WhatisWindingupofacompany?

Winding up of a company is the process through which life of a company comes to an end 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.

What is the law governing the procedure of Winding up in India?

Section 270 of the Companies Act 2013, lays down the procedure for winding up of a company.
It provides two ways of winding up -

● By the tribunal / by the court / Compulsory

WindingupofcompanybytheCourt/CompulsoryWindingup:

Compulsory Winding up or Winding up under the supervision of the Court / Tribunal can be initiated by presenting
a petition with respect to the same by:---

1. The company upon a special resolution passed for the same by the Board of Directors.
2. By the creditors of the company in case company is unable to pay the debts and the creditor apply for the
same.
3. By the contributory in case statutory meeting are not held or the minimum statutory member numbers
have reduced that is 7 in case of public limited company and 2 in case of private limited company.
4. By a person appointed to check that the affairs of the company are not conducted in a manner to defraud
the creditors or other members and is opinion that affairs are conducted so.
5. By the Registrar with the approval of central government.
6. By the central or the state government in case the company is functioning against the interest of
sovereignty of the country.

This petition can be filed by either of the above mentioned in the following mentioned circumstance:

1. When the company has, by a Special Resolution (3/4 majority shareholders) resolve that the company
shall be wound up by the Tribunal.
2. In case there is default in delivering the statutory report to the Registrar or in holding the statutory
meeting.
3. In case the company fails to commence its business within one year of its incorporation, or suspends its
business for a whole year and there is no intention to carry on the business.
4. If the number of members is reduced below the statutory minimum i.e. below seven in case of a public
company and two in the case of a private company.
5. If the company is unable to pay its debts.
6. If the tribunal is of the opinion that it is just and equitable that the company should be wound up. Tribunal
may inquire into the revival and rehabilitation of sick units. If its revival is unlikely, the tribunal can order
it’s winding up.
 7. If the company has made a default in filing with the Registrar its balance sheet and profit and loss account
or annual return for any five consecutive financial year.
8. 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.

Upon the filing of the petition by any of above mentioned, the tribunal may order winding up of the company or
may either dismiss the petition. If the tribunal is satisfied that sufficient reasons exists to order winding up then the
tribunal may order winding up. Upon the said order, the tribunal may send a notice to the Official liquidator
appointed by the government informing about the same and the Liquidator shall take charge of the company and
carry out the winding up process. The winding up process shall be applicable to all individuals connected to the
company irrespective of the fact whether they had applied for the same or not and these include contributory,
creditors etc.

The company is required to submit all the details ranging from assets, creditors, liabilities and accounts to the
Liquidator and he is required to send a report regarding the same to the tribunal within six months of receiving the
information.

Voluntary winding up

Resolution for Voluntary winding up

Voluntary winding up can be passed with an Ordinary Resolution (When the time span fixed in the AoA has expired)
else with a Special Resolution (In all other cases).

There are two kinds of voluntary winding up, Member’s Voluntary winding up and Creditor’s voluntary winding up.

Members’ Voluntary Winding up

When the company is able to pay its debts, its Board of Directors makes a Declaration of solvency stating that
company would be able to pay debts within three years from the date of commencement. Any false declaration
made by director will be punishable up to 6 months or fine up to Rs. 50000 or both. Such a declaration msut be
made within five weeks immediately preceding the date of passing of resolution for winding up of company and be
delivered to Registrar before that date. The declaration must be accompanied with auditor’s report on balance
sheet and profit and loss account as at latest practicable date.

Creditors’ Voluntary Winding up

When declaration of solvency is not made and delivered to the Registrar, it is case of creditors’ voluntary winding
up.
The following stages are involved in the voluntary winding up of the Company:

