Winding UP of Company Meaning & Kinds: “Winding-up” in literal sense, means to bring to a conclusion or an end by putting in order.

It is defined as the process by which the life of a company is ended and its property is administered for the benefit of its members and creditors[2]. Winding-up is different from insolvency and dissolution. Winding up of a Company:-Winding up of a company referred to the process whereby all the affairs of the company are wound up, all its assets are realized, its liabilities paid off and the balance if any is distributed to its shareholders in proportion to their holding in the company. When the company has been wound up, it is dissolved by order of the Court i.e. its existence ceases. Prof.L.C.B.Cower-"Winding up of a company is the process whereby its life is 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 debts and finally distributes any surplus among the members in accordance with their rights". Winding Up and Dissolution:-The terms "Winding up" and "Dissolution" are sometimes erroneously used to mean the same thing. However, they are quite different in their meanings. Winding up is a process whereby all assets of the company are realized and used to pay off the liabilities and members. Dissolution of the company takes place after the entire process of winding up is over. Dissolution puts an end to the life of the company. A dissolution order passed by the Court is like the Death Certificate of the company. Modes of Winding Up:A Company may be wound up in any of the following modes: 1. By the Court i.e. compulsory winding. 2. Voluntary winding up, which may be a) Member's voluntary winding up; b) Creditor's voluntary winding up; 3. Winding up subject to supervision of the Court. 1. By the Court i.e. compulsory winding.:Who can apply [S. 439] — An application to the court for the winding up of a company is made by a petition1 A petition may be presented by any one of the following: 1. Petition by Company :- ‘The company may itself present a petition for winding up. Petition by the conipahi will be particularly necessary when the only ground for winding up is that the coi,.passecl a specj resolution to that effect. There mtst be a valid resoltition

to enable the company to take this step; Thus, Where a judge passed an order for winding up on the ground that the majority of the shareholders at a meeting were in favour of winding up, it was held that that was not, in the absence of a valid special resolution, a sufficient ground for compulsory winding up.42 Again, the petition must be presented by the company itself.. , in Patiala Bánaspati Co, Re:, An application for winding up of a company was made by the managing director of the company. Rejecting the petition the coirt “the petition by the company must have behind it the decision of the general meeting. The managing director or directors cannot constitute the company for the purpose.” Where a winding up petition was filed on behalf,of the company by a person who was not authorised by the board of directors, the petition was held to be incompetent. 2. Creditor’s Petition [S. 439(2)] :- A creditor may apply for winding up. The word “creditor” includes a secured creditor, debenture-holder46 and a trustee for debentureholders. Accordingly “a secured creditor is as much entitled as of right to file a petition as an unsecured creditor”. “Winding up is equally good whether it is obtained by a secured creditor or an unsecured creditor.” It is not even necessary for a secured creditor to apply that he should give up his security. Bukhtiarpur Bihar Light Rly Co v .s Union of India , AIR 1954 Cal 499. The Calcutta High Court has observed that a creditor would not ordinarily be heard to urge that winding up order should be made because the substratum of the company was gone, not for the reason that he was technically and as a matter of taw barred from taking that ground at all, but for the reason that it was not proper ground for the creditor to urge except in very special circumstances.’ Sometimes a creditor’s petition is opposed by other creditors. In such cases the court may ascertain the wishes of the majority of the creditors. But their opinion does not bind the court. The question will ultimately depend upon the state of the company. If the company is commercially insolvent and the object of trading at a profit cannot be attained, winding up order would follow as a matter of course . 3. Contributory’sPerition :- On the commencement of the winding up of a company, its shareholders are called contributories. Any contributory or contributories may present a petition for winding up.58 Where the ground of winding up is the reduction in membership below the statutory minimum, any contributory or contributories may apply. But when the application is founded on any other ground, it will be requisite that the shares in respect of which the petitioner is contributory were originally allotted to him or he has been the registered holder for at least si months during the eighteen months immediately before the commencement ‘of ‘the. winding up, or the shares have devolved on him through the death of a fojmer holder A question in this connection used to concern the courts in the past. Suppose, there is a contributory holding fully paid-up shares so that his liability is nil. Similarly,

