CHAPTER-1

INTRODUCTION
Meaning
Winding up of a company is a process of putting an end to the
life of a company. It is a proceeding by means of which a company is
dissolved and in the course of such a dissolution its assets are
col lected, its debts are paid off out of the assets of the company or
from contribut ions by its members, if necessary. If any surplus is left,
it is distribut ed among the members in accordance with their rights.
During the process of winding up the company sti ll exists and has
corporate powers until dissolut ion.
2
Till dissolution the propert y of the
company remains vested in the company.
It is worth noting that the company is not dissolved i mmedi atel y
on the commencement of the winding up proceedings. As a mat ter of
fact, the winding up of a company precedes its dissolut ion i. e. the
winding up is the prior stage and the dissolution, the next. n the
dissolution, the company is no more in exist ence, and its name is struc!
off by the "egistrar from the register of companies. #ut on the winding
up, company$s name is not struc! off from the regist er. Thus, in
between, the winding up and dissolution the l egal status of the
company cont inues and it can be sued in a Tribunal of %aw.
A company cannot be made insolvent but in certain respects
winding up has many effects or res si mi lar to those of ban!ruptcy, or
insolvency, for example in regard to the cessation of the business, rules
as to set off, as to secured debts or that all credi tors are to be paid pari
passu out of the assets. &owever, there are mar!ed distinctions between
1
winding up and bankruptcy, which are :
'. In ban!rupt cy the propert y of the debtor is divested from hi m and
rests in the offici al receivers or the offici al assignee, whi le in a
winding up the propert y of the company is not divested from it.
2. An individual can be declared insolvent onl y when he is unable to
pay his debts, whereas a company cannot be decl ared insolvent even if
it is unable to pay i ts debts. It can onl y beg wound up and this can be
done even when it is solvent.
(. The doctrines of relation bac! and reput ed ownership do not appl y to
winding up.
2
CHAPTER-II
MODES OF WINDING UP
The following chart explains the various modes in which a company
may be wound up.
Winding up
)ompulsory winding up *oluntary winding up init iated
by the Tribunal ini tiated by by resolution of the company
pet ition to the Tribunal in general meet ing
+embers$ voluntary winding up )redi tors voluntary winding up
WINDING UP BY TRIBUNAL
A company may be wound up by an order of the Tribunal. This is
called compulsory winding up. The Tribunal will ma!e an order for
winding up on an appli cation by any of the person enlisted in
G!und" #! C!$pu%"!& Winding-up 'Se()i!n *++,
'. ,ect ion -(( lays down the following grounds where a company
may be wound up by the Tribunal
2. ,peci al resolution .,ec -((/a012
(. Defaul t in 3ling statutory report, or holding statutory meeting
.,ec -(( /b02
-. 4ailure to commence business within t ime .,ec -(( /c012
5. "eduction of membership .,ec -(( /d012 6
7. Inabi lit y to pay debts .,ec -(( /e018
3
(9 #ritish India :eneral Insurance )9, "e, A" 0 -9 )omp )as 55-.
,ee also #ritish #urmah ;etroleum )o v <ohinoor +ills, /'=>90 59
)omp )as 5-- #om, where the debt was evidenced by two lett ers of
doubtful authenticit y2 ?ashodan )hit 4und /;0 %td, /'=>90 59 )omp
)as (57, #om, non@payment of rent pending fixat ion of standard
rent 2 "onaA ,ingh v Ambala #us ,yndicate, /'=>90 59 )omp )as
(-= ;B&, agreement to receive payment in inst al ments2 ;remier
*egetable ;roducts %td v Cnited Asian #an!, /'=>90 59 )omp )as
7>9 "aD , a company receiving goods but not accepting bi ll of
exchange, not allowed to say that there was no debt because the bill
had not been accepted2 +aharashtra ,mall ,cale Industries )orpn v
Trawlers /;0 %td, /'=>90 59 )omp )as 7E- #om, inabil it y to pay
wor!men2 C. *. ,henoy v <arnata!a Fngineering ;roducts, /'=>'0
5' )omp )as ''7 <ant. company al lowed to defend dishonour of
cheAues on the ground that the goods supplied were of inferior
Aual it y. 4red &ausman v #io@,olar /;0 %td, /'=>E0 7' )omp )as E'-
Del, machinery delivered in damaged state, clai m for price, disputed
debt. Where the company showed liabili t y onl y to the ext ent of one@
fourth of the amount clai med and the petit ioner showed nothing, the
pet ition was dismissed. :angadhar Garsinghdass Agarwal v Ti mble
/;0 %td, /'==20 E- )omp )as 2-7 #om. Where the company paid the
amount which was due and disputed the rest of the clai m, the
pet ition was dismissed. ,G ,teel )orpn v Dany Dairy and 4ood
Fngrs, /'==20 E( )omp )as (5E All. The company has to
substanti ate the defence of payment. +. *. ;aulose v )i t y &ospi tal
/;0 %td, /'==20 E( )omp )as (72 <er. Go privit y of contract with
the company, hence no right to sue, #. *ishwanathan v ,eshayee
;aper B #oards %td, /'==20 E( )omp )as '(7 +ad. The existence of
an arbitration agreement does not ta!e away the right of petit ion.
4
:oetH India %td v ;ure Drin!s /Gew Delhi0 %td, /'==-0 >9 )omp
)as (-9, (7( ;B&.
(' <ripal ,ingh v ,utleD %and 4inance /;0 %td, /'=>=0 77 )omp )as
>-', >--. ,ee ". ;. #ansal v #ansal B )o, AI" '==5 Del 2(-,
cl ai mant did not indicate the state of account and the company
submit ted a detai led counter@clai m rul ing out the petit ioner2 Tata
Davy %td v ,teel
,trips %td, AI" '==5 ;B& ', nothing of the cl ai m was left aft er
deduction of amounts for poor Aualit y of goods supplied. Fl meh
India v &i@,ound )order /;0 %td, /'==50 >( )omp )as '(5 +ad,
deposit account not produced.
(2 The ,upreme )ourt in Amalgamat ed )ommerci al Traders /;0 %td
v A)" <rishnaswami, /'=750 (5 )omp )as -57, laid down that
condi tional decl arat ion of dividend does not create a debt and the
company could dispute its liabi lit y. 4ollowing this in ,harma
Fnt erprises v I G &otels /;0 %td, /'==-0 ' #ihar %I" 5E7, it was
held that where in a pending money suit against the company, the
latter raised a good counter@claim, a petit ion for winding up for that
very debt was not sustainabl e. Another decision emphasiHing that
the company$s counter@clai m should be pri ma facie val id and put@up
bona fide is 4ederal )hemi cal Wor!s %td, "e, /'=7-0 (- )omp )as
=7(2 Trilo! )hand v ,wasti!a ,trips /;0 %td, /'==50 >2 )omp )as
-2( ;Bl@l, li abil it y to pay on ta!e@over, goodwill overvalued,
genuine dispute. Trend Designs %td, "e, /'==>0 2= )orpt %A '(5
<er, a company cannot be said to be unabl e to pay its debts if it has
substanti al pro3ts and current assets2 a company cannot be expected
to discharge a debt which it does not admi t on bona 3de grounds.
5
(( AI" '=59 F; '-22 <. ,. Trivedi B )9 v Asho! %eyl and %td,
.'=>=1 ( )omp %I (5', neither the amount nor due dat e given with
certaint y2 &industan ,anitary and &ardware ,tare v I ) T
Fl ectronics %td, /'==90 7E )omp )as 5>5 ;unD , where the company
paid off a maD or.
The peti tioner clai med to be a creditor of the defendant company.
The company never disputed that the amount clai med was wrong.
They onl y said that they had some !ind of a counter cl ai m, which
the court found to be of a very nebulous character. All they said was
that the accounts reAuired scrutiny and that the petit ioner was not
present l y entit led to the sum cl ai med, but why, it was not clearl y
stat ed. The court, therefore, held that there was no bona3de dispute
with regard to the sum due.
,i mi larl y in &arinagar ,ugar +ills )o v ;radhan, (- ,C##A "A I
/aft erwards )I0 al lowed a petit ion as Jthe al leged dispute as to the
li abil it y of the company to the Doint fami l y was not bona3de but was
onl y a art of a scheme of collusion between the company and the
!art a of the famil y.
It is also necessary that the creditor should have delivered a de land
under his hand at the registered office of the company. J J,tatutory
noti ce is a highl y formal and important document and it would
appear to fol low that the provision of the Act as to its seryice upon
the company must be strictl y observed. K(E Thus,
part of the clai m and secured the bal ance by a ban! guarant ee2
Clti mat e Advertising and +ar!eting )o v : # %aboratories, /'==90
77 )omp )as 2(2 All, where the principal paid off and onl y interest
amount disputed, order not grant ed, here the court also added that
6
winding up is in the discret ion of the court and the same may be
refused even if al l the grounds are made out2 :oyal Flectro ,teel, 7E
)omp )as (95 "aD , goods received in damaged state2 Ioti ;rasad
#al a ;rasad v A ) TDevelopers /;0 %td, /'==90 7> )omp )as 79'
Del, bonafide disputes about goods supplied to the company2
Aluminum Fxtrusions and Industrial )omponents /;0 %td v )entral
;aints %td, /'==90 7> )omp )as -EE +;, vague plea of disput e.
Debts arising out of sett lement of accounts in a fami l y company.
&ence bona fide defence ruled out. Deepa Anant #ande!ar v
"aD aram #ande!ar /,irigao0 +ines %td, /'==20 E- )omp )as -2
#om. The company did not pay rent from day one and repli ed to the
pet ition sayi ng that it had appli ed for fixation of standard rent, held
not bona3de in ,harda #handari v Ananya Flectronics %td, /'==(0
E> )omp )as '7E Delhi. ;ayment of arrears of lcase money due on
premises ta!en over by the company, allowed to be raised before the
company court, Devendra <umar Iain v ;olar 4orgings and Tools
%td, /'==(0 '
)omp %I '>- DelL /'==(0 ' ;unD %" 7E.
(- .'=771 2 )omp %I 'E.
(5 Where a company had accept ed a number of bil ls of exchange
and in defence the company onl y said that the acceptances were
condi tional, but offered no proof of such condi tions, it was held that
winding up could not be refused. Cnited Western #an! %td, /'=E>0
-> )omp )as (E>2 Cniversal )onsortium of Fngineers %td, "e,
/'=>(0 5- )omp )as (( )al, no proof of debt offeredL +adan Debi
<undall a vAlpine Dairy %td, /'=>(0 5- )omp )as -' )al, defence of
defective goods raised a long ti me after the suppl y, not tenable.
Where the company first ac!nowledge the debt and disputed it for
the first ti me at the hearing, that was not the sympt om of a bona fide
7
dispute. #aD rangbali Fngg )o %td, "e, .'==91 l )omp %l 2-(L AI"
'=>= )al (57. A cl ai m which reAuired to be substant iated by
evidence is fit for a civi l sui t, +alhotra ,teel ,yndicate v ;unD ab
)hemi ;lants, /'=>=0 75 )omp )as 5-7 ;B&. )ompany paying half
the debt, petit ion allowed because the other half was of more than
"s 599, Cnited Asian #an! v Iaipur il ;roducts %td, /'=>=0 77
)omp )as -(>2 ,urendra ;ac!ers v ;unD ab %and Development and
"eclamation )orpn %td, / '=>=0 77 )omp )as >>( ;B&, company
raising no points.
(7 ,. -(-/20.
(E ,ee "AG<IG )1 in Iapan )otton Trading )o v IaD odia )otton
+ills, AI" '=2E )al 725, and see also IanbaHar +anna Fstate %td,
"e, AI" '=(' )al 7=2L '(( I) (2'2 %axmi ,ugar +ills v Gat ional
Industrial )orpn, /'=7>0 ' )omp %I 2=2 ;unD . Where the particulars
of the notice changed because of payments to creditors, the notice
became technicall y incompetent, a new petit ion was not allowed to
be founded on such notice, ,hantil al <hushaldas v Iayabala, /'==-0
+h %I -(2.
where the amount due was incorrectl y stated in the noti ce, the
pet ition fai led. K Gotice should be served at the company$s registered
office. Where the registered office was not functioning and a
different address was being given for correspondence, a service at
that address, and not at the registered office, was held to be not a
good service for the purposes of a winding up pet ition. K Goti ce sent
to the admi nistrative offi ce of the company instead of the registered
office was held to be not effect ive service. -M Where a company
cont ested the claim on the ground that the documents in Auestion
were not signed in accordance with the articles and, therefore, the
company was not liabl e, that was held to be a bona 3de dispute
8
disent itl ing the clai mant from winding up order.J It may not be
necessary to specify in the notice any part icul ar section of the Act,
but the noti ce must give some indication that in the event of non
compliance, steps would be t a!en for an order of winding up. Where
the pet itioner had not mentioned in his notice the period within
which he must be paid and onl y as!ed for payment at an earl y date,
it was not considered to be a valid not ice for winding up order
-2
nce the reAuirements of a creditor $s pet ition are fulfilled and there
is a non@compli ance with the statutory not ice, winding up may be
ordered and the company wil l not be heard to say that the peti tioner
is acting mala 3des, or that he has an al temative remedy or that the
company is solvent or that the maD orit y of the credi tors are opposed
to winding upJ or that the petit ion was presented onl y to save the
period of li mi tation.
--
(> 3t %ynx %td v ,i mon )arves India %td, /'=E'0 -' )omp )as
'E-L AI" '=E( )al -'(. A ti me@ barred clai m cannot be the basis of
a peti tion, but where the company ac!nowledged the debt in its
bal ance sheet that was held to be sufficient both as a proof of the
debt and as an ext ension of the period. ;andam Tea )9 v DarD eeling
)ommerci al )o, /'=EE0 -E )omp )as '5 )al. Where the noti ce did
not mention the date within which payment should be made or
mentions a period less than 2' days, i t may still be a val id noti ce,
because the Act gives the company a 2' day waiting period. ,ee
,yt ron /India0 %td, "e, / '==90 7= )omp )as E7E )al 2 G. <. :ossain
B )o /;0 %td v Dytron /India0 %td, /'==90 7= )omp )as E5E )al.
(= *ysya #an! %td v "andhir ,teel and Alloys /;0 %td, /'==(0 E7
)omp )as 2-- #omL /'=='0 +ah %I '5E> dist inguishing 4ortune
)opper +ining )o, "e, /'>E90 %" '9 FA (=9, where the
9
regist ered office of the company was pulled down and service
elsewhere was held to be sufficient.
-9 G. %. +ehta )inema Fnterprises /;0 %td v ;ravin )handra ;.
+ehta, /'=='0 E9 )omp )as (' #om. A notice served on the
company$s administrative office would have been regarded as
good if it were not short in terms of ti me, +anganese re /India0
%td v ,andur +anganese B Iron res %td, /'===0 => )omp )as E55
<ant, servi ces at the company8 s regist ered office is not merel y a
technical formalit y, it has to be strictl y complied with, ; , * ;
*itt al "ao v ;rogressive )onstruction ; %td, /'===0 2 )omp %I 22>
A;. The notice coming bac! with the postal remar! 6refused$ was
held to be good service, "aD <umar v rganic )hem ils %td,
/'==>0 =( )omp )as (>7 ;B&. A notice to the managing director
has been held to be no good, G :opal!rishnan vAsianet ,atell ite
)ommunications %td, .29991 ' )omp %I 2>5. Goti ce sent by %egal
Aid B Advice #oard on its own behalf and not on behalf of a
creditor was held to be incompetent, #ichitrananda ;anda v rissa
)onstruct ion %td, /'===0 =E )omp )as (-5 ri. ,ervice of notice by
regist ered post fol lowed by publication in newspapers was held to
be sufficient compli ance with "ule (2 of the )ompani es /)ourt0
"ules, '=57, Doshi %eather )loth +fg )o %td, "e, .29991 2( ,)%
225 #om.
-' ,o3sul e /;0 %td, "e, /'=EE0 -E )omp )as -(> #om.
-2 ;aromD it %al #hadwar v ;rem ,pg and Wvg +ills, /'=>70 79
)omp )as -29 All.
-( Advent )orpn %td, "e, /'=7=0 2 )omp %I E'2 ,e!sari a )otton
+ills, "e, /'=7=0 2 )omp %1 '55 #om.
-- *. <. Iain v "icha %aboratories /;0 %td, /'==(0 E> )omp )as 2>(
Delhi L /'==-0 ' )omp %l
10
#ut even so the power of the court is discretionary. The ut ili t y of
this discret ion is ampl y illustrated by the decision of the #ombay
&igh )ourt in As new Drums )o %td, "eJ5. A company$s
indebtedness aggregated to over "s E> la!hs of which the petit ioner
had a clai m of onl y "s '', (59. &e fulfil led the reAuirements of the
statutory noti ce. The company prayed for ti me so as to enable it to
draw a scheme of compromise with all its credi tors. The court
stayed the pet ition to enable the company to cal l a meet ing of its
creditors, but subD ect to the condi tion that the company shall not
deal with or dispose of i ts assets in the meanti me.
-7
The discretion of the court has been revitalised by the ,upreme
)ourt in +. :ordhandas B )9 v +adhu Wooll en Industries /;0 %td. K
The court found that the debts were not onl y disput ed, but were also
falsel y shown in the accounts by the pet itioners when they were
themselves the directors. The other creditors were opposed to
winding up. Fxplaining the weight that ought to be at tached to this
fact "ay I /lat er )I0 said
->
The wishes of the credi tors will be test ed on theNground whether the
case of the persons opposing the winding up6 is reasonable,
secondl y, whether there are matt ers which should be inAuired into
and investigated if a winding up order is made. It is also well@
sett led that a winding up order will not be made on a creditor $s
pet ition if it would not benefit hi m or the company$s creditors
generall y.
A ti me@barred clai m cannot sustain a winding up pet ition. J +oney
paid for allotment of shares and no shares being allot ted, nor money
refunded, the
11
2E92 C) #an! vAehal Allays /;0 %td, /'==(0 ( )omp %I -( +;,
defenceless indebtedness to ban!. ,harda #handari v Ananya
Fl ectronics %td, /'==(0 E> )omp )as '7E Delhi, an application for
fixation of standard rent is not a defence to the li abil it y to pay the
outstanding rent. Devendra <umar Iain v ;ol ar 4orgings B Tools
%td, /'==(0 ' )omp %I '>- DelL /'==(0 ' ;unD %" 7E, the company
paying the principal but not the int erest al lowed by the company
D udge, a good ground of winding up. ,. <anti lal B )9 v "aD aram
#ande!ar /irigaa0 +ines /;0 %td, /'==(0 E7 )omp )as >99 #om,
debt due under a guarantee.
-5 /'=7>0 (> )omp )as 2>E #om2 see also Gagree v Asnew Drums,
/'=7E0 2 )omp %I 2>=.
-7 ,ee also <udremu!h Iron re )9 %td v <ao!y "oadways /;0 %td,
/'==90 7= )omp )as 'E> <ant, where a carrier had become li able
for short del ivery of goods and the clai m was held to be capable of
sustaining a pet ition though its amount was not yet ascertained.
Another example of grant of ti me was in "ishi Fnterprises, "e,
/'==20 E( )omp )as 2E' :uD , the company was in temporary
diffi cult ies and the employment of 599 persons was at sta!e, the
company was also doing well in business. ,tar ,traw #oard +fg )9
v +ahal axmi ,ugar +ills )o, /'=='0 2 ;unD %" '2>, company
paying undisputed part of the clai m, for the balance one@month
al lowed at '>O interest.
-E /'=E'0 ( ,)) 7(2L /'=E20 -2 )omp )as '25L AI" '=E' ,) 27992
:arodia &ardware ,tore v Gi modi a ;lant ations and Industri es /;0
%td, AI" '==> :au '>, winding up ordered because of inabil it y to
pay debts. The agreement for sale of propert y of the company was
not specificall y enforced because that way onl y one person would
have got al l the benefit. Tolani ,hipping )o %td v ,aw ;ipes %td,
12
/'==>0 2> )orpt %A '79 Delhi, compli cated and disputed cl ai ms not
to be accepted as the basis of a pet ition.
-> At p. '(2. 4ol lowed by the #ombay &igh )ourt in 4ocus
Advertising /;0 %td v Ahoara #lac! /;0 %td, /'=E50 -5 )omp )as
5(- #om, where though al l the conditions of a creditor8 s pet ition
were sat is3ed, the bul! of creditors were opposed to it.
-= <. ). ;angunni v % Wandoor Iupiter )hits, /'=>'0 5' )omp )as
-5( <er. Ac!nowledgement ext ends ti me and the fact of a debt being
mentioned in the company8 s balance sheet amounts to
ac!nowl edgment. DarD eeling )ommerci al )9 %td v ;andam Tea )9
%td, /'=>(0 5- )omp )as >'- )al. %and sold by company under
deception and ta!ing advance,
appl icants$ pet ition for winding up fil ed at a t ime when the clai m
to refund had become ti me@barred was held to be not maintainable. 5M
4or refund of money lost because of misrepresentations in the
prospectus adeAuate remedi es are available under ,. 72 of the
)ompanies Act. It is hardl y necessary for the allot tee to come in under
D urisdiction for winding up.
5'
An arbitrator $s award can be the basis of a peti tion even if it has
not been made a rule of the court. 52 There have been contrary
decisions also. 5( Where there was a pending pet ition against an award
for its setting aside, it was held that the pet ition for winding up should
wait for the out come of the pet ition against the award. J The court can
ta!e up the pet ition again after the award becomes an evidence of an
established debt. 55 An arbitrator has no D urisdict ion to order winding
up. J The existence of an arbitration agreement does not oust the
D urisdiction of the court. K
13
An emp'oyee$s clai m for compensation for premature termination
of employment is not a debt unless it is first ascert ained by a court and
converted into a decree. K
E. Iust and eAui table .,ec -(( /f01.
>. Defaul t in 3ll ing ;P% account #P, or Annual "eturn .,ec -((
/g01.
=. Acted against ,overeignt y B Integri t y of India .,ec -(( /h01.
'9. ,ic! Industri al )ompany uPs -2-:. .,ec -(( /i01.
,ect ion -(( /a0 to /f0 does not confer on any person a right to see! an
order that a company shal l be wound up. "ather i t is a discretionary
power of the Tribunal as the word used in sec -(( 6is may$. &ence
merel y because any of the circumstances enumerat ed under ,ection -((
exists, it dose not fol low that the Tribunal is bound to order winding
up.
2
'. Spe(ia% e"!%u)i!n !# )-e (!$pan&. /Se( *++ 'a,0 1
If the company has by a special resolution resolved that it
may be wound up by the Tribunal, the Tribunal may pass a winding
up orders.
The power of the Tribunal in such a case is discret ionary
and should be exercised onl y where a bona fide case is made out.
The Tribunal may refuse to order winding up where i t is opposed to
publi c or company$s interest.
If pet ition of winding up is fil ed uPs -((/a0, a special resolution is
reAuired and on the other hand if a company present that pet ition on
any of the grounds ment ioned in section -(( /c0 to /f0, no such
social resolut ion is reAuired.
