up of a
company or appointed a liquidator in this regard, he will within sixty days, submit a
report to the tribunal containing the following particulars:
● Nature and details of assets of the company which includes their value and also
state the cash balance separately. However, the valuation must be obtained from
the registered valuers.
● Amount of capital issued, paid up and subscribed.
● Existing and contingent liabilities of the company which include names,
addresses, and occupations of the creditors. The amount of secured and
unsecured debts must also be stated separately. For secured debts, particulars
of securities and their value and dates on which they were given must also be
provided.
● All debts due to the company along with the necessary details like names,
addresses and occupations of persons to whom they are due along with the
amount.
● Guarantees extended by the company.
● List of contributories and dues to be paid by them and details of unpaid calls.
● Details of trademarks and intellectual properties owned by a company.
● Legal cases filed by or against the company and their details.
● Any other information which the tribunal or company liquidator considers
necessary.
The manner in which the company was promoted or formed and whether there has
been any fraud by any officer of the company must be included in the report. He will
also make a report on the viability of the business of the company or steps for
maximizing the value of assets of a company. According to Section 281(4), a company
liquidator can also make further reports. Further subsection 5 provides that a person
who describes himself as a creditor or contributory can inspect the report submitted
under the Section and take copies or extracts.
Consequences of winding up

According to Section 278 of the Act, the order of winding up will operate in favour of all
creditors and contributories as if it has been made on their joint petition. Section 279
further provides that no suit or any other legal proceeding can be initiated against a
company against whom an order of winding up has been passed without any
permission from the tribunal, against whom the order of winding up has been passed.
An application in this regard will be decided within 60 days.

Powers of tribunal with respect to winding up of a company

According to Section 273, the tribunal can pass the following orders with respect to a
petition filed for winding of a company:

● Dismiss the petition with or without costs;

● Any interim order;
● Appointment of provisional liquidator till the order of winding up is made;
● Order of winding up of a company either with or without costs;
● Any other order.

Any such order must be passed within ninety days from the date the petition is
presented in the tribunal. The Section also provides that before appointing a provisional
liquidator, the tribunal will give a notice and reasonable opportunity to the company to
make the representations. It further provides that if a petition is presented on the ground
that it is just and equitable for the company to wind up, the tribunal can refuse to order
for winding up if any other remedy for the same is available and the petitioners are not
acting reasonably.

According to Section 274, when a petition for winding up is made, the tribunal is
satisfied if the case can order the company to file its objections along with its statement
of affairs within 30 days. The tribunal can also direct the petitioner to deposit security for
costs as a precondition to the issuance of directions to the company. If a company fails
to file the statement of affairs, its right to oppose the petition will be forfeited and the
directors and officers of the company who are found responsible for the non-compliance
will be liable for punishment. If any director or officer of the company contravenes the
provisions of this Section, he will be punished with imprisonment extending up to six
months or a fine not less than twenty-five thousand rupees extending up to five lakh
rupees or both.

Section 282 further provides that the tribunal can after considering the report of the
liquidator, fix a time limit within which the proceedings of winding up will be completed
and the company will be dissolved. However, it can also revise the time limit if it is not
advantageous and economical to continue the proceedings. If a report regarding the
commission of fraud is submitted to the tribunal, it will order for investigation of the
same and pass any other order and give necessary directions. It can also direct the
company liquidator to file a criminal complaint against people involved in the
commission of fraud.

According to Section 285, after the order of winding up of a company has been passed
by the tribunal, it will also settle a list of contributories, rectify the register of members
required and apply for the discharge of assets of the company. It will also differentiate
between contributories in their own rights and those who are representatives of or liable
for the debts of others. While settling the list, the tribunal must include every person who
is or has been a member, a person liable to contribute an amount sufficient for payment
of debts and liabilities to the assets of the company upon satisfying the following
conditions:

● A person will not be liable to contribute if he ceases to be a member for

preceding one year before the process of winding up commenced.
● A person will not be liable for any debt or liability of the company which is
contracted after he ceases to be a member.
 ● A person will not be liable unless the present members are not able to satisfy
the required contributions.
● If a company is limited by shares, a person will not be liable for an amount
exceeding the amount unpaid of the shares for which he is liable.
● If a company is limited by guarantee, no contribution will be taken from the
member exceeding the amount to be contributed by him to the assets of the
company if it was being wound up. But if the company has a share capital, the
member has to contribute to the extent of such sum unpaid on shares held by
him if the company was limited by shares.

