The Article is written by Dev Agarwal, a 3rd year student of Heritage Law College, Calcutta University
Company is a legal entity and the only way it can come into existence or shut down is by the operation of law. Winding up of a company is the legal mechanism of shutting down of a company. The process of winding up is administered by a person called Liquidator. The Liquidator monitors after the company’s assets and liabilities at this crucial juncture to ensure that the company’s stakeholder’s interests are not hampered. Ultimately, when the company’s name is struck off from the Registrar of Companies (ROC) and its existence formally comes to an end.
WINDING UP OF A COMPANY
Companies Act. 1956 provided for three ways of winding up of a company, however after it was revised and replaced by Companies Act, 2013, the process of winding up now can be done in two ways :-
- Voluntary Winding up
- Winding up by the Tribunal.
Voluntary winding up and winding up by Tribunal has been omitted from the Companies Act 2013 and is placed in the Insolvency and Bankruptcy Code, 2016 under Section 59 and Section 33 to 54 respectively. Section 271 of the Companies Act, 2013 which provides for winding up by the Tribunal in circumstances other than the inability to pay debt and Section 255 of Insolvency and Bankruptcy Code, 2016 have been amended Currently, there are five circumstances mentioned under section 271 of the Companies Act, under which winding up by Tribunal may be carried out. The conditions for filing a petition of winding up are as follows:-
- If a Company, by a special resolution has resolved that it should be wound up
- If the Company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency and morality;
- If on an application made by the Registrar or any other person authorized by the Central Government by notification under this Act.
- If a Company has failed in filing with the Registrar its financial statements or annual returns for immediately preceding five consecutive financial years
- If the Tribunal is of the opinion that the Company should be wound up
According to Article 272 of the Act, the following can file the petition to initiate winding up process:-
- Contributory or Contributories
- Any person authorized by the Central Government or by the Central Government or a State Government
The Process of Winding Up:
It is important to understand the procedure of winding up under the Act. The procedure laid down under the Companies Act, 2013 is as follows:
- Tribunal may direct a Company to be wound up, if it is satisfied that a prima facie case exists. The Tribunal further directs the Company to file its objections along with a statement of its affairs within 30 days of such order.
- Further, the Tribunal at the time of passing an order shall also appoint a company liquidator. The Liquidator on its appointment shall file a declaration within 7 days from date of its appointment in the prescribed form, disclosing a conflict of interest or lack of independence in respect to his appointment.
- If the Tribunal has passed an order of winding up, the directors and such other officers have to submit the completed and audited books of the Company compulsorily, within thirty days of such order to the Liquidator..
- The Tribunal within 7 days of passing an order for appointment of Liquidator shall inform the same to the Liquidator and the Registrar, the Registrar shall endorse the same and notify about the order in the Official Gazette. In case of a listed company, the Registrar shall further inform about the order to the stock exchange or exchanges where the securities of the Company are listed.
- Within 21 days from the date of passing of winding up order, the company liquidator shall file an application to the Tribunal for the constitution of a winding-up committee to help the liquidator in the process of liquidation.
- When the order of winding-up is passed, no suit or other legal proceedings shall be commenced, or is pending, shall be proceeded with, by or against the Company.
- The Liquidator has to submit a report to the Tribunal within 60 days of passing of the order of winding up. The report should consist of nature and details of the assets, valuation of the assets, amount of capital issued, existing and contingent liabilities, etc.
- The Tribunal, after scrutinizing the report by the Liquidator, shall fix a time within which the entire proceedings shall be completed, and the Company is to be dissolved
- Thereafter, the liquidator on the order of winding up shall take into custody and control all the property and actionable claims to which the Company is or appears to be entitled.
- The Liquidator is under mandatory obligation to present the Tribunal with account of receipts and payments of the Company, which will be audited and copy of such audit report should be filed with the Tribunal, and other copies be delivered to the Registrar, which shall be open to inspection by any creditor, contributory or person interested.
- After all the formalities are over, the affairs of the Company has been completely wound up, the Liquidator shall submit an application to the Tribunal for dissolving the Company. If the Tribunal after the receipt of the application is of the opinion that it is just and reasonable to dissolve the Company, an order of dissolution is passed.
- Companies Act, 2013
- Insolvency and Bankruptcy Code, 2016
- Amir Ali Bavani and Rishika Kumar, Winding Up Of Company: A Statutory Glance – Part 1, MONDAQ, https://www.mondaq.com/india/corporate-and-company-law/938456/winding-up-of-company-a-statutory-glance-part-1