2. De#au%) in -!%ding ")a)u)!& $ee)ing. /Se( *++ '2,0 3
14
The company must hold the statutory meet ing within 7 months
from the dat e on which the company is entit led to commence its
business. And before the holding of the meet ing, the statutory report by
the directors must also be delivered to the "egistrar for registrat ion.
/,ect ion '750
If a company ma!es a defaul t 6in delivering the statutory report
to the registrar or in holding the statutory meet ing, the Tribunal may
order winding up of the company ei ther on the petit ion of the "egistrar
or on the peti tion of the contributory. The peti tion for winding up must
not be filed before the expiration of '- days aft er the last day on which
the statutory meet ing ought to have been held. It may be noted that a
private company is not reAuired to forward a statutory report under
,ec. '75 /20 therefore, a pet ition to 8 d it up on the ground of non@
del ivery to the "egistrar of the statutory report shall not be entertained.
&owever, the Tribunal may instead of ma!ing a winding up order,
direct that the statutory report shal l be del ivered or that a meet ing shall
be held. If the company fails to compl y with the order then the Tribunal
will wind up the company.
+. A Fai%ue )! C!$$en(e Bu"ine"".
Where a company does not commence its business within a year
from its incorporation, or suspends its business for a whole year, the
Tribunal may order for its winding up. .,ec -(( /c01. The power of the
Tribunal is discretionary and will be exercised onl y where there is a
fair indicat ion that the company has no intent ion to carry on the
business. Where the suspension of the business is temporary or can be
satisfactori l y accounted for, the Tribunal wil l refuse to ma!e an order.
Go order of winding up will be made if the company sat is3es the
15
Tribunal that the business of the company has been temporaril y
suspended on account of some diffi cult ies to carry it on, and that it has
int ention to resume the business when it can be carried on pro3tabl y.
A company will not be wound up if i t abandons one of its several
businesses, unless that business is the main obD ect of the company.
Fven if the wor! of all the businesses has been suspended, even then it
will sti ll be o en to the Tribunal to exami ne whether it will be possibl e
for the company to continue its business. Where the business of the
company can legit i matel y be carri ed on both abroad and in Indi a and it
carried on business abroad onl y, there will be carryi ng on of business
within the meaning of the Act, Go winding up order will be made solel y
on the ground that the company has not transacted any business in this
countryQ ,i mi larl y if a holding company ceases to be active in i ts
business but its subsidiary is doing the very business for which it was
formed, it cannot be said that the former has suspended its business for
a whole year.
Example : The business of the company remained suspended for more
than six years because of nancial diffi culti es, and there was no hope
of recovery from such deplorabl e financial position as the
Government of Orissa which was the major contributor also refused
to help the company. The now Tribunal! ordered for the windin" up
of the company. #$e. Orissa Trun%s and Enamel &or%s 'td. ()*+! ,+
-omp. -as. ./+.
*. Redu()i!n !# $e$2e" 2e%!4 $ini$u$. /Se( *++ 'd,0
Where the number of members is reduced below E in the case of
a public company and below 2 in case of a private company, the
Tribunal may order the winding up of company.
16
It may be noted, if the company carried on i ts business with
reduced members for more than 7 months, the members will be
personal l y liabl e for the payment of company$s debts contract ed during
that period. /,ection -50 l.
This ground for winding up is meant to enable member to escape
personal liabili t y for the company$s debts which he will incur under
sect ion -5 of the Act. @
It is rarel y an order is made under this cl ause. The Tribunal
leaves the company to have a voluntary winding up.
5. Ina2i %i)& )! pa& de2)". /Se( *++ 'e,0
The Tribunal may order for the winding up of a company if it is
unabl e to pay its debts. The basis of an order for winding up under this
cl ause is that the company has ceased to be commerci all y solvent i. e. ,
it is unable to meet its current demands, although the assets when
realised may exceed its li abil iti es. Thus, inabil it y to pay debts is to be
ta!en in the commerci al sense. The test of inabili t y to pay debts$,
therefore, is Whether the company can pay its existing li abil ities so
long as it is a going concern. If the company is not in a position to
meet its existing li abil iti es, a peti tion for winding up is 5. Inabil it y to
pay debts. .,ec -(( /e01 maint ainable even if it may have very valuabl e
assets not present l y realisabl iE According to sect ion -(- of the Act a
company shal l be deemed to be unable to pay, its debts in the following
cases.
a. S)a)u)!& n!)i(e
if a credi tor to whom the company owes a sum of "s. 599 or
more has served on the company a notice for payment and the company
17
has for three wee!s neglected to pay or otherwise satisfy hi m. In
computing the ti me for three wee!s the day on which the notice is
dispat ched and the day on which it is served should both be exc'uded.
A not ice of demand giving less than three wee!s ti me does not
ma!e the demand ineffect ive. It onl y postpones the right of action to a
dat e fal ling aft er the expiry of three wee!s. #ut where the company
bona fide disputes the debts, and the Tribunal is satisfied with the
defence of the company, the Tribunal will not order for i ts winding up.
2. De(eed de2)
If execut ion or other process issued on a decree or order of any
Tribunal in favour of a credi tor is returned unsatisfied in whole or in
part.
'. ;aramD it %al #adhwar v ;rem ,pg B RSg +ills %td. /'=>70 79 )omp.
cases
2. "e )apital 4ire Insurance Associat ion /'>>20 2' )h. D 29=.
(. "e Fastern Telegraph )ompany /'=-E0 2 A%% F. ". '9-.
C. C!$$e(ia% in"!%6en(&
it is proved to the satisfact ion of the Tribunal that the company
is unabl e to pay its debts and in determining whether a company is
unabl e to pay its debts, the Tribunal will ta!e into account the
cont ingent and the prospective liabi lit ies of the company. What has to
be proved under this cl ause is not whether the company$s assets exceed
its liabi lit ies, but whether it is unable to meet its current demands. If a
company is unable to meet i ts current liabi lit ies, it is commerciall y
insolvent and l iable to be wound up.
Example : The liabili ties of a company amounted to $s. (, ,(, //, ///
18
and its assets were not worth more than $s. 0/, //, ///. 1t was held on
a pet ition for windin" up by a debentureholder that the company was
not only commerciall y insolvent but hopelessly insolvent, and that an
order for windin" up was made. #2achhraj 3 4actories 'td. v. 5irjee
6ills 'td. .* 2ombay '. $. +*+7.
7u") and e8ui)a2%e. /Se( *++ '#,0
The last ground on which the Tribunal can order the winding up
of a company is when the Tribunal is of the opinion that it is D ust and
eAui tabl e that the company should be wound up. This clause gives the
Tribunal a very wide power to order winding up wherever the Tribunal
considers i t D ust and eAuitable to do. The Tribunal will consider such
grounds to wind up a company for D ust and eAuit able reasons as are not
covered by the preceding five clauses. What is D ust and eAuit able will
depend upon the facts of each particular case. The Tribunal while
winding up a company under this cl ause will have to ta!e into
consideration not onl y the interests of the shareholders and creditors
but also public int erest in the shape@of needs of communi t y, interests of
the employees etc.
It is important to note that reli ef based on the Dust and eAuitable
cl ause is in the nature of a last resort when other remedies provided in
the Act are not suffici ent to protect the general interest of companyQ
4urther the Tribunal may refuse to ma!e an order for winding up
if it is of the opinion that some other remedy is avail able to the
pet itioner and he is acting unreasonabl y in see!ing to have the
company wound up instead of following that other remedy.
4ollowing are the instances where the Tribunals have dissolved the
companies under the D ust and eAuit able class.
19
/i0 L!"" !# "u2")a)u$. It is D ust and eAuitable to wind up a
company where the company$s main obD ect or substratum is
gone. The substratum of a company is deemed to be gone
whenT/a0 the subD ect@mat ter of the company is gone, or /b0
the obD ect for which i t was incorporat ed has substantiall y
fai led, or /c0 it is i mpossible to carry on the business of the
company except at a loss, or, meet the existing and the
possible assets are insufficient to meet the existing li abil iti es
of the company.
/ii0 Dead%!(9 in $anage$en). When there is a deadloc! in the
management of a company, it is a proper case for winding up
under the D ust and eAuitable clause.
/iii0 Oppe""i!n !# $in!i)&. Where the maD ori t y shareholders
have adopted an aggressive or oppressive pol icy towards the
minorit y, it is a sufficient ground for winding up of the
company under this clause.
/iv0 Faudu%en) pup!"e. Where the company was conceived and
brought forth in fraud, or for illegal purposes, it is Dust and
eAui tabl e to wind up a company.
/v0 In(!p!a)ed ! :ua"i Pa)ne"-ip. Where a private
company consisting of members of one or more fami li es or a
group of friends, is reall y in nature of partnership business,
any circumstances D ustifying the dissolution of a partnership
/such as misconduct of one or more partners0 will constitute
D ust and eAuit able ground for winding up of the company
though they may not consti tute sufficient grounds for winding
up under the provision of the )ompani es Act.
20
/vi0 W-ee )-e (!$pan& i" a 2u22%e and has no business to carry
on, it was wound up.
/vii0 W-ee )-e1 (!$pan& 4a" in"!%6en) and was being carried on
for the benefi t of the debentureholders, who had ta!en
possession, a winding up order was made.
In the following cases, the Tribunals have declined to ma!e a
winding up order on JD ust and eAuitable grounds. K
a. Where there were all egat ions of groupings among shareholders.
(
'. #al chandra Dharm D ee +a!aD i v Alcoc! Ashdown B )o. %td. /'=E20
)omp. cases '=9.
, 2. &ind overseas ;vt. %td. v ".;. IhunD hunwal la AI" '=E7 ,. ). 575.
(. ,. ,. "aD !umar v. ;erfect )astings ;rivat e %td. /'=7>0 (> )omp.
/b0Where i t was found that the substratum had not wholl y gone and the
maD orit y of the shareholders opposed winding up.
/c0 Where there were all egat ions of mi smanagement or
misappropriat ion of funds by directors
/d0 Where the company was running at a loss.
(
/e0 Where the petit ioner had an alt ernat ive remedy.
-

In the case of a winding up pet ition on the D ust and eAuitable
ground, while the petit ioner will not be allowed to travel beyond the
pet ition, one further point to be noted is whether the ground exists at
the t ime of hearing the peti tion. The Tribunal will decide the Auestion
of winding up on the facts existing at the ti me of hearing the petit ion
and not merel y on the date of the peti tion. If the facts which existed at
the t ime of presenting the peti tion had subseAuentl y melt ed away, that
would be a case for ordering winding up.
5
21
;. De#au%) in #i%%ing P<L a((!un) B<S ! Annua% Re)un /Se( *++ 'g,0.
As per new sect ion introduced in the )ompanies /,econd Amendment0
Act, 2992, where the company has made a defaul t in filing with the
"egistrar its balance sheet and pro3t and loss account or annual return
for any 3ve consecut ive financial years, the Tribunal may order for i ts
winding up.
=. A()ed again") S!6eeign)& > In)egi)& !# India /Se( *++ '-,0.
As per new sect ion introduced in the )ompanies /,econd Amendment0
Act, 2992, where the company has act ed against the interests of the
sovereignt y and integrit y of India, the securit y of the ,tate, fri endl y
rel ations with foreign ,tates, public order, decency or moralit y2 the
Tribunal may order for its winding up.
;rovided that the Tribunal shall ma!e an order for winding up of
a company under clause /Ii0 on application made by the )entral
:overnment or a ,tate :overnment.
?. Si(9 Indu")ia% C!$pan& u<" *@*G. /Se( *++ 'i,0.
As per new sect ion introduced in the )ompanies /,econd
Amendment0 Act, 2992, the Tribunal is of the opinion that the company
should be wound up under the circumstances specified in section
-2-: L that is winding up of sic! industrial company, the Tribunal may
order for its winding up.
PETITION FOR WINDING UP
The Tribunal does not choose to wind up a company of its own
mot ion. It has to be petit ioned. ,ection -(= of the )ompanies Act
22
enumerates the persons who can file a pet ition to the Tribunal for the
winding up of a company. The following persons can file a pet itionL
'. The company.
2. Any credi tor or credi tors including any contingent or prospective
creditor or creditors.
(. Any contributory or contributori es.
-. All or any of the aforesaid part ies, together or separat el y.
The "egistrar.
5. Any person authorised by the central government under section
2(-.
C!$pan&A" pe)i)i!n /Se( *+? '1, 'a,0. A company itself cannot
fil e a petit ion for winding up. #ut it can do so onl y when the company
has passed a special resolut ion to that effect. The directors have no
power to present a pet ition for winding up unless they have been
authorised by the members by passing a special resolution at the
general meeting of the company. M &owever, where the company is
found by the directors to be insolvent due to circumst ances which
ought to be invest igated by the Tribunal, the directors may appl y to the
Tribunal an order of winding up, even without obtaining the sanction of
the company in general meeting. E D r It is rare for companies to 3le
pet itions for winding up since if desired, they have onl y to pass a
speci al resolution for voluntary winding up under sect ion ->- of the
Act.
+ohan %al v. )huii ilal /'=7=0 (2 )omp. )as. =E9.
"aD aD niundhry Flectri c ,uppl y )orporat ion %td. v. A. Gegeshwara "ao.
AI" '=57 ,. ). 2'(.
23
<rishna Iyer B sons v. Gew +anufacturing )o. /'=750 ', )omp. %I.
'E=.
%o! Gatli :upta v. )redits ;rivate %td. /'=7>0 I, )omp. %I. 2. 5(.
"e. 4ieldes #ros. %td. /'=E90 I, All F. ". =2(.
"e ;atial a #anaspat i )ompany AI" '=5( ;epsu '=5.
,tat e of +adras Flectri c Transways %td. AI" '=57 +ad '('.
Cedi)!" pe)i)i!n /Se( *+? '1, '2,0. A creditor can also appl y for the
winding up a company. The term credi tor is not li mi ted to one to whom
a debt is due at the date of the peti tion. Fvery person who has a
pecuniary claim against the company whether actual or contingent is a
creditor under section -(=. The word 6creditor $ includes a secured
creditor, debentureholder, the trustee for debentureholder, an assignee
of a debt, an executor or a deceased creditor, D udgement creditor,
receiver, etc. The Tribunal will not order the winding up of the
company where the debt is bona fide disputed. Where a creditor $s
pet ition is opposed by other credi tors, the Tribunal may ascertain the
wishes of the maD orit y of the creditors before ma!ing any order for
winding up.
Where a pet ition is brought by a contingent or prospect ive
creditor or creditors, it shall not be admit ted before the leave of the
Tribunal is obtained. ,uch leave shall be granted onl y when the
Tribunal is satis3ed that there is a pri ma facie case for winding up the
company and reasonable securi t y for costs has been given.
The central or stat e government or muni cipal authori t y whom any
tax or public charges are due from the company is also treat ed as a
creditor and can present a winding up pet ition. 6 &owever, a
poli cyholder in a l ife insurance company is neither a creditor nor a
24
contributory to the company nor a company$s wor!er union is a creditor
and as such cannot fil e a pet ition for winding up under this clause.
2
A foreign credi tor can also appl y for winding up. A company did
not pay commission to its foreign agent. &e as!ed for winding up. The
company8 s defence that "eserve #an! permission was necessary did not
appeal to the Tribunal. It was a part of the company$s dut y to ma!e
necessary arrangements.
A creditor whose debt is disputed on some substant ial ground
cannot general l y get a winding up order. The Tribunal may either order
the peti tion to stand over unti l the validit y of the debt can be debt or
may dismiss the petit ion.
#ut in Fngland the rul e has been re@affirmed by #C)<%F? I in a
case, E( where he saidL
In my Dudgment i t remains a rule of this court that where a full y
paid shareholder petit ions for compulsory winding up he must show, on
the fact of his petit ion, a prima facie probabili t y that there will be
assets avai labl e for distribution amongst the shareholders.
4ollowing this, ;%W+AG I reD ected a contributory$s pet ition
on the ground that the company was Jhopelessl y insolventK. EJ
A shareholder fil ed a pet ition for ag winding up order on the
ground that he had been misl ed by represent ations in the company$s
prospectus. The court returned his pet ition with the remar! at an
al ternative remedy was avai labl e to hi m under ,ect ion 72 of the Act. E5
C!n)i2u)!&A" pe)i)i!n. /Se( *+? '1, '(,0. The term
contributory$ means every person l iable to contribute to the assets of a
company in the event of its being wound up. It includes the holder of
25
any shares which are full y paid up and includes any person al leged to
be a contributory.
A contributory shal l be entit led to present a pet ition for winding up
onl y
/a0 when the number of members is reduced below E in the case
of a public company and below 2 in the case of a private company. or
/b0 when he holds shares whi ch were originall y al lott ed to hi m or /c0
has held shares for six out of the eighteen months prior to the
commencement of winding up or the shares have devolved on hi m
through the death of a former holder.
The obD ect of ma!ing these provisions is to pr vent a person from
buying shares to Aualify himself with the sinister mot ive of wrec!ing
the company.
Example : 8 transfer had been executed and, stamped and dated in
9une ()0*. The company did not re"ister it until October ()0:. 8
pet ition presented by the shareholder in ;ecember 1 )0:, for windin"
up was held to be not maintainabl e as the pet itioner had not held the
shares of sir months as re<uired by the 8ct. #$e. Gattapardo 'td.
()0)! = 8ll. E. $. +,,7.
Regi")aA" pe)i)i!n /Se(. *+? '1,'e,0. T-e egi")a i" en)i)%ed
)! pe"en) a pe)i)i!n #! 4inding up !# a (!$pan& !n )-e #!%%!4ing
g!und" !n%&.
/i0 if defaul t is made in del ivering the statutory report to the registrar
or in holding the statutory meeting L
/ii0 if the company does not commence its business within a year of i ts
incorporation or suspends its business for a whole year2
/ii i0 if the number of its members is reduced in the case of a publi c
26
company below seven and in the case of a private company below two.8
/iv0 if a company is unable to pay i ts debts2 and
/v0 if the Tribunal is of the opinion that it is D ust and eAuit able that the
company be wound. The registrar is not entit led to ma!e a peti tion on
the ground that the company is unabl e to pay its debts unless it so
appears to hi m from the financi al condi tion of the company as
'. +ohammed Amin #ros. %td. v. Dominion of India, A. I. " '=52, )al
(2(.
2. +ohan %al v. )utt ac! Flectric ,uppl y )o. %td. A. I. ". '=7-, ri '='.
(. Furomet al %td vs. Aluminium cables and )onductors ; %td. /'=>(0
5( comp )as E-- )alcut ta.
disclosed in its balance sheet or from the report of a special audi tor
appointed under section 2((@A or an inspector appointed under section
2(5 or 2(E. In al l the above cases the registrar must obtain the previous
sanct ion of the central government before ma!ing the pet ition, for
winding up. The central government shal l not give such permission
unless opportuni t y has been given to the company to ma!e its
representations. n obtaining the sanction of the central government,
the registrar must present the pet ition for winding up within a
reasonable ti me otherwise the Tribunal wil l refuse to recognise the
sanct ion as a val id sanct ion.
A pet ition for winding up on the ground that a defaul t is made by
the company in delivering the statutory report or in holding the
statutory meet ing can be present ed onl y by the registrar or by a
contributory. ,uch a petit ion must be presented aft er the expiry of
fourteen days after the l ast day on which the statutory meeting ought to
have been held.
27
Cen)a% G!6en$en) pe)i)i!n Se(. *+? '1, '#,. The central government
can also file a pet ition it winding up in certain cases. The peti tion can
be 3led by the central government on the report of Inspector to appl y
for winding up the company. The central government can authorise any
person including the registrar to act on its behalf for the purpose.
Where a company is being wound up volunt aril y or D ect to
supervision of the Tribunal, a petit ion for its winding up by a Tribunal
may be presented by any person authorised to do so under section -(=
or the official liAuidator. The Tribunal shall not ma!e a winding up
order on the above petit ion unless it is satis3ed that the voluntary
winding up or winding up subD ect to the supervision of be Tribunal
cannot be cont inued with due regard to the interests of the creditors or
contributori es or both. /,ect ion --90.
S)a)e$en) !# a##ai" )! 2e #i%ed !n 4inding up !# a (!$pan& 'Se()i!n
*+? A,.
As per new sect ion introduced in the )ompanies /,econd
Amendment0 Act, 2992 a stat ement of affairs shal l be 3led on winding
up of a company as under L
/'0 Fvery company shal l 3le with the Tribunal a statement of its affairs
along with the peti tion or winding up.
/20 Where a company opposes a petit ion for its winding up, i t shal l 3le
with the Tribunal a stat ement of its affairs.
/(0 The statement of affairs referred to in sub@section /'0 or sub@section
/20 shall be accompani ed
/a0 the last !nown addresses of al l directors and company
secretary of such company2
28
/b0 the details of location of assets of the company and
their value 2
/c0 the details of al l debtors and creditors with their
complet e addresses 2
/d0 the details of wor!men and other employees and any
amount outstanding to them 2
/e0 such other details as the Tribunal may direct.
Rig-) !# 4!9$en )! 2e -ead in a 4inding up pe)i)i!n
the ,upreme Tribunal in a maD orit y D udgement of the full. #ench in
Gational Text ile Wor!ers$
Cnion *. "ama!rishan /'=>20 5( )omp. )as. I>-, held L
'. That the wor!ers have a right to appear at the hearing of the winding
up pet ition whether for against it so long as no winding up order is
fnade by the Tribunal. The wor!ers are enti tled to appear and be heard
in the winding up petit ion both before the winding up peti tion was
admi tt ed and pet ition unt il an order is made for winding up an order for
advertisement was made as also aft er admission and advertisement of
the winding up
Rig-) )! pe"en) 4inding up pe)i)i!n 4-ee (! pan& i" 2eing 4!und
up 6!%un)ai%& 'Se()i!n**B,
As per new provisions introduced in the )ompani es /,econd
Amendment0 Act, 2992
/'0 Where a company is being wound up volunt aril y, a pet ition for its
winding up by the Tribunal may be presented by@
/a0 any person authorised to do so under section -(= 2 or
/b0 the fficial %iAuidator.
/20 The Tribunal shall not ma!e a winding up order on a pet ition
present ed to i t under sub@section
29
'0, unless it is satis3ed that the volunt ary winding up cannot be
cont inued with due regard to the interests of the credi tors or
contributori es or both.
30
CHAPTER-III
COMMENCEMENT OF WINDING UP
The winding up of a company by the Tribunal is deemed to
commence at the ti me of the presentation of the petit ion for winding
up. #ut where, before the presentat ion of the peti tion, a resolution has
been passed by the company, for volunt ary winding up, the winding up
shall be deemed to have commenced at the ti me of the passing of the
resolut ion. Any proceedings ta!en in volunt ary winding up wil l be
deemed to have been validl y t a!en unless the Tribunal direct otherwise
on proof of fraud or mista!e.
In al l other cases, the winding up of a company must be deemed
to.Ucommence at ti me of the presentation of the petit ion for the
winding up. /,ection --'0. Where an order is made by a Tribunal on
more than one petit ion, the commencement of the winding up starts
from the earliest petit ion.
In may be noted here volunt ary winding up shal l be deemed to
commence at the ti me when the resolution for voluntary winding up is
passed /,ec. ->70.