Voluntary winding up of a company

When a company decides to wind up its affairs and proceed further with the required
proceedings on its own is called the voluntary winding up of a company. The process of
voluntary winding up is given under Insolvency and Bankruptcy Code (IBC) which
may be started by a corporate debtor, financial creditor or operational creditor. The IBC
contemplates only one type of voluntary liquidation – i.e., liquidation of the Company,
and there are no members’ or creditors’ voluntary winding up under IBC.

Sec.59(4) and Reg.3(2) Insolvency and Bankruptcy Board of India (Voluntary

Liquidation Process) Regulations, 2017 contemplate filing of resolutions passed by
members and subsequent approval by creditors with ROC and IBBI. Resolution –
ordinary or special shall be passed within four weeks of declaration which shall list each
debt of the corporate person as per Reg. 3(4) of Insolvency and Bankruptcy Board of
India (Voluntary Liquidation Process) Regulations, 2017 .

Creditor’s Meeting

It is necessary to inform the creditors of the company which can be done through the
post. A meeting is conducted where they are notified about the amount of money due to
each creditor. The board of directors will then put forth the statement of affairs and if
the
majority opines that the company should be wound up voluntarily, the process is
initiated. However, if the majority opt for compulsory winding up of the company or
winding up by a tribunal, application must be sent in this regard to the tribunal within 14
days and inform the same to the registrar within 10 days. A company liquidator is
appointed to carry on the process of voluntary winding up according to the Insolvency
and Bankruptcy Code, 2016 who finally evaluates the assets of the company and
submits the report to the tribunal.

Under 1956 Act, under Section 488(5), when declaration is made, it is members
voluntary winding up and when such declaration is not made, it is creditors voluntary
winding up. Under the 1956 Act, u/s.488 If the Declaration of Solvency is not filed at
least one day before the General meeting wherein the resolution is passed, the
voluntary winding up becomes void.

Procedure of voluntary winding up

Section 59 of the Insolvency and Bankruptcy Code, 2016 deals with the voluntary
liquidation of corporate persons.

Step I: As per Sec.59(1) A corporate person who has not committed any default may
initiate voluntary liquidation proceedings under this provision. It provides that a
corporate person who wants to liquidate itself voluntarily and has not committed any
default may initiate the liquidation proceedings under the Act. However, the proceedings
of a registered corporate person must satisfy the following conditions:

Step II: There must be a declaration from the majority of the directors of the company
which must be verified by an affidavit and must state that:
 ● A full inquiry into the affairs of the company has been made and an opinion has
been formed that the company has no debt or will be able to pay its debts in full
from selling its assets in the voluntary liquidation.
● The company is not liquidated in order to defraud any person.

Moreover, the declaration must be accompanied by the following documents:

● Audited financial statements and record of business operations of the company

for the previous two years or for the period since its incorporation, whichever is
later;
● A report of the valuation of assets of the company, if any, prepared by a
registered valuer.
● Reg.3(1)(a) of IBBI (Voluntary Liquidation Process) Regulations, 2017 for LLP
and individuals constituting the governing body in case of other corporate
persons.
● Reg.40(2) Where the liquidator is of the opinion that the corporate person will not
be able to pay debts in full from the proceeds of assets in liquidation, he shall
make an application to adjudicating authority to suspend the process of
liquidation and pass such orders as it may deem fit.

Step III: As per Section 59 (5), it must be approved by the creditors.

Step IV: A special resolution regarding the voluntary winding up of the company must
be passed within four weeks of declaration or a general resolution must be passed in a
general meeting regarding voluntary winding up due to:

● the expiry of its duration fixed by its articles or

● due to occurrence of any event for which articles provide that the company
should be dissolved.

Step V: Appointment of the liquidator for discharging the liabilities of the company.
Step VI: With the approval of creditors, the liquidation proceedings of the company will
be deemed to have commenced from the date such resolution is passed.

