Compulsory Winding Up A company may be wound up by an order of the court. This is called compulsory winding up.

. Section 433 lays down the following grounds for the winding up of a company by the court. 1. Special resolution of the company: If the company has by a special resolution resolved that it may be wound up by the court. The power of the court in such a case is discretionary. The court may refuse to order winding up where it is opposed to public or companys interest. 2. Default in holding statutory meeting: If a company makes a default in delivering the statutory report to the registrar or in holding the statutory meeting, the court may order winding up of the company either on the petition of the register or on the petition of the contributory. The petition for winding up must not be filed before the expiration of 14 days after the last day on which the statutory meeting ought to have been held. However, the court may instead of making a winding up order, direct the statutory report shall be delivered or that meeting shall be held.

3. Failure to commence or suspension of business: Where a company does not commence its business within a year from its incorporation, or suspends its business for a whole year, the court may order for its winding up. The power of the court is discretionary and will be exercised only where there is a fair indication that the company has no intension to carry on the business. Where the suspension of the business is temporary or can be satisfactorily accounted for, the court will refuse to make an order. A company will not be wound up if it abandons one of its several businesses, unless that business is the main object of the company.

4.Reduction of members below minimum: Where the number of members is reduced below 7 in the case of public company and below 2 in case of a private company, the court may order the winding up of the company. This provision is for the protection of existing members against unlimited liability. 5. Inability to pay debts: The court may order for the winding up of a company if it is unable to pay its debts. The basis of an order for winding up under this clause is that the company has ceased to be commercially solvent i.e. it is unable to met its current demands, although the assets when realized may exceed its liabilities. According to section 434 of the act a company shall be deemed to be unable to pay its debts in the following cases: a. If a creditor to whom the company owes a sum of Rs.500 or more has served on the company a notice for payment and the company has for three weeks neglected to pay or otherwise satisfy him. But where the company bonafide disputes the debt and the court is satisfied with the defense of the company, the court will not order for its winding up.

b. If execution or other process issued on a decree or order of any court in favour of a creditor is returned unsatisfied in whole or in part.

C. If it is proved to the satisfaction of the Tribunal that the company is unable to pay its debts and in determining whether a company is unable to pay its debts, the court will take into account the contingent and the prospective liabilities of the company. What has to be proved under this clause is not whether the companys assets exceed it s liabilities, but whether it is unable to meet its current demands. If a company is unable to meet its current liabilities, it is commercially insolvent and liable to be bound up. Just and equitable: The last ground on which the court can order the winding up of a company is when the court is of the opinion that it is just and equitable that the company should be wound up. This clause gives the court a very wide power to order winding up wherever the court considers it just and equitable to do. The court will consider such grounds to wind up a company for just and equitable reasons as are not covered by the preceding fie clauses. The following are the instances where the courts have exercised their discretion under this clause: i) Where there is a deadlock in the management. ii) Where it is impossible to carry on the business of the company except at a loss. iii) Where the company has ceased to carry on its authorized business and is engaged in an illegal business. iv) Where the object for which the company is formed is impossible of further pursuit. v) Where the minority is being disregarded or oppressed. vi) Where there is lack of confidence in directors. vii) Where a company has been conceived and brought forth in fraud. POWERS OF OFFICIAL LIQUIDATOR In Compulsory Winding up of company As per section 457(1) of The Companies Act 1956, the liquidator has the following powers with the sanction of court: to institute and defend any suit, prosecution or other legal proceeding, civil or criminal, in the name and on behalf of the company to carry on the business of the company; to sell the immovable and movable property and actionable claims of the company by public auction or private contract to raise on the security of assets of the company any money requisite. (b) As per section 457(2) of The Companies act 1956, the liquidator has the following powers without obtaining the sanction of court: - to do all acts and to execute all deeds, receipts and documents in the name and on behalf of company and to use common seal of the company for that purpose -to inspect the records and returns of company; -to prove, rank and claim in the insolvency of any company;

-to draw, accept, make and endorse any negotiable instruments in the name and on behalf of the company to appoint an agent to do any business which the liquidator is unable to do himself. Winding Up By The Tribunal 433/271