P!4e !# Ti2una% !n -eaing pe)i)i!n 'Se()i!n **+,
/'0 n hearing a winding up pet ition, the Tribunal may@
/a0 dismiss it, with or without costs 2 or
/b0 adD ourn the hearing condi tionall y or unconditionall y 2 or .
/c0 ma!e any interi m order that i t thin!s fi t 2 or i i
/d0 ma!e an order for winding up the company with or without costs, or
any other order that it thin!s 3tL
31
P!6ided )-a) the Tribunal shall not refuse to ma!e a winding up
order on the ground onl y that the gassets of the company have been
mortgaged to an amount eAual to or in excess of those assets, or that
the company has no assets.
8 /20 Where the peti tion is presented on the ground that i t is D ust and
eAui tabl e that the company should be wound up, the Tribunal may
refuse to ma!e an order of winding up, if it is of the opinion that some
other remedy is avail able to the petit ioners and that they are acting
unreasonabl y in see!ing to have the company wound up instead of
pursuing that other remedy.
/(0. Where the peti tion is present ed on the ground of default in
del ivering the statutory report to the "egistrar, or in holding the
statutory meeting, the Tribunal may@
/a0 instead of ma!ing a winding up order, direct that the statutory
report shall be del ivered or that a meet ing shall be held 2 and
/b0 order the costs to be paid by any persons who, in the opinion of the
Tribunal, are responsibl e for the default.
Ode #! 4inding up )! 2e (!$$uni(a)ed )! O##i(ia% Li8uida)!
and Regi")a 'Se()i!n ***,
Where the Tribunal ma!es an order for the winding up of the
company, the Tribunal, shall within a period not exceeding two wee!s
from the dat e of passing of the order, cause inti mation thereof to be
sent to the ffici al %iAuidator and the "egistrar.
Le6& 2& 4a& !# (e"" and #!$a)i!n !# Re-a2i% i)a)i!n and Re6i6a%
Fund 'Se()i!n **1,
32
As per new section --' introduced in the )ompanies /,econd
Amendment0 Act, 2992 following provisions have been made for %evy
by way of cess and formation of "ehabil itat ion and "evival 4und.
1. Le6& and (!%% e()i!n !#C (e"" !n )un!6e ! g!"" e(eip)" !#
(!$panie" 'Se()i!n **1A,
/'0 There shall be levied and col lect ed for the purposes of
rehabili tat ion or revival or protection of assets of the sil! industrial
company, a levy by way of cess at such rat e not less than 9. 995 per
cent, and not more than 9. ' per cent. on the value of annual turnoverU
of every company or its annual gross receipt, whichever is more as the
)entral :overnment may, from t ime to ti me, specify by noti3cat ion in
the ;f3ci al :aHette.
/20 Fvery company shall pay to the )entral :overnment the cess
referred to in sub@section /'0 within three months from the close of
every financi al year.
/(0 Fvery company shal l furnish, in such form as may be
prescribed, to the )entral :overnment and the Tribunal the details of
its turnover and gross receipts with payment of cess under sub@section
/'0.
/-0 The )entral :overnment may, by rules made in this behalf,
specify the manner in which the cess shall be paid under sub@section
/20.
@. Cedi)ing p!(eed" !# (e"" !# C!n"!% ida)ed Fund !# India 'Se()i!n
**1B,
i The proceeds of the cess levied and col lect ed under sect ion --'
A shall first be credited to the )onsolidated 4und of India and the
33
)entral :overnment may, if ;arl iament by appropri ation made by law
in this behalf so provides, pay to the Tribunal, from ti me to ti me, out of
such proceeds /after deducting the cost of collection0, such sums of
money as it may thin! fit for being util ised for the purposes of the
4und.
Re-a2i%i)a)i!n and e6i6a% Fund 'Se()i!n **1 C,
/'0 There shall be formed for the purposes of rehabili tat ion or revival
or protect ion of assets of a sic! industrial company, a 4und to be called
the "ehabi litation and "evival 4und.
/20 There shall be credit ed to the 4und@
/a0 all amounts paid under sect ion --' #
/b0 any amount given as grants by the )entral :overnment for the
purposes of this 4und2
/c0 any amount given to the 4und from any other source
/d0 any income from invest ment of the amount in the 4und
/e0 amount refunded by the company under section --' :.
+. App%i(a)i!n !# Fund 'Se()i!n **1 D,
The 4und shal l be appl ied by the Tribunal for the purpose of
/a0 ma!ing interi m payment of wor!men$s dues pending the revival or
rehabili tat ion of the sic! industrial company 2 or
/b0 payment of wor!men$s dues due to the wor!men, referred to in sub@
sect ion /(0 of section 52=, of the sic! industrial company 2 or ' /c0
protection of assets of sic! industrial company 2 or /d0 revival or
rehabili tat ion of sic! industrial company2 which in the opinion of the
Tribunal are necessary or expedi ent for the said purposes.
*. P!4e )! (a%% #! in#!$a)i!n 'Se()i!n **1 E, 1
Fre )entral :overnment or Tribunal may reAuire any company to
34
furnish for the purposes of
rehabili tat ion or revival or protection of assets of sic! industri al
companies, such stat istical and other
information in such form and within such period as may be prescribed.
5. Pena%)& #! n!n-pa&$en) !# (e"" 'Se()i!n **1 F,
/'0 If any cess payable by a company under sect ion --' A is no paid in
accordance with the provisions of that section, i t shall be deemed to be
in arrears and the same shall be recovered by the Tribunal in such
manner as may be prescribed.
/20 The Tribunal may, after such inAuiry as i t deems 3t, i mpose on the
company, whi ch is in arrears under sub@sect ion /'0, a penalt y not
exceeding ten ti mes the amount in arrearsL
;rovided that before i mposing such penalt y, such company shal l be
given a reasonabl e opportuni t y of being heard, and if, after such
hearing, the Tribunal is sat isfied that the default was for any good and
sufficient reason, no penalt y shal l be i mposed /under this sub@sect ion0.
D. Re#und !# #und in (e)ain (a"e" 'Se()i!n **1 G,
/'0 Where the fund has been applied by the Tribunal for any of the
purposes speci3ed in clauses /a0 to /d0 If section --' D, such amount
of the fund shall be recovered from the company after its revival or
rehabili tat ion or out of sale proceeds of its, assets after discharging the
statutory liabi lit ies and payment of dues to credi tors.
/20 The amount referred to in sub@section /'0 shal l be recovered in the
manner as the Tribunal may direct.
CONSE:UENCES OF WINDING UP ORDER
The conseAuences of the ma!ing of a winding up order relat e
bac! to an earlier date tl mL 6that on whi ch the order was actual l y made.
35
This date is called the commencement of the winding up. The winding
up commences from the ti me of the presentat ion of the pet ition or
where, before the presentation of the petit ion, the company was in
volunt ary liAuidat ion from the ti me of the passing of the resolut ion for
volunt ary winding up. The various conseAuences of the winding up by
the Tribunal are as underL
1. in)i$a)i!n )! !##i(ia% %i8uida)! and egi")a. Where the Tribunal
ma!es an order for the winding up of a company the Tribunal shal l
forthwith cause inti mation thereof to be sent to the official liAuidator
and the registrar. /,ec. ---0.
The obD ect of inti mation to offici al liAuidator is that he may ta!e up the
admi nistration i mmediatel y.
@. C!p& !# )-e 4inding up !de )! 2e E%ed 4i)- )-e egi")a. n the
ma!ing of a winding up order it is the dut y of the pet itioner in the
winding up proceedings and of the company to 3le with the registrar a
certifi ed copy of order within thirt y days from the date of the ma!ing
of the order. In computing the period of (9 days the t ime reAuisite for
obtaining the cert ified copy of the order shal l be excluded. If default is
made in fi ling a certified copy, the petit ioner, or as the case may
reAuire, the company and every of3cer of the company who is in
default shall be punishable with fine which may extend to "s. '99 for
each day during N. vhich the default continues. n the fi ling of the
certi3ed copy of the winding up order, the registrar shal l ma!e a
minute thereof in his boo!s rel ating to the company and shall not ify in
the official gaHette that such an order has been made. .,ec --51
+. Ode #! 4inding1 up dee$ed )! 2e n!)i(e !# di"(-age . nce
such an order is made it shall be deemed to be notice of discharge to
36
the officers and employees of company except when the business of the
company is cont inued .,ect ion --5 /(01 Where there is a contract of
service for parti cular term, an order for winding up will amount to
Wrongful discharge of the appointee and damages will be allowed as
for breach of contract of service.
#ut carryi ng on the business by the liAuidator for the benefici al
winding@up of a company is not continuing the business of the company
so as to prevent the winding up order operating as noti ce of discharge
of the officers and employees.
*. Sui)" ")a&ed!n 4inding up !de. When a winding up order has
been made, or the offici al liAuidator has been appointed as provisional
liAuidator, no suit or other l egal proceeding shal l be proceeded with
except by the l eave of Tribunal. 4urther no suit or l egel proceeding
pending on the date of winding up order shall be proceeded with .,ec
--7 /'01. Any suit or proceeding instituted without leave of the
Tribunal may be regarded as ineffect ive until leave is obtained.
The obD ect of winding up of a company by the Tribunal is to faci lit ate
the protection of i ts assets with a view to ensure an eAui table
distribution there of among those ent itl ed and to prevent the
admi nistration from being embarrased by a general scramble among
creditors and others. These provisions are intended to safeguard the
assets of a company in winding up against wasteful or expensive
li tgiation in regard to matt ers capable of being determi ned
expeditiousl y and cheapl y by the winding up Tribunal itself.
5. P!4e !# )-e Ti2una%. The Tribunal which is winding up the
company shall have D urisdiction to ent ertain or dispose of@
/a0 any sui t or proceeding by or against the company2
/b0 any clai m made by or against the company2
37
/c0 any application made under section (=' by or in respect of the
company2
/d0 any Auest ion of priori ties or any other Auestion whatsoever which
may arise in the course of the winding up of the company or which may
rel ate to the winding up of the company.
The cl ai m referred to above must be a clai m enforceable at law at the
dat e of the winding up order. A cl ai m which had become ti me barred on
the date of the present ation of the winding up petit ion cannot be
described as a legal l y enforceable clai m.
Any suit or proceeding by or against the company pending in any
Tribunal may be transferred to and disposed of by the Tribunal winding
up the company. .,ect ion --7 /(01. If a suit pending inanother Tribunal
is cont inued without leave of the winding@up Tribunal and a decree is
passed, the decree is not void but voidable at the instance of the
liAuidator
D. Re"p!n"i2i%i)& !# die()!" and !##i(e" )! "u2$i) )! Ti2una%
audi)ed 2!!9" !# a((!un) 'Se()i!n **D A,. The directors and other
officers of every company shall ensure that boo!s of account of the
company are completed and audited up to date of winding up order
made by the Tribunal and submit ted to it at the cost of the company,
fai ling which such directors and officers shall be liable for punishment
for a term not exceeding one year and a fine for an amount not
exceeding one la!h rupees.
;. E##e() !# 4inding up !de. An order for winding up of a company
shall operate in favour of all the credi tors and of al l the contributories
of the company as if it had been made on the Doint peti tion of a creditor
and of a contributory. /,ec. --E0.
38
=. O##i(ia% %i8uida)! )! 2e %i8uida)!. n a winding up order being
made in respect of a company official liAuidator shall by virtue of his
office become the liAuidator of the company. /,ec. --= .
Fvery liAuidator of a company which is being wound up, within (9 days
of its liAuidation, give noti ce of his appoint ment to the Assessing
fficer who is ent itl ed to assess the income of the company otherwise
he will be personal l y li able for the payment of tax which the company
will be li able to pay.
39
OFFICIAL LI:UIDATORS
App!in)$en) !# O##i(ia% Li8uida)! 'Se()i!n **=,C
As per new provisions of the )ompanies /,econd Amendment0 Act, 2992
6the appoint ment of %iAuidator shall be made in the following manner L
/'0 4or the purposes of this Act, so far as it relat es to the winding up of
a company by the Tribunal, there shal l be an fficial %iAuidator who L
/a0 may be appoint ed from a panel of professional firms of chartered
accountants, advocates, company secretari es, costs and wor!s
accountants or 3rms having a combinat ion of these professions, which
the )entral :overnment shall const itute for the Tribunal2 or
/b0 may be a body corporate consist ing of such professionals as may be
approved by the )entral :overnment from ti me to ti me 2 or
/c0 may be a whole@ti me or a part@ti me officer appoint ed by the )entral
:overnment.
;rovided that, before appoint ing the fficial %iAuidator, the Tribunal
may give due regard to the views or opinion of the secured creditors and
wor!men.
/20 The terms and conditions for the appoint ment of the ffici al
%iAuidator and the remuneration payable to hi m shall be L
/a0 approved by the Tribunal for those appointed under clauses /a0 and
/b0 of sub@section /'0, subD ect to a maxi mum remuneration of five per
cent. of the value of debt recovered and realisat ion of sale of assets 2
/b0 approved by the )entral :overnment for those appointed under
cl ause /c0 of sub@section /'0 in accordance with the rules made by it in
this behalf.
/(0 Where the fficial %iAuidator is an officer appoint ed by the )entral
:overnment under cl ause /c0 of sub@section /'0, the )entral :overnment
may also appoint, if considered necessary, one or more Deput y fficial
40
%iAuidators or Assistant ffici al %iAuidators to assist the ffi cial
%iAuidator in the discharge of his funct ions, and the terms and
condi tions for the appoint ment of such ffici al %iAuidators and the
remunerat ion payable to them shall also be in accordance with the rules
made by the )entral :overnment.
Li8uida)!
n a winding up order being made the official liAuidator, by
virtue of his office, become the liAuidator of the company /,ec --=0.
Where the official l iAuidator becomes or acts as liAuidator, there
shall be paid to the central government out of the assets of the company
such fees as may be prescribed. A l iAuidator shall be described by the
st yle of JThe fficial %iAuidatorK of the particular company in respect
of which he acts and not by individual name .,ec -521.
P!6i"i!na% %i8uida)! .
The Tribunal may appoint the offici al liAuidator to be the
liAuidator provisional l y at any ti me aft er the presentat ion of the
pet ition for winding up and before the ma!ing of the winding up order.
.,ec -59 /'01. #efore ma!ing such an appoint ment notice must be given
to the company and a reasonabl e opportunit y must be given to it to
ma!e represent ation. The Tribunal may dispense with such notice where
there are special reasons. ,uch reasons must be recorded in writing. A
provisional liAuidator is as much a liAuidator as a liAuidator in the
winding up of a company. #ut where a provisional liAuidator is
appointed by the Tribunal the Tribunal may li mi t and restrict his
powers. n a winding up order being made, the official liAuidator shall
cease to be provisional l iAuidator and shall become liAuidator of the
company.
41
Genea% p!6i"i!n" #! %i8uida)!". The liAuidator shall conduct the
proceedings in winding up the company and perform such duties as the
Tribunal may impose. The official liAuidator gets his remuneration
from the central government and as such he is not entit led to any
further remuneration.
4or the services rendered by the official liAuidator to the
company, the central government shal l be paid out of the assets of the
company such fees as may be prescribed.
The acts of a liAuidator shal l be valid, notwithstanding any
defect that may aft erwards be discovered in his appoint ment or
Aual i3cat ion. #ut his acts shall not be valid if they are done after it has
been shown that his appoint ment was invalid. .,ec. -5'1.
S)a)e$en) !# a##ai". After a winding up order is made or the official
/liAuidator is appoint ed as provisional l iAuidator, a stat ement as to the
affairs of the company must be made out and submit ted to the of3cial
liAuidator. It must be in the prescribed form and veri3ed by an
af3davi t. The statement must contain the fol lowing particulars L
/a0 The assets of the company stat ing separat el y the cash balance in
hand and at the ban!, if any, and the negotiable securities, if any, held
by the company.
/b0 Debts and liabili ties of the company.
/c0 The names, residences and occupat ions of its creditors, stating
separatel y the amount of secured and unsecured debts2 and in the case
of secured debts, parti culars of the securit ies held by the creditors,
their value and dat es on whi ch they were given.
/d0 The debts due to the company and the names, residences and
occupations of the persons from whom they are due and the amount
li!el y to be realised on account thereof.
42
/e0 ,uch further or other informat ion as may be prescribed, or as the
of3cial liAuidator may reAuire.
The statement must be submit ted within 2' days from the date of
appoint ment of the provisional liAuidator and in the absence of such an
appoint ment within 2' days of the winding up order. The period may be
ext ended for speci al reasons by the official liAuidator or the Tribunal to
not more than ( months.
The statement of affairs has to be made and submi tted of their
own accord by the director, manager, secretary or other chief of3cer of
the company, whether or not the of3cial liAuidators has called on them
to do so, #ut in the case of any other of3cers and persons mentioned in
cl auses /a0 to /d0 of sect ion -5- /20, the of3cial liAuidator has to call
on them to submi t the statement.
4ailure without reasonable cause to compl y with the above
reAuirements is punishable with i mprisonment for a term upto two
years or with fine upto "s. ', 999 for every day during which the
default continues or with both. A person cl ai mi ng to be a credi tor or
contributory of the company is entit led to inspect the statement and to
a copy thereof on payment of prescribed fees. 4alsel y clai ming to be a
creditor or contributory is an offence.
The obD ect of section -5- is to facili tate the speedy
admi nistration in winding up and enable the liAuidator to get himself
appraised without delay of all the relevant facts relating to the affairs
of the company.
Du)ie" !# )-e % i8uida)!. The primary dut y of a liAuidator is to conduct
eAui tabl y and i mpartiall y, and according to the provisions of the Act,
the proceedings in the winding up of the company whose liAuidator he
43
is appointed. &e shall perform all such duties as the Tribunal may
i mpose. The following are some important duti es.
1. T! "u2$i) pe% i$ina& ep!). As soon as practi cable after the
receipt of the stat ement of affairs of the company, the of3ci al
liAuidator must submit a prel iminary report to the Tribunal not later
than six months of the order or such extended period as may be al lowed
by the Tribunal. The report shall contain the following information L
/a0 The amount of capit al issued, subscribed and paid@up and the
esti mat ed amount of assets and liabili ties. The assets must be stat ed
under the following headings L
/i0 cash and negoti able securiti es,
/ii0 debts due from contributories,
/ii i0 debts due to the company and securi ties, if any, avail able in
respect thereof,
/iv0 movable and immovable properti es belonging to the company, and
/v0 unpaid cal ls.
/b0 Where the company has fai led, the cause of such fai lure.
/c0 Whether in his opinion further inAuiry is desirable as to promotion,
formation6 or failure of the company, or the conduct of the business
thereof.
The Tribunal may extend the period of six months for the
submission of the prel i minary report by the official liAuidator. It may
also order that no such statement need be submit ted.
The official liAuidator may, if he thin!s fi t, ma!e further reports
stat ing the manner in which the company was promot ed or formed.
44
&e may also submi t report or reports bringing to the noti ce of the
Tribunal the frauds and other improper conduct on the part of the
directors and other officers. .,ect ion -551. 8
It is on the basis of such further report or reports that the public
examination of the person or persons concerned is ordered. ,uch report
shall be open for inspection by any creditor or contributory or his agent
on payment of rupee onw.
@. T! )a9e !6e (!$pan&A" a""e)". n a winding up order being made
the liAuidator must ta!e into custody all the propert y, effects and
actionable cl ai ms to whi ch the company is or appears to be entit led. n
the passing of an order of winding up, the company$s assets are to be
treated as being in the custody of the Tribunal. .,ection -571.
The liAuidator can ta!e the assistance of the chief presidency
magistrat e or district magistrat e as the case may be to obtain
possession of boo!s, papers propert ies and assets of the company.
It may be noted that the official l iAuidator is onl y a custodian of
the company$s propert y and the propert y doe not vest in hi m. The
liAuidator is a trustee of the company$s propert y for the creditorsV
+. Ne4 Du)ie" and Fun()i!n" !# Li8uida)! /Se()i!n *5;0. As per new
companies /,econd Amendment Act, 2992 following are the new
funct ions L
'1,App!in)$en) !# Se(ui)& Guad" and Fa%ue" /Se()i!n *5; '@A,0 G
/a0 The liAuidator shal l appoint securit y guards to protect the propert y
of the company ta!en into his custody and to ma!e out an inventory of
the assets in consultation with secured creditors after giving them
noti ce 2
45
/b0 The liAuidator shal l appoint, as the case may be, valuer, chart ered
surveyors or chartered accountant to assess the value of the company$s
assets within fifteen days after ta!ing into custody of propert y, assets
referred to in sub@cl ause /a0 and effects or actionabl e cl ai ms subD ect to
such terms and condit ions as may be specified by the Tribunal 2
/c0 The liAuidator shal l give an advert isement, invit ing bids for sale of
the assets of the company, within fifteen days from the date of
receiving valuation report from the valuer, chartered s veyors or
chartered accountants referred to in cl ause /b0, as the case may be.
@. Fei#i(a)i!n !# ")a)e$en) !# a##ai" /Se()i!n *5; '@B,0 G
The liAuidator shall, i mmediatel y after the order for winding up
or appoint ing the liAuidator as provisional liAuidator is made, issue a
noti ce reAuiring any of the persons ment ioned in sub@ section /20 of
sect ion -5-, to submit and verify a statement of the affairs of the
company and such noti ce shal l be served by the liAuidator.
+. App%i(a)i!n )! )-e Ti2una% /Se()i!n *5; '@(,0G
The liAuidator may appl y to the Tribunal for an order direct ing
any person who, in his opinion, is compet ent to furnish a statement of
the affairs under sections -(=A and -5- and such person shall for the
said purpose be served a notice by the liAuidator in the manner as may
be prescribed.
*. In6e")iga)i!n /Se()i!n *5; '@D,0 G
The liAuidator may, from t ime to ti me, call any person for
recording any stat ement for the purpose of investigating the affairs of
the company which is being wound up and i t shall be the dut y of every
such person to att end to the liAuidator at such ti me and place as the
46
liAuidator may appoint and give the liAuidator al l information which he
may reAuire and answer all such Auestions rel ating to winding up of
company as may be put to him by the liAuidator.
5. In"pe()i!n !# P!pe)& /Se()i!n *5; '@E,0 G
#ay bidder shall, in response to the advertisement referred to in
cl ause /c0 of sub@sect ion /2A0, deposit, his offer in the manner as may
be prescribed, with liAuidator or provisional liAuidator, as the case may
be, within fort y@five days from the date of the advert isement and the
liAuidator or provisional liAuidator shall permi t inspection of propert y
and assets in respect of which bids were invit ed L
;rovided that such bid may be withdrawn within three days
before the last day of closing of the bid.
'. "e. :eneral "oll ing ,toc! 9. /'>E20 2 )h. App. 7-7.
;rovided further that the inspection of propert y shal l be open for not
more than five days before closing of the bid.
