The Principles of Modern Company Law, explains Winding up of a company is the process whereby its life ended and its property administered for the benefit of its creditors and members. An administrator, called a liquidator, is appointed and he takes control of the company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their rights.” The dissolution of the company doesn’t take place immediately, during winding up of a Company, whereas; Bachawat J held in Pierce Leslie & Co Ltd v. Violet Ouchterlong Wapshare, that “Winding up precedes dissolution”. “Winding Up” is provided under Chapter XX of the Companies Act, 2013, from Section 270—Section 365 of the Companies Act, 2013.
MODES OF WINDING UP OF A COMPANY:
The winding-up of a Company can be carried in two modes, as provided under S. 270 of the Companies Act, 2013. They are,
- Compulsory winding up by Tribunal
- Voluntary winding up.
1. COMPULSORY WINDING UP BY TRIBUNAL:
S. 271 of the Companies Act provides that, a Tribunal may pass an order to wind up a Company under the following cases, as explained under Section 271(1) of the Companies Act, 2013,
i. Sick Company:
ii. Special Resolution:
iii. Acts against State:
iv. Fraudulent Conduct of Affairs
v. Default in filing financial statements with Registrar
vi. Just and Equitable to Wound up;
i. SICK COMPANY:
If the company is in position; where creditors hold a dominant position, with the debt dues to be collected, the Committee of Creditors shall appoint an administrator to hold up with the winding up of the Company, with the order of the Tribunal. This happens, when the company is in a sick position, i.e. the company is unable to pay its debts and is not possible to revive and rehabilitate such opinion and order that the proceedings for the winding up of the Company.
ii. SPECIAL RESOLUTION:
If the Company has resolved, a special resolution that it would be wound up by the Tribunal, then, the said winding up is up to the discretion of the Tribunal, in winding up the company. This exempts, the power of the Tribunal in winding up a company, which is opposed to the Public Interest or company’s interest.
iii. ACTS AGAINST STATE:
If any act of the Company which is against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality, then this lies under the modes of winding up of a Company by a Tribunal.
iv. FRAUDULENT CONDUCT OF AFFAIRS:
The Tribunal is of opinion that the affairs of the Company have been conducted in a fraudulent manner or the company was formed for a fraudulent purpose or any unlawful purpose, then, the tribunal holds ultimate discretion wound up the company, only after receiving the application from Registrar of Company or any other person authorised by Central Government.
v. DEFAULT IN FILING FINANCIAL STATEMENTS WITH REGISTRAR:
If the Company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding five consecutive financial years, as provided under S. 271(1) (f) of the Act.
vi. JUST AND EQUITABLE TO WOUND UP :
Section 271(1) (g) of the Act, explains that, if the Tribunal is of the opinion that it is just and equitable that the company should wound up, by considering the interest of the company, its employees, creditors, shareholders and general public interest and also by considering all the other remedies to solve that circumstance, which lead to Tribunal to the decision of winding up. Winding up of the company under this ground, requires a strong ground to liquidate that company.
PROCEDURE INVOLVED IN COMPULSORY WINDING UP BY TRIBUNAL:
An application to Tribunal in winding up of a Company is made by a petition, under section 272 of the act. The persons eligible in making this petition are:
a. The Company;
b. Any creditor or creditors, including any contingent or prospective creditors;
c. Any Contributories of that company;
d. The Registrar;
e. Any person authorised by Central Government in that behalf.
- Appointment of a Liquidator to the Company, under Section 275, to audit the debts and credits of the Company, to verify the eligibility of compulsory winding up by Tribunal.
- After the above appointment, Liquidators are bound to submit a report to the Tribunal, as provided under section 281 of the Act.
- The directions are passed by the Tribunal to the liquidators in dissolving the Company under section 282 of the Act. And as per, which the company’s property is taken into custody, so that, to settle the creditors and contributories in the first place.