A company may be wound up by the Tribunal in following situations. Here,NCLT If the company itself, has passed a special resolution in the general meeting to wound up its affairs. Special resolution means, resolution passed by three-fourth (3/4") of the members present. If there is a default, in holding the statutory meeting or in delivering the statutory report to the Registrar. A company which is limited by shares, and a company limited by guarantee having share capital, is required to hold a " Statutory meeting" of its members, within six months, and after one month, from the date of commencement of it's business. A statutory report of the meeting so held shall also be forwarded to the registrar. [Sec 165 (1) & (5)] If the company fails to commence its business within one year from the date of it's incorporation, or suspends its business for a whole year. A company limited by shares, has to obtain a "certificate of commencement" of business from the registrar. Unless it obtains such certificate, it cannot carry on its business operation. If the number of members, in a public company is reduced to less than seven, and in case of private company less than two. The statutory requirement of minimum number of members in a public company is seven, and in case of private company, it is two (sec 12/3). If the company is unable to pay its debits; where the financial position of the company is, such, that it has more liabilities than assets, and after disposing off the assets, it is still unable to extinguish it's liabilities, it means that company is unable to pay it's debts 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. If the court, itself is of the opinion that the company should be wound up. The court may form such an opinion, if it comes to the knowledge of court that, the company is mismanaged, or financially unsound, or carrying an illegal operations etc. WHO CAN APPLY TO COURT, FOR WINDING UP PETITION? (SEC 439/272)

The company itself The creditor Any contributory Registrar Any person authorised by Central Govt., in case of oppression or mismanagement.

WHAT ORDERS, THE COURT MAY PASS? (SEC 443/273) The court may pass any one of the following orders on hearing the winding up petition. Dismiss it, with or without costs Make any interim order, as it thinks fit, or Pass an order for winding up of the company with or without costs. Consequences of Tribunal passing an order for winding up: If the Tribunal is satisfied, that sufficient reasons exist in the petition for winding up, then it will pass a winding up order. Once the winding up order is passed, following consequences follow:

Tribunal will send notice to an official liquidator, to take change of the company. He shall carry out the process of winding up, ( sec. 444/277) The winding up order, shall be applicable on all the creditors and contributories, whether they have filed the winding up petition or not. The official liquidator is appointed by central Government ( sec. 448/275) The official liquidator shall within six months, from the date of winding up order, submit a preliminary report to the court regarding 1. Particulars of Capital 2. Cash and negotiable securities 3. Liabilities 4. Movable and immovable properties 5. Unpaid calls, and 6. An opinion, whether further inquiry is required or not ( 455/281) The Central Govt. shall keep a cognizance over the functioning of official liquidator, and may require him to answer any inquiry. (463/-) STAY ORDER (466/289) Where, the court has passed a winding up order, it may stay the proceedings of winding up , on an application filed by official liquidator, or creditor or any contributory. DISSOLUTION OF COMPANY (481/302) Finally the court will order for dissolution of the company, when: 1.the affairs of the company are completely wound up, or 2.the official liquidator is unable to carry on the winding up procedure for want of funds. APPEAL: 483/303

An appeal from the decision of court will lie before that court, before whom, appeals lie from any order or decision of the former court in cases within its ordinary jurisdiction. DUTIES OF THE OFFICIAL LIQUIDATOR A. Investigation

Where a winding-up order is made by the court the official receiver has a statutory duty to investigate a) If the company has failed, the causes of the failure; and b) Generally, the promotion, formation, business, dealings and affairs of the company. This applies to all cases including those where an insolvency practitioner is appointed liquidator by the court immediately on the making of the winding-up order. The official receiver may make a report to the court if he/she thinks fit, though this is carried out rarely. B. Official receiver as liquidator The official receiver becomes liquidator immediately the winding-up order is made and will remain so until someone else becomes liquidator. He/she also becomes liquidator during any subsequent vacancy. The official receiver has a duty to protect the companys assets and, where appropriate, to take into custody or under his/her control all property, etc. to which the company is or appears to be entitled, to realise and distribute the same to the companys creditors and, if there is a surplus, to the persons entitled to it. C. Realisation of assets at the initial stage

liquidator commence the realisation of assets, where the assets involved are easy to realise and, particularly, where an asset may be rendered valueless by the date of the first meeting, such as bulky items of stock which are expensive to store or small value bank balances held in accounts that incur charges. Even if the early realisation of an asset were to prejudice the appointment of an insolvency practitioner, the official receiver should act in the best interests of creditors and seek realisation. D. Statement of affairs