D. De)ai%" !# Ad6e)i"e$en) /Se()i!n *5; '@F,0 G
The advertisement invit ing bids shall cont ain the following details,
namel y L
/a0 name, address of regist ered of3ce of the company and Its branch
offices, factories and pl ants and the place where assets of the company
are !ept and avail able for sale2
/b0 last date for submi tt ing bids which shall not exceed ninet y days from
the date of advertisement 2
/c0 ti me during which the premises of the company shall remain open for
inspection 2
/d0 the last date for withdrawing the bid 2,
47
/e0 financial guarantee which shall not be less than one@half of the value
of the bid 2
/f0 validit y period of the bids 2
/g0 place and date of opening of the bids in public 2
/h0 reserve price and earnest money to be deposited along with the bid 2
/i0 any other t erms and condi tions of sale which may be prescribed.
';, - Main)aining Ban9 A((!un) and B!!9" !# A((!un) /Se()i!n *5;
'@G,0 G
The liAuidator appointed shallT
/a0 maintain a separat e ban! account for each company under his charge
for depositing the sale proceeds of tie assets and recovery of debts of
each company2
/b0 maintain pro oer boo!s of account in respect of al l receipts and
payments made by hi m in respect of each company and submi t half
yearl y return of receipts and payments to the Tribunal.
*. T! (!$p%& 4i)- )-e die()i!n". The liAuidator is bound to follow the
directions given by the creditors, or contributories or by the commit tee
of inspection. Any direct ions given by creditors or contributories at
general meet ings shal l be deemed to override any directions given by the
commit tee of inspection in case of conflict. .,ection -79 /'0 and /201.
5. T! "u$$!n $ee)ing" !# (edi)!" and (!n)i2u)!ie". The liAuidator
may summon general meet ings of the credi tors or contributories
whenever he thin!s 3t for the purpose of ascertaining the wishes. #ut he
must summon such meetings at such ti mes as the creditors or
contributori es may by resolut ion direct or whenever reAuested in writing
to do so by not less than one@tenth in value of the credi tors or
contributori es as the case may be .,ection -79 /(01.
48
D. Die()i!n" #!$ )-e Ti2una%. The liAuidator shall use his own
discretion in the administrat ion of the assets of the company and in the
distribution of such assets among the creditors but he shall always be
wor!ing subD ect to the control of the Tribunal. The liAuidator may appl y
to the Tribunal for any direct ions in rel ation to any particular mat ter
arising in the winding up. .,ection -79 /-0 B
;. T! 9eep p!pe 2!!9". The liAuidator must !eep proper boo!s and
cause entries or minutes to be made of all proceedings at meet ings and
of such other mat ters as may be prescribed. Any credi tor or contributory
may, subD ect to the control of the Tribunal, inspect any such boo!s,
personal l y or by his agent. .,ection -7'1.
=. T! "u2$i) a((!un)". The liAuidator shall at least twice in any year
present to the Tribunal an account of his receipts and payments as
liAuidator. The accounts must be in the prescribed form and shall be
made in dupl icat e and dul y verified. The Tribunal must cause the
accounts to be audited. 4or the purpose of the audit the liAuidator shal l
furnish the Tribunal with suchvouchers, information and the boo!s as the
Tribunal may reAuire. When the accounts have been audi ted, one copy
thereof shall be 3led and !ept by the Tribunal and other copy shal l be
del ivered to the registrar. Fach copy shall be open to inspection of any
creditor, contributory or person interest ed.
The liAuidator shall cause the account when audited or a summary
thereof to be print ed and shall send the printed copi es by post to every
creditor and contributory. /,ec. -720
?. App!in)$en) !# (!$$i))ee !# in"pe()i!n. Where a direct ion is
given by the Tribunal for the appoint ment of a commit tee of inspection
to act with the l iAuidator it is the dut y of the liAuidator to convene a
49
meeting of the credi tors. within two months from the date of such
direction, for the purpose of determi ning who are to be the members of
the commit tee. &e shal l also, within fourteen days from the dat e of the
creditors$ meet ing convene a meet ing of the contributori es to consider
the decision of the creditors meeting with respect to the membership of
the commi tt ee. It is open to the meet ing of the contributories ei ther to
accept with or without modifications or reD ect the decisions of the
creditors meeting. In the case of I8 71)).'9l' i t shall be the dut y of the
liAuidator to appl y to the Tribunal for directions. /,ection -7-0.
1B. T! "u2$i) in#!$a)i!n in pending %i8uida)i!n. Where the winding
up of a company is not concluded within one year of its
commencement, the l iAuidator shall, unless exempted by the central
government within two months after the expiry of such year, and
thereafter until the winding up is concluded, at intervals of not more
than one year or at such int ervals as may be prescribed, file a statement
dul y audited with respect to the posi tion of the liAuidation. ,uch report
shall be 3led in the Tribunal in case of winding up subD ect to the
supervision of the Tribunal and with the registrar in case of voluntary
windmg up. The statement is open to inspection by a creditor or
contributory. 4ailure to compl y with the above provision ma!es the
liAuidator liable for a fine of "s. 5, 999 for every day during which the
fai lure continues /,ec. 55'0.
11. Ma9ing pa&$en)" in)! )-e Pu2%i ( A((!un)" !# India. The offici al
liAuidator shall pay all moneys received by hi m as liAuidator of the
company into the public account of India in the "eserve #an! of India
in such manner and at such ti mes as may be prescribed /,ec. 5520.
P!4e" !# !##i(ia% %i8uida)!. The power of the liAuidator are
det ermined by the provisions of the )ompanies Act. These statutory
50
powers can be divided into two cl asses2 /a0 those which can be
exercised with the sanction of the Tribunal 2 and /b0 those which do not
reAuire such sanction.
'a, P!4e" )! 2e eHe(i"ed 4i)- )-e "an()i!n !# )-e Ti2una%. /Se(.
*5; '1,1.
/i0 To insti tute or defend suits, prosecut ions or other legal proceedings
in the name and on behalf of the company. &owever, for cont inuing or
defending a suit already instituted before the winding up, no sanction
of the Tribunal is necessary. The ,upreme Tribunal has held that for a
cri minal prosecution, no sanct ion is necessary.
/ii0 To carry on business of the company so far as i t may be necessary
for the beneficial winding up the company. The power to carry on
business ext ends onl y so far as necessary for the bene3ci al winding up
of the company and not for the purpose of earning pro3ts. The
necessi t y has to be determi ned by the Tribunal having regard to all the
circumstances of the case, and it will include what may be called a
mercant ile necessit y.
A l iAuidator cannot carry on the company$s business inde3ni t he
may carry i t on over an extended period with a view to the steady and
more profi table realisat ion of the company$s assets. In Liquidator of
Burntisland Oil Co. Ltd v. Dawson the Tribunal refused the l iAuidators
appl ication to carry d f h d h h ld h b 6on t usiness or an in e mit e
period on the ground at the company$s propert y could not sold except
on ruinous terms but grant ed power to carry on for six wee!s whil e the
propert y was advertised for sal e.
2
When a liAuidator carries on the business of the company he does
so as the company$s agent and if the power is exercised bonafide he
will be protected even if he has made a mi sta!e.
51
/ii i0 To sell the i mmovable and movable propert y and actionable cl ai ms
of the company by public auction or private contract.
/iv0 To raise money on the securit y of any asset of the company. i
/v0 To do all other acts as may be necessary to wind up the company
and to distribut e its assets.
/vi0 To appoint an advocate, at torney or pl eader enti tled to appear
before the Tribunal to assist hi m in the performance of his duti es. /,ec.
-5=0. It is however, the dut y of the l iAuidator to perform the business
of the liAuidation hi mself and onl y to employ the law agent in such i
mat ters as to bring hi m into cont act with the Tribunal or in such other
mat ters as D ust ify hi m in obtaining legal advice for his guidance.
A general sanct ion for exercise of the various powers under
sect ion -5E /'0 is sufficient and complaint filed on the basis of such
sanct ion is not invalid. Though this section defines the powers which
the liAuidator may exercise with the sanction of the Tribunal, there is
no indication that ('f the liAuidator ta!es action without a direct ion of
the Tribunal, the action would be illegal or invalid.
,ect ion -5> provides that the Tribunal may by order confer on
the liAuidator the power to exercise his discretion in matt ers where
prior sanction of the Tribunal is necessary. The Tribunals will have,
however, the power to scrut inise the acts of the liAuidator.
'. I. +. A!haney v ,tat e of #ombay A. I. ". '=57 ,. ). 5E5.
2. /'>=20 29 " '>9.
(. Dr. ,ai lendra path v. Iasoda A. I. ". '=5= ,. ). 5'.
'2, P!4e" )! 2e eHe(i"ed 4i)-!u) )-e "an()i!n !# )-e Ti2una%.
.,ec. -5E /20'. The following powers do not reAuire sanct ion of the
Tribunal for their exercise L A
52
/i0 To do al l acts and execute in the name of the company all deeds,
receipts, documents et c. and to use the company$s seal for that purpose,
where necessary.
/ii0 To inspect the records and returns of the company or the 3les of the
registrar without payment to any cess.
/ii i0 To prove, ran! and clai m in the insolvency of any contributory and
to receive dividend out * of his est ate.
/iv0 To draw, accept, ma!e and endorse bill of exchange, hundi or
pronote in the name and on behalf of the company. U U
T /v0 To ta!e out in his of3ci al name, letters of administration to any
deceased contributory and in his offici al name to do all things
necessary for obtaining any money from a contributory or his est ate.
/vi0 To appoint agents where necessary.
The exercise by the l iAuidator of the above powers is subD ect to the
control of Tribunal. Any credi tor or contributory can appl y to the
Tribunal not onl y for any act done by the liAuidator but also for his
proposed acts. .,ec. -5E /(01.
COMMITTEE OF INSPECTION
The Tribunal may at any t ime aft er the ma!ing of a winding up
order, direct that there shal l be appointed a commi tt ee of inspection to
act with the liAuidator. Where the, $l6Jrihunal so directs, the liAuidator
shall, within two months of such direct ion convene a meeting of the
creditors to ascertain who are the members of the commit tee. The
liAuidator shall within fourteen days from the dat e of the creditors
meeting or such further ti me as the Tribunal may grant, convene a
meeting of the contributori es to consider the decision of the creditors
53
6meeting with respect to the membership of the commit tee. It shall be
open to meet ing of contributori es either to accept or reD ect the decision
of the credi tors meeting. In the ease of reD ect ion the liAuidator shal l
appl to the Tribunal for directions as to whether there shall be a
commit tee of inspection and if so What shal l be its composit ion and
who shall be the members thereof. /,ection -7-0.
A commi tt ee of inspeetit iii appointed in pursuance of sect ion -7-
shall consist of not more than twelve members. The proportion of
creditors and contributori es will be agreed upon by the meetings of
creditors and contributori es and if they fail to agree the Tribunal wil l
det ermine the proportion.
The commit tee can inspet t the accounts of the liAuidator at all
reasonable ti mes.
GENERAL POWERS OF THE TRIBUNAL
The Tribunal can exercise all the powers vested in i t by law,
subD ect to its Durisdiction. It cannot exercise its powers in respect of
that mat tei which does not fall within its D urisdict ion. The various
powers of the Tribunal rel ating ti60 winding up proceedings are as
under.
1. P!4e !# Ti2una% )! ")a& 4inding up 'Se()i!n *DD,. As per new
companies /,econd Amendment0 Act, 2992 following p3ti WWfs hiive
been conferred on the Tribunal to stay winding up L
/'0 The Tribunal may at any ti me after ma!ing a Winding up order, on
the appli cation either of the fficial %iAuidator or of any creditor or
contributory and on proof to the satisfact ion of the Tribunal that all
proceedings in rel ation to the winding lip ought to be stayed, ma!e an
54
rder staying the proceedings, ei ther al together or for a li mit ed ti me,
on such terms and condit ions as the Tribunal thin!s fit.
/20 n any application under this section, the Tribunal may, before
ma!ing an order, reAuire the fficial %iAuidator to furnish to the
Tribunal a report with respect to any facts or matt ers which are in his
opinion relevant to the appl ication.
/(0 A copy of every order made under this section shall forthwith be
forwarded by the company, or otherwise as may be prescribed, to the
"egistrar, who shall ma!e > minut e of the order in his boo!s relating to
the company.
@. Se))%e$en) !# )-e %i") !# (!n)i2u)!i e" and app%i(a)i!n !# a""e)".
/,ect ion -7E0. The Tribunal shall settl e as soon as possible after
ma!ing the winding up order a list of contributori es. ,ett lement of the
list of contributories is based on the names of shareholders as found in@
the regist er. The Tribunal, however, is not bound by the register of
shareholders and has authori t y to rectify the regist er in al l cases where
recti3cation is reAuired. The effect of the set tlement of the list of
contributori es and the placing of the name of a person on the said list
is, unless the order is set aside on appeal, to render the Auestion of
li abil it y 3nal and conclusive Where it appears to the Tribunal that it
will not be necessary to ma!e cal ls or adD ust the rights of
contributori es, the Tribunal may dispense with the settlement of list of
contributori es.
The Tribunal shal l cause the assets of the company to be collected and
appl ied in discharge of the company$s liabili ties.
+. De%i6e& !# p!pe)& )! )-e % i8uida)!. /,ect ion -7>0. The company
has the power to reAuire, at any ti me after the winding up order, any
contributory, for the ti me being on the list of contributories, and any
55
trustee, receiver, ban!er, agent or officer or other employee of the
company to pay, deliver, surrender or transfer forthwith or within such
ti me as the Tribunal directs to the official liAuidator any money,
propert y or document in his possession or control to which the
company is pri ma faci e ent itled.
*. P!4e )! !de pa&$en) !# de2)" and )! a%%!4 "e) !##. /,ection
-7=0. The Tribunal has the power to ma!e, at any ti me after the
winding up order, an order on any contributory to pay, as direct ed by
the Tribunal any money due from hi m or from the estate of the person
whom he represents, to the Fpl mpany exclusive of any money payabl e
by him or by the estat e by virtue of any call in pursuance of off is
al lowed onl y in the cases mentioned in sub sections /20 and /(0 of
sect ion -7=. The Tribunal may al low any contributory of an unli mit ed
company, by way of set off, any money due to him, or to the estate
represented by hi m from the company on any independent dealing or
contract with the company, but not any money due to him as a member
of the company, in respect of any dividend or pro3t. The Tribunal may,
li!ewise, allow the same facil it y of set@off to any director, managing
agent, secret aries and treasurers or manager whose liabi lit y is
unli mit ed, or to his est ate represent ed by his representat ive as a
contributory. In the case of a company, whether l imit ed or unl imit ed,
when all the creditors have been paid in ful l, any money due on any
account whatever to a contributory from the company may be allowed
to him by way of set@off against any subseAuent call.
5. P!4e !# Ti2una% )! $a9e (a%%" 'Se()i!n *;B,. As per new
companies /,econd Amendment@0 Act, 2992 following powers have
been conferred on the Tribunal to ma!e calls up L '
/'0 The Tribunal may, at any ti me aft er ma!ing winding up order, and
56
ei ther before or after it has ascertained the suffici ency of the assets of
the company.
/a0 cal ls on all or any of the contributories for the ti me being on the
list of the contributories, ma!e to the ext ent of their liabili t y, for
payment of any money which the Tribunal considers necessary to
satisfy the debts and liabi lit ies of the company, and the costs, charges
and expenses of winding up, and for the adD ust ment of the rights of the
contributori es among themselves 2 and /b0 ma!e an order for payment
of any calls so made. /20 In ma!ing a call, the Tribunal may ta!e into
consideration the probabi lit y that some of the contributories may,
part l y or wholl y, fail to pay the call.
D. Pa&$en) in)! 2an9 !# $!ne& due )! )-e (!$pan&. 'Se()i!n *;1,.
The Tribunal may by order direct any contributory, purchaser or other
person from whom any money is due to the company to pay the same
into the public account of India in the "eserve #an! of India instead of
paying it to the l iAuidator.
;. P!4e )! eH(%ude (edi)!" n!) p!6ing in )i$e. 'Se()i!n *;*,. The
Tribunal may 3x a ti me within which the creditors shall prove their
debts or clai ms so that if they do not prove their debts or clai ms within
the ti me so fixed, they shall be excluded from the bene3t of any
distribution made before these debts and claims are proved.
A creditor who is late may, as long as there are assets and funds, prove
his debts, provided these are not t ime barred at the dat e of the ma!ing
of the order for winding upH.
=. AdIu")$en) !# ig-)" !# (!n)i2u)!ie". 'Se()i!n *;5,. The
Tribunal is empowered to adD ust the rights of contributories among
themselves, and distribute any surplus among the persons entit led
thereto.
57
?. P!4e )! (!")". 'Se()i!n *;D,. Where the assets of the company are
insufficient to satisfy the liabili ties, the Tribunal has the power to
ma!e an order for payment out of the assets, the costs,
'. "e 4ree ;ress Iournal /+adras0 %td. /'=790 I. +. %. I. '-7.
2. "e. :eneral "oll ing ,toc! )o. /'>E20 E )h. 7-7.
charges and expenses incurred in the winding up. The priorit y as
regards costs and expenses inter se may be det ermined by the Tribunal.
1B. P!4e )! "u$$!n pe"!n" "u"pe()ed !# -a6ing )-e p!pe)& !#
)-e (!$pan&. /,ect ion -EE0.
The Tribunal may, aft er ma!ing the order for winding up or aft er
appointing a provisional liAuidator, summon before it for exami nat ion
/i0 persons who are !nown or suspected to have in their custody any
propert y of the company.
/ii0 persons who are !nown or supposed to be indebted to the company,
and
/ii i0 any person deemed by the Tribunal to be capable of giving
information concerning the promotion, formation, trade, dealings,
propert y or affairs of the company.
The Tribunal may examine any such person on oath, by word of
mouth or on written interrogatories.
The Tribunal has the power to compel any such person to produce
before it any boo!s and papers whi ch may be in his custody or power
rel ating to the company. If he claims any l ien on them, the production
shall be without preD udi ce to that lien and the Tribunal shall have the
power to decide the Auestion.
58
If the person summoned admi ts his indebtedness the Tribunal
may order hi m to pay to the provisional liAuidator or the l iAuidator as
the case may be. The Tribunal will fix the ti me, the amount or6manner
or payment. 4urther, if the person summoned admits that he has any
propert y or documents, the Tribunal may direct him to deliver the same
on such terms as the Tribunal may seem D ust. #y ma!ing payment or
del ivering propert y or documents as direct ed by the Tribunal, the
person summoned will stand discharged from his liabi lit ies in respect
thereof. Where any person summoned, aft er being paid or tendered a
reasonable sum for his expenses fails to appear before the Tribunal, the
Tribunal may cause him to be apprehended and brought before the
Tribunal for examinat ion.
11. P!4e )! !de pu2%i( eHa$ina)i!n !# p!$!)e"C die()!" e)(.
/,ec. -E>0. The Tribunal is empowered under this section to invest igate
the conduct of the persons who have ta!en part in the promotion,
formation or managment of the company. Where an offi cial l iAuidator
has made a report to the Tribunal all eging commission of fraud by any
person in the promot ion, formation or management of the company, the
Tribunal may direct the person concerned to appear before it for being
examined.
An order under this section can be made against any person,
promot er, director, manager or officer of the company provided he too!
part either in promotion or formation of the company or was connected
with management of the affairs of the company.
The of3cal l iAuidators shal l ta!e part in the examination, and if
permi tt ed by the Tribunal, he may have the assistance of a lawyer. Any
creditor or contributory may also ta!e part in the exami nation. The
Tribunal may put any Auestions as it may thin! fit. The person
59
examined shal l be examined on oath. Gotes of the exami nat ion must be
ta!en down in writ ing and must be read over to or by and signed by, the
person examined. They may be used in evidence against him and must
be open to inspection at al l reasonable ti mes by a credi tor or
contributory.
1@. P!4e )! ae") a2"(!nding (!n)i2u)!&. /,ec. -E=0. At any ti me
ei ther before or after ma!ing a winding up order, the Tribunal may, on
proof of probabl e cause for believing that a contributory is about to
Auit India otherwise to abscond, or is about to remove or conceal any
of his propert y, for the purpose of ending payment of calls or of
avoiding examinat ion respecting the affairs of the company, cause
/a0 the6 contributory to be arrest ed and safel y !ept unt il such t ime as
the Tribunal may order2 an
/b0 his boo!s and papers and movable propert y to be seiHed and safel y
!ept until such ti me as the Tribunal may order 2O solution of the
company
60
CHAPTER-IF
DISSOLUTION OF THE COMPANY
The dissolution of a company is similar to the death of a living
person. n its dissolution the company ceases to exist6. A company
which has been dissolved, no longer exists as a corporate ent it y capable
of holding propert y or of being sued in any Tribunal.
G!und" #! di""!%u)i!n. The Tribunal shall order for the dissolution
of a company@
/i0 when the affairs of the company have been compl etel y wound up, or
'. )oxon v. :orst /'>='0 2 )h. E(.
/ii0 when the Tribunal is of the opinion that the liAuidator cannot
proceed with the winding up for want of funds and assets, or ,
/ii i0 for any other reason whatsoever. in the to the which -('0.
The Tribunal ma!es an order for the dissolut ion of the company
onl y wh en it is D ust and reasonable circumstances of the case, that such
an order should be made.
A copy of the order shall, within thirt y days from the date
thereof, be fcNrwarded by the liAuidator registrar who shall ma!e in
this boo!s a mi nute of the dissolut ion of the company.
If the liAuidator ma!es defaul t in forwarding a copy as aforesaid,
he shal i be punishabl e with fine may extend to 4ive &undred rupees for
every day during which the default cont inues. /,ect ion0 When a
company is dissolved al l propert y and al l assets remai ning with the
liAuidator, at the ti me of dissolut ion, or acAuired aft er the dissolut ion,
vest to the ,tate as bona vacanti a.
61
Dissolution is normall y final but it can be revived by the
Tribunal by declaring the dissolution ,ection 55= confers on the
Tribunal the power of revival of the nearl y dead companies. At any
ti me within two years of the date of dissolution, the Tribunal has power
on appl ication by the liAuidator I6 an interested person to ma!e an
order on such t erms as it thin!s fit declaring the dissolut ion void.
n such an order being made by the Tribunal, such proceedings
may be ta!en as might have been ta!en if the company might not have
been dissolved.
rder When an order is made declaring the dissolution to be
void, the appl icant must fil e a copy of the with the registrar of
companies within thirt y days of the ma!ing of the order who shall
regist er the same. If such person fails to do so, he shall be punishable
with 3ne upto rupees 4ive &undred for every day during which the
default continues.
The power given to the Tribunal under section 55= is wholl y
discretionary and the grounds on the Tribunal will exercise its
D urisdiction wil l be the general principles of D usti ce and good
consci ence.
The grounds for declaring a dissolution void may be that there
are unsatis3ed clai ms by creditors or the discovery of undistributed
assets or to enabl e the liAuidator to grant a t itle to propert y of the
company sold since dissolution. Appl icat ion under this sect ion can also
be made on the ground of fraud but it must be strictl y proved by the
appl icant.
The effect of an order under sect ion 55= is that it ma!es
dissolution void ab initio. )onseAuentl y any propert y which on the
62
dissolution was deemed to vest in the ,tat e as bona vacantia would
automat ical l y revert
on the to the company.