- Finally, the order for dissolution is passed by the Court under S. 302 of the Act, after the careful consideration of audits and reports filed by the liquidator to the Court, in benefit of settling the debts to creditors and other contributors.
There are two statutory circumstances under section 304 of the Companies Act, 2013, under which a company can be voluntarily wound up. They are;
i. If the company in general meeting passes a resolution requiring the company to be wound up voluntarily as a result of the expiry of the period for its duration, if any, fixed by its articles or on the occurrence of any event in respect of which the articles provide that the company should be dissolved; or
ii. If the company passes a special resolution that the company be wound up voluntarily.
PROCEDURES INVOLVED IN VOLUNTARY WINDING UP:
1. The members of the Company including the Directors shall pass a declaration when it is delivered to the registrar for registration before that date, which must be within five weeks immediately preceding the date of the passing of the resolution for winding up the company.
2. When it is proposed to wind up a company voluntarily, its director or directors, or in case the company has more than two directors, the majority of its directors, shall, at a meeting of the Board, make a declaration verified by an affidavit to the effect that they have made a full inquiry into the affairs of the company and they have formed an opinion that the company has no debt or whether it will be able to pay its debts in full from the proceeds of assets sold in voluntary winding up.
3. According to S. 306 of the Act, the company shall along with the calling of a meeting of the company at which the resolution for the voluntary winding up is to be proposed, cause a meeting of its creditors either on the same day or on the next day and shall cause a notice of such meeting to be sent by registered post to the creditors with the notice of the meeting of the company under section 304.
4. The passed resolution must be published in the Official Gazette or the local vernacular newspaper circulating within that district, as a notice, within fourteen days of declaration.
5. 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, as per Section 310 of the Act.
6. The company shall give notice to the Registrar of the appointment of a Company Liquidator along with the name and particulars of the Company Liquidator, of every vacancy occurring in the office of Company Liquidator, and of the name of the Company Liquidator appointed to fill every such vacancy within ten days of such appointment or the occurrence of such vacancy.
7. The Company Liquidator shall report quarterly on the progress of winding up of the company in such form and in such manner as may be prescribed to the members and creditors and shall also call a meeting of the members and the creditors as and when necessary but at least one meeting each of creditors and members in every quarter and apprise them of the progress of the winding up of the company in such form and in such manner as may be prescribed. The failure of Company liquidator in complying with the above, then, he shall be punishable, in respect of each such failure, with fine which may extend to ten lakh rupees.
8. Then, a Final meeting is organised where the Company Liquidator shall prepare a report of the winding up showing that the property and assets of the company have been disposed of and its debt fully discharged or discharged to the satisfaction of the creditors and thereafter call a general meeting of the company for the purpose of laying the final winding up accounts before it and giving any explanation therefor.
9. According to section 318 (4) of the Act, it explains that, Within two weeks after the meeting, the Company Liquidator shall— (a) send to the Registrar— (i) a copy of the final winding up accounts of the company and shall make a return in respect of each meeting and of the date thereof; and (ii) copies of the resolutions passed in the meetings; and (b) file an application along with his report under sub-section (1) in such manner as may be prescribed along with the books and papers of the company relating to the winding up, before the Tribunal for passing an order of dissolution of the company.
The above winding up procedures is very clear, according to the mind of the Draftsmen, that no person, is put in the position of loss and the winding up is seen as a profit gaining procedure to all the members and shareholders of the Company.
 (3rd Edition 1969) 647.
 AIR 1969 SC 843.
 S. 304 (a) of the Companies Act 2013.
 S. 304(b) of the Companies Act, 2013.
 S. 305(2) (a) of the Companies Act, 2013.
 S. 305(1) of the Companies Act, 2013.
 Companies Act, 2013.
 S. 312(1) of the Companies Act, 2013.
 S. 318 of the Companies Act, 2013.
 Companies Act, 2013.
This Article is Authored by Subha Mohan Selva Sankar, 5th Year B.A.LL.B. (Hons.) Student at VELS Institute of Science, Technology and Advanced Studies, Chennai.