"Winding - up" of a Company
Key Points:
1. Meaning of Winding up of a Company.
2. Definition of Winding up of a Company.
3. Characteristics of Winding up.
4. Methods of Winding – up.
5. Petition for Winding up.
6. Commencement of Winding up by Tribunal.
7. Procedure of Compulsory Winding up /Winding up by
the Tribunal.
Case Law - The New Swadeshi Mills Ahmedabad Limited
vs Dye Chemicals Corporation (1985)
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| Link : https://smckk14.blogspot.com/2023/07/minutes-under-section-118-to-122.html |
"Winding - up of a Company"
1. Meaning of Winding - up of a Company:
Winding up of a company is meant by a process
through which the company is liquidated /ends by following the legal process. A
company is an artificial person. It is created by the law and liquidates by law.
The main objective of the winding up is to
distribute the surplus amount among its shareholders after the making payments
of loans and liabilities from the amount received by sale of assets.
2. Definition of Winding - up of a Company:
According to M. C. Kuchhal - "The winding up or
liquidation of a company is process to bring about an end to the life of a
company".
3. Characteristics of Winding - up:
(i) It is a Process.
(ii) It is different from Dissolution.
(iii) Winding up is not for Insolvency of Company. A
company maybe wound up, in case of sound financial position also.
(iv) This process start from sale of assets and ends
with payment to creditors, loans, Government dues and at last payment to
shareholders.
(v) Creditors are paid in sequential order.
(vi) The amount remaining after all payments, is
distributed among in the ratio of their rights.
4. Methods of Winding - up:
According to Under Section 270, the winding up of a
company may be done in any two of the following Methods /Ways -
(I) By Tribunal /Compulsory Winding - up:
When the winding up of a company is done by the
Tribunal, it is known as “Winding up by Tribunal or Compulsory Winding – up” .
In following cases, the winding up of a company is
done by Tribunal -
(1) By Special Resolution -
When company has passed a special resolution that
the winding up of a company shall be done by Tribunal, then after passing such
resolution, the winding up maybe performed due to any reason.
This is to be noted that the Tribunal considers the
application of the company and passes the order of winding up only if the
winding up is in the interest of the public or the company.
(2) Not filing Annual Returns /Statements -
If the company fails to submit the financial
statement or annual returns of last five consecutive years, the Tribunal may be
winding up the company.
(3) Business acts against Public Policy -
If the company has acted against the interest of the
sovereignty and integrity of India, the security of the state, friendly
relations with foreign States, public order, decency and morality.
(4) If on an application made by Registrar or any
other person authorised by the central government by notification under this Act,
the Tribunal is of the opinion that the affairs of the company have been
conducted in a fraudulent manner of the company was formed for fraudulent and
unlawful purpose or the persons concerned in the formation of management of its
affairs have been guilty of fraud, misfeasance and misconduct in connection
therewith and that is proper that of company be wound up.
(5) Under the Chapter XIX -
If the Tribunal has ordered the winding up of the
company under the chapter XIX.
(6) Inability to Pay Debts -
The Tribunal may order for winding up, if the
company is unable to pay its debts.
Under following conditions, the company is deemed to
unable to pay its debts -
(i). When the creditor of ₹1,00,000 or more, demands
for return of loan and the company deposit pay within 21 days from the date of
demand or could not convince the creditor.
(ii) When the company becomes unable to pay the Decree
either fully or partially issued by Tribunal in favour of company.
(iii) Upon seeing all
the circumstances, the Tribunal gets satisfied that the company is unable to
pay its debts, the Tribunal passes the order of winding up.
Case Law - The New
Swadeshi Mills Ahmedabad Limited vs Dye Chemicals Corporation (1985).
(7) If winding up is just and equitable in the opinion of Tribunal -
Generally, the Tribunal considers the following
conditions as just and equitable -
(i). When the attainment of main objective, for
which the company was formed, becomes impossible or impractical.
(ii) When the company has lost its substratum.
(iii) If the company is running in loss for several
years and there is no hope for profit in future.
(iv) If the company has been formed for illegal or
fraudulent purposes.
(v) When it becomes impossible to run the company
due to lock down, Strike etc.
(vi) If minority shareholders are facing oppression.
(vii) If company is a shell company.
(viii) If the company has lost all its capital.
(ix) If AOA provides the provisions happening upon
which the company may be compulsory wound up, and anyone or more of the such
provisions have already happened.
(x) If overall inspection of the company becomes
necessary.