63
CONTRIBUTORY
In a going company, that is, before liAuidat ion a member is liabl e
and bound to pay full amount shares held by hi m. This liabili t y
cont inues even after the company passes into liAuidation. The
shareholder then becomes a contributory and cert ain changes occur in
his status, rights and li abil ities.
,ect ion -2> de3nes the term 6contributory$. It means every
person who is liable to contribut e to the assets of the company in the
event of its being wound up and includes the holder of ful l y paid up
shares. The word 6liabl e to contribute$ to the assets of a company are
very wide and might have been held to include persons other than
members, such as debtors, and holders of share wlarrants, but it is now
sett led that i t refers onl y to members, past and present and their
representatives.
A holder of full y paid shares is a contributory but, since he is no
longer l iable to ma!e any contribution to the assets, he wil l not
normall y be put on the list of contributori es unless he so wishes, or
unless there is a prospect of the return of surplus assets. 6
Fxceptionall y, where full y paid shares were issued without
consideration, the holders may be l iable for the ful l amount.
4or the purposes of det ermining who are or are to be deemed as
contributori es, the term 6contributory$ wil l include any person alleged
to be a contributory, whether in fact he is or is not a contributory6. A
minor cannot be a contributory so as to be liabl e to contribut e to the
assets of the company.
64
The legal representatives of a contributory who dies either before
or aft er he has been placed on
"e %a!shmi 4lour +ills )o. A. I. " /'=270 A%% '9'.
. "e Aidal %td. /'=((0 ' )h. 2((.
. "up "am. v. 4aHal Din /'=(>0 '. %ah, 2(E.
. "e Fddystone +arine Insurance )9. /'>=(0 ( )h. =.
the list of contributories shall be liable to contribut e to the assets of
the company and shall be contributories accordingl y /,ection -(90. #ut
he is onl y l iable to contribute to the extent of the assets if any, which
have come into his hands from the deceased member. &e is not
personal l y li able, he is liable in his representative charact er.
The official assignee or receiver of a contributory who is adD udged
insolvent either before or after it has been placed on the list of
contributori es represents the insolvent for al l the purposes of the
winding up and is to be considered contributory. /,ec. -('0.
If a body corporat e which is a contributory is ordered to be wound up,
ei ther before or after he has been pl aced on the list of contributories,
the l iAuidator of the body corporate shall represent i t for al l purposes
of winding up of the company and shall be contributory accordingl y.
/,ec. -(20.
Na)ue !# (!n)i2u)!&A" %ia2i% i)&. nce the winding up commences,
the shareholders become contributori es and their liabili t y for the debts
of the company as contributories is different from their l iabil it y as
shareholders. n a winding up order being made, the li abil it y of a
contributory to contribute to the assets of the company to the extent set
out in section -27, becomes an absolute liabi lit y which arises by reason
of statute and not by reason of contract.
65
EH)en) !# %ia2i %i)&. In the event of a company being wound up, every
present and past member shal l be li able to contribute to the assets of
the company to an amount sufficient for payment of i ts debts and
li abil iti es and the costs, charges and expenses of the winding up, and
for the adD ust ment of the rights of the contributories among themselves.
.,ec. -27
As soon as may be after ma!ing the winding up order, the
Tribunal shal l settle a list of the contributories. Two lists of
contributori es are preparedTthe A list and the # list. A list includes the
names of present members i. e. the names of persons who are members
at the commencement of the winding up. # list includes the names of
persons who ceased to be members within a period of twelve months of
the commencement of winding up.
Lia2i %i)& !# pe"en) $e$2e". The liabi lit y of contributories on the A
list is pri mary liabili t y.
The liabili t y of present members is l imit ed to the amount
remaining unpaid on the shares held by hi m.
If he has guaranteed any amount in a company l imit ed by
guarantee, then his li abil it y to contribute is li mit ed to the amount so
guaranteed. In the case of a company li mit ed by guarant ee and having a
share capi tal, a member $s liabili t y may be to the extent that he has
guaranteed plus the amount remaining unpaid on the shares held by
hi m.
Lia2i %i)& !# pa") $e$2e". A contributory on 6#$ list will normall y
have no liabili t y. The liabi lit y of the 6#$ list contributories is
secondary i. e. they are l iable to contribute to the assets if the moneys
payable by the present members are not paid by them and the debts
66
have remained unsatis3ed. A past member wil l not be liabl e to
contribute in the conditions stated below L
/i0 a past member will not be liabl e to contribute if he had ceased to be
a member for one year upwards before the commencement of the
winding up.
/ii0 a past member will not be liable to contribut e in respect of any debt
or liabili t y of the company contract ed after he ceased to be a member2
/ii i0 a past member will not be li able to contribute if there remains
nothing unpaid whil e he was holding the shares.
/iv0 a past member will not be liable to contribute unless it appears to
the Tribunal that the present members are unable to satisfy the
contributions reAuired to be made by them.
In ;aras "am #riD <ishore v Iagraon Trading ,yndicat eQ6
The liAuidator of a company cal led upon the defendant to pay the
uncalled amount on his shares. &is shares had been forfeited before the
winding up and, therefore, he was on # %ist. #ut the exist ing members
had not been called upon to contribute to the full ext ent of the unpaid
amount of their share money. It was held Jthat in the circumst ances a
past member cannot be liable to contribut e ti ll List is exhaustedK.
A person whose shares have been forfeited is also li able as a past
member, provided the liAuidat ion commences w8 8 n one year of the date
of forfei ture and the above condit ions are fulfi lled. K -(
O2% iga)i!n" !# die()!" and $anage" 4-!"e %ia2i %i)& i" un%i$i)ed.
A director of a li mi ted company is, in its winding up, liabl e to
contribute as an ordinary member in respect of shares held by him. In
addi tion to this liabi lit y, he may be li able to an uli mi ted ext ent under
sect ion -2E. In the case of directors and managers whose liabi lit y is
67
unli mit ed, under the provisions of Act shal l, in addition to his li abil it y
to contribut e as ordinary member of the company, be liabl e to ma!e a
further contribution as a member of an unli mi ted company. This
addi tional li abil it y ends if he ceased to hold office for a year or more
before the commencement of the winding up, and does not appl y to
debts or liabi lit ies of the company contract ed after he ceased to hold
office2 and he is not liabl e for such further contribut ions unless the
Tribunal deems it necessary in order to satisfy the debts and l iabi lit ies
of the company and the costs, charges and expenses of winding up.
C!n)i2u)!&A" ig-) !# "e) !##. 'Se(. *D?,. A contributory in a li mi ted
company who is also a creditor of the company cannot, on a winding
up, set off his debt against a cal l made on hi m by the liAuidator. A
contributory cannot set off his debts against his liabi lit y for calls even
if there is an express agreement to do so. 4or if set off were allowed
the effect would be that a shareholder credi torwould be paid his debt in
full, while other credi tors would get onl y a dividend on their debts.
This ruleis however, subD ect to the following exceptions where a
li mit ed right of set off is given by the Act.
/'0 In the case of an unli mi ted company, a contributory may set off his
debt against any moneydue to hi m from the company on any
independent dealing or contract with the company2
/20 Where such contributory is a director, managing director or
manager of a li mi ted company with unli mi ted liabi lit y, he shall have
the same right of set off as is described above.
/(0 In the case of any company, whether li mited or unli mi ted, when all
the credi tors have been paid in full, any money due to a contributory
may be set off against any subseAuent call.
Lia2i %i)& !# app%i(an)" and a%%!))ee" !# "-ae"
68
Go allot ment shall be made of any share capital of a company
offered to the public for subscript ion, unless the amount stated in the
prospectus as the mini mum amount has been subscribed. /,ec. 7=0.
An allot ment made by a company to an applicant in contravention
of this provision is voidabl e at the instance of the appli cant. The
appl icant can rescind the contract within two months of the holding of
the statutory meet ing or within two months of the al lot ment, where no
statutory meeting is to be held.
,uch an allot ment is voidable even if the company is in the
course of winding up provided the option is exercised within the
speci3ed ti me. If he fai ls to do so, and the company goes into
liAuidat ion, he wil l be l iable as a contributory.
A%%!))ee !# "-ae" !n )-e #ai)- !# a #a%"e and $i"%eading p!"pe()u"
A shareholder who has purchased shares from a company on the
basis of a false or misleading prospectus can@ avoid his liabi lit y before
the company has gone into liAuidation. Accordingl y2 if a shareholder
having right to rescind the contract for shares is on the regist er at the
commencement of winding up, he cannot escape liabili t y as a
contributory unless he has commenced legal proceedings to enforce
rescission before the date of the winding up.
App% i(an) #! "-ae" 4-en (!ndi)i!n pe(eden) ! "u2"e8uen)
If an application for shares is made subD ect to a condit ion
precedent, and the condition has not been performed, the appli cant will
not be a member and will not be liable as a contributory on winding up.
Where, however, the condit ion is subseAuent the appli cant becomes a
member on allot ment to hi m of the shares, even if the condition is not
69
ful3l led.
Example : $ applied for shares to be al lotted to him to the condition
that he was first appoint ed as a branch mana"er of the company.
>hares were allott ed to $ but he was not appointed the branch
mana"er. 1t was held that he was not liabl e as contributory on the
windin" up. #$oman 2hai case 1):(! 1. '. $ 2ombay .).7.
70
CHAPTER-F
FOLUNTARY WINDING UP
A voluntary winding up of a company is entirel y different from a
compulsory winding up. *oluntary winding up is winding up by the
members or credi tors of a company without interference by the
Tribunal.
The obD ect of a volunt ary winding up is that the company and its
creditors are left to settl e their affairs without going to the Tribunal,
but they may appl y to the Tribunal for any directions or orders if and
when necessary. 4rom the point of view of the company itself a
volunt ary winding up has more advantages over a compulsory winding
up, the chief being that there are not so many formalit ies to be
complied with. This form of winding up is by far the most common and
the most popular.
A company may be wound up voluntari l y whenT
/a0 the period fixed by the arti cles for the durat ion of the company has
expired or an event upon which the company is to be wound up has
happened and the company in general meeting has passed ordinary
resolut ion.
/b0 the company has for any cause whatever passed a special resolution
to wind up volunt aril y .,ect ion ->-1. The company may be wound up
by special resolut ion even if it is prosperous.
Go articl es of the company can prevent the exercise of this statutory
right.
A resolut ion for volunt ary winding up must be advert ised in the
official gaHet te and also in some newspaper, circul ating in the district
71
where the registered offi ce of the company is situated, within '- days
of the passing of the resolution. If default is made in compl yi ng with
this provision, the company and every defaul ting offi cer shall be
punishabl e with fine which may extend to "s. 599 per day for every
day during which defaul t cont inues. .,ection ->51. fficer herein
includes the liAuidator also.
'. a!as v. TurAuand /'>7E0 %. ". 2&% (25.
A voluntary winding up commences from the dat e of the passing of the
resolut ion. .,ect ion ->71.
The dat e of commencement of winding up is important for
various mat ters, such as liabi lit y of past members who will not be
affected if, on the dat e of commencement of winding up, a year had
el apsed after they ceased to be members.
C!n"e8uen(e" !# 6!%un)a& 4inding up
'1, E##e() !n ")a)u" !# a (!$pan&. In the case of a voluntary winding
up, the company ceases to carry on the business from the
commencement of the winding up except so far as may be reAuired for
the beneficial winding up of the business. &owever, the corporat e
status and the corporate powers of the company wil l cont inue unti l it is
dissolved. /,ection ->E0.
A voluntary winding up does not necessaril y operate as not ice of
dismissal to the company$s employees, but there is no change in the
personal it y of the employer. #ut where the circumst ances of the
winding up are such that the company can no longer carry on business,
its contracts and its servants wil l necessari l y cease, leaving the
employees free to cl ai m damages if they are so entit led.
Example : 2y a writ ten a"reement 4 was appoint ed mana"in" director
72
of a company for ve years. 2efore the expirat ion of the ve years,
the company passed a resolut ion for voluntry windin" up, as i t could
not by reason of its liabili ties continue its business. 4 vot ed in favour
of this resolution. 1t was held that?
'a, )-e 6!%un)a& 4inding up !pea)ed a" a 4!ng#u% di"$i""a% !# FC
and
'2, )-e #a() )-a) F 6!)ed in #! 1J !# )-e e"!%u)i!n did n!) pe6en)
-i$ #!$ (%ai$ing da$age".
/F!4%e 6. C!$$e(ia% Ti$2e1 C . . J. L)d. '1?+B, @ K. B. 1 'C. A. ,0.
'@, B!adA" p!4e )! (ea"e !n app!in)$en) !# a %i8uida)!. n the
appoint ment of a liAuidator the powers of the board oi directors,
managing or whole ti me directors and the manager shal l cease, except
for the purpose of giving notice to the registrar of the appoint ment of
the liAuidator. /,ec. -='0.
n the appoint ment of a liAuidator the powers of the board of
directors cease except so far as the company in general meet ing or the
liAuidator /in a members volunt ary winding up0 or the commi tt ee of
inspection or if there is no such commit tee, the creditors /in a credi tors
volunt ary winding up0, sanction the continuance. /,ec. 5950.
A difference between sect ion 595 and sect ion -=' may be noted
while under section -=' the powers of the entire managerial personnel
cease, under sect ion 595 the powers of the board of directors alone
cease.
'+, A6!idan(e !# )an"#e e)(. a#)e (!$$en(e$en) !# 4inding up. In
the case of a voluntary winding up, any transfer of shares in the
company, not being a transfer made to or with the sanction of the
liAuidator, and any alt erat ion in the status of the members of the
73
company, made after the commencement of the winding up, shal l be
void. /,ec. 5(70.
T&pe" !# 6!%un)a& 4inding up. A voluntary winding up may be L
/A0 A members$ voluntary winding up.
/#0 A creditors voluntary winding up.
MEMBERSA FOLUNTARY WINDING UP
A member $s voluntary winding up ta!es place onl y when the
compay is solvent. It is ini tiat ed by the members and is entirel y
managed by them. The liAuidator is appointed by the members. Go
meeting of creditors is held and no commi tt ee of inspection is
appointed. To obtain the benefit of this form of winding up, a
declarat ion of solvency must be fi led.
De(%aa)i!n !# "!%6en(&. ,ect ion ->> provides that where it is
proposed to wind up a company voluntari l y the directors or a maD orit y
of them, may, at a meeting of the board, ma!e a declaration verified by
an affidavit that the company has no debts or that it wil l be abl e to pay
its debts in full within a period not exceeding ( years from the
commencement of winding up as may be specified in the decl aration.
,uch declaration shall be made within 3ve wee!s i mmediatel y
preceding the date of the passing of the resolution for winding up and
shall be del ivered to the registrar before that date. It shall also be
accompani ed by a copy of the audi tors on the pro3t and loss account
and the balance sheet of the company prepared upto the date of the
declarat ion and must embody a stat ement of the company$s assets and
li abil iti es as on that date.
74
Directors ma!ing such a declaration without reasonable grounds
are liable to heavy penal iti es. If the debts are not paid or provided for
within the period stated, they are presumed not to have reasonable
grounds. They shall be li able to i mprisonment for a term which may
ext end to six months or with fine which may extend to fift y thousand
rupees or with both.
Where such a decl arat ion is dul y made and delivered, the
winding up following shall be call ed member8 s voluntary winding up.
Where the same is not dul y made, it shall be cal led creditor $s voluntary
winding up.
,ect ions -=9@=> of the Act deal with provisions appl icable to
member $s voluntary winding up. They are as follows L
1. App!in)$en) !# %i8uida)!. /Se()i!n *?B0. The company in general
meeting shall appoint one or more liAuidators for winding up the affairs
of a company and for distributing the assets. The company shal l also 3x
his remuneration and unless his remuneration is not fixed, he will not
ta!e charge of his office. ,uch remunerat ion cannot be increased in any
circumstance whatsoever. The liAuidator may be appointed at the
meeting at which the resolut ion for volunt ary winding up is passed.
@. B!adA" p!4e )! (ea"e. /Se()i!n *?10. n the appoint ment of a
liAuidator all the powers of the board and other managerial personnel
shall come to an end, except in so far as the company in general
meeting or the liAuidator sanctions the continuance thereof. &owever, a
resolut ion for volunt ary winding up does not automaticall y dismiss all
servants but if it ta!es place because the company is insolvent i t does
operate as a discharge
75
+C P!4e )! #i%% 6a(an(& in )-e !##i(e !# % i8uida)!. /Se()i!n *?@0.
Where a vacancy for whatever cause occurs in the office of the
liAuidator the company in general meet ing, subD ect to any agreement
with the creditors fil l the vacancy. The general meeting may be called
by any contributory or by any continuing liAuidator.
*. N!)i(e !# app!in)$en) !# %i8uida)! )! egi")a. /Se()i!n *?+0.
The company shal l give notice to the registrar of the appoint ment of a
liAuidator. The company shal l also give notice of every vacancy
occurring in the office of liAuidator and of the names of the liAuidators
appointed to fill every such vacancy. The notice shall be given by the
company within '9 days of the event to which it rel ates.
If default is made in compl ying with these provisions, the company and
its offi cers who are in default shal l be punishable with 3ne upto "s.
', 999 for every day during which the default cont inues.
5. Du)& )! (a%% (edi)!" $ee)ing. /Se()i!n *?50. Where the l iAuidator
is, at any ti me, of the opinion that the company will not be abl e to pay
its debts in full within the specifi ed period, he shall immediat el y call a
meeting of the credi tors and shall place before it a statement of
company$s assets and liabi lit ies. n defaul t the penalt y is a fine which
may extend to "s. 5, 999.
Where a liAuidator has call ed a creditors meeting under section
-=5, the winding up, then, would proceed as if it was creditor $s
volunt ary winding up. .,ection -=>1.
D. Genea% $ee)ing a) )-e end !# &ea. /Se()i!n *?D0. Where the
winding up continues for more than one year, the liAuidator must cal l a
general meeting of the company at the end of the first year and at the
end of each subseAuent year. &e should lay before the meeting an
76
account of acts and deal ings and the progress of the winding up during
the year. The purpose of this sect ion is to enable the shareholders to
!now the state of affairs in the winding up.
If the liAuidator fails to compl y with the above mentioned
provisions, he shal l be punishabl e in respect of each failure with fine
which may extend to "s. ', 999.
;. Fina% $ee)ing and di""!%u)i!n. /Se()i!n *?;0. When the affairs of
the company are full y wound up, the liAuidator shal l perform the
following duties L
/a0 &e shal l ma!e up an account of the winding up, showing how the
same has been conducted and how the propert y has been disposed of.
/b0 &e shall call a general meeting of the company for laying before it
the said accounts. This meeting is the final meeting of the company.
The meeting shall be cal led by advertisement specifying the t ime, place
and obD ect thereof. The advert isement shall be made not less than one
month before the meeting in the official gaHet te and also in some local
newspaper where the registered office of the company is situated.
4ailure to call meet ing is punishabl e with fine upto "s. 5, 999.
/c0 Within one wee! after the meet ing, the liAuidator shal l send a copy
of the account to the registrar and the official liAuidator and also a
return of the holding of the meet ing and the date thereof.
If the copy is not so sent or the return is not so made, the l iAuidator
shall be punishable with 3ne whi ch may extend to "s. 599 for every
day during which the default continues.
'. "eigat e v. Cnion +anufacturing )ompany /"amsbmtom0 %td. /'='>0
'<# 5=2.
77
If a Auorum is not present at the final meeting, the l iAuidator
shall ma!e a return that the meeting was dul y cal led and that no
Auorum was present thereat.
The registrar on receiving the account and either of the returns
shall forthwith register the same.
The official liAuidator on receipt of the account and the return is
reAuired to ma!e a scrut iny of the boo!s and papers of the company.
The liAuidator of the company, its past and present officers, shal l
afford an opportunit y to the official liAuidator for this purpose. The
of3cial liAuidator shall send a report of the scrutiny to the Tribunal. If
the report shows that the affairs of the company have been conducted
bonafide i. e. not in a manner preD udicial to the interests of i ts members
or public int erest, then from the date of the submission of the report to
the Tribunal, the company shall be deemed to be dissolved. If the
report shows that the affairs of the company have been conduct ed in a
manner preD udicial to the int erests of members or public interest, the
Tribunal shal l by order direct the official liAuidator to ma!e a further
invest igat ion of the affairs of the company. 4or this purpose the
Tribunal shall invest hi m with al l such powers as it may deem 3t. n
receipt of the report of the official liAuidator on such further
invest igat ion the Tribunal may either ma!e an order that the company
shall stand dissolved or ma!e such other order as the circumstances of
the case brought out in the report permit.
CRED%TORAS FOLUNTARY. WINDING UP
Where a company proposes to wind up voluntari l y and the
directors are not in a position to ma!e the statutory declaration of
solvency, the winding up is a credi tor $s voluntary winding up. The
78
provisions for creditors volunt ary winding up are simil ar to those
appl icable to the member $s voluntary winding up except that in the
former, it is the creditors who appoint the liAuidator, fix his
remunerat ion and generall y conduct the winding up. ,ection 599 to 59=
deal with creditor $s voluntary winding up. They are discussed as under L
1. Mee)ing !# (edi)!". 'Se()i!n 5BB,. When the decl arat ion of
solvency is not made by the directors, the company shall cause a meeting
of the credi tors of the company to be call ed on the day or next following
day on which the resolut ion for volunt ary winding up is to be proposed.
Gotice of the meet ing of creditors shall be posted to creditors
si mul taneousl y with noti ce of the meeting of the company. The noti ce
calling the meeting of the creditors shall be advert ised in the offici al
gaHette and once at least in two newspapers circulat ing in the distri ct
where the registered office of the company is situated. The board of
directors shall lay before the meeting of the creditors a full stat ement of
the posit ion of the company$s affairs together with the list of its
creditors and the esti mated amount of their clai ms. ne of the directors
must preside at the meeting.
If the meet ing of the company at which the resolut ion for
volunt ary winding up is to be proposed is adD ourned, and the resolution
is passed at an adD ourned meet ing, any resolution passed at the meet ing
of the credi tors shal l have effect as if it had been passed i mmedi atel y
aft er the passing of the resolution for winding up of the company.
@. N!)i(e )! egi")a. /Se()i!n 5B10. The company shall give noti ce of
resolut ion passed at the creditors meeting to the registrar within '9 days
of its passing. If the company fails to send the not ice, within the
prescribed period, the registrar of companies, the company, every officer
of the company and the liAuidator shall be punishable with fine which
may ext end to "s. 599 for every day during which the defaul t continues.
79
+. App!in)$en) !# %i8uida)!. /Se()i!n 5B@0. The credi tors and the
company shall appoint a person to be the liAuidator. If different persons
were nomi nated, the person nomi nated by the creditors shall be the
liAuidator. Any director, member or credi tor of the company may, within
E days of the nomination made by the creditors, appl y to the Tribunal for
an order that the person appointed by the company shall be the
liAuidator. Where no person is nominat ed by the creditors, the person
nominated by the company shall be the liAuidator. n the other hand, if
no person is nominated by the company, the person nominated by the
creditors shall be the liAuidator.