” 4. $pecial resolution :. that the company has passed a special resolution. to that extent. it will not be a relevant consideration for determining whether winding up should be ordered or not. resolved that it be wound up by the court. The cases in which a company may be wound up by the court are given in Section 433. except the first. 439(5)] The. The power is discretionary and may not be exercised where winding up would be opposed to public or company’s interests . the Registrar has to obtain sanction of the Central Government to the presentation of a petition and the latter shall not grant the sanction unless the company has been afforded an opportunity to make its representation. at least to the extent of a prinia facie case. the company has no or insufficient assets so that the contributories will get no return of capital in the winding up. The Government may authorize any person to act on its behalf for the purpose. “want of assets may be an element in determining whether the petition is bona fide. to present a petition for winding up. Central Government’s Petition The Central Government is also authorised by the Act. In such circumstances. 5. in certain cases. namely.A company may be wound up at an order of the Court. he must allege and prove. that there are assets of such amount as that in the winding up he will have a tangible interest. at present.he may be the holder of fully paid-up shares or that the company may have no assets at all. The court is. by special resolution. Registrar’s Petition [S. Registrar of Companies is also entitled to present a petition for winding up on any of the grounds of winding up by the court. if any. The rule was that “if he presents a petition. has so resolved. except. however. Section 243 enables the Government to petition for windin1up where it appears from the report of inspectors appointed to investigáte1 affairs of a company iiider Section 235 that the business of the company has been conducted for fraudulent or unlawful purposes as explained in sub-clauses (i) and (ii) of clause (b) of Section 237. but.If the company has. In all cases. however.” Hence. They are as follows: 1. This is also called compulsory winding up. But now there is a clear provision in the Act which declares tliat “a contributory shall be entitled to present a petition for winding up. But he shall not present a petition on the ground of the company’s inability to pay its debts “unless it appears to him either from the financial condition of the company as disclosed in its balance-sheet or from the report of a special auditor appointed under Section 233-A or an inspector appointed under Section 235 or 237. that the company is unable to pay its debts”. a contributory’s petition would be rejected. or may have no surplus assets left for distribution among the shareholders after the satisfaction of its liabilities.suppose.” The rule was followed by some High Courts in India also. Grounds of Winding up:. not bound to order winding up simply because the company. notwithstanding that.

The expression “neglects to pay the sum demanded” in Section 434(1)(a) is not equivalent to the word ‘omitted’. If the suspension is satisfactorily accounted for and appears to be due to temporary .2. Murlidhar versus Bengal steamship case:. it was held that “the suspension of business for a whole year is sufficiently accounted for and does not furnish an indication that there is no intention to carry on the business”. Defau1t in holding statutory meeting — If a company has made a default in delivering the statutory report to the Registrar or in holding the statutory meeting. This resulted in suspension of business for more than a year.Winding up shall be refused if 5. below two. Statutory Notice:. winding up was ordered. . it may be ordered to be wound up. below seven. 3. 4. winding up was ordered. it must be filed before the expiration of fourteen days’+after the last day on which the statutory meeting ought to have been held. Failure to commence business :.. to pay debts. In a petition to wind up the company.causes. The debt must be presently payable and the title of the petitioner demtnding it should be complete. on .The petition for W. the company may be ordered to be wound up. a company employed a steamer and two flats.A company may be ordered to be wound up if it is unable . the order may be refused.To carry on its business. Reduction in membership :-If the number of members is reduced. it may be ordered to be wound up Here again the power is discretionary and will be exercised only when there is a fair indication that there is no intention to carry on business. however. a demand for payment and the company has for three weeks neglected to pay or otherwise satisfy him. there was failure to resume business for five years and the prospects also seemed gloomy. ias not able to replace them immediately in view of the rise in prices.If a company does not commence its business within a year from its incorporation or has suspended business for a whole year. and in the case of a private company.P.’ If it is brought by any other person e. if a creditor to whom the company owes a sum exceeding I lach rupees has served on the company. Failure to pay in spite of several communications including service of statutory notice was held to be evidence of heglect and inability.a creditor.Firstly. The power of the couttj& discretionary and instead of making a winding up order the court may direct that the statutory report shall be delivered or that the meeting shall be held.this ground can be presented either by the Registrar or by a contributory. Inability to pay Debts:. Where. The debt must be really due. The flats were acquired by the Government during the First World War and the company.. in the case of a public company. Neglect to pay a debt on’demand is omission to pay without reasonable cause. Where a company guaranteed another man’s debt and the liability under it had become established which the company failed to pay.

it could not be said that the company had neglected to pay. where the amount due was incorrectly stated in the notice. where the dispute is not real. a company shall be deemed to be unable to pay its debts if execution or other process issued on a decree or order of any Court in favour of creditor of the company is returned unsatisfied in whole or in part In the case of a consent decree and the failure of the company to pay according to the decree. winding up may be ordered ‘and the company will not be heard to say that the petitioner is acting malafides. which has existed for many years is that the court would not allow a winding up petition to be used for the purpose of deciding a disprne’as to a debt which is raised bona fide on substantial grounds. a service at that address. It is also necessary that the creditor should have delivered a demand under his hand at the registered office of the company. the petition is an abuse of the process of the court and is liable to be dismissed. and not at the registered office. “Where the object of a petitiori to wind up a company is to bring pressure upon the company in order to make it pay the petitioner cheaply and expeditiously when the company desires to dispute the debt in the civil court.there is a bona fide and reasonable dispute as to a substantial part of the debt on which the petition is based. Where the registered office was not functioning and a different address was being given for correspondence. However. (b) Decreed Debt Secondly. because “when a debtor-company believes even wrongly that it is justified in law to refuse to pay. or that he has an alternative remedy or that the company is solvent or that the majority of the creditors are opposed to winding up41 or that the petition was presented only to save the period of limitation.” Thus. but is put forward by the company as a cloak to hide its inability to. was held to be not a good service for the purposes of a winding up petition. The true rule. Notice should be served at the company’s registered office. Thus where a cricket match.its debts. MAJITHIA J of Punjab and Haryana High Court laid down the working principles in terms of the following propositions: The principles on which thø company court acts are: (1) that the defence of the company is in good faith and one of substance. Notice sent to the administrative office of the company instead of the registered office was held to be not effective service. the application for winding up would be . the insurance company appointed a surveyor to determine whether this type of loss was covered by the terms of the policy. . and (3) the company produces prima facie proof of the facts on which the defence depends. (2) the defence is likely to succeed in point of law.. Once the requirements of a creditor’s petition are fulfilled and there is a non-compliance with the statutory notice. “Statutory notice is a highly formal and important document and it would appear to follow that the provision of the Act as to its service upon the company must be strictly observed. being insured. had to be abandoned on account of rains. the creditor becomes entitled to an order ex debito justitiae. such a refusal cannot be regarded as neglect to pay”. the petition failed. The question of company having .