(xi) On fear of incidents against Public Interest.
(xii) If there is mismanagement in the company and
the members have lost their confidence on each other.
5. Petition for Winding - up:
According to Under Section 272, the following persons
may be file petition in the court for winding up by Tribunal or for compulsory
winding up -
(i) By Company Itself -
A company may file petition for compulsory winding
up by passing special resolution in general meeting, in this regard.
(ii) By Creditor (s) of the Company -
Creditors is a comprehensive word which includes
present, future or contingent creditors also. A secured creditor, debenture holders
and Trustee of debenture holders are also included in this category.
(iii) By Contributory (ies) -
Contributories of the company may also file petition
for compulsory winding up of the company. But they can do so only when - (i)
They are the owner of fully paid up shares, or (ii) Company has zero assets, or
(iii) There is no assets remaining to be distributed among shareholders, after
payment of liabilities.
A contributory may file petition for compulsory
winding up in following circumstances only -
(a) If company has ownership of shares less than
required as minimum, or
(b) If he is the original allottee of shares or the
shares have been required at least up to before 6 months before the 18 months
of starting the process of winding up, or
(c) If he has received the shares on the basis of
succession after the death of the original shareholder.
(iv) By ROC -
ROC may file petition in the situation when the
company is not able to pay its debts and as long as it is not clear to him on
the basis of report of an investigator regarding the investigation of financial
position of the company.
The ROC must have to take permission of Central
government to file petition and the central government shall not give
permission until the company was not allowed to present its stake.
(v) By Central Government -
If the Central Government on the basis of report of
investigators believes that -
(a) Business of the company is being carried out to
form the creditors or members.
(b) Company is being managed for illegal or
fraudulent matters, the central government may direct any person (include ROC)
to file the petition.
(vi) By Liquidator -
If company is going under voluntary winding up, the
liquidator may file petition. The Tribunal will order for compulsory
liquidation when it becomes satisfied that keeping the interest in mind, the
interest of creditors or members or both the voluntary liquidation is not
possible.
6. Commencement of Winding - up by Tribunal:
(i) From the date of passing the resolution by the
company -
If the company passes the resolution regarding
voluntary liquidation in General Meeting before filing the petition in the
Tribunal, the commencement of liquidation is deemed to have been started from
the date of passing the resolution.
As long as, the Tribunal, on proof of fraud or
mistake, thinks fit to direct otherwise, all proceedings taken in the voluntary
winding up shall be deemed to have been validly taken.
(ii) From the date of representing the application
form -
In all other cases, the winding up of a company by
the Tribunal shall be deemed to commence at the time of present presentations
of the petition for the winding up.
7. Procedure of Compulsory Winding up /Winding up by the Tribunal:
(i) Application -
By the company itself, creditors, contributories,
members /shareholders, Registrar or liquidator to Tribunal.
(ii) Considering of Application by Tribunal -
It is a solely on Tribunal whether it accepts the application
for consider or not. If accepted, further process starts and if rejected, no
process is initiated.
(iii) Publication in Gazette -
Application is published in gazette which contains
the date of hearing.
(iv) Advertisement in Newspapers -
At least before 14 days before the hearing date.
(v) Application for Cessation of Winding up -
After submission of application for compulsory
winding up but before issue of order of winding up, an application by the
company or creditor, member may be submitted in Tribunal at any time.
(vi) Hearing on Application -
The Tribunal hears the
presentations of directors, creditors or members.
(vii) Order after Hearing -
After hearing, the Tribunal may issue any of the
following orders -
(a) May accept the application with or without
expenses.
(b) May adjourn the hearing with or without imposing
any condition.
(c) If thinks appropriate, may issue interim order.
(d) If thinks appropriate, may issue the order of
compulsory winding up with or without cost.
(viii) Not Issuing the order of Winding up -
If the application is submitted before Tribunal on
the basis of 'Just and Equitable' approach, the Tribunal shall reject the issue
of order of winding up, if it thinks that the company maybe compulsorily wound
up on any other grounds.
(ix) Other Order to Call Statutory Meeting or giving Report -
If application for winding up is made on the ground
that the company has been failed to call statutory meeting or submitting statutory
report, the Tribunal may order to call the statutory meeting or to present statutory
report.
Any defaulting person shall be ordered to pay the
expenses incurred.
(x) Appointment of Liquidator -
When Tribunal passes order of winding up, it also appoints a liquidator and this information is sent to the person so appointed as liquidator and ROC both.