*. C!$$i))ee !# in"pe()i!n. /Se()i!n 5B+0. The creditors at their
meeting may appoint a commit tee of inspect ion consisting of not more
than 3ve persons. Where such a commi tt ee is appointed, the company
may also appoint at a meet ing such number of persons not exceeding five
to act as the members of the commi tt ee. The creditors may resolve that
any of the person appoint ed by the company ought not to be the members
of the commi tt ee of inspection. In such cases, unl ess the Tribunal
otherwise directs, they cannot act on the commi tt ee. The Tribunal may
appoint other persons in place of persons obD ected to.
5. Li8uida)!A" e$unea)i!n. /Se()i!n 5B*0. "emuneration of the
liAuidator may be fixed by the commi tt ee of inspection or the credi tors if
there is no commit tee of inspect ion. therwise the Tribunal may 3x his
remunerat ion. "emunerat ion @3xed as above cannot be increased in any
circumstances.
D. P!4e !# 2!ad )! (ea"e. /Se()i!n 5B50. The board usuall y ceases to
funct ion on appointment of the liAuidator. The board may act in so far as
the commit tee of inspection /if any0 or the creditors in general meeting
may sanction the cont inuance thereof.
;. Fa(an(& in !#E(e !# %i8uida)!. /Se()i!n 5BD0. The credi tors in
80
general meeting may fi ll up any vacancy caused in the of3ce of the
liAuidator other than a liAuidator appointed by or by the direct ion of the
Tribunal.
=. Mee)ing a) )-e end !# ea(- &ea. /Se()i!n 5B=0. Where the winding
up cont inues for more than a year, the liAuidator shall cal l a general
meeting of the company and a meet ing of the creditors at the end of the
first year from the commencement of the winding up and at the end of
each succeeding year within three months from the end of the year or
such longer period as the central government may allow. The liAuidator
shall lay before the meet ing an account of his acts and dealings and of
the conduct of the winding up during the preceding year. The obD ect of
these provisions is to give regular informat ion to the credi tors and
shareholders. If the liAuidator fails to compl y with these provisions he is
li able to be 3ned upto "s. ', 999 in respect of each fai lure.
E
?. Fina% $ee)ing and di""!%u)i!n. /Se()i!n 5B?0. As soon as the affairs
of the company are wound up, the liAuidator shall ma!e up the account
of the winding up showing how the winding up has been conducted and
propert y of the company has been disposed of. &e shall cal l a general
meeting of the company and a meet ing of the creditors for the purpose of
laying the accounts before the meet ings. Fach such meet ing shall be
advertised in the official gaHet te and also in some newspaper circulating
in the distri ct where the regist ered office of the company is situated.
Wi thin a wee! after the meeting, the liAuidator shall send to the registrar
a copy of the account and a return which will be registered. Thereaft er
the procedure is the same as in member $s voluntary winding up.
Di##een(e 2e)4een $e$2eA" 6!%un)a& 4inding up and (edi)!A"
6!%un)a& 4inding up
'. Decl aration of solvency is a must in a member $s volunt ary winding
up, whereas i t is not necessary in a creditor $s voluntary winding up.
81
2. It is not necessary to have a creditor $s voluntary meet ing in the case
of member $s voluntary winding up, whereas in the case of creditor $s
volunt ary winding up, it is a statutory dut y of the company to call a
meeting of the creditors.
(. The liAuidator is approved by the members in case of member $s
volunt ary winding up whereas both members and creditors appoint
liAuidator in case of creditor $s volunt ary winding up.
-. There is no commi tt ee of inspection in case of member $s volunt ary
winding up, but in case of the latter there is one.
5. In the case of member $s voluntary winding up it is the members who
control the winding up, and the credi tors do not play an active role as
the company is solvent. In the case of creditor $s voluntary winding up, it
is the credi tors who control the winding up as the company is considered
to be insolvent.
7. In a member $s volunt ary winding up, the liAuidator can exercise some
of the powers with the sanct ion of Ua speci al resolution of the company.
In a creditor $s volunt ary winding up, he can do so with the sanction of
the Tribunal or the commi tt ee of inspection or of meet ing of creditors.
LI:UIDATORS IN FOLUNTARY WINDING UP
App!in)$en) !# % i8uida)!. In a member $s voluntary winding
up, the company in general meet ing shal l appoint one or more
liAuidators for the purpose of coll ect ing the company$s assets and
distributing the proceeds among creditors and contributori es. If a
vacancy occurs by death or resignation or otherwise in the office of the
liAuidator the company in general meet ing may 3ll the vacancy.
/,ect ion -=9 and -=20.
82
In the case of a creditors voluntary winding up, the creditors and
the members at their respect ive meet ings, may nominate a person to be
the liAuidator of the company. &owever, the creditors are given a
preferential right in the matt er of the appoint ment of the l iAuidator
with a power to the Tribunal to vary the appoint ment on application
made within seven days by a director, member or creditor. /,ect ion
5920.
P!4e !# )-e Ti2una% )! app!in) % i8uida)!. In a member $s or
creditor $s voluntary winding up, if for any cause whatever there is no
liAuidator acting, the Tribunal may appoint the of3cial l iAuidator or
any other person as a liAuidator of the company. The Tribunal may also
appoint a l iAuidator on the application of the registrar. /,ection 5'50.
B!d& (!p!a)e n!) )! 2e app!in)ed a" %i8uida)!. A body corporate
shall not be Aualified for appoint ment as a liAuidator of a company in a
volunt ary winding up. Any appoint ment of a body corporate as
liAuidator shall be void. /,ection 5'(0. A partnership firm of accounts
is not a body corporate and as such may be appoint ed liAuidator of a
company.
C!up) indu(e$en) a##e()ing app!in)$en) a" %i8uida)!. Any person
who gives or agrees or offers to give, to any members or creditor of the
company any grat i3cat ion with a view to securing his
own appoint ment or nomination or to securing or preventing the
appoint ment of someone else, as the liAuidator is li able to a fine which
may extend upto "s. '9, 999. /,ection 5'-0.
N!)i(e 2& %i8uida)! !# -i" app!in)$en). When a person is appointed
the liAuidator and accepts the appoint ment, he shall publish in the
of3cial gaHet te notice of his appoint ment, in the prescribed form. &e
shall also del iver a copy of such noti ce to the registrar. The l iAuidator
83
shall do this within (9 days of his appoint ment. Where the liAuidator
fai ls to compl y with the above provision, he is li able to a fine whi ch
may extend to "s. 599 for each day of default. /,ection 5'70.
E##e() !# )-e app!in)$en) !# %i8uida)!. n the appoint ment of a
liAuidator, in a member $s volunt ary winding up all the powers of the
directors, including managing director, whole ti me directors as also the
manager shall cease except so far as the company in general meet ing or
the liAuidator may sanction their continuance. /,ection -='0.
n the appoint ment of a liAuidator in creditor $s volunt ary
winding up, all the powers of the board of directors shall cease. The
commit tee of inspection or if there is no such commit tee, the creditor $s
meeting by resolution may sanct ion cont inuance of the powers of the
board. /,ection 5950.
Re$unea)i!n !# %i8uida)!. In a member $s volunt ary winding up, the
general meet ing shall fix the remuneration to be paid to the liAuidators.
Cnless the Auest ion of remuneration is resolved the liAuidators shall
not ta!e charge of his office. nce remuneration is 3xed it cannot be
increased. /,ect ion -=90.
In a creditors voluntary winding up, the remuneration of the
liAuidator is 3xed by the commi tt ee of inspection and if there is no
commit tee of inspection then by the credi tors. In the absence of any
such 3xation, the Tribunal shall det ermine his remuneration. Any
remunerat ion so fixed shall not be increased /,ection 59-0.
All costs, charges and expenses properl y incurred in the winding
up, including the remuneration of the l iAuidator, shal l subD ect to the
rights of secured credi tors, be payabl e out of the assets of the company
in priorit y to all other clai ms. /,ection 5290.
84
Re$!6a% !# % i8uida)!. In either !ind of volunt ary winding up, the
Tribunal may, on cause shown, remove a liAuidator and appoint the
official liAuidator or any other person as a liAuidator in place of
removed liAuidator. The Tribunal may also remove a liAuidator on the
appl ication of the registrar.
The term 6on cause shown$ does not necessaril y mean personal
misconduct or unfi tness. It means any conduct which would ma!e the
liAuidator no longer 3t to act as such. Where the liAuidator disregards
the wishes of credi tors in an insolvent company and the wishes of
contributori es in a solvent company, i t may be suffici ent cause on
which Tribunal may remove a liAuidator. 2
&owever, in the exercise of his powers, the l iAuidator shal l be
subD ect to the control of the court.
-E
Any credi tor or contributory may
appl y to the court with respect to any exercise or proposed exercise of
the liAuidator $s powers. If the court finds that, from any cause
whatever, no liAuidator is functioning the court may appoint the
official liAuidator or any other person as the l iAuidator of the company.
The court also has the power, on cause shown, to remove a l iAuidator
and appoint some other person in his place.J In Dr &ardi t ,ingh v
"egistrar of )ompanies,J the Delhi &igh )ourt ordered the removal of
a voluntary l iAuidator on the grounds that he had not deposited certain
amounts as reAuired by ,ection 55( of the Act, that he had been
uncooperative and defi ant regarding the recovery of the company$s
cl ai ms and that the process of liAuidation was a collusive affair
between the ex@managing director and the liAuidator. The +adras &igh
)ourt5M reD ected an appl icat ion for removal as the move was not bona
3de, but was motivated by mali ce on account of certain actions which
were t a!en against the applicant by the liAuidator and because the
85
appl icant was apprehensive that the liAuidator would pursue the action
to the finish. JThe courts are loathe to interfere with the scheme of self
det ermination by the members of a company. *ague all egat ions are not
sufficient to secure the removal of a liAuidator. J Where the l iAuidator
made no response to a creditor $s clai m and proofs, nor even repli ed to
his letters enAuiring about the matt er, this was held to be dereliction of
dut y sufficient to meri t removal. J
A l iAuidator is not removable onl y on the ground that he was a
shareholder or director or because the creditors or members in maD ori t y
demand it.
5(
The following statement occurs in a Dudgment of A,T#C"? I5-
as to the meaning of the expression Jon cause shownK. The words Jon
cause shownK have not Auit e the effect of Jif the court shall thin! fit. K
IF,,F% +" said in ,ir Iohn +oore :old +ining )9, "e, 55 Jthey point
to some unfitness of the person@Tit may be from personal character, or
from his connect ion with other parti es, or from circumstances in which
he is mi xed upTsome unfitness in a wide sense of the term. K #ut, as
point ed out by the )ourt of Appeal in Adam Fyton %td, "e, 56 this
definition was not int ended to be exhaustive, and if the court is
satisfi ed on the evidence that it is desirable in the interest of all those
int erested in the assets that a particular person shall not manage the
assets, the court has power to
-E "egistrar of )ompanies v "owe B ;al, /'=E20 -2 )omp
)as '>> ri.
-> ,. 5'5.
-= /'=E20 -2 )omp )as 257 Delhi.
59 "angaswami v +andhi *iswa #rahmana ,arvaD ana
86
,ahaya Gidhi %td, /'=7E0 (E )omp )as E(9 +ad.
5' "egistrar of )ompanies v &ardit ,ingh :iani, /'=E>0 ->
)omp )as '52 Del.
52 Amar Gath <rishan %al v &industan 4orest )o %td,
/'==(0 EE )omp )as '2> ;B&.
5( ,ee )harlesworth B )ain, )+;AG? %AW, 797 /''th
Fdn, '=EE0, citing +. <night B )9 %td v +ontgomerie,
/'>=20 '= " 59' and <er, ;etitioner, /'>=E0 5 ,%T '27 '@
I.
5- "ubber and ;roduce Invest ment Trust, .'='51 l )h (>2
at (>E.
55 /'>E=0 '2 )h D (25, (('.
57 /'>>E0 (7 )h D 2== )A.
remove him, without there being shown any personal misconduct or
unfitness.
The liAuidator or any contributory or credi tor may appl y to the
court to
det ermine any Auestion arising in the winding up of the company or to
exercise al l or any of the powers which the court may exercise if the
company were being wound by the court. K In the exercise of this power
the court stayed a volunt ary winding up because the company was
producing a social l y needed commodit y, cement2 it had resources. both
raw material and finance and the shareholders wanted to revive their
company. K
The liAuidator may ma!e a report to the court stating that in his
opinion a fraud has been commi tt ed by any person in the promot ion or
formation of the company or by any officer after the formation of the
87
com. The court may then direct the person to appear for public
examination.
Example : The secretary of a company was appointed li<uidator. 5e
was intimate with the directors and to some extent jointl y interested
with them. There was su@i cient evidence that he too% their side
stron"ly.
A contributory moved against the liAuidator and two directors for
an order compel ling them to pay money for which they were liabl e in a
3duciary relation. It was held that there was suXicient cause for the
removal of the liAuidator. ."e ,ir Iohn +oore :old +ining )o. /I>E=0
'2 )h. (251.
A l iAuidator should not be removed arbi trari l y. In &ardit ,ingh :iani v.
"egistrar of )ompaniess, Delhi &igh Tribunal ordered the removal of a
liAuidator on the grounds that L
/i0 he had not deposi ted certain amounts as reAuired by section 55( of
the )ompani es Act 2
'. "egistrar of )ompanies v "owe B ;ali /'=E20 -2 )omp. )as '>>.
2. "e "ubber B ;roduce Invest ment Trust /'='50 ' )h. (>2.
(. /'=E20 -2 )omp. )as 257.
/ii0 he had been unco@operative and de3ant regarding the recovery of
the company$s clai m 2
/ii i0 the process of liAuidation was a collusive affair between the ex@
managing director and the l iAuidatar.
P!6i"i!n" app%i(a2% e )! e6e& 6!%un)a& 4inding up
The provisions contained in sections 5'' to 52' shall appl y to both
member $s and credi tor $s voluntary winding up. /,ec. 5'90.
88
Di")i2u)i!n !# p!pe)& !# (!$pan&. The assets of a company which
is being wound up, shal l be ut ilised in ma!ing preferent ial payments
and the balance will be appli ed in satisfaction of the company$s
li abil iti es pari passu. The residuary amount, unless the art icles
otherwise provide shall be distributed among the members according to
their rights and interests in the company. /,ec. 5''0.
S)a)e$en) !# a##ai" )! 2e $ade )! % i8uida)!. The provisions of
sect ion -5- /deal ing with reAuirement as to ma!ing of statement of
affairs by the of3cers of the company in case of winding up by the
Tribunal0 appl y, so far as may be, to every voluntary winding up as
they appl y to the winding up by the Tribunal except that references toL
/a0 the Tribunal shall be omit ted 2
/b0 the of3cial liAuidator or the provisional l iAuidator shal l be
eonstrut ed as references to the l iAuidator2 and
/c0 the 6relevant date$ shall be construed as references to the dat e of
commencement of the winding up. /,ec. 5''@A0.
P!4e" and du)ie" !# %i8uida)! in 6!%un)a& 4inding up. ,ect ion
5'2 deals with the powers and duties of liAuidator in voluntary winding
up. The powers of the liAuidator in voluntary winding up are the same
as those of the offici al l iAuidator in a winding up by the Tribunal
except with one difference, regarding the manner in which these powers
are exercised. In the case of winding up by the Tribunal the offici al
liAuidator has to obtain the sanction of the Tribunal to exercise some of
the powers. #ut in the case of member $s voluntary winding up, the
liAuidator can exercise those powers 6vith the sanction of a speci al
resolut ion of the company. &owever, in the case of creditor $s voluntary
winding up, the liAuidator has to obtain the sanction of the Tribunal or
89
the commit tee of inspection or in its absence, of a meeting of the
creditors.
P!4e" 4i)- "an()i!n. The liAuidator may exercise the fol lowing
powers, in the case of a members volunt ary winding up with the
sanct ion of a speci al resolution of the company, and in the case of a
creditors voluntary winding up, with the sanct ion of the Tribunal or the
commit tee of inspection or the meeting of the creditors if there is no
commit tee of inspection
/a0 to institute or defend any suit in the name and on behalf of the
company2
/b0 to carry on the business of the company so far as may be necessary
for the beneficial winding up of the company2
/c0 to sell the i mmovable and movable propert y of the company2
/d0 to raise any money reAuired on the securi t y of the assets of the
company.
The exercise of these powers by the liAuidator is subD ect to the control
of the Tribunal. Any creditor or contributory may appl y to the Tribunal
with respect to any exercise or proposed exercise of any of these
powers.
P!4e" 4i)-!u) "an()i!n. The liAuidator in a voluntary winding up
may exercise certain powers Without any sanct ion referred to above.
The liAuidator in exercise of his powers may L
/a0 do all acts and execute all documents and use company$s seal,
/b0 inspect the records and returns of the company in the registrar $s
office without payment of fees,
/c0 prove, ran! and cl ai m insolvency of any contributory,
/d0 draw, accept, ma!e and endorse any bills of exchange, hundi or
promissory note,
90
/e0 ta!e out lett er of admi nistration to any deceased contributory
without effect ing the right of the administrator@ general, and
/I0 appoint an agent.
In addi tion to the above powers the liAuidator can without obtaining the
sanct ion, exercise the following powers@
/i0 he may exercise the power of the Tribunal as regards settl ing the list
of contributori es,
/ii0 he may exercise the power of the Tribunal of ma!ing calls,
/ii i0 he may convene general meetings of the company for obtaining
sanct ion of the company by ordinary or special resolut ion or for any
other purpose.
When several l iAuidators are appointed, any power given by the
Act may be exercised by such one or more of them as may be
det ermined at the ti me of their appoint ment or in default of such
det ermination by any number of them not being less than two.
It is the dut y of the liAuidator to pay the debts of the company and to
adD ust the rights of the contributories among themselves.
App% i(a)i!n )! Ti2una% )! -a6e 8ue")i!n" de)e$ined
When a company is being voluntaril y Wound up, the l iAuidator, any
contributory or any creditor may appl y to the Tribunal@
/a0 for determi nation of any Auestion arising in the winding up of a
company.
/b0 for exercise of any of the powers of Tribunal exercisabl e in a
compulsory winding up. and
/c0 for set ting aside any at tachment, distress or execution but into force
against the estate6 or effects of the company after the commencement
of winding up.
91
The Tribunal may accede wholl y or partiall y to the application on
such terms and conditions as i t thin!s fi t. It may ma!e such other
orders as it thin!s D ust.
A copy of the order staying the proceedings in the winding up
shall forthwith be forwarded by the company to the registrar who would
ma!e an entry in the boo! relating to the company /,ec. 5'>0.
App% i(a)i!n #! pu2%i( eHa$ina)i!n !# p!$!)e"C die()!" e)(.
The liAuidator may ma!e a report stating that in his opinion a
fraud has been commit ted by any person in the promotion or formation
of the company or by any officer of the company in rel ation to the
company since its formation. The Tribunal may aft er considering the
report direct such person to appear for public exami nation. ;ublic
examination, means exami nation in Tribunal where members of the
publi c may be present /,ection 5'=0.
CONSE:UENCES OF WINDING UP
Winding up affects a number of parties. The conseAuences of winding
up are as under 2
1. C!n"e8uen(e" a" )! "-ae-!%de". A member of a company is liable
and bound to pay the full amount on the shares held by hi m. This
li abil it y continues even after the company goes into liAuidation2 for the
purposes of winding up, he is described by the Act as a contributory.
The term 6contributory$ means a person liabl e to contribute to the
assets of a company in the event of its being wound up, and inl cudes
the holder of any shares which are full y paid up. )ontributory may be
present or past. The l iabil it y of a present contributory is li mi ted to the
amount remaining unpaid on the shares held by hi m. A past
92
contributory can onl y be call ed upon to pay if the present contributory
is unabl e to pay.
@. C!n"e8uen(e" a" )! (edi)!". The obD ect of winding up is to realise
the assets and discharge the liabi lit ies and then if there be any surplus,
to pay it off to the shareholders. It is the dut y of the liAuidator to pay
off the liabi lit ies of the company. In order to ascertain the li abil iti es,
sect ion 52> reAuires that all persons having clai ms of whatever nature
against the company should submi t proofs of what is due to them.
Fvery !ind of a l iabi lit y, whether present or future, cert ain or
cont ingent and however difficul t of valuation is provable and has got to
be proved. ,ection 52> applies to proofs of debts where a company is
solvent i. e. where its assets are sufficient to pay all its debts and
li abil iti es as well as the costs of the winding up. Where an insolvent
company is being wound up, the insolvency rules will appl y and onl y
such clai ms shall be provabl e against the company as are provable
against an insolvent person. /,ec. 52=0.
Rig-) !# "e(ued (edi)!". The position of a secured creditor in
rel ation to the winding up of a company is Auit e different from that of
an unsecured credi tor. &e can stand wholl y outside the Winding up
proceedings unless he abandons his securi t y and D oins the ran!s of
unsecured creditors. A secured creditor, has three alt ernat ives before
hi m.
/i0 &e may rel y on his securit y for the payment of all that may be due
to him and ignore the liAuidation altogether2 or .
/ii0 he may value or realise the securi t y and prove for the de3ci ency in
the winding up, or
/ii i0 he may give up the securi t y and prove for the whole amount.
93
Where the secured credi tor proceeds to 6realise the securi t y, he is
li able to pay all the expenses incurred by liAuidator for the
preservation of the securit y before its realisation.
Rig-) !# un"e(ued (edi)!". All debts due to unsecured creditors are
to be treated eAuall y and paid pari passu.
When the list of claims is sett led the liAuidator has to commence
ma!ing payments. The assets availabl e to the liAuidator are applied in
the fol lowing orders L
'. ,ecured creditors. 2. )ost of the liAuidation.
(. ;referential payments. -. Debenture holders secured by a floating
charge.
5. Cnsecured creditors. 7. #al ance returned to the contributori es.
Pe#een)ia% pa&$en). ,ection 5(9 enumerates certain debts which are
to be paid in priorit y to al l other debts. ,uch payments are called
preferential payments. It may however be not ed that such payments are
made after payi ng the secured creditors, and costs, charges and
expenses of the winding up.
T-e"e pe#een)ia% pa&$en)" aeG /a0 All revenues, taxes, cesses and
rat es due from the company to the central or state government or to a
local authori t y. The amount should have become due and payable
within '2 months before the winding up. /b0 All wages or salary of any
employee in respect of services rendered to the company and due for a
period not exceeding - months within '2 months, before the winding up
and any compensat ion payable to any wor!man under any of the
provisions of )hapt er *@A of the Industrial Disputes Act. '=-E. The
amount must not exceed "s. 29, 999 in the case of any one cl ai mant. /c0
All accrued holiday remuneration becoming payabl e to any employee or
94
in the case of his death to any other person in his right, on the
termination of his employment before or by the effect of the winding
up. /d0 All amounts due in respect of contributions payable by the
company as employer but this is not payable if the company is being
would up volunt aril y for the purpose of reconstruction and
amalgamation. /e0 All amounts due in respect of any compensation or
li abil it y for compensation in respect of death or disablement of any
employee under the Wor!mens$ )ompensation Act, '=2( but this is not
payable if the company is being wound up voluntaril y for
reconstruction or amalgamat ion. /f0 All sums due to any employee from
a provident fund, a pension fund, a gratuit y fund or any other fund for
the welfare of the employees mai ntained by the company. /g0 The
expenses of any invest igation held in pursuance of section 2(5 and 2(E,
in so far as they are payable by the company.