Coimbatore Transport Ltd v G. G. the general words of the sub-section should remain general and not be reduced to the sum of particular instances. And they are as follows: (I) Deadlock :. It is not desirable nor possible to categorise facts that render it just and equitable to wind up a company. Just and equitable :-last ground on which the court can order the winding up of a company is when “the court is of opinion that it is just and equitable that the company should be wound up. it is just and equitable to order winding up. if it is proved to the satisfaction of the court that the éompany is unable to pay itsdebts. Thus there was a complete deadlock and consequently the company was ordered to be woui3d up although its business was flourishing. the articles provided that any dispute would be resolved by arbitration. the court ordered winding up 6. In reference to the concept of “unable to pay debts” it has been observed that though it is not necessary that there should be a statutory demand or any demand at all.Secondly.” But the circumstances in which the courts have in the past dissolved companies on this ground can be resolved into general categories. (c) C’ommercial Insolvency Lastly. German Date Coffee Co. Where the assets of a company were taken over by the State and in reply to the creditors’ claims and petitions. Yenidje Tobacco Co Ltd. The court may give due weight to the interest of the company. he court would not be easily satisfied that a company is unable to pay its debts from the mere non-payment of a debt which never demanded of it. in Council . They had equal voting rights and. it is just and equitable to wind up a company when its main object has failed to materialize or it has lost its substratum. when there is dead1ock in the management of a company. (2) Loss of Substratum :. “The tendency to create categories or headings ‘fs was formed for the purpose of manufacturing coffee from dates under a patent which was to be granted by the . Re:. nor was it able to furnish security. Re: W and R. agreed to amalgamate their business and formed a private limited company of which they were the shareholders and the only directors.Firstly. a company was ordered to be wound up as it was unable to pay its taxes in spite of demands. therefore. but one of them dissented from the award. who traded separately as cigarette manufa6turers. This gives the court a very wide discretionary power to order winding up whenever it appears to be desirable. creditor and shareholders and general public interest should also be’ defence and the question of examining the solvency of the company are ruled out. Both then became so hostile that neither of them would speak to the other except through the secretary. its employees. the company was only telling them that it was trying to retrieve those assets and there was nothing to shOw any benefit to the creditors in the continuity of the company.

1I But. it is considered just and equitable to wind up a company when it cannot carry on businçss except at losses. it is just and equitable to wind up a company where the principal shareholders have adopted an aggressive or oppressive or squeezing policy towards the minority.6 is an illustration in point. Sabapathi R v Sabapathi Press Ltd. the company upon other patents. But. that constituted sufficient ground for winding up. and. The decision of the Madras High Court in R. and it was impossible to carry out the objects for which it was formed. an application for winding up shall be in the form of Petition . on the petition of a shareholder. it was held that “the substratum of the company had failed. indeed. pass an interim order or make an order for wind up. PROCEDURE OF WINDING UP After hearing a petition for winding up the Court may dismiss it or adjourned it. but is deemed to be from the time of presentation of the petition itself. Application: As mentioned earlier. It will be needless.The registrar of the court immediately on its admission of the petition sende the notice together with the copy of petition to the company where the petition moved by Creditors or members. the commencement of winding up is deemed to be from the date of passing of resolution. The Court observed: Where the directors of a company were able to exercise a dominating influence on the management of the company and the managing director was able to outvote the minority of the shareholders and retain the profits of the business between members of the family and there were several complaints that the shareholders did not receive a copy of the balance-sheet. Verification: The petition should be signed by a proper person.Government of Germany and also for working other patents of lar kind. (3) losses :. it was just and equitable that the company should be wound up”. therefore. with required variations and shall be submitted in duplicate. but in case it is not properly signed it is a mere irregularity and can be cured at any tune. It . nor was the auditor’s report read at the general meeting.Fourthly. Notice:. This order may take effect either immediately or after a lapse of certain period. The Registrar of the Court shall note on the petition the date of its presentation. But a mere apprehension on the part of some shareholders that the assets of the company will be frittered away and that loss instead of gain will result has been held to be no ground (4) Oppression of Minority :.Thirdly. The German patent was never granted and. dividends were not regularly paid and the rate was diminishing. where the winding up order is response to a Special Resolution of the Company. for a company to carry on business when there is no hope of achieving the object of trading at a profit. Commencement of winding up is not from the date of the order. say six months.

