Professional Documents
Culture Documents
ATUL NARAYAN
Roll No. 845
SEMESTER V
NUALS
Introduction
DISCUSSION
Now as we traverse into the topic it needs to be duly noted that there exists
a clear and straight distinction between winding up of a company and the
dissolution of a company. It is only when a company is dissolved that it can
be said to cease to exist, i.e., the company as such does not cease to exist
when it is being wound up. The administrative machinery of the company
gets changed as the administration is transferred in the hands of the
liquidator. Even after commencement of the winding-up, the property and
assets of the company belong to the company until dissolution takes place.
On dissolution the company ceases to exist as a separate entity and
becomes incapable of keeping property, suing or being sued. Thus in
between the winding up and dissolution, the legal status of the company
continues and it can be sued in the court of law.
Distinction in brief: The entire procedure for bringing about a lawful end to
the life of a company is divided into two stages winding up and
dissolution. Winding up is the first stage in the process whereby assets are
realised, liabilities are paid off and the surplus, if any, distributed among its
members. Dissolution is the final stage whereby the existence of the
company is withdrawn by the law. Winding up or liquidation order can be
made by a Court of Law, even when the Company is in a solvent state. Not
all the companies which are being subjected to liquidation proceedings are in
financial trouble. For instance, a solvent company may be wound up, if there
Modes of winding up
Section 270 of the Companies Act, 2013 provides for two modes of winding
up a registered company:
1. By the Court i.e. compulsory winding up;
2. Voluntary winding up, which may be either:
(a) Members voluntary winding up; or
(b) Creditors voluntary winding up; (Distinction between the two has been
omitted in the Companies Act, 2013).
(Voluntary winding up of a company subject to the supervision of the court, a
valid mode of winding up as per Companies Act 1956,was again, omitted in
the new act.)
WINDING UP BY THE COURT
Winding up by the Court or compulsory winding up is initiated by an
application by way of petition to the appropriate Court for a winding up order.
A winding up petition has to be resorted to only when other means of healing
a. Suspension of the business for one year from the date of incorporation or
suspension of business for a whole year; or
b. Reduction in number of members of a company below two (in case of a
private company) and seven (in case of a public company).
On the flipside, a new ground has been added for compulsory winding up
under the New Act. On the application by the Registrar or any other person
authorised by the Central Government by way of notification under the New
Act, if the Tribunal is of the opinion that the affairs of the company have been
carried out in a fraudulent manner or unlawful purpose or any person
concerned or involved in the management or affairs of the company has
acted in a fraudulent manner or misfeasance or misconduct, that it is better
to wind up the company.
No statutory definition for the term insolvency can be found under the
Companies Act, 2013 or in any other Indian insolvency legislations. However,
Section 271(1)(a) of the Companies Act provides that a Company may be
wound up by the Tribunal if it is "unable to pay its debts".
Section 271 of the Companies Act, 2013 which deals with the circumstances
in which a Company may be wound up by the Tribunal uses the words
"unable to pay its debts" to describe the situation of commercial insolvency
of a company. In this regard, the test to determine the commercial
insolvency was laid down by the English Courts in the case of In Re European
Life Assurance Society Ltd. In this case, the Court held that a company is
said to be commercially insolvent, if the existing and probable assets of the
Company would be insufficient to meet its existing liabilities. 2This test has
been accepted and followed by the Indian Courts.
Winding Up Process
Chapter XX, Part-I of the New Act deals with the compulsory winding up
2 The Legal Regime of Liquidation in India, S Mohamed Azaad, Legal Bloc Journal,
ISSN: 2395-0277
accrues.
Liquidators and their appointment
When the company was solvent and able to pay its liabilities in full, it did not
need to consult the creditors or call their meeting. Its directors or where they
are more than two, the majority of its directors could, at a meeting of the
Board, make a declaration of solvency verified by an affidavit. But in case of
non-filing of solvency, the creditors could approach
Meeting of Creditors (Section 306)
The Act of 2013 has abolished the above mentioned distinction between
members voluntary winding up and the creditors voluntary meeting up. The
requirement now is that after members meeting for voluntary winding up a
meeting of creditors must also be called. Such meetings of its creditors shall
either be on same day or on the next day. The company shall cause a notice
of the meeting to be sent by registered post to the creditors with the notice
of the meeting of the company.
The Board of Directors of the company shall
Where two-thirds in value of creditors of the company are of the opinion that:
(a) it is in the interest of all parties that the company be wound up
voluntarily, the company shall be wound up voluntarily; or
(b) the company may not be able to pay for its debts in full from the
proceeds of assets sold in voluntary winding up and pass a resolution that it
shall be in the interest of all parties if the company is wound up by the
Tribunal, the company shall within fourteen days thereafter file an application
before the Tribunal.
The notice of any resolution passed at the meeting of creditors shall be given
by the company to the Registrar within 10 days of the passing thereof. Within
14 days of passing of resolution for winding up of company, the company
must give a notice of the resolution in the Official Gazette and also advertise
in a newspaper with circulation in the district where the registered office is
present.
Section 291 says that the company liquidator with the sanction of the
Tribunal may appoint one or more charted accountants or company
secretaries or cost accountants or legal practitioners as may be necessary to
assist him in performance of his duties and functions.
As per section 310 of the Act the company in its general meeting, where a
resolution of voluntary winding up is passed, shall appoint a Company
Liquidator from the panel prepared by the Central Government for the
purpose of winding up its affairs and distributing the assets of the company
and recommend the fee to be paid to the Company Liquidator. Section 311
gives the power to remove and fill vacancy of company liquidators.
Where the creditors have passed a resolution for winding up the company
under sub-section (3) of section 306, the appointment of the Company
Liquidator shall be effective only after it is approved by the majority of
creditors in value of the company. Where creditors do not approve the
appointment of a Company Liquidator by members, creditors shall appoint
another Company Liquidator.
Cost of Voluntary Winding up (Section 323):
All costs, charges and expenses properly incurred in the winding up,
including the fee of the Company Liquidator, shall, subject to the rights of
secured creditors, if any, be payable out of the assets of the company in
priority to all other claims.
WINDING UP OF UNREGISTERED COMPANY:
The term unregistered company includes any partnership, association or
company consisting of more than seven members at the time of the petition,
but does not include the follows:
a A railway company incorporated by an Act of the Parliament or other
Indian law or Act of the British Parliament.
b A company registered under the Companies Act.
BIBLIOGRAPHY
Books Referred:
1) Companies Act, 2013 and Rules & Forms: With Concise Commentary
and Referencer, Second Edition, Corporate Professionals, 2015.
2) Business Law, Avtar Singh, 9th Edition, Eastern Book Company, 2011.
Websites Referred:
1) http://www.legalservicesindia.com/article/article/winding-up-of-acompany-1319-1.html
2) http://www.diplomatist.com/dipom05y2014/article021.html
3) https://legalbloc.com/wp-content/uploads/2015/05/The-Legal-Regimeof-Liquidation-and-Corporate-Insolvency-Laws-in-India-An-InquisitiveAnalysis-under-The-Companies-Act-2013.pdf