Step VII: As per section 59 (4) and Regulation 3 of Insolvency and Bankruptcy Board of
India (Voluntary Liquidation Process) Regulation, 2017, the company must notify the
Registrar and Insolvency and Bankruptcy Board of India within seven days about the
resolution being passed for the liquidation of the company from the date such resolution
is approved by the creditors.

Step VIII: When the affairs of a company have wound up completely and its assets
have been liquidated completely, an application will be made by the liquidator to the
Adjudicating Authority for the dissolution of such a company.

Step IX: The Authority will pass an order regarding dissolution of the company and it
will be dissolved accordingly.

Step X: The copy of said order must be given to the required authority with which the
company is registered within fourteen days.

Documents Required for Voluntary Winding up of a Company

For the voluntary winding up of a company, the following documents are required:

● Special Resolution (Form-26): A document proving the company's decision to

wind up.
● Declaration of Solvency (Form 107): A statement showing the company can pay
its debts.
● Directors' Affidavit: A sworn statement verifying financial documents like the
auditor’s report and accounts up to the most recent date before declaring
solvency.
● Liquidator's Consent: Agreement from the appointed liquidator to undertake the
winding-up process.
 ● Notice of Winding Up Resolution: A published notice in the Official Gazette about
the company's decision to wind up.
● Notice of Liquidator Appointment: A published notice in the Official Gazette about
the liquidator's appointment.
● Preliminary Liquidator's Report: An initial report from the liquidator outlining the
winding-up plan.
● Final Liquidator's Report and Accounts: The liquidator's comprehensive final
report and financial statements were presented at the last shareholders' meeting.
● Notice of Final Meeting: Announcement of the company's conclusive gathering.
● Meeting Return: Documentation of the final report, accounts, and meeting
minutes to be submitted to the company registration office.

Winding up of unregistered companies

Part II of Chapter XXI deals with the winding up of unregistered companies. Section 375
of the Act provides that an unregistered company cannot be wound up voluntarily under
the Act. It provides that such a company will be wound up under the following
circumstances:

● The company is dissolved or ceases to carry on the business or is continuing

to carry on the business only for the purpose of winding up.
● The company is not able to pay its debts.
● It is just and equitable in the opinion of the tribunal to wind up the company.

The Section further provides that an unregistered company will include any partnership
firm, limited liability partnership, society or cooperative society, association etc but will
not include:

● A railway company incorporated under any Act of Parliament or any other

Indian law.
 ● Any company registered under the Act.
● Any company registered under the previous company law but not a company
whose office was in Burma, or Pakistan.

According to Section 376, a foreign company incorporated outside India but carrying
business in India can be wound up as an unregistered company if it ceases to carry
business in India.

Difference between winding up and dissolution of a company

Dissolution means that something ceases to exist. Thus, the dissolution of the company
means that its existence has come to an end. Section 302 of the Act deals with the
dissolution of a company by the tribunal. It provides that when a company and its affairs
have wound up completely, the company liquidator can apply to the tribunal for
dissolution of the company. The tribunal if satisfied can order for dissolution of a
company. A copy of the order is to be sent to the registrar within 30 days. This will be
done by the company liquidator, but if he fails to do so he will be punished.

However, winding up and dissolution are not the same but different terms with different
meanings. Winding up doesn’t mean that the company has dissolved. It only paves the
way for the dissolution of the company, which further means that the company has
ceased to exist. The difference between the two is as follows:

Basis of Winding up Dissolution of company

difference

Meaning It is the process by which the Dissolution of the company

dissolution of a company is initiated. means that the company has
ceased to exist.
Existence of After winding up, the legal entity of a Dissolution means that even
company company continues to exist, and it the legal entity of a company
can be sued. comes to an end.

Business of Under the process of winding up, a Ceases on dissolution.

company company is allowed to continue its
business for the benefit of winding
up.