and if there are more than one petitioner. it can not be withdraw without leave of the Court . the company. Or make an order that it thinks fit Provisional Liquidator( Appointment of Liquidator): After the presentation of the winding up petition and before the making of a winding up order. by tin affidavit of at least one of the petitioner Advertisement: Once the petition is filed. In answer to a notice to show cause an to why a petition for winding up be not admitted. if any. any creditor or contributory may ask the court that proceedings against the company pending before the Supreme Court or any High Court should be stayed or those pending before any other court should be restrained. for directions as to the advertisement to be pubIiah. the Company may w cause and contend that the filing of the petition amounts to an abuse of the process of the Court. . nor is there a right in a Company to be issued a notice before site petition is admitted or before the Court fixes the date for hearing. on whom the petition copy is to be the judge may. though The Court can appoint a Provisional Liquidator when the company is obviously insolvent . the persons. the Act itself does not provide any set criteria for the appointment of a Provisional Liquidator. Withdrawal :. the court may pass an order as it thinks fit. There is however no prescribed form for notice. But before finalizing such order. if he thinks fit.should also be certified by an affidavit of petitioner. Stay of Proceedings before Order [S. the public Interest must be given full weight. though that fact by itself Is not conclusive enough for the appointment the Provisional Liquidator. the Provisional Liquidator becomes the Official Liquidator. Unfortunately. Or adjourned the hearing or make interim order (d) made an order for winding up the Company an with or without. But it will be used only in circumstances of real need. direct that notice be given to the company before advertising the petition . unless in the special circumstances the Court decides to dispense with the provision If a winding up order is made.Once the winding up petition is flied. 442] Even before any order is made by the court. the Court must give a notice to the Company and also give it a reasonable opportunity to make its representation. the Court may appoint a provisional Liquidator to take charge of the Company.the application for leave to withdraw shall not be heard at any time before the date fixed in the advertisement for hearing of petition. whether of civil. criminal or revenue nature. it in posted the judge its chambers for admission and fixing of date. and if the petition has been advertised . The power of the court is extensive and covers all kinds of proceedings. Hearing:.when the petition is presented by nominee oldie Central Government on ground that it ii expedient in the public Interest that the Company should be wound up.on hearing a winding up petition the court may(a) dismiss it with or without costs.

secretary or other chief officer of the company or such persons as the Official Liquidator. proceed to make calls on all or any of the contributories requiring them. 455] As soon as practicable after receiving this statement. The liquidator or any member of the committee ma call a meeting as and when he thinks necessary Settlement of List of Contributory:. The court may. if the company has failed. 5. subject to the direction of the court. may require. whichever is higher.Within twenty-one days of the date of the winding up order or where a provisional liquidator is appointed. the court may do so in all cases where rectification is required in pursuance of the Act. the causes of the failure. The committee may meet at such times as it may from time to time appoint. the Official Liquidator is required :to submit a preliminary report to the court showing— 1. within two months. the assets of the company. For this purpose. from the date of that appointment. the liquidator should apply to the court for a final decision. a statement as to the affairs of the company has to be stibmitted to the Official Liquidator The statement has to be submitted and verified by the director. 464] :. its debts and liabilities. showing separately cash in hand andat bank and negotiable securities. 2. It shall have the right to inspect the liquidator’s accounts. 2. after ascertaining the sufficiency of the company’s assets. 454] :. The committee shall not consist of more than twelve members. the debts due to the company and the names and addresses of the persons from whom they are due and the amount likely to be realized. such other information as may be required. In case there is a conflict of opinion.’ The statement should show the following particulars: 1. to summon a meeting of the creditors for determining the membership of the committee.Statement of Affairs [S. The liquidator has then.The court has the power to cause the assets of the company to be collected and applied in discharge of its liabilities. the court has the power to make a list of such shareholders (called ‘contributories’) as ar liable to contribute to the assets of the company. or two. manager. thmount of issued and paid-up capital and the estimated amount of assets and liabilities.The court may order the appointment of a COI with the liquidator. 4. 3. Within fourteen days of the creditors meeting he shall call a meeting of the contributory to consider the creditors’ suggestions with respect to the membership of the committee. Committee of inspection [S. If this requires rectification of the register of members. The quorum for a meeting of the committee 1/3rd of tie total number of its members. but within six months of the order.names and addresses of the company’s creditors indicating the amount of secure or unsecured debts. within the limits of their liability. to pay any money which the court considers necessary to satisfy . – Report by OfficicIl Liquidator [S.

is conclusive evidence of the money due from the contributory. it will not be necessary for the liquidator to offer any proof. the court will not order the examination of an officer unless the report attributes to him some specific acts of fraud. Public 1xamination [S. Duties and Functions Liquidator . and the expenses of winding up and for the adjustment of the rights of the contributories. He maybe any person chosen by the members/creditors (depending on what kind of winding up proceeding it is). 478] :. 3.A Liquidator is a person appointed to take charge of the assets of the Company. power .shall relate to the promotion or formation of the company. or by any officer of the company since its formation. or to the conduct of its business or the person’s conduct and dealings as an officer. 2. such as over-borrowing by the company on forged documents. The court’s order. that the Official Liquidator has made a further report.the debts and liabilities of the company.Where the Official Liquidator has made a report to the court stating that in his opinion a fraud has been committed by any person in the promotion or formation of the company. that such report contains a finding of fraud. subject to any right of appeal. its Position .88 Examination.° Thus even where the report of an Official Liquidator contains allegations of fraud. once it “goes into WP. The necessary conditions for exercising the power to order public examination are— 1. 4. the finding of fraud must be against the person whose examination is sought. Liquidator . A public examination would ‘ not have been necessary if proofs were already available.9’ If the allegations are of specific nature. . the individual must be one who has taken part in the promotion or formation of the company or who has been an officer of the company. the court may direct that the person or officer may appear before the court and be publicly examined.