+. C!n"e8uen(e" a" )! "e6an)" and !##i(e". A winding up order by a
Tribunal operates as a noti ce of discharge to the employees and offi cers
of the company except when the business of the company is continued.
The same principle will appl y as regards discharge of employees in a
volunt ary winding up. Where there is a contract of service for a
part icul ar period, an order for winding up will amount to wrongful
discharge and damages will be allowed as for breach of contract of
service.
Example : 8 a"reed to act as a director of a company for seven years
and not to en"a"e in any compet in" business for seven years after he
should cease to hold offi ce. -ompany was ordered to be wound up. 1t
was held that the windin" up order operat ed as a wron"ful dismissal
of 8 and that he was free from his a"reement not to compete with the
company. #6easures 2ros. 'td. v. 6easuresA. ()(/!. 1 -h. ++07.
95
*. C!n"e8uen(e" !# p!(eeding" again") )-e (!$pan&. When a
winding up order is made, or an official liAuidator has been appointed
as provisional liAuidator no sui t or legal proceeding can be commenced
and no pending suit or l egal proceeding continued against the company
except with the leave of the Tribunal and on such terms as i t may
i mpose. In the case of a volunt ary winding up, the Tribunal may
restrain proceedings against the company if i t thin!s 3t. It may be
noted that law does not prohibit proceedings being ta!en by the
company against others including directors, or officers or other
servants of the company.
5. C!n"e8uen(e" a" )! (!")". Where the assets of the company are
insufficient to satisfy the liabili ties, the Tribunal may ma!e an order
for payment out of the assets of the costs, charges and expenses
incurred in the winding up. The Tribunal may determine the order of
priori t y in which such payments are to be made. /,ection -E70.
D. C!n"e8uen(e" a" )! d!(u$en)". When a company is being wound up
whether by or under the supervision of the Tribunal or volunt aril y, the
fact must be made !nown to all those having any dealing with the
company2 every document in the nature of an invoi ce, order for goods
or business let ter issued in the name of the company, after the
commencement of winding up must contain a statement that the
company is being wound up. /,ec. 5-E0.
Where a company is being wound up, al l documents of the
company and of the liAuidators shall, as between the contributories of
the company, be pri ma faci e evidence of the truth of all matt ers
recorded therein. /,ec. 5->0.
96
Where an order for winding up of the company by or subD ect to
the supervision of the Tribunal is made, any creditor or contributory of
the company may inspect of the boo!s and the papers of the company,
subD ect to the provisions made in the rules by the central government in
this behalf. When the affairs ofU a company have been completel y
wound up, and it is about to be dissolved, its boo!s and papers and
those of the liAuidator may be disposed of in such manner as the
Tribunal directs. This appl ies to a winding up by or subD ect to the
supervision of the Tribunal.
In the case of a member $s volunt ary winding up, they may be
disposed of in the manner directed by a special resolution of the
company and in the case of a creditor $s voluntary winding up, in the
manner direct ed by commi tt ee of inspection or if there is no such
commit tee by the creditors. /,ec 5590.
97
CHAPTER-FI
WINDING UP OF INSOLFENT COMPANIES
,ect ion 52= of the )ompanies Act appl ies to winding up of the
company which cannot pay all its debts i. e. to an insolvent company
onl y in respect of the following mat ters L
/a0 debts provable,
/b0 the valuation of annui ties and future and contingent li abil ities2 and
/c0 the respect ive rights of secured and unsecured credi tors.
All persons who would be entit led to prove for and receive
dividends out of the assets of the company may come in under the
winding up and ma!e such clai ms against the company as they
respectivel y are entit led to. #ut it is not necessary for a secured
creditor to prove his debt in the winding up and he can stand wholl y
outside the winding up proceedings. &owever, if a secured credi tor
instead of giving up his securi t y and proving for his debt proceeds to
realise his securi t y, he shal l be l iable to pay the expenses inurred by
the liAuidator for the preservat ion of the securit y before its realisat ion
by the secured creditor.
The rules of insolvency in India are to be found in the ;residency
Towns Insovlency Act, '=9= and the ;rovincial Insolvency Act, '=29.
nl y such of the rules contained in these Acts as relate to the
respective rights of the secured and unsecured creditors, and to debts
provabl e and to the valuation of certain li abil iti es shal l appl y under
sect ion 52=. Apart from these provisions, in respect of other mat ters
such as those relating to priorit y of debts, all Auestions have to be
det ermined with reference to the )ompanies Act onl y.
98
,ect ion 52= ceases to be appl icabl e as soon as it is found that the
company in the course of winding up is not insolvent. The provisions
of the laws of insolvency appl icabl e to insolvent companies wil l not
appl y to such company and it will be treat ed as having been solvent
throughout the winding up proceedings.
WINDING UP OF UNREGISTERED COMPANIES
;art Y of the )ompani es Act cont aining sect ions 5>2 to 5=9 deal
with the winding up of unregistered compani es.
Meaning. ,ection 5>2 defines an 6unregist ered company$. It includes
any partnership, association or company having eight or more members
at the t ime when the petit ion for winding up is presented. &owever, it
shall not include@
/a0 a railway company incorporated by any Act of ;arliament or other
Indian law or any Act of ;arliament of the Cnit ed <ingdom2
/b0 a company regist ered under the )ompanies Act '=57 and
/c0 a company registered under any previous companies law.
The term 6unregistered companies$ does not cover associat ions
formed contrary to the provisions of ,ection '' which are !nown as
il legal associ ations. ,ection 5>- provides that where a foreign company
incorporated outside India has been carryi ng on business in India and
ceases to do so, it may be wound up as an unregistered company
despit e the fact that i ts existence had ceased according to the law of the
country of incorporation. An unregistered company may be wound up
under this Act and all the provisions of this Act with respect to winding
up shall appl y to an unregistered company with the exception that the
principal place of business of the unregistered company will be treated
99
as regist ered of3ce and the appropri ate Tribunal of that pl ace will have
D urisdiction to wind up the company. .,ection 5>( /'0 B /201.
G!und" #! 4inding up. An unregistered company may be wound up
by the Tribunal if L
/a0 it is dissolved or has ceased business or is carryi ng on business
onl y for the purpose of winding up i ts affairs2 or
/b0 it is unable to pay i ts debts2 or
/c0 the Tribunal is of opinion that it is Dust and eAui tabl e that the
company should be wound up. .,ection 5>( /-01. An unregist ered
company is to be deemed to be unabl e to pay its debts,
/a0 if a creditor, for more than rupees 3ve hundred has demanded
payment in wri ting but the company has neglected to pay or secure or
compound the same within a period of three wee!s, or
/b0 if any action has been inst itut ed against a member for any debt due
from the company or from hi m in his character of member and a notice
of such action has been served on the company and the company has
not within '9 days paid, secured or compounded for the debt or
procured the action to be stayed or indemnified the defendant against
the act ion.
/c0 if any execution issued on a Dudgement in favour of a credi tor
against the company or any member thereof, is returned unsat is3ed in
whole or in part, or
/d0 if it is otherwise proved to the satisfaction of the Tribunal that the
company is unable to pay its debts. .,ection 5>( /50'.
100
Cu$u%a)i6e e##e() !# )-e p!6i"i!n". All the provisions with respect to
winding up of unregistered compani es shall be in addit ion to, and not
in derogation, any provisions of the Act with respect to the winding up
of compani es by the Tribunal. In other Words sect ions -25 to 579 will
appl y to winding up of unregistered compani es in so far as they are
appl icable in addition to sect ions 5>2 to 5=9.
The Tribunal or official liAuidator may exercise any powers or do
any act in the case of unregistered companies which mi ght be exercised
or done by the Tribunal or official liAuidator in winding up of
unregist ered companies.
An unregistered company shall not be treated as a company except for
the purpose of sections 5>2 to 5=9. .,ection 5>=1.
Winding up !# unegi")eed (!$pan&
!eaning of "nregistered Co#pany $%. &'()
The expression includes any partnership, association or company
consisting of more than seven membersK at the t ime of the peti tion, but
does not includeT
/'0 a railway company incorporated by an Act of ;arliament or other
Indian law or any Act of the #ritish ;arli ament2
/20 a company regist ered under the )ompanies Act 2
/(0 a company regist ered under any previous company law, excepting
those having registered office in #urma, Aden or ;a!istan before their
separation from India.
101
It has been held that Jthe word 6association$ has to be understood
in its general sense and not with reference to the provisions in ,ect ion
'' of the ActK.
Thus construed, there would be no bar to the winding up of the
Fx@servicemen$s "ehabi lit ation Association, registered under the
,ocieties "egistration Act, as an unregist ered company, though its
membership was more than that of 29 persons. Winding Cp .,. 5>(1
,uch a company can be wound up under the Act and with some
exceptions all the provisions of the Act relat ing to winding up are
appl icable.
4or the purposes of D urisdiction the company shall be deemed to
be registered in the ,tate where it has its principal place of business. If
it has a principal place of business in more than one ,tate, proceedings
may be commenced in any such ,tat e.J
,uch a company can be wound up onl y by the court, not voluntari l y
nor under supervision. J The company may be wound up in the
following circumstancesL
5E A certificate from the "egistrar of 4irms that the firm had seven
members on his record was held to be a sufficient proof of this
reAuirement despite all egations that the firm had onl y five
members. +a!han ,ingh Devinder ;al ,ingh v "oD a il +ills,
/'===0 => )omp )as '=9 /;B&0, here it could not be shown that the
partnership had seven or more members, a pet ition for order of
winding up not sustained. ". ,araswathi v ,ha!thi #ene3cial
)orpn, /'=>90 59 )omp )as '=( <ant. The right to appl y for
winding up accrues from the dat e of dissolution of the partnership.
Cnder Article '(E of the %i mi tation Act, '=7(, onl y three years
102
would be available from that dat e. In this case the peti tion was late
by a year, +alini "ao v &otel Dwar!a, /'==E0 =9 )omp )as 'E=
A;.
5> #. T. Industri es v +adras ,apper Fx ,ervicemen$s "ehabil itat ion
Assn, /'=>>0 7( )omp )as E(( <ant. Cnder ,. 775 of the Fngl ish
Act of '=>5 it has been held that an international societ y consisting
of ,tates as members was not liabl e to be wound up as an
unregist ered company. International Tin )ouncil, "e, .'=>E1 l All
F" >=9 )h D2 followed in +aclaine Watson v Deptt oUP6Trade,
.'=>>1 ( All F" 25E )A.
5= The Durisdict ion of the company court to order the winding up of an
unregist ered company cannot be ousted either by the dissolution of
the firm by the partners or under an arbi tration clause. +
*;arsvarthavardhana v + * :anesh ;d, /'===0 (5 )%A ('> <er.
79 ,. 5>(/20.
7' ,. 5>(/(0. ;roceedings under the sect ion are not in the nature of a
civil suit and, therefore, not
/'0 if the company has been dissolved, or has ceased to can8 y on
business, or is carrying on business onl y for the purpose of winding
up272
/20 if the company is unable to pay i ts debts2 A
/(0 if the court is of the opinion that it is Dust and eAui tabl e 6to wind up
the company. The company is said to be unable to pay its debts in the
following casesJ
103
/'0 where a creditor to whom the company is indebted for more than "s
599 has served a notice, but the company has not settled with hi m for
three wee!s2
/20 if any case has been filed against a member for a debt due from the
company or from the member in his charact er as member, and the
company has not within ten days set tled the demand or procured the
case to be stayed or indemnified the member against the sum due and
the expenses etc2
/(0 If any execution or other process has been returned unsat isfied in
whole or in part.
/-0 If it is otherwise proved to the satisfact ion of the court that the
company is unable to pay its debts.
Winding Up !# F!eign C!$panie" /S. 5=*0
Where a foreign company, having had a place of business in India, has
ceased to carry on its business, it may be ordered to be wound up as an
unregist ered company even if it has already been dissolved in its
mother country. J
C!n)i2u)!ie" /S. 5=50
A contributory for this purpose means a person who is li able to
contribute to the payment of any debt of the company or for adD ust ment
of their mutual rights or the costs et c. , of winding up.
These provisions are addi tional to the rest of the provisions of
the Act relat ing to winding up, all of which are also applicable affected
by ,. (- of the Arbitrat ion Act. ,ee +. *inoda "ao v +. Ianardhana
"ao, /'=>>0 7- )omp )as '7E <ant. Where the dispute was about
104
profits and capi tal of the firm, a petit ion for winding up was not
al lowed. The partners were already loc!ed up in a civil suit for
accounts and part ition of famil y assets. < G Fswara "ao v < & ,hama
"ao, /29990 )%) -9> <ant.
72 This cl ause will cover cases where the partnership firm has already
been dissolved2 cl auses /b0 and /c0 appl y to cases where the firm is
subsisting, +alini "ao v &otel Dwar!a, &yderabad /'==-0 ' Andh %T
(7. .
7( ,. 5>2/-0. *
7- ,. 5>2/50.
75 ,ee "aD an Gagindas Doshi v #rit ish #urma ;etroleum )9, /'=E20 -2
)omp )as '=E #om2 Inland "evenue v &ighland Fngg )o, ,cot land,
/'=E50 ,%T 29(L '=E7 I#% 5'2 "#I v #))I /verseas0 %td, /G9. I0,
/'==(0 E> )omp )as 29E #om2 "#I v #))I /verseas0 %td, /G9. 20,
/'==(0 E> )omp )as 2(9 #om.
77 ,. 5>=.
These provisions do not exclude the operation of the ;artnership
Act relating to dissolution even if the finn in Auestion is li!el y to fall
in the definition of an Junregist ered companyK.
Pei!d !# %i$i)a)i!n /S. *5=-A0
In computing the period of li mi tat ion for the purposes of the
cl ai ms of a company in winding up, the period from the dat e of the
pet ition to the dat e of the order of winding up /both inclusive0 and the
period of one year immediat el y fol lowing the winding up order is to be
excluded. Thus the company in winding up has the benefit of an
addi tional period covering the ti me from the commencement of the
proceeding to the date of the order and one more year from the date of
the order.J Where a company has been put by an order of the court on
105
volunt ary winding up under supervision of the court, the period of
li mit ation begins from the date on which e court passes supervision
order and not from the date of special I7,'C. Where l eave of the
court had to be obtained for filing the company$s ai m, the ti me lost in
obtaining the leave, the period between the date of petit ion and
winding up order was excluded and one more year was added. EM The
cl ai m of the company should be alive at the ti me of the winding up
order. Z If the company$s cl ai m is alive on the date of the peti tion for
winding up, the right to sue accrues to the offici al liAuidator on order
of winding up. Three years t ime plus one more year would be
available. E2 Art icle '(E of the %imit at ion Act, '=7( applies to
proceedings under ,ect ion --7. The period of li mi tat ion commences for
the purposes of that sect ion from the date of the winding up order or
appoint ment of a provisional liAuidator
7E *asantrao v ,hyamrao, /'=EE0 - ,)) =L /'=EE0 -E )omp )as 7772
:.;. :anapaiah v +. T. ". Associat es, /'=>70 5= )omp )as (5=
<ant2 GavD eevan Fnterprises /;0 %td v T. G. "amalingaiah, /'=>50
5> )omp )as 2'E <ant 2 Deutsche DampschiXshrts v #harat
Aluminium )9, /'=>-0 55 )omp )as E2E )al. The provisions of the
Act relating to stay or restraint of proceedings are also appl icable
and on the passing of a winding@up order suits or legal proceedings
become stayed unless permi tt ed by the court .,s. 5>7@5>E1. ,tay of
proceedings against the company does not extinguish the liabili t y
of individuals, neither does it operate as a stay of proceedings
against them, *en!oba "ao v #. <. ,hreenivasa Iyengar, /'==E0 >>
)omp )as (>( <ant.
106
7> ,ee ;unD ab 4inance /;0 %td, "e, /'=E>0 -> )omp )as 2E' ;unD 2
fficial %iAuidator, ,ecurit y B 4inance /;0 %td v ;ushpa Wati ;uri,
/'=E>0 -> )omp )as (>5 Del.
7= Iagdish ;arshad :upta v ?oungmen #ene3t )hit /;0 %td, /'=>'0 5'
)omp )as 29' Del 2 ;ushpa Wat i ;uri v %, /'=>-0 57 )omp )as >>
Del. The period of l imit at ion depends upon the nature of the
proceedings. fficial %iAuidator v ,outhern ,crews /;0 %td, /'=>>0
7( )omp )as E-= +ad.
E9 ,udarsan )hits /India0 %td v Cma ,harma, /'==20 E( )omp )as (>'
<er2 ,udarsan )hi ts /India0 %td v +adlam Garasi mhulu )hett y,
/'==(0 ( )omp %I =7 <er.
E' <arnat a!a ,teel and Wire ;roducts %td v <ohinoor "olling ,hutters,
/I==(0 E> )omp )as =7 <ant /4#0. The starting point depends upon
the right of the company and the nature of its claim to whi ch is
added the benefit of this sect ion, #est and )rompton Fngg %td v
9%, AI" '==5 +ad 29L /'==50 >2 )omp )as EE.
E2 Cnico Trading and )hit 4unds /India0 /;0 %td v [ahaor &asan,
/ '=='0 E' )omp )as 2E9 <ant. 4ollowed in Cnico Trading and
)hit 4unds /India0 ; %td v ,.&. %ohati, /'=>20 52 )omp )as (-9
<ant2 Cnited &ire@;urchase B %and 4inance /;0 %td, /'==70 >E
)omp )as 2-7 ;B&.
E( ,ee <. ;. Clahaman v Wandoor Iupiter )hi ts ; %td, AI" '=>= <er
-'L /'=>=0 75 )omp )as 'E>, winding up order passed on Dec 29,
'=E( and a clai m was filed on 4eb, 2>, '=E> and the
107
In#!$a)i!n a" )! pending %i8uida)i!n" /S. 5510
the winding up of a company is not completed within one year of
commencement, the l iAuidator has to prepare a stat ement in the
prescribed form cont aining the prescribed part iculars and dul y audi ted
by a person who is Aual ified to be a company audi tor. The statement
must be filed within two months of the expiry of the first year and their
aft er each year. If the winding up is by the cou't\or under its
supervision, it should be fi led in the court, /a copy with the "egistrar0
and in the case of voluntary winding up, with the "egistrar. Audi ting of
the statement is not necessary where the liAuidator has to get his
accounts audited under ,ection -72. In the case of the liAuidation of a
:overnment company, a copy has to be sent to the )entral :overnment
or ,tates which are its members. )reditors and co tributari es are
ent itl ed to copies and inspection prescribed fee. Any default by the
liAuidator in compl yi ng with the reAuirements and any person falsel y
cri ming himself to be a creditor or contributory, are punishabl e.
Any person staining hi mself to be a credi tor or contributory in
writing, shall have the right of inspecting the documents and a person
falsel y clai ming to be so is li able to punishment under ,ect ion '>2 of
the Indian ;enal )ode, '>79.
Li8uida)!A" $i"(e%%ane!u" p!4e" /S. 5*D0
The powers specified below may be exercised by the liAuidator with the
sanct ion of the court where the winding up is subD ect to the supervision
of the court or with the sanct ion of a special 3re solution where the
winding up is voluntaryL
'. The payment of a class or cl asses of creditors in ful l2
108
2. )ompromise or arrangement with creditors, the word JcreditorsK for
this purpose including persons cl ai mi ng to be creditors or having or
al leging themselves to have any 6cl ai m, present or future, cert ain or
cont ingent6, ascert ained or sounding onl y in damages, against the
company or whereby the company may be rendered li able.
(. )ompromising any cal l, or li abil it y to call, debt and any clai m,
present or future, Jcertain or contingent, ascertained or sounding onl y
in damages, subsisting or al leged to assist between the company and a
contributoryQ6 or alleged contributor or other debtor or person
apprehending l iabil it y to the company sett ling all Auest ions relat ing to
or affecting the assets of the company or i ts winding up2 he may do so
on such terms may be mutual l y agreeable and ta!e any securit y for the
discharge of the call, debt, li abil it y or clai m and give a compl ete
discharge for the same. The ,upreme )ourt is empowered to ma!e rules
in respect of the exercise by the liAuidator of any of the above powers
and then the power shal l be same was held to be within t ime. The
period between the filing of the peti tion and the winding up order was
excluded and one more year was added. 4or other decisions to the same
effect, see +aruti %Hd v ;arry B )o %td, /'=>=0 77 )omp )as (9=,
('7L .'=>=1 ( )omp %I (>- ;B& and Gew <eral a "oadways /;0 %td v
<. <. Gandal, /'=>=0 77 )omp )as E'5L .'=>>1 ( )omp %I (5 <er.
Fxercisable subD ect to such condi tions, restrict ions and li mi tations as
may be specifi ed in those ru'es.
E-

In the case of volunt ary winding up the exercise of the above
powers shall be subD ect to the control of the court and for this purpose
any contributory or creditor may appl y to the court.
E5
This section wil l not authorise any compromise to be imposed
upon any unwil ling creditors which is Auite possible under ,. (='. E7
109
The sanct ion of a special resolution or that of the court is necessary for
the sancti t y of the transact ion. K The power of the liAuidator is very
wide. The court wil l act wit great caut ion before putting upon a
transaction the stamp of its prova'.
E(

N!)iE(a)i!n !# % i8uida)i!n /S. 5*;0
When a company is in winding up voluntari l y or under court
supervision, all i ts invoices, orders for goods or business let ters shall
cont ain a statement that the company is being wound up, fail ing which
the defaul ting officer, liAuidator, receiver or manager is l iable to a fine
up to "s 5999.
B!!9" and pape" )! 2e e6iden(e /". 5*=0
Where a company is being wound up, all the boo!s and papers of the
company shall, as between the contributories of the company, be pri ma
facie evidence of the truth of all mat ters purporting to be stated in
them. A prima faci e evidence creates onl y a presumption of truth and
thereby shifts the burden to the contributory to disprove the inference
of truth.
In"pe()i!n !# 2!!9" and pape" /S. 5*?0
,ubD ect to the restri ctions cont ained in the ,upreme )ourt "ules, after
an order of winding up by or under the supervision of the court,
creditors and contributori es have the right to inspect the boo!s and
papers of the company. The court may allow inspect ion if the right is
not going to be abusedJ and even to a person who is facing mi sfeasance
proceedings.J A provision for secrecy in the Articles may not prevent
inspectionJ except where the winding up is for purposes of
reconstruction.
((
110
E- ,. 5-7 /'@A0.
E5 ,. 5-7/20 and /(0.
E7 Albert %ife Assurance )o %td, "e. /'>E'0 7 )h App (>'.
EE Cnion #an! v :obind ,ingh, I%" - %ah 2>(, but compare with
)ycl ema!ers )oop ,uppl y )o *,i ms, .'=9(1 ' <# -EE.
E> #an! of &industan, )hina B Iapan v Fastern 4inancial Assn %td,
/'>7=0 ( +oore$s IA '5, ;).
