Compromise During The Winding-Up of A Company

The completing of a corporation may be a process that involves ending the company’s life and administering its property to the advantage of its creditors and members.. during this process, the company’s assets are collected and realized for debt payment. If, on the opposite hand, the corporate finds surplus after realizing the creditors, which is distributed among the members if there’s any deficit, each member of the corporate must contribute to the corporate assets. After completion of those formalities prescribed by the businesses Act, the corporate is dissolved and its name is far away from the Registrar of Companies.

Winding up and Dissolution

Between completing and dissolution there are differences. the corporate will haven’t any assets or liabilities at the top of the completing. When a company’s affairs are aroused completely, the corporate dissolves. On dissolution, the name of the corporate is taken from the business registry and loses its legal identity as an organization.

Reasons for completing of a Corporation

The completing of the corporate may arise by anybody or more of the subsequent reasons:

  1. If the object of the company for which it was established is accomplished.
  2. If company unable to hold out its main object.
  3. If company has got to eliminate its business or the undertaking to a different company or a private.
  4. If company is unable to pay its creditors fully.

Grounds for compulsory completing

The grounds on which a corporation are often compulsorily aroused by the court are as follows.

  1. If the corporate itself has passed a special resolution for the completing by the court.
  2. If the statutory report isn’t filed with the Registrar or company fails to carry the statutory meeting within prescribed time.
  3. If the amount of members of the corporate falls below 2 just in case” just in case of personal company and below 7 in case of public company.
  4. If company is unable to pay the debts fully. a corporation are going to be deemed to be unable to pay its debt under the subsequent conditions:
  5. a) If, to the satisfaction of the court, it has been proved that the corporation can not pay its debts.
  6. b) If the method issued on a decree order of a court in favour of a creditors has not been satisfied.
  7. If the court is of the opinion that it’s just and equitable that the corporate should aroused. It should be aroused under following circumstances:
  8. a) When the most object of the corporate that it had been established was failed.
  9. b) When the business of the corporate becomes illegal.

Petition for completing (Section 439)

A petition for the winding up of a company may be presented to the court by any of the subsequent parties:

  1. By shareholders or contributory can present a petition on the subsequent grounds:
  2. a) When the company’s No. falls below the prescribed limit.
  3. b) When the contributory has paid the calls behind.
  4. By the corporate itself by passing a special; resolution.
  5. By the Registrar of the businesses.
  6. By any shareholders or creditors, including any contingent creditors or prospective creditors.
  7. By the person which is authorised by the Central Government.
  8. By the voluntary liquidator.

Duties of official liquidators

  1. He should be in custody and safeguarding company assets.
  2. He should present a preliminary report on company matters to the court.
  3. He should keep proper books of accounts concerning the corporate.
  4. He should keep all the funds of the corporate within the “Public accounts of India” within the RBI.
  5. He should obey the court order to have the company’s books disposed of.

Duties of Secretary just in case of Compulsory completing

  1. He should assist the administrators in preparing the petition for the completing of the corporate.
  2. After the order of completing gone by the court, the secretary should file with the Registrar within 30 days a licensed copy of that order.
  3. He must submit a press release of affairs of the corporate to the liquidator within 21 days of the date of completing order.
  4. He should furnish information regarding the corporate which the liquidators may require from time to time.

Voluntary completing of company

Under Section 484 of the Companies Act, a corporation may aroused voluntarily:

  1. When the articles had expired the period fixed for the firm’s duration.
  2. If the company passes a special resolution to finish up the corporate voluntarily.

When a standard or special resolution has been passed for the winding-up of the corporate, a billboard within the official gazette and within the district newspaper must give notice of an equivalent within 14 days. A voluntary resolution is deemed to commence from the date of the resolution and therefore the company ceases to hold on its business from that date except it’s going to be necessary for the beneficial completing of such business (Sec.485 & 486).

 Declaration of Solvency

Section 488 of the businesses Act provides that when company proposed to finish up voluntarily, the bulk of the administrators make a declaration of solvency must be made:

  1. Within five weeks preceding the date of passing the resolution for completing and delivered to Registrar for registration before the date, along with:
  • The record made out on the latter date
  • A statement of the assets & liabilities as thereon date

Provisions Applicable to both voluntary and non-voluntary [Sec.486, 487 & 511 to 520]

  1. The voluntary completing of the corporate considered to commence when resolution is passed for an equivalent.
  2. The business of the corporate ceases on the commencement of the completing.
  3. Even the corporate’s business is ceased the company status and power of the company remains continue until it’s dissolved.
  4. The liquidator has power to organize contributor’s list, to form calls, call general meeting of the corporate.
  5. Any question arising within the completing of the corporate the court may approved by the liquidator or any contributor or creditor.
  6. All costs, charges and expenses of completing including remuneration of liquidator shall be payable by company’s assets.


Nevertheless, giving a restrictive aiming to Article 397/398 of the businesses Act, 1956 doesn’t benefit minority shareholders. It is also true that the frivolous litigation abusing section 397/398 of the Enterprise Act, 1956, should be discouraged at the initial stage, taking into account the dynamics of the market and therefore the impact.

  1. The CLB can certainly check out the concluded proceedings, but, can’t provide a different finding on an equivalent issue concluded by a Competent Court.
  2. The petitioners approaching the CLB may ask for the conclusion of the proceedings; however, the petitioners may not be prepared to receive a relief with similar or the same grievances raised within the proceedings concluded.
  3. regardless of pendency of any proceedings between the bulk and therefore the minority, the CLB can entertain a petition under section 397/398 of the Act and therefore the CLB will take an appropriate decision on the difficulty of grant of relief or the maintainability of a petition under those circumstances.
  4. When it involves the difficulty of applicability of settled legal principles like res adjudicata the CLB will exercise its discretion supported the facts of the case and no hard and fast rule are often laid during this regard.

This article is authored by Kartikeya Misra, Second-Year, B.A. LL.B student at JIMS Engineering Management Technical Campus (JEMTEC)

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