shall he in .He is a Liquidator who is permanently attached to High court and is officer of court appointed by central Government.when the petition is presented by nominee oldie Central Government on ground that it ii expedient in the public Interest that the Company should be wound up. the Court must give a notice to the Company and also give it a reasonable opportunity to make its representation. But before finalizing such order. On the appointment of the liquidator all the powers of the board of directors shall c6me to an end except when the company or the liquidator sanction them to continue. unless in the special circumstances the Court decides to dispense with the provision If a winding up order is made. the coppany may in general meeting fill the vacancy’ and again.Official Liquidator . whereas the latter is an ordinary person (i.13 The liquidator within 30 days of his appointment. The remuneration so fixed is not to be increased in any circumstances whatsoever. is appointed a’ Liquidator of the Company in all cases of winding up by Court. though The Court can appoint a Provisional Liquidator when the company is obviously insolvent . The basic difference between an official Liquidator and a Liquidator is that the former is an officer of Court who takes charge in cases of winding up by Court.. the Act itself does not provide any set criteria for the appointment of a Provisional Liquidator.14 If a vacancy occurs. within ten days. with or without the sanction of the ‘The liquidator is not to take charge unless his remuneration is so fixed. A Liquidator is appointed in all cases of winding up whether due to commercial insolvency or other wise.e. but an Assignee is appointed only in cases of winding up due to insolvency of the Company. the Court may appoint a provisional Liquidator to take charge of the Company.The notice of appointment which every Liquidator is required to publish in the official gazette tinder section 516. when the Company goes in for CWP.’ Notice of appointment of Liquidator . a notice of his appointment in the prescribed form. Appointment of Liquidator in Voluntary Winding Up:.12 Within ten days of the appointment. Provisional Liquidator( Appointment of Liquidator): After the presentation of the winding up petition and before the making of a winding up order. An Official Liquidator. Unfortunately. the company should give a notice to the Registrar.A liquidator is appointed and his remuneration fixed by the company in general meeting of the shareholders. one who is not an officer as above) who is appointed by either the members/creditors. Thp liquidator has also to inform the Registrar of his appointment within thirty days and publish the fact in the Official Gazette. and deliver to the Registrar for registration. the public Interest must be given full weight. though that fact by itself Is not conclusive enough for the appointment the Provisional Liquidator. the Provisional Liquidator becomes the Official Liquidator. has to publish in the Official Gazette. a notice of the change must be given to the Registrar.

The words “on cause shown” have not quite the effect of “if the court shall think fit. before entering upon his duties as a Liquidator. furnish security’ in such sum and in such manner as Court direct. the liquidator shall be subject to the control of the court. i. or from circumstances in which he is mixed up—some unfitness in a wide sense of the term. to remove a liquidator and appoint some other person in his place. or from his connection with other parties. the court has power to remove him. the mode of appointment makes no difference to the duties which a Liquidator performs of the powers which he yields. But when it oomes to their powers or functions there is no difference between them.” JESSEL MR said in Sir John Moore Gold Mining Co. Removal of Liquidator [S.. Security by Liquidator appointed by Court. other than the official Liquidator shall.45 Any creditor or contributory may apply to the court with respect to any exercise or proposed exercise of the liquidator’s powers. 152. no liquidator is functioning the court may appoint the official liquidator or any other person as the liquidator of the company. Unless otherwise ordered. Re. In Dr Hardit Singh. as pointed out by the Court of Appeal in Adam Eyton Ltd. in the exercise of his powers.However. from any cause whatever. The court also has the power. on cause shown. of Directors and hence exercises which the Board had. 515] :. In the exercise of this power the court stayed a Powers /Duty and Functions of Liquidator:. 151 and the notice of the appointment to be delivered to the Registrar of companies shall he in Form No. The liquidator or any contributory or creditor may apply to the court to determine any question arising in the winding up of the company or to exercise all or any of the powers which the court may exercise if the company were being wound by the court. every Liquidator appointed by the Court ma voluntary winding up.” But.Form N. the. Delhi High Court ordered the removal of a voluntary liquidator on the grounds that he had not deposited certain amounts as required by Section 553 of the Act. without there being shown any personal misconduct or unfitness. this definition was not intended to be exhaustive. whereas an Official Liquidator is not an agent of the Company but is an officer of the Court. for example. that he had been uncooperative and defiant regarding the recovery of the company’s claims and that the process of liquidation was a Elusive affair between the ex-managing director and the liquidator. “they point to some unfitness of the person—it may be from personal character. If the court finds that. and if the court is satisfied on the evidence that it is desirable in the interest of all those interested in the assets that a particular person shall not manage the assets. A liquidator is not removable only on the ground that he was a shareholder or director or because the creditors or members in majority demand it.e.the Company’. Re. . v Registrar of Companies.

