Professional Documents
Culture Documents
Submitted By:
Shweta Bhuyan
(SF0116039)
Faculty-in-charge:
GUWAHATI
5 NOVEMBER 2018
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TABLE OF CONTENTS
Contents Page Number
Table of Statutes 3
Table of Cases 3
1. Introduction 4
1.1 Research Problem 4
1.2 Literature Review 5
1.3 Research Questions 6
1.4 Scope and Objectives 6
1.5 Research Methodology 6
2. Winding Up of Different types of Companies 7
3. Compulsory Winding Up of Companies 9
4. Voluntary Winding Up of Companies 14
5. Conclusion 17
Select Bibliography 18
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TABLE OF STATUTES:
TABLE OF CASES:
British Water Gas Syndicate v. Notts Derby Water Gas Co. Ltd., 1889 WN 204
Knowles v. Scott, (1891) 1 Ch 717
Misrilal Dharamchand Ltd. v. B. Patnaik Mines Ltd., 1978 48 Comp. Cas. 494 Orissa
Mohd. Nizamuddin v. Shiri Shakti LPG Ltd, (2003) 117 Comp. Cas. 138 (AP)
National Stores v. Ramsaran, AIR 1926 Nag 303
Neptune Assurance Co. Ltd. v. Union of India, 1973 SCR (2) 940
Re Amalgamated Syndicate Ltd., (1901) 2 Ch 181
Re Karamelli and Barnett Ltd., (1917) 1 Ch 203
Re London & Australian Agency Corp. Ltd., (1873) 29 LT 417:22 WR 45
Re West Cumberland Iron Steel Co., (1889) 40 Ch D 361
Re Yenidje Tobacco Co. Ltd., (1916) 2 Ch 426
Seth Mohan Lal v. Grain Chambers Ltd., AIR 1968 SC 772.
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CHAPTER 1
INTRODUCTION
Winding up is the strategy for consummation, or dissolving, a business. The winding up action
incorporates offering all advantages, paying off creditors, and dispersing remaining resources for
the accomplished partners or shareholders. Winding up can allude to dissolving either a company
or an organization.
A company can't bite the dust a characteristic demise. It has an inconclusive life expectancy, yet
in the event that such reasons have risen which make it attractive to convey a conclusion to its
corporate life, at that point important legitimate components must be put into activity to
complete it. This component is the way toward winding up. It is a procedure by which the
properties of the company are directed for the advantage of its members and creditors. The
individual designated for directing the advantages and liabilities is called Liquidator. If there
should be an occurrence of obligatory winding up, the outlet is delegated by the Tribunal under
section 275 of the Act; or, if there should be an occurrence of voluntary winding up, the outlet is
selected by the company itself under section 310 of the Act. Winding up is additionally alluded
as Liquidation. On liquidation, the company name is erased from the rundown of organizations
by the Registrar of companies and the same is distributed in the official gazette.
1) Compulsory Winding Up
2) Voluntary Winding Up.
3) Winding Up under the Supervision of the Court
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1.2 Literature Review
“Company Law And Practice”, Book By A.K. Majumdar and Dr. G.K. Kapoor.
An authentic, comprehensive, up-to-date, simple and lucid analysis of the provisions of the
companies. the author has discussed new concepts introduced by the Companies Act, 2013 such
as class action suits, one person company, corporate social responsibility, constitution of
National Company Law Tribunal, power of a company to buy its own securities, reduction of
share capital, corporate governance, mergers and amalgamations, role and liability of
independent directors, function of the Directors' Nomination and Remuneration Committee,
depositor’s protection, etc.
“Taxmann's Company Law and Practice” by Dr. G.K. Kapoor, Dr. Sanjay
Dhamija,
The book provides a comprehensive account of the legal rules that apply in company law. It
examines the fundamentals of company law: how businesses in the form of a company are
financed, and the legal and practical implications. Underlying purpose of the rules and how they
fit with theories underpinning company law. A noteworthy element of this book is the topic wise
analysis of vital concepts of the Companies Act, 2013, providing a holistic view of the
provisions to the readers. The book has been written in a lucid manner and the unique
presentation of the book makes it a suitable buy for those looking to get all relevant information
on any topic under the Companies Act, 2013. The book also covers the amendments proposed by
the Companies (Amendment) Bill, 2016.