The official liquidator must decide whether to require a statement of affairs. It is not usually the case that a statement of affairs will be required before the first interview with the director(s) and generally the information supplied in form PIQC(Preliminary information questionnaire) relating to assets and liabilities will be used rather than a separate statement of affairs being required. If the company has been subject to earlier insolvency proceedings a statement of affairs may have been prepared in relation to those proceedings. E. Case files

The official liquidator is required to maintain a case file in respect of each winding up. The file is divided into ten parts and papers are filed within those parts as follows: Preliminary examination papers Further investigation Court papers Statutory notices Correspondence Meetings, reports to creditors, notices and proofs Assets Closing/IP handover Miscellaneous Winding up an Unregistered Company (Sec 582- 585)

According to the Companies Act, an unregistered company includes any partnership,LLP,society or cooperative society association, or company consisting of more than seven persons at the time when petition for winding up is presented before the Tribunal But it will not cover the following:-

a. A railway company incorporated by an Act of Parliament or other Indian law or any Act of the British Parliament; b. A company registered under the Companies Act, 1956; c. A company registered under any previous company laws, and registered office is in Burma,Pakistan,Immediately before the separation of that country.

Section 584/376
A foreign company carrying on business in India can be wound up as an unregistered company even if it has been dissolved or has ceased to exist under the laws of the country of its incorporation.

The provisions relating to winding up of an unregistered company:Section 583/375

a) Such a company can be wound up by the Tribunal but never voluntarily. b) Circumstances in which unregistered company may be wound up are as follows:--

a. If the company has been dissolved or has ceased to carry on business or is carrying on business only for the purpose of winding up its affairs. b. If the company is unable to pay its debts (375(4))

if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees/ 1 lakh. If any suit for debt is pending If execution of decree or order is returned unsatisfied in whole or in part Satisfaction of the tribunal that company is unable to pay its debts.

c. If the Tribunal regards it as just and equitable to wind up the company. Section 585/- in 2013 Contributory means a person who is liable to contribute to the assets of a company in the event of its being wound up. Every person shall be considered a contributory if he is liable to pay any of the following amounts A. Any debt or liability of the company; B. Any sum for adjustment of rights of members among themselves; C. Any cost, charges and expenses of winding up; on the making of winding up order, any legal proceeding can be filed only with the leave of the Tribunal; D. In the event of the death or insolvency of any contributory, the provisions of this Act with respect to the legal representatives of deceased contributories, or with respect to the assignees of insolvent contributories, as the case may be, shall apply. Locus Standi of a contributory to bring a petition for winding up Severn Trent Inc. v. Chloro Controls (India) Pvt. Ltd. [(2008) 4 SCC 130] Facts of the Case The facts of the case: Chloro Controls (India) Private Limited and Capital Controls Delaware Company, Inc. set up joint venture company, Capital Controls India Private Ltd. Later on, Capital Controls Delaware merged into Severn Trent Water Purification Co. Inc., and pursuant to the merger agreement, Capital Controls (Delaware) went out of existence. The authorised capital of the Indian joint venture company was Rs. 75,00,000 divided into 7,50,000 equity shares of Rs. 10/- each. Capital Controls Delaware (now Severn Trent) held 50% of the equity share capital of the company. The other 50% of the shareholding of the company was held by Chloro Controls (India) Private Limited. Even after the merger between Severn Trent and Capital Controls Delaware, the name of Severn Trent was not entered into the register of Capital Controls (India). Severn Trent terminated the Joint Venture Agreement vide its letter dated July 21, 2004 due to alleged breaches committed by Chloro Controls (India) Private Limited. In the termination notice, Severn Trent called upon the other shareholder to take steps for winding up of the company. When no such steps were taken, Severn Trent filed a petition for winding up on just and equitable grounds. This petition was contested by Capital Controls (India) as well as by Chloro Controls (India). Among various other grounds, the respondents also objected to the maintainability of the petition. Section 439(4)(b) A contributory shall not be entitled to present a petition for winding up a company unless (a)either the number of members is reduced, in the case of a public company, below seven, and, in the case of a private company, below two; or