2. Most of these powers are given under sec. take legal action on behalf of the Company. to take into their custody the property of the Company. 4. ask for the return of Company property in possession of any director or member. 6. so make reasonable enquiries into any debts or claims made by a member/creditor before allowing them. make a list of contrubutoirs. 457 of the Act. sign cheques etc. on behalf of the Company. 3. and they can be exercised with or without sanction of the Court depending on the nature of the power. . control over the assets of the Company .1. 7. press foe repayment of any debts owned to the Company. and 9. and creditors of the Company. 7. to maintain proper accounts and have them regularly audited. make calls for any unpaid amount on the shares. 6. 5. 4.though he cannot deal with them arbitrarily. to ascertain whether any fraud has been committed by any officer of the Company and to make such a report to the Court. such other powers necessary for the beneficial conduct of winding up. to make a report to the Court within 6 months of the order in cases of winding up by Court. decide on the extent of their claims and settle them. if he decides to continue with the Company business. 8. Functions :1. to ascertain the debts or claims owned to the Company and take steps to realize them. 5. if he decides to continue with the business of the Company then to conduct it in a reasonable and prudent manner to serve the best interests of the parties concerned. enter into contract’s on behalf of the Company. 2. 3.

to inform the meeting of the progress made and of the assets and liabilities of.It is not necessary that a creditor or member or the Registrar should go in for the winding up. however. to call meetings of membrs and creditors. the liquidator is an officer of the court. Duty of Liquidator:. to keep book recording proceedings at meetings: 3.In a winding up by the court. the Company itself may voluntarily go in for winding up. They have to take into their custody property of the company 2. and if she winding up continues for more than a year he is required to call a general meeting at the end of first year and of each succeeding year. In a voluntary winding up. In the conduct of winding up they have to perform basically the same functions.. in case where a Committee of Inspection is to be appointed. The bank in which such an account is opened becomes liable if through negligence any loss takes place to the liquidation account. the Company.INTRODUCTION . 433. When the Company wants to . 6. In any case. he is not an officer of the courf. in cane of members voluntary winding up if the debts have not been paid off within prescribed period he is required to call a meeting of the creditors and lay before them a statement of assets and liabilities of the Company. 5. 9. permit him to open any other account and to operate the same as directed for beneficial winding up.8. 1. to call meetings of committees of inspection.. VOLUNTARY WINDING UP :. he is required to call a meeting of the committee within 2 months convene a meeting of the creditors to decide about the committee of Inspection and within 14 days give them report about the result of meeting . to have their accounts audited.” The court may. the duties of liquidators of both kind are more or less of the same nature.. He was to keep the moneys received by him as such in a special account in any Scheduled Bank to be entitled “the Liquidation A/C of. 10. He owes his appointment to the company in general meeting. He should not hold the money for more than 10 days in his hands because he has then to pay interest @12% and incidental expenses and also take the risk of losing office. As seen in Sec. 4. and not an agent of the parties concerned.

etc. say for 5 years. The only requirement for a valid resolution is that it should comply with the requirements Generally speaking. Special Resolution:. ordinary resolution means one passed by a simple majority of the person present and voting. or technological change making the product obsolete. Ordinary Resolution :. for example. special resolution for winding up. (c) lack of adequate finance.of the. for example. on the happening-of which the Company would go in for dissolution. (d) inability to meet its liability as and when they arise. (d) upon sale of business etc. as the decision to liquidate is not made till there is no other alternative left. .Liquidation may take place for reasons other than insolvency. lost of key personnel. 1. (b) upon elapse of the hose period for which the Company was formed. then at the efflux(end) of the period. the decision to wind up is usually taken out of the hands of the Directors. if the directors can swear a declaration of solvency (discussed below).wind itself up it can to do only after the passing of a resolution. (a) upon completion of a project for which the Company was formed. The Decision to liquidate :. (c) where liabilities exceed assets. In cases where the Company is declared insolvent. In all these cases. the Court dons not interfere if the resolution of the Company is valid. (c) in order to resolve a dispute between share holder. A Company stay pass and ordinary resolution for winding up in two situations(a) if the Company was formed for a fixed time period. It in neither necessary to assign any reason for passing such a resolution nor is one normally given. Much insolvency could be avoided by sound management and paying proper attention to early warning signals. . the liquidation may proceed as a member’s voluntary winding up. etc. tin covered above..At. risen the Company stay pass an ordinary resolution for dissolution on the happening of this event.a Company may These resolution can be ordinary as well As Special Resolution. in all other situation. In cases where the decision to liquidate is not left so as to become inevitable. and (b) if the Articles of the Company specify an event. Directors may have to consider the possibility to liquidate in the following circumstances: (a) Company though yet solvent is suffering constant losses: (b) Where the Company is faced with sudden and unavoidable crisis which may in all probability have adverse repercussions.