E= :reat Gorthern ,alt B )hemi cal Wor!s, "e, /'>>E0 (7 )&D E922
<esar ,ingh v Ioint % of "adheysham #eopar )o, AI" '=(E %ah
7'.
>9 ;eople #an! of Gorthern India, "e, AI" '=(E %ah >2'.
>' ,ubramaiah ,et t y v %, /'=>50 5E )omp )as 727L .'=>51 2 )omp %I
295 <Hmt.
>2 %ondon B ?orshire #an! v )ooper, /'>>50 '5 S#D >(.
>( :lamorganshire #!g )o, "e2 +organ 6s case, /'>>-0 2> )h D 729.
En#!(e$en) !# du)& !# %i8uida)! )! $a9e e)un"C e)(. /S. 55D0
The liAuidator has to deliver or file some documents in the performance
of his funct ions and also to give notices, etc. This section provides the
procedure conseAuent upon a defaul t. It says that if the liAuidator does
not ma!e good the defaul t within '- days after the service on hi m of a
noti ce, the court may ma!e an order direct ing the liAuidator to ma!e
good the defaul t within such ti me as may be specified in the order. An
appl ication for this purpose may be made by any creditor or
contributory or the "egistrar. The order of the court may provide that
111
al l costs of and incident al to the appl ication shal l be borne by the
liAuidator.
Mee)ing" )! a"(e)ain 4i"-e" !# (edi)!" ! (!n)i2u)!ie" /S. 55;0
3 his section empowers the court in all matters relating to winding up
to have regard to the wishes of creditors or contributories and for this
purpose to eall their meet ings and appoint a person as the chairman of a
meeting. The court may give due weight to the value of a creditor $s
debt, and the number of votes that may be cast by each contributory.
C!u)" !# pe"!n" 2e#!e 4-!$ a##ida6i)" $a& 2e "4!n /S. 55=0
Affidavi ts reAuired by the Act may be sworn in India before any court,
D udge or person lawfull y authoriHed to ta!e and receive affidavi ts and,
in any other country, ei ther before any court, Dudge or person lawfull y
authoriHed to ta!e or receive affidavi ts in that country or before any
Indian )onsul or *ice@)onsul. All courts, D udges, D ust ices,
commissioners and person acting D udici all y in India are reAuired to ta!e
D udicial notice of the seal, stamp or signature, of the functionari es
described above in reference to affidavits or other documents to be
used for the purposes of the )ompani es Act.
>-
C!gniLan(e !# !##en(e unde )-e A() /S. D@10
Any violations of the Act which constitut e an offence are cogniHabl e
onl y on a complaint by the "egistrar, :overnment or a shareholder of
the company. The onl y exception specifi ed in the section is a
prosecut ion of del inAuent officers and members of a company under
,ect ion 5-5. In such cases a complaint can be filed by any person who
is interest ed in the winding up of the company. The word JshareholderK
would include a person who has purchased the shares of a company and
has applied to the company for registering him as a shareholder. A
112
proviso to the sect ion added by the Amendment Act of 2999 says that
the court may ta!e cogniHance of offence relat ing to issue and transfer
of securiti es and non@payment of dividend on a compl aint in writing by
a person authorised by ,F#I. * The bar of the section does not appl y to
a prosecution by the company of any of its officers and also to any
action t a!en by the liAuidator of a company in respect of any offence
al leged to have been commi tt ed in respect of any of the matt ers
included in ;art *& /,s. -25@5790 or in any other provision of this Act
rel ating to the winding up of companies. 4or the purposes of this
provision, a liAuidator of a company shal l not be deemed to be an
officer of the company. Where a complaint is made by the "egistrar or
by a representat ive of the )entral :overnment, then, notwithstanding
anything cont ained in the )riminal ;rocedure )ode, the personal
at tendance of the complainant in the court shall not be necessary,
unless the court for reasons to be recorded in writ ing reAuires personal
at tendance.
A complaint was allowed to be fil ed at the place of the
transaction. The court was of the view that trade in securit ies was a
country@wide phenomenon. The poli cy behind the penalt y provisions
would be defeated if a compl aint against a company could lie onl y at
the place of its regist ered office.
5
C!$p!"i)i!n !# (e)ain !##en(e" /S. D@1-A0
This new sect ion has been inserted by the amendment of '=>>. This
provision became necessary because the concept of an Jofficer who is
in 'E of the )ompanies "egulations '=57 to bring the defect to the
noti ce of the company giving it '5 days$ ti me to rectify the defect. If
the company still fai ls to do so, the "egistrar will ta!e the defect ive
113
document on record without preD udice to his powers to ta!e action.
;ress Gote Go. '2P=2 of Dec '2, '==2.
- 4ederal #an! %td v ,arala Devi "athi, /'==E0 >> )omp )as (2( "aD .
A compl ainant, who did not aver in his complaint that he was a
shareholder and also concealed that an order of )%# in his favour was
stayed by the &igh )ourt, had to face dismissal, *. +. +odi v ,tat e of
:uD arat, /'==E0 >> )omp )as >E'L /'==E0 ( )omp %I 2-- :uD 2 ,. ).
#hat ia v ;. ). Wadhawa, /'==>0
(9 )orpt %A '(5 ;B&.
5 "anbaxy %aboratories %td v Indra <ala, /'==E0 >> )omp )as (-> "aD .
defaultK has been so defined in ,ection 5 /also by the amendment of
'=>>0 that a director who is there onl y ceremoni all y and who may have
no control or grip over the affairs of or even cont act with, the company,
is also li!el y to be covered. ,uch a person may have to pay the price
for being merel y a director though he may not be responsible for the
default in Aues Gow the facil it y of compounding an offence has been
given so that anyone et rid of the default by payi ng composi tion money
and save himself from the torture of a punishment by way of fine. 7 The
provision does not appl y to offences which are punishable with
i mprisonment onl y or with imprisonment and fine. Where the amount of
fine does not exceed "s 59, 999 it can be compounded by the "egional
Director and, in other cases, by the )ompany %aw #oard. Suite
obviousl y, the compromised amount of fine cannot exceed the amount
which would have been otherwise leviable. Where the defaul t has been
made good by paying additional fee under ,ect ion 7'', the amount of
such fee can go towards reduction of the fine money which the
compromise may bring about. Where an offence has been repeat ed
within a period of three years from the date of the last similar offence,
it cannot be compromised.
114
Where an offence was compounded and three years thereaft er has
been repeated, the repeated offence should be ta!en to be the first
offence.
"egional directors have to wor! under the supervision and
control of the )ompany %aw #oard. An application for composition has
to be presented to the "egistrar who will forward it to the "egional
Director or the )ompany %aw #oard, as the case may be. The fact that
an offence has been compounded must be brought to the noti ce of the
"egistrar within seven days whether the compounding was before or
aft er the institution of any prosecution. After the compounding of an
offence, prosecut ion proceedings for the same cannot be launched.
Where the compounding was done aft er a prosecut ion had already been
ta!en up, the composi tion should be brought to the notice of the
"egistrar who will inform the court in which the prosecut ion is pending
and thereaft er the court shall discharge the company or the officer in
Auestion.
Whi le dealing with an appl icat ion for compounding an offence
which arises out of defaul t in filing documents et c. , with the "egistrar,
the defaul ting company or officer may be ordered to file the documents
on payment of addit ional fee leviabl e under ,ect ion 7'' within a
specified ti me.
E
An employee of the company or officer so ordered will
have to suffer a penal t y for his default in compl yi ng with the order
which may extend to an imprisonment for six months or fine up to fift y
thousand rupees.
An offence which is punishable with fine or imprisonment or
both can be compounded onl y with the permission of the court in
accordance with the
115
7 4ailure to deliver debenture certifi cates within the ti me deli mit ed by
,. ''( or even within the ext ended ti me has been held to be a
compoundable offence, *i!rant Tyres %td, "e, /'==50 'E )orpt %A
'99 )%# +ad L /'==50 >( )omp )as 2'9, it was compounded on
payment of "s 5999.
E An appl ication for compounding was reD ected where the company had
not made good the defaul t yet, :eneral ;roduce )9 %td, "e, /'==-0
>' )omp )as 5E9 )%#.
provisions of the )ompanies Act. An offence which is punishable with
i mprisonment onl y or with imprisonment and fine cannot be
compoundedQ
7ui"di()i!n )! )& !##en(e" /S. D@@0
Where is a categorical declaration in the sect ion that no court inferior
to that of a ;residency +agistrate or a +agistrate of the first class
shall try an offence under this Act.
An offence punishable with fine onl y which is commi tt ed by a
person within a ;residency Town may be tri ed summaril y and punished
by the ;residency +agistrate.
=

ffences under the Act are non@cogni Hable.
'9
;rosecutors are
appointed by the )entral :overnment.
''
In the case of an acAuit tal by any court other than a &igh )ourt,
the )entral :overnment may authorise the filing of an appeal against
such acAuittal and it will be a val id appeal notwi thstanding anyt hing
cont ained in the )riminal ;rocedure )ode.
116
,ect ion 725 provides about payment of compensation in cases of
frivolous vexatious prosecut ion.
App% i(a)i!n !# % ine" /S. D@D0
A court i mposing any fine under this Act may direct that the whole or
any part thereof shall be applied in or towards payments of the costs of
the proceedings or rewarding of the person on whose informat ion or at
whose yt ance the fine is recovered.
P!du()i!n and In"pe()i!n !# 2!!9" 4-ee !##en(e (!$$i))ed /S.
D@;0
Where an appl icat ion is made to a &igh )ourt Iudge in chambers by the
;ublic ;rosecutor of the ,tate or by the )entral :overnment or by a
company prosecutor appointed under ,ection 72-@A, there is a
reasonable cause to believe that any person while an officer of the
company commi tt ed an offence in connection with the management of
the company$s affairs and that evidence of the company, an order may
be passed authoriHing any person to inspect the boo!s and papers for
the purpose of investigating and obtaining evidence of the commissions
of the offence and reAuiring the manager of the company or officer of
the company named in the order to produce the boo!s and papers to a
person,
> ,ee )ircular Go 5P=( of April 2>, '==( issued by D)A as to mat ters
connected with this power. A defaul t of technical nature
/misdescription of a head of accountL deposits being described as
secured loans0 was allowed to be compounded at a nominal fine of
"s. '99 for the company and "s. '9 for secretary and each director.
The compounding power of the )%# was not affected by the pending
appeal in the &igh )ourt for Auashing of proceedings, Csha India
117
%td, "e, /'==70 >5 )omp )as 5>' )%#. 4or procedural guidance see
"el iance Industries %td, "e, /'==E0 >= )omp )as 7E and -75 )%#.
;ermission of the court under the )riminal ;rocedure )ode is not
reAuired for compounding under the sect ion, &oXland 4inance %td,
"e, /'==E0 =9 )omp )as (>L /'==E0 ( )omp %I (-' )%#.
= ,. 72(.
'9 ,. 72-.
'' ,. 72-@A.
'2 ,. 72-@#.
place and ti me ment ioned in the order. The power ext ends to ban!ing
companies also subD ect to due modificat ions that its exercise will be
confined onl y to the affairs of the company and the secor3t ype of order
reAuiring any officer to produce boo!s etc, wil l not be passed. The
orders under the section are not appeal able.
Pena%)& #! #a%"e ")a)e$en)" /S. D@=0
+ay statements have to be prepared under the Act relating to the affairs
of the company. The sect ion reAuires that statements which are reAuired
by the )ompani es Act to be prepared should not carry any particular
which is false in a mat erial respect. &ence, if any person ma!es a
stat ement which he !nows to be false in any material particular or
which omi ts any parti cular !nowing it to be materi al and, if no
punishment is otherwise provided in the Act in that respect, he is
punishabl e with i mprisonment extending up to two years and is also
li able to a fine.
Pena%)& #! #a%"e e6iden(e /". D@?0
118
Intentionall y giving false evidence in any examination upon oath or
solemn affirmat ion authorised under the Act or in any affidavi t,
deposit ion or solemn affirmation, in or about the winding up of any
company under the Act or otherwise in or about any mat ter arising
under the Act, is punishable with i mprisonment extending up to seven
years and shal l also be punishable with a fine.
W-ee n! "pe(iE( pena%)& p!6ided /S. D@?-A0
Any defaul t in compl yi ng with the regulatory reAuirements of the Act is
generall y punishable under a penal t y provision in the sect ion itself. #ut
even so there are many sect ions which prescribe one thing or the other
but which do not carry any penal t y provision. This section is intended
to deal with such contradi c@tions. This section also applies to defaults
in compl ying with the condit ions, restrict ions etc. , subD ect to which an
approval was granted. The penal t y provided is fine ext ending up to "s
5999 and, in the case of a continuing default, "s 599 for every day of
default. The <amata!a &igh )ourt held that on directors$ fai lure to call
a meeting on a reAuisi tion received by them, ,ection '7=/b0 gives an
al ternative remedy to reAuisi tionists to cal l a meeting by themselves
and therefore directors$ failure would not attract ,ection 72=@A.
F!$ and p!(edue !# (e)ain app%i(a)i!n" /S. D*B-B0
The section deals with applications to the )entral :overnment under
,ect ions 25=, 27>, ('9, ('' and empowers it prescribe forms.
119
P!4e )! a%)e S(-edu%e" /S. D*10
The sect ion authorises the :ovemment to al ter schedules. The
:ovemment cannot widen or constrict the scope of the Act or its
poli cy.
'5

P!4e !# Cen)a% G!6e$nen) )! $a9e Ru%e" /S. D*@0
The )entral :ovemment has the power to ma!e rules in respect
of al l the matt ers which have to be prescribed by it and generall y to
carry out the purposes of the Act. The rules so promulgated may
provide that contraventions will be punishable with a 3ne extending up
to "s 5999 and in case of a continuing default, with a 3ne extending up
to "s 599 for every day of defaul t. "ules framed in the exercise of this
power have to be lai efore each &ouse of ;arliament while it is in
session for a tot al period of (9 At the end of the session during which
the (9@day period is completed, the rul ecome effective either as
originall y framed or subD ect to any modi3cations or annulment, made
by the ;arliament. Anyt hing already done on the basis of the original
rules will not be preD udi ced by any such modi3cat ion or annul ment. J
The )ompanies /Amendment0 Act, '=== /w. e. f. ('@'9@'==>0 has added
sub@section /-0 of the sect ion prescribing the same reAuirement of
;arli amentary approval for "egul ations made by ,F#I.
P!4e !# Supe$e C!u) )! $a9e Ru%e" /S. D*+0
The ,upreme )ourt is reAuired to ma!e mles, aft er consulting the &igh
)ourts, providing for all matt ers relating to the winding up of
companies which are to be prescribed under the Act and may also ma!e
rules on matt ers as may be prescribed, but not on those matt ers which
are reserved to the )entral :ovemment by ,ection 59(/50 .)omposition
of )ommi tt ee of Inspect ion1, ,ect ion 559/(0 .Disposal of #oo!s and
120
;apers1, ,ect ion 552 .;ayment by fficial %iAuidator into ;ublic
Account of India1 and ,ection 555/(0 .Deposit of Cnpaid Dividend1
The ,upreme i t is also empowered to ma!e rules, consistent with the
)ode of )ivil ;rocedure, '=9> on the following mat tersL /'0 as to mode
of proceedings to be had for winding up a company in &igh )ourts and
in )ourts subordinate to &igh )ourts2 /20 for the volunt ary winding up
of compani es, whether by members or by creditors2 /(0 for the holding
of meetings of creditors and members in connect ion with proceedings
under ,ection (=' /compromise and arrangements02 /-0 for giving
effect to the provisions of the Act for reduction of capital2 /50
generall y for all appl icat ions to be made to the court under the
provisions of this Act.
,uch rules can reAuire that the ffici al %iAuidator or any other
liAuidator as an officer of the court shall exercise the following powers
subD ect to the control of the courtL /a0 holding and conducting of
meetings to ascertain the wishes of creditors and contributors2 /b0 the
sett ling of the list of contributors and rectifi cat ion of the regist er of
members where reAuired and col lecting and I5 I <lndustries %td v
"), /'==E0 2E )orpt %A '=5.
'7 ,ee The )ompani es /)entral :overnment0 :eneral "ul es and 4orms,
'=57. ,ee further the )entral :overnment $s power to alt er ,chedules as
conferred by ,. 7-' and to lay down 4orms and "ules as conferred by
,. 7-9@#. appl ying the assets2 /c0 the payment, delivery, conveyance,
surrender, or transfer of money, propert y, boo!s or papers to the
liAuidator2 /d0 the ma!ing of calls2 and /e0 the fixing of ti me within
which debts and clai ms shall be proved.
121
A provison to the sect ion says that the liAuidator shall not,
without the special leave of the court, rectify the register of members
or ma!e any call.
Annua% ep!) !n 4!9ing !# A() /S. D+=0
The )entral :overnment is under a dut y to cause a general annual
report on the wor!ing and admi nistration of the )ompanies Act to be
prepared and laid before both &ouses of ;arli ament within one year of
the close of the year to whi ch t eport relates.
C!nd!ning !# de%a&" in (e)ain (a"e" /S. D+;-B0
A number of provisions of the Act prescribe a ti me@l imit for fil ing of
appl ications. This section gives power to the )entral :ovemment to
condone the del ay in filing an application. "easons for condoning
del ays must be recorded in writ ing. A similar power of condonation
exists in reference to delays in fil ing documents with the "egistrar.
&ere again reasons for condonat ion have to be recorded in writ ing.
De%ega)i!n 2& Cen)a% G!6en$en) !# i)" p!4e" /S. D+;0
The )entral :overnment is empowered by this sect ion to delegat e any
of its functions or powers to such authorit y or officer as may be
specified in the notification. The delegation can be subD ect to such
condi tions, restri ctions and li mi tat ions as may be specified in the
notification L The section clearl y says that the prior to appoint a person
as a publ ic trust e under ,ect ion '5(@A and the power to ma!e rules
cannot be del egat ed.
The powers and functions which cannot e delegat ed under this
sect ion are those conferred by or mentioned in the following sectionsL
.,ect ion '9 .Iurisdiction of )ourts12 ,ection >' .4urther Issue of
122
)api tal12 ,ection >=/-0 .Termi nat ion of disproportionall y excessive
voting rights12 ,ection 2'( .4inancial year of lding company and
subsidiary12 ,ect ions 2(5 and 2(E .Investigation of affairglg ,ections
2-'@2-5 .;owers after invest igat ion of affairs12 ,ection 2-E
.Investigation of ownership of company12 ,ection (E2 .inter@corporat e
invest ments12 ,ect ion (=7 .Amalgamat ion in national interest12 ,ect ion
(==/-0 and /50 ."ight to appl y under ,ection (=E or (=>12 ,ection -9'
."ight of )entral :overnment to appl y under ,ection (=E or (=>12
,ect ion -9> .;ower of )entral :overnment to prevent oppression or
mismanagement12 ,ect ion -'9 .Appoint ment of Advisory )ommi ttee12
,ect ion --> .Appoint ment of official %iAuidator12 ,ection 79=
."egistration offices12 ,ect ion 729 .;ower to modify Act in relat ion to
:ovemment companies12 ,ection 7(> .Annual report by )entral
:overnment12 ,ect ion 7-' .;ower to al ter ,chedul es12 and ,ect ion 7-2
.;ower of )entral :ovemment to ma!e rules1.
En#!(e$en) !# !de" !# !ne (!u) 2& !)-e (!u)" /S. D+50
An order of one court can be enforced by another court. A copy of the
order should be produced to the proper officer of the court reAuired to
enforce the order. A certified copy of the order shall be a sufficient
evidence of the order. It then becomes the dut y of the court to enforce
the order. A similar procedure has to be followed when the orders of
the )ompany %aw #oard have to be enforced through a court. The
procedure to be followed in the mat ter of execut ion of an order made
by the company court is different from that laid down in the )ode of
)ivi l ;rocedure. It is sufficient to produce to the executing court a
certifi ed copy '= er sought to be executed.
123
P!)e()i!n !# a()" d!ne in g!!d #ai)- /S. D+5-A0
Acts done by the :overnment or any offi cer of the :overnment or any
other person in pursuance of the Act and in goodfai th cannot be the
subD ect@mat ter of any prosecution or other legal proceeding. The same
protection is avail able in respect of the publication by or under the
authorit y of the :overnment or such officer of any report, paper or
proceedings.
P!)e()i!n !# e$p%!&ee" /S. D+5-B0
The section provides for protection of employees during investigation
by an inspector and pendency of proceedings before courts against any
person concemed in the conduct and management of the affairs of a
company.
N!n-di"%!"ue !# in#!$a)i!n in (e)ain (a"e" /S. D+5-AA0
The "egistrar, any officer of the :overnment or any other person is not
compell able to disclose to any court, tribunal or other authorit y as to
whence he got any informat ion which led the )entral :overnment to
direct a special audit ynvest igat ion and which is material in that
connection.
En#!(e$en) !# !de" !# (!u) /S. D+*0
rders of court under the )ompanies Act are enforceable in the same
manner as a decree made by a court in a suit pending before it.
29

En#!(e$en) !# !de" !# C!$pan& La4 B!ad /S. D+*-A0
The )ompany %aw #oard can enforce its orders in the same manner as
if it were a decree made by a court in a suit pending before i t. If the
124
)%# is unable to do so, i t may send the order for execution to the court
which has D urisdict ion
l> A cert ified copy of the order is sent to the court which has to enforce
the order and it is not necessary that the matt er should be
transferred to the executing court in the manner of a decree under
);). ,indhu )hits and Trading /;0 %td v <hayirunnissa, /'==(0 E7
)omp )as >E> <ant.
l= Anand 4inance /;0 %td v Amri t Dasarat <a!ad, /'==E0 =9 )omp )as
(59 DelL /'==70 7' Delhi %T (95.
29 An order against the director of a company in winding up cal ling
upon him to pay the debt of the company which he guarant eed was
enforced under this section. Deutsche #an! v ,. ;. <ala, /'==20 E-
)omp )as 5EE #om. An order under ,. (=E was held to be
enforceable under this section as a decree, &ungerford Invest ment
Trust %td v Turner, +orrison )9 %td, /'==-0 ' )al %I 599.
over the part y against whom the order is to be enforced. A consent
order would be enforceable in the same manner. J An amicable
sett lement order has been held to be enforceable.
P!4e e8uie "e(ui)& #! (!")" /S. D+@0
In a suit or proceeding instituted by a li mi ted liabi lit y company, if the
court has a reason to believe that the company will not be able to pay
the costs of the defendant, should he win, the court may reAuire
sufficient securi t y to be given for those costs and may stay all
proceedings unti l the securit y is given.
A person who is see!ing an order for costs can si multaneousl y
as! t e court for stri!ing out the proceedings.J The securi t y for costs
125
can be ordered onl y by the court and not by any other Authorit y li!e
)ontrol ler of ;atents.
The court may hesi tate in ordering a securit y for costs where the
li tigation started by the company involves a point of general publ ic
i mportance.
Pena%)& #! i$p!pe u"e !# MLi$i)edN ! MPi6a)e Li$i)edN /S. D+10
A fine extending up to "s 599 for every day of default is leviable when
the words Jlimit edK or J;rivate %i mit edK are used without proper
authorisation for anybody$s trade or business.
126