Case laws surrounding winding up of a company

I. IL & FS Engineering and Construction Company Ltd. v. Government of

Karnataka (2019)

Facts of the case

The petitioner in this case is a company which carries on the business of

construction of infrastructure and is registered under the Companies Act, 1956.
The petitioner and respondent entered into a contract for construction work, but
had certain disputes during the execution. Arbitration was invoked by the parties
and an award was passed, but the respondent failed to settle the payments
according to the terms of the award. The present petition was filed seeking the
direction to the Government of Karnataka to wind up the respondent i.e.,
Bangalore Development Authority (BDA) due to non-compliance of the arbitral
award and to further appoint an official liquidator.

Issues involved in the case

● Whether Bangalore Development Authority is a company?

 ● Whether winding up has to be ordered against the authority?

Judgment of the court

The petitioner in this case contended that the authority is like a company of the
state government and is a body corporate. On the other hand, the respondent
contended that BDA is a local authority and so the provisions of winding up do
not apply. The Karnataka High Court observed the ingredients of winding up as:

● The court is not bound to order for winding up of a company merely on any
one of the circumstances enumerated under the Companies Act.
● The effect of winding up is that it will put an end to the business or industry
resulting in loss of employment to several employees.
● Winding up means a commercial death of the company and the court must
take into consideration not only the inability to pay debts but the entire
position.
● Unpaid creditors can aspire for an order of winding up.
● Winding up cannot be adopted as a recourse to recovery of the debt.
● Winding is the last thing a court can do and leads to:
○ Closing of a company.
○ Employment of numerous people ceases.
○ Loss of revenue to the state.
○ Scarcity of goods and employment opportunities.
● Petition of winding up is not an alternative form of resolving the dispute
related to debt.

The court observed that BDA failed to satisfy the ingredients of determination of
the government company and so is not a company accordingly an order for
winding up cannot be made.

II. M/S Kaledonia Jute and Fibres Pvt. Ltd. v. M/S Axis Nirman and Industries Ltd.
& Ors. (2020)
Facts of the case

The second respondent in this case filed a petition in 2015 before the Allahabad
High Court for the winding up of the first respondent company on the ground that
it was not able to pay its debts. A notice was issued to the respondent but it failed
to appeal before the company court as a result of which the petition was admitted
and directed to be published. The company court ordered for winding up of the
company on the grounds that it was just and equitable and that the company was
not able to pay its debts. The company court further appointed the official
liquidator in this regard.

Thereafter, the first respondent filed an application in order to recall the order of
winding up and also paid the due amount to the creditor i.e., the second
respondent. This application was opposed by the official liquidator on the
grounds that money was due to a lot of creditors. The appellant who claimed to
be the creditor of the company moved an application before the National
Company Law Tribunal under Section 7 of the Insolvency and Bankruptcy Code,
2016 (IBC, 2016). An application seeking transfer of winding up petition to the
NCLT, Allahabad was also moved to the High Court. However, the application
was rejected on the grounds that the order for winding up had already passed.
Aggrieved by the rejection of the application, the civil appeal was filed in the
Supreme Court.

Issues involved in the case

● Under what circumstances, a winding up proceeding which is pending in

the High Court be transferred to the NCLT?

Judgement of the court

It was observed by the Hon’ble Supreme Court that the transfer of proceedings
of winding up depends on the stage at which they are pending before the
company
 court. The fifth proviso to Section 434 of the Act gives a choice to the party to
seek transfer of winding up proceedings to the NCLT. The pending proceedings
for winding up have been categorized into three types:

● Proceedings for voluntary winding up.

● Winding up on the basis of inability to pay debts.
● Grounds other than inability to pay debts.

The court further observed that the object of IBC will be nullified if the High Court
of Allahabad is allowed to proceed with the process of winding up and NCLT is
allowed to proceed with the enquiry into an application filed under Section 7 of
the Code. Thus, the proceedings for winding up which were pending before the
High Court of Allahabad were ordered to be transferred to the NCLT.