(2) the declaration to be-effective must be made within 5 weeks immediately before the date of the resolution and delivered to the Registrar for registration before that date. After commencement of the winding up. the Company must hold a general meeting and pass the requisite resolution for winding up. the Directors are required to send a notice to the creditors. Non compliance with this requirement entails a fine of Ra. A notice of the resolution must be given in the Official Gazette and also in some newspapers circulating in the district where the registered office of the Company is situated within 14 days of the passing of the resolution l.5O per day of default. It is important to note that commencement is with reference to time and not the date. before members voluntary liquidation.. the winding up proceeds as if it is a creditors’ voluntary winding up. a’ declaration of solvency must be completed. upto the date of the declaration and should also carry a statement of Company’s assets and liabilities upto that date. following the decision to liquidate.After making the declaration of solvency.Declaration of Solvency:. The normal rules relating to notice are to be followed. Notice to creditors :. Failure so advertise in the newspapers is a curable irregularity.5000/. then he is also deemed to bean officer of the Company and is liable to be fined. A statement of the affairs of the Company are’to be put before the creditors and thereafter. If at that meeting a Liquidator has also been appointed. MEMBERS’ VOLUNTARY WINDING UP :. Appointment of Liquidator: . (3) the declaration should be accompanied by a copy of the auditor’s report on profit and loss accounts and balance sheet of the Company prepare. except to the extent necessary for the beneficial winding up of the Company. which provides that.In case of insolvent companies.attaches to the Directors making this declaration without having any reasonable basis to do no. The Company however continues to retain its corporate status and power till it is finally dissolved. sworn and as per company law rules. The winding up is deemed to commence from the time of passing of the resolution.In case of solvent companies.takes place. or a punishment of imprisonment of 6 months and or fine of Rs. the Company ceases to carry Out its business. (i) such a declaration has to be made by a majority of the Directors at a Board meeting and verified by an affidavit declaring that they have made a full inquiry into the affairs of the Company and have formed an opinion that the Company has no debts or that it will be able to pay its debts in full within 3 years from commencement of winding up.

It provides that an soon as the affairs of the Company are fully wound up. 494 provides that. may be passed any time before or concurrently with a resolution for voluntary winding up or for appointing Liquidators and will not be invalid by lesson only that it was so passed. the Liquidator may. who has not voted in favour of the solution expresses his dissent from it in writing addressed to the Liquidator and leaves a copy of the same at the Company’s registered office within 7 days after the passing of the resolution. Duty to call creditor’s meeting: Sec. Such a sate/arrangement shall be binding on the members of the Company. received as consideration for the transfer. Sec. or. in the opinion of the ‘Liquidator will not be able to. he should immediately summon a meeting of the creditors and lay before them a statement of the assets and liabilitien of the Company. thereafter the winding up shall proceed in the manner of a creditor’s voluntary winding up.Reconstruction in winding up. hut if any member. (a) make up an account of the winding up. If. or to purchase his interest at a price to be determined by agreement or by arbitration. he shall pay the purchase money before the Company is dissolved. it is sot necessary to pass a special resolution. where the Company in liquidation propos to sell its business or property to another Company. and (b) call a general meeting of the Company for the purpose of laying the account before it and explaining it. within 3 months from the end of each year or such longer period as the Central Government may allow . The meeting is to be called by advertisement specifying the time and place and object of the . pay its debts in full within the period stated in the declaration of solvency. the affairs cannot be said to have been wound up. 495 provides that a Company has not been able to. and. the dissenting shareholder also does not have a right. Sale under this section in also binding on the creditor The assets that can be disposed of are those which exist at the time of liquidation and not the assets which come to the Company by subsequent calls. So also. or ester into any other arrangement whereby the members of the Company participate in the profits of the transferee Company or receive any other benefit there from either in lieu of receiving cash. however. no disposition of assets will be valid if it imposes a condition precedent on any shareholder to pay premium on the shares of the transferee Company. though the agreement many provide for partly paid up shares in lieu of fully paid up shares. policies or other like interests or is addition to them [Sec494(l)1 The resolution so authorizing the Liquidator. the Liquidator elects to purchase the member’s interest. Sec. shares. he may require the Liquidator either to abstain from carrying the resolution into effect. The words “as soon as the affairs of the-Company ate fully wound up” do not import a condition precedent to dissolution and it cannot be contended that if outstanding claims remain. ‘Where the liquidation Continues for more than a year the Liquidator has to call a general meeting of the Company at the end of first year and at the end of each subsequent year. showing how the winding up has been conducted and the Company property disposed of. shares or other like interest in the transferee Company for distribution among members of the transferor Company. the Liquidator shall. Final Meeting and Dissolution’s . In the latter case. 494 is applicable to purely voluntary winding up and where it is not so. with the Sanction of a special resolution of the Company.