● A Board Meeting is conducted where the two directors pass a declaration that the companies have no
debt and if there is any; that can be paid through the proceeds from the sale of assets of the company and
thereby a notice is issued for calling a General Meeting and the notice is accompanied with the proposal
for winding up.
● A General Meeting is then conducted where an ordinary resolution for winding up needs to be passed by
ordinary majority and a special resolution needs to be passed by three-fourth majority and a creditor’s
meeting is also conducted after passing the resolution. If majority of creditors opine that the winding up is
beneficial for all parties, then winding up can be done voluntarily.
● An application is made for the appointment of official liquidator with the Registrar within ten (10) days of
the resolution and the notice of the Resolution needs to be published in the official gazette within 14 days
of passing such resolution and advertised in a newspaper.
● Within 30 days of general meeting, a certified copy of original and special resolution is filed. Thereafter, all
the affairs of the company are wound up, and liquidators account are prepared which later and get
audited.
● Next, a general meeting is conducted where the accounts of the company are settled by passing a special
resolution, and thereafter, within fifteen (15) days, an application is to be filed in the tribunal for an order
of winding up the company.
● If the tribunal is satisfied that the accounts stand cleared, then an order for dissolution of the company is
issued within sixty (60) days of the filing of the application.
● Next, the liquidator files a copy of the order with the Registrar and a notice of the dissolution of the
company is published in the official gazette.

DistinctionbetweenMembers’voluntarywindingupandcreditors’voluntarywindingup
Members’ Voluntary Winding up Creditors Voluntary Winding up

Where a company is solvent & declaration of solvency is Where a company is solvent, the declaration of solvency is
made by the directors, it is called members’ voluntary not made by the directors, it is called as the creditors’
winding up voluntary winding up.

Dominant control remains in the hands of the members of In creditors’ winding up, dominant control remains in hands
the company. of the creditors.
There is no meeting of creditors and the liquidator is In creditors’ winding up, meetings of creditors have to be
appointed by the company. called at the beginning and subsequently the liquidator is
appointed by the creditors.

The liquidator can exercise some of his powers with the The liquidator can do so with the sanction of the court or the
sanction of a special resolution of the company. Committee of inspection or of meeting of creditors.

Role of Company Liquidator: (Sec 290):

The role of Company Liquidator, in a winding up of a company by the Tribunal / compulsory, are as follows:-----

(a) to carry on the business of the company so far as may be necessary for the beneficial winding up of the
company;

(b) to do all acts and to execute, in the name and on behalf of the company, all deeds, receipts and other
documents, and for that purpose, to use, when necessary, the company’s seal;

(c) to sell the immovable and movable property and actionable claims of the company by public auction or private
contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels;

(d) to sell the whole of the undertaking of the company as a going concern;

(e) to raise any money required on the security of the assets of the company;

(f) to institute or defend any suit, prosecution or other legal proceeding, civil or criminal, in the name and on
behalf of the company;

(g) to invite and settle claim of creditors, employees or any other claimant and distribute sale proceeds in
accordance with priorities established under this Act;

(h) to inspect the records and returns of the company on the files of the Registrar or any other authority;

(i) to prove rank and claim in the insolvency of any contributory for any balance against his estate, and to receive
dividends in the insolvency, in respect of that balance, as a separate debt due from the insolvent, and rateably
with the other separate creditors;

(j) to draw, accept, make and endorse any negotiable instruments including cheque, bill of exchange, hundi or
promissory note in the name and on behalf of the company, with the same effect with respect to the liability of
the company as if such instruments had been drawn, accepted, made or endorsed by or on behalf of the
company in the course of its business;

(k) to take out, in his official name, letters of administration to any deceased contributory, and to do in his official
name any other act necessary for obtaining payment of any money due from a contributory or his estate which
cannot be conveniently done in the name of the company, and in all such cases, the money due shall, for the
purpose of enabling the Company Liquidator to take out the letters of administration or recover the money, be
deemed to be due to the Company Liquidator himself;
(l) to obtain any professional assistance from any person or appoint any professional, in discharge of his duties,
obligations and responsibilities and for protection of the assets of the company, appoint an agent to do any
business which the Company Liquidator is unable to do himself;

(m) to take all such actions, steps, or to sign, execute and verify any paper, deed, document, application, petition,
affidavit, bond or instrument as may be necessary,—

(i) for winding up of the company;

(ii) for distribution of assets;

(iii) in discharge of his duties and obligations and functions as Company Liquidator; and

(n) to apply to the Tribunal for such orders or directions as may be necessary for the winding up of the company.

The exercise of powers by the Company Liquidator shall be subject to the overall control of the
Tribunal.

The Company Liquidator shall perform such other duties as the Tribunal may specify in this behalf.