Conclusion

Winding up can be understood as the last stage in the life of a company, after which it
dissolves. The present Companies Act, 2013 provides for two modes of which have
been explained above. The National Company Law Tribunal (NCLT) has been
established in this regard to tackle the issues of winding up. Further, the National
Company Law Appellate Tribunal (NCLAT) has been established to deal with the
appeals arising from the decisions of NCLT.
 Company Liquidators

Appointment of official liquidator

The official liquidator is an officer who is appointed to proceed with the winding up of a
company and its affairs. Section 275 provides that in order to wind up a company, the
tribunal will appoint an official liquidator from a panel maintained by the Central
Government which consists of names of advocates, Chartered Accountants,
Company Secretaries, Cost Accountants etc. having at least ten years of experience
in the matters related to the company. However, if a provisional liquidator is
appointed, his powers will be restricted by an order of appointment by the tribunal. A
provisional liquidator is a person appointed by the court or tribunal to carry on the
process of winding up of a company.

The central government also has the power to remove the name of any person from
the panel on the grounds of misconduct, fraud, breach of duties, professional
incompetence etc, but before doing so an opportunity to be heard must be given to
him. The liquidator so appointed must within seven days of appointment make a
declaration regarding conflict of interest or lack of independence with respect to his
appointment with the tribunal.

According to Section 276, a provisional liquidator or a company liquidator appointed

by the tribunal can be removed by the tribunal on the following grounds:

● Misconduct;
● Fraud or misfeasance;
● Professional incompetence or failure to exercise due care and diligence;
● Inability to act as a liquidator;
● Conflict of interest or lack of independence during the term of appointment
Powers of liquidator

I. According to Section 277(5), a company liquidator will be the convener of

meetings of the winding up committee which will assist in the liquidation
proceedings and related functions like:

● Take over the assets.

● Examination of statement of affairs.
● Recovery of property and other assets of the company.
● Review of audit reports and accounts.
● Sale of assets.
● Finalizing the list of creditors and contributories.
● Compromise and settlement of claims.
● Payment of dividends.
● Any other function.
The company liquidator is also required to submit a report along with minutes
of meetings of the committee before the tribunal. The report will be submitted
on a monthly basis and will be signed by the members present in the meeting
till a report for dissolution of the company is submitted (Section 277(6)). He will
also prepare a draft final report for the approval of the winding up committee
(Section 277(7)).

II. According to Section 290, the Company liquidator will have the power to:
● Manage the business of the company for the process of winding up.
● Execute deeds, receipts and other documents on behalf of the company
and use its seal if necessary.
● Sell the immovable and movable property and actionable claims of the
company, either by public auction or private contract.
 ● Sell the undertaking of the company.
● Raise money required for the security of assets of the company.
● Institute or defend suits or other legal proceedings, whether civil or
criminal, on behalf of the company.
● Settle claims of creditors, employees or any other claimant and
distribute the sale proceeds.
● Inspect the records and returns of the company.
● Draw, accept, make and endorse any negotiable instrument which
includes a cheque, bill of exchange, hundi or promissory note on behalf
of the company.
● Obtain any professional assistance from any person or appoint any
professional for the protection of assets of the company.
● Take actions and steps and sign, execute and verify papers, deeds,
documents, applications etc for winding up of the company, distribution
of assets and discharge of duties and obligations of liquidator.

Duties of company liquidator

According to Section 288, it is the duty of the company liquidator to make periodical
reports to the Tribunal and make reports at the end of each quarter regarding the
progress of winding up of the company. Section 292 deals with the exercise and
control of powers of company liquidators. The company liquidator is required to give
regard to the directions given by the creditors or contributories in a resolution at any
general meeting or by the advisory committee. The directors of creditors and
contributories will override those given by the advisory committee in case of conflict.
The company liquidator can also:
● Summon the meetings of creditors or contributories.
● Summon meetings as and when directed or requested by the contributories
and creditors in writing by not less than one-tenth.
If a person is aggrieved by the decision or any act of the company liquidator, he can
make an application to the tribunal, which can further confirm, reverse or modify the
decision. Section 294 of the Act further provides another duty of the company
liquidator to maintain proper and regular books of accounts, receipts and payments
which will be presented to the tribunal two times in each year during his tenure. The
tribunal can cause the accounts to be audited, and the company liquidator will have to
furnish such vouchers and information to the tribunal as required. One copy of the
audited accounts will be filed with the tribunal and the other will be delivered to the
registrar. If the account refers to a government company, the company liquidator will
give a copy to the:
● Central Government if it is a member of the government company.
● State government if it is a member of the company
● Both the governments, if they are members of the company.