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The scope of the project is limited to the winding up of company, its grounds and the different
modes for winding up.
APPROACH TO RESEARCH
In this project doctrinal research was involved. Doctrinal Research is a research in which
secondary sources are used and materials are collected from libraries, archives, etc. Books,
journals, articles were used while making this project.
TYPE OF RESEARCH
Explanatory type of research was used in this project because the project topic was not relatively
new and unheard of and also because various concepts were needed to be explained.
Secondary source of data collection was used which involves collection of data from books,
articles, websites, etc. No surveys or case studies were conducted.
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CHAPTER 2
a. It is dissolved or stops its business in India, or running it is business only for the winding
up purpose.
b. It is unable to pay its debts.
c. If the tribunal determine in its opinion that it’s just and equitable and it should be
winding up2.
1
Section 2(42) of Companies Act, 2013.
2
Section 375 of Companies Act, 2013.
3
V. Finch, Corporate Insolvency Law: Perspectives and Principles, Cambridge University Press, 2002, p. 209.
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decide whether the company is currently running its business or not4. The Defunct company
could be dissolved if the registrar has reasons to believe that Company is not running its
business, of which he must send a letter to inquire whether the company is working or not. If the
Registrar does not receive an answer within one month than within fourteen days from expiry of
one month, sends to the Company via post another letter motioning previous letter. If the
company gives no answer within one month, thereof the notice would be published in the official
gazette to strike off the name of the company from the register of companies5.
4
Belal Allail, “An Analysis of Winding Up of Companies under Indian Companies Act, 2013”, International
Journal of Law, Volume 4, Issue 2, 2018, p. 118.
5
Section 560 of Companies Act, 1956.
6
Mohd. Nizamuddin v. Shiri Shakti LPG Ltd, (2003) 117 Comp. Cas. 138 (AP).
7
Section 20 of Sick Industrial Companies (Special Provisions) Act, 1985.
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CHAPTER 3
A petition for winding up of a Company can be filed on any of the following grounds:
1) Special Resolution
A company may be wound up by the Court if it has, by a special resolution, resolved that it be
wound up by the Court.
If a company has made a default in delivering the statutory report to the Registrar or in holding
the statutory meeting, a petition for winding up of the company may be presented to the Court. A
petition on this ground may be presented to the Court by a member or Registrar (with the
previous sanction of the Central Government) or a creditor. The power of the Court is
discretionary and generally it does not order for winding up in first instance. The Court may,
instead of making an order for winding up, direct the company to file the statutory report or to
hold the statutory meeting but if the company fails to comply with the order, the Court will wind
up the company8.
Where a company does not commence its business within one year from its incorporation or
suspends its business for a whole year, a winding up petition may be presented to the Court.
Even if the business is suspended for a whole year, this by itself does not entitle the petitioner to
get the company wound up as a matter of right but the question whether the company should be
wound up or not in such a circumstances entirely in the discretion of the Court depending upon
the facts and circumstances of each case.
8
“Practical Guidance of the Indian Companies Law: Winding Up of Companies”, p.6, available at
http://www.lexisnexis.com/ap/pg/indiacompanieslaw/document, visited on 1st November 2018.
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4) Company’s Inability to Pay Debts
A winding up petition may be presented if the company is unable to pay its debts.
Winding up by the Court on 'just and equitable' grounds may be ordered in the cases: when the
substratum of the Company is gone9, when there is mismanagement, when the business of the
Company becomes illegal and when there is a deadlock in the management of the company. In
Re Yenidje Tobacco Co. Ltd10., A and B the only shareholders and directors of a private limited
company became so hostile to each other that neither of them would speak to the other except
through the secretary. It was held that here was a complete deadlock and consequently the
company be wound up.