and. This date thus determines the ‘term/us a quo’ for the dissolution of a Company. if it is not made then it is a creditor’s winding up. and for this purpose may ask for the cooperation of both the Liquidator and the past and present officials of the Company: If after scrutinizing the books. On receipt of the account and return. he comes to the conclusion that the affairs of the Company have not been conducted in a manner prejudicial to the interests of either its members or the public. Notices of this meeting must be sent to the creditors simultaneously with notices of the meeting of members and should also be advertised at least once in the Official Gazette and once in two newspapers circulating in the district where the registered office/principal place of business is situated. even if they be solvent and in such situation tht provisions under Ss. the Company shall be deemed to be dissolved [Sec. After holding the meeting. the Liquidator is required to send a copy of the account to both the Registrar and the Official Liquidator.meeting and published at least a month Before the meeting in the Official Gazette along with some other newspapers circulating in the district where the registered office is situated Failure to call the meeting is punishable with a fine which may extend to Rs. If it has been made it is a member’s voluntary winding up. and not an illegality which vitiates the resolution for winding up the Company.500/-. One of the Directors is appointed u/Sec. The procedure to be followed in such cases is: 1. CREDITORS VOLUNTARY WINDING UP :. So also. then from the date of the submission of the report to the Court. the Registrar is required to immediately register them. But if the Official Liquidator makes a report that the affairs 0f the Company have been conducted in a manner prejudicial to either the members or the public or both. the Official Liquidator is required to make a scrutiny of the books and papers of the Company. a complete and comprehensive statement relating to the Company’s affairs. to voluntarily wind up. Creditor’s Meeting: In this form of winding up. 497 (6)]. 500-509 becomes applicable. also make a return to each of them of the holding of the meeting and the date of holding it .the test for distinguishing between member’s voluntary winding up and creditor voluntary winding up is ‘whether a declaration of solvency has been made’. along with a list of the creditors of the Company and the amount of their claim against the Company. omission to convene creditors’ meeting is only an irregularity and can be coned. The Beard of Directors are to lay in she creditors’ meeting. 500(3) to preside over this meeting and he shall be duty . the Company must call a meeting of the creditors either on the same day on which it has called a general meeting of its members or the very next day.

consisting of not more than 5 members. 503. all resolutions must he passed by a majority in value and number. Statement of affairs: The statement should contain (i) assets of the Company.bound to do so.but merely because a fine has been imposed will not make the proceedings of the meeting invalid.per day of default. he would be deemed lobe an officer of the Company for this purpose and would also be held liable. then. Failure to comply with this provision will render both the Company and the Directors liable to a fine extending upto Rs. and if they are passed by a majority to value only they are invalid. (iv) the debts due to the Company and the names and addresses of the debtors and the amounts likely to be realized from them. the members also get a right to appoint not more that 5 members to the committee. in such Situations also appoint some other persons to act as members. iv) The Committee may act by majority. sad any default in the regard is punishable with a fine of Rs. and the Court may. Thus. except so far as sanctioned by the committee or the creditors in their general meeting. to appoint a Committee of Inspection. Committee of Inspection: The creditors have been given an additional right under Sec. showing separately the cash in hand. u) The Committee shall meet at such times as may be appointed from time to time. All valid resolutions passed at the meeting must be notified to the Registrar within 10 days of their passage. Appointment of Liquidator: Remuneration:. at bank and negotiable securities: (ii) the debts and liabilities of the Company. On appointment of Liquidator. I 000/. and (v) such other information as may be required. The following rules shall apply to the Committee: t) The Liquidator or any member of the Committee may call a meeting of the Committee. indicating the amount of tecured or unsecured debts. iii) One third of the number of members subject to a minimum of two shall form the quorum. v) Continuing members shall continue the formalities of the Committee not with standing vacancy provided there are at least two members.50/. But once the creditors appoint such a committee.The remuneration of the Liquidator (s) is to be fixed either by the creditors or the committee. and thus remuneration cannot be increased under any circumstance. Rules relating to holding of creditors meeting are the same as in case of meeting held under a compulsory winding up order. In case a Liquidator has also been appointed. . If the creditors object to any one or all of the members the nominees appointed by members to act as such the matter becomes subject to the direction of the Court. all the functions of the board cease. iii) names and addresses of the Company’s creditors.

Failure to call a meeting in punishable with a fine which may extend to Rs. and also in some newapaper circulating in the relevant district. the Liquidator must make an account of the winding up. . and call a general meeting of the Company and the creditors ass lay these matters before them. the Company shall stand dissolved from the date of submission of such report. Oat receiving the statement and the return the Registrar shall immediately register them. But winding up shall not be deemed to have been concluded unless compliance had been made with rule 284 In case of the Company wound-up voluntarily. The final meeting must be called by means of advertisement in the Official Gazette. showing how it has been conducted and the property of the Company disposed of. the Liquidator it required to call a meeting of the creditors. he shall give a report stating that fact. or public. containing detailed particulars in respect to the proceedings and the position of the winding up. Just as in case of members’ voluntary winding up. in which case the winding up shall not be deemed to be concluded until such funds or assets have euther been distributed or paid into the Companies Liquidation Account in the Reserve Bank of India. unless at such date any funds orassess of the Company remain unclaimed or undistributed in the hands or under the control of the Liquidator. As soon as the affairs of the Company are finally wound up. In case the report is adverse. at the end of the first year and end of the each subsequent year. Failure to comply with this provision will make him liable to a fine of Rs. 500 The quorum for the meeting is two.Powers of Liquidator:Meeting and Dissolution: In case the winding up continues for more tan a year. within one week of the meeting (if the meetinga are held on different days then within a week of the later meeting). and lay before them a comprehensive statement in the prescribed format. and the Court either dissolves . or under the supervision of the Court. 500/. the Company on receipt of a second report or make any other suitable order.verification is to he filed with the Registrar also. at the date of dissolution of the Company. he may be required by the Court to submit a second report. A copy of the statement along with an affidavit. per day of default. published at least a month in advance of the meeting.. and if he is of the opinion that the affairs of the Company have not beets carried out ma manner prejudicial to its member. A copy of the accounts and return of holding the meeting is to be sent to both the Registrar and the Official Liquidator. the Official Liquidator would scrutinize the books of accounts etc. and.. or any person who has acted at the Liquidator.