(b)the shares in respect of which he is a contributory, or some of them, either were originally allotted to him or have been held by him, and registered in his name, for at least six months during the eighteen months immediately before the commencement of the winding up, or have devolved on him through the death of a former holder. Section 272(3),2013 (3) A contributory shall be entitled to present a petition for the winding up of a 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 shareholders after the satisfaction of its liabilities, and shares in respect of which he is a contributory or some of them were either originally allotted to him or have been held by him, and registered in his name, for at least six months during the eighteen months immediately before the commencement of the winding up or have devolved on him through the death of a former holder. The issue before the Supreme Court called for an interpretation of Section 439(4)(b)/272 of the Companies Act, 1956. Under this Section, a contributory is not entitled to present a petition for winding up unless the shares in respect of which he is a contributory, or some of them, (a) were originally allotted to him; or (b) were held by him and registered in his name for a certain period; or (c) devolved on him through the death of a former holder. Severn Trent did not dispute that category (a) was inapplicable in the case; but argued that it should be held to have conformed to categories (b) and (c). the contention was that the requirement of the shares having to be registered in his name was not a mandatory requirement, and could be waived in certain circumstances. Otherwise, a company (particularly in cases where two groups of shareholders are severely hostile to each other) could prevent a contributory from bringing a petition for winding up by simply refusing to register the shares in the name of the contributory. Alternatively, Severn Trent argued that the shares could be deemed to have devolved upon it through the death of the former holder. After the merger between Capital Control (Delaware) and Severn Trent, the former had effectively met its civil death, and its shares had then devolved upon the latter. The Court held that the plain language of Section 439 could not be modified or read down; and to come under category (b), it was essential that the shares should be held by the contributory and registered in his name. Section 439(4) was held to be a complete code in this respect, leaving no room for equitable considerations to be used to allow a petition in cases where a strict reading of the provisions would not allow one. Court stated, if there is omission, default or illegal action on the part of the Company in not registering the name of the contributory even though he/it can be said to be a contributory by holding the shares the law provides a remedy. This case is significant because it is perhaps the only clear Supreme Court decision on the issue of locus standi of a contributory to bring a petition for winding up. The case now conclusively settles that Section 439(4) is an exhaustive code on the subject of winding up by contributories; and in order to present a petition for winding up, a contributory must be able to bring itself within the wordings of the categories mentioned in Section 439(4)(b); with all the categories being construed according to a strict literal meaning. Provisions in relation to restructuring/ revival of sick companies

With the enactment of the Companies Act, 2013 the task of rehabilitation of sick companies and the powers of BIFR will be exercised by the National Company Law Tribunal i.e. NCLT, to be constituted under the provisions of new Companies Act, 2013. Any appeal against the orders of the NCLT will lie with the National Company Law Appellate Tribunal i.e. NCLAT. With the setting up of the NCLT and the NCLAT it is provided that any proceedings presented before the Tribunal or appeals filed before the Appellate Tribunal shall be disposed of as expeditiously as possible. However, the new enactment does not talk about the repeal of SICA, which in fact would be effective from the date the SICA (Repeal) Act 2003 is notified. The important provisions of the Companies Act 2013, vis--vis the provisions of Sick Industrial Companies (Special Provisions) Act 1985 are tabulated hereunder:

Provisions under SICA, 1985 A. Eligibility criteria Industrial Company registered for at least five years, engaged in manufacture or production of an article specified under the First schedule to IDRA (Industrial Development and Regulation Act, 1951 ) and having Accumulated Losses exceeding the net worth as at the end of any financial year.

Provisions under Companies Act, 2013 Any corporate entity, whether or not engaged in manufacturing activity, irrespective of the period of its registration, which has failed to pay the debt within a period of 30 days from the date of service of notice of demand by secured creditors representing 50% or more of outstanding debt or has failed to secure or compound the same to the satisfaction of secured creditors Comment: The purview of law has been widened, in that the test of sickness is now strictly the ability of a company to repay its debts and is not limited only to industrial /manufacturing companies