As per Section 272 of the Companies Act, 2013 the following persons can file a petition in the
Tribunal for compulsory winding up of a Company:
A company can file a petition to the Tribunal for its winding up when the members of the
company have resolved by passing a Special Resolution to wind up the affairs of the company.
Managing Director or the directors cannot file such a petition on their own account unless they
do it on behalf of the company and with the proper authority of the members in the General
Meeting11. But it is to be noted that the Court is not bound to order for winding up merely
because the company by a special resolution has so resolved. Even in such a case it is the
discretion of the Court to order for winding up or not.
A contributory shall be entitled to present a petition for the winding up of the company,
notwithstanding that he may be the holder of fully paid-up shares or that the company may have
no assets at all, or may have no surplus assets left for distribution among the holders after the
satisfaction of its liabilities. It is no more required of a contributory making petition to have
9
Seth Mohan Lal v. Grain Chambers Ltd., AIR 1968 SC 772.
10
(1916) 2 Ch 426.
11
Le Talbot, Critical Company Law, Routledge-Cavendish, New York, 2008, p.24.
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tangible interest in the assets of the company. Section 428 makes it clear that it includes the
holder of fully-paid shares. A fully-paid shareholder will not, however, be placed on the list of
contributors, as he is not liable to pay any contribution to the assets, except in cases where
surplus assets are likely to be available for distribution 12. A contributory is entitled to present a
petition for winding up a company if : (a) the number is reduced, in the case of a public company
below seven and in the case of private company below two; and (b) the shares in respects of
which he is a contributory either were originally allotted to him or have been held by him; and
(c) the shares have been registered in his name, for at least six months during the period of 18
months immediately before the commencement of the winding up; and (d) the shares have been
devolved on him during the death of a former holder [Sec. 439(4)].
Registrar may with the previous sanction of the Central Government make petition to the
Tribunal for the winding up the company 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; 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 or
morality; if on an application made by the Registrar or any other person authorized 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 or the company was formed for
fraudulent and unlawful purpose or the persons concerned in the formation or management of its
affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that it
is proper that the company be wound up13.
It can be on the ground that 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 or morality.
12
A.K. Majumdar and Dr. G.K. Kapur, Company Law and Practice, Taxmann Publications Pvt. Ltd., New Delhi,
2012, p. 212.
13
Ibid.
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The Court may dismiss or allow the petition for winding up and also can adjourn its hearing or
pass conditional order of winding up. In the case of Misrilal Dharamchand Ltd. v. B. Patnaik
Mines Ltd.14, the Court ordered for winding up but stayed the operation of the order for six
months so as to enable the company to pay the petitioner, if it could do so within this period and
in case of failure the order was to come in force.
The Tribunal shall appoint A Company liquidator in accordance with section 275, and may
remove him in accordance with section 276 of the act. Company Liquidator as defined under
section 2(23) of the Act, is a person appointed by the Tribunal in case of winding up by the
Tribunal. The Company Liquidator thus appointed, shall be the convener of the meetings of the
winding up committee which shall assist and monitor the liquidation proceedings in following
areas of liquidation functions, namely:- (i) taking over assets; (ii) examination of the statement of
affairs; (iii) recovery of property, cash or any other assets of the company including benefits
derived therefrom; (iv) review of audit reports and accounts of the company; (v) sale of assets;
(vi) finalisation of list of creditors and contributories; (vii) compromise, abandonment and
14
1978 48 Comp. Cas. 494 Orissa.
15
Stephen Griffin, Company Law Fundamental Principles, Pearson, 2015, p. 10.
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settlement of claims; (viii) payment of dividends, if any; (ix) any other function, as the Tribunal
may direct from time to time16.
The company liquidator shall place before the Tribunal a report along with minutes of the
meetings of the committee on monthly basis duly signed by the members present at the meeting.
The Company Liquidator shall prepare the draft final report for consideration and approval of the
winding up committee. The final report so approved by the winding up committee shall be
submitted by the Company Liquidator before the Tribunal for passing of a dissolution order in
respect of the company. (Section 277). Company liquidator has to submit its report within 60
days from the order passed by the tribunal, containing various financial details of the company,
in accordance with section 281. Powers and duties of Company Liquidator are given in detail
under section 290, which briefly confers functional powers to the liquidator, which are needed to
resolve all the claims and liabilities of the company, so that it can be dissolved.
The tribunal also has the power to stay the process of winding up at any stage, on an application
of promoter, shareholder, or creditor, if it is satisfied, that it is just and fair that an opportunity to
revive and rehabilitate the company be provided.
When the affairs of a company have been completely wound up, the Company Liquidator shall
make an application to the Tribunal for dissolution of such company. The Tribunal shall on an
application filed by the Company Liquidation under subsection (1) of section 302, is of the
opinion that it is just and reasonable in the circumstances of the case that an order for the
dissolution of the company should be made, make an order that the company be dissolved from
the date of the order, and the company shall be dissolved accordingly17.
16
Supra 12.
17
Supra 15.
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CHAPTER 4
The winding up of a company can also be done voluntarily by the members of the Company, if:
In Neptune Assurance Co. Ltd. v. Union of India 18, the voluntary winding up means by a specific
resolution of a company to that effect. In British Water Gas Syndicate v. Notts Derby Water Gas
Co. Ltd19., the well-functioning company, can be wound up only by passing a special resolution
hence either article of the company or the Court can intervened by implementing the statutory
right. In Re West Cumberland Iron Steel Co.20, the voluntary winding commence at the point of
time when resolution of it passed not when the court supervise or passed an order. In National
Stores v. Ramsaran21, the consequence of the voluntary wind up is that the Company stops to
bear on its business except so far as might be required for useful wind-up. Voluntary winding up
of Companies does not prevent for legal proceeding and filing of new case22.
A members’ voluntary winding up is possible only when the company is solvent and is able to
pay its debts in full. In this case, it is not necessary for the members to consult the creditors or to
18
1973 SCR (2) 940.
19
1889 WN 204.
20
(1889) 40 Ch D 361.
21
AIR 1926 Nag 303.
22
Knowles v. Scott, (1891) 1 Ch 717.
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call their meeting. A Declaration of Solvency should be made by the Directors. The declaration
must be made in the meeting of the Board of Directors. It should be made by a majority of the
directors and certified by an affidavit. The declaration must be accompanied by a statement of
assets and liabilities up to the date of declaration. A copy of the Auditor’s Report on the Profit
and Loss Account and on the Balance Sheet from the last accounting date to a date ending with
the latest practicable date immediately before the date of making the declaration also attached to
it. The Declaration should be made and filed with the Registrar at least 5 weeks immediately
before the date on which it is proposed to pass the resolution relating to the winding up.
Otherwise, the declaration will not be effective.
As per the procedure for winding up of a company in India, the notice for this creditor's meeting
should be sent by post to each of the creditor while one is sending the notice for general meeting.
It should also be published in Official Gazette and two newspapers which are popular in the
district where registered office of the company is located. A Statement of Affairs and list of
creditors with amount due for each of them should be prepared beforehand and should be laid
during the meeting. In case the resolution is passed during creditor's meeting, a copy of that
resolution is needed to be filed with the Registrar within ten working days from the date when
the resolution is passed23.
When the Board of Director passed the resolution for the closing the affairs of the Company but
their position are not obvious about the liability of the Company. In such situation they might be
call the meeting of all creditors regarding the winding up of the Company. In Re Karamelli and
Barnett Ltd.24, in the procedure of winding up, the Company must arrange the meeting of the
creditors and shareholders. After that, the Directors must describe the position of Company
business affairs to the creditors.
23
“Companies Act 2013- Winding Up”, p. 15, available at http://www.accaglobal.com/content/dam/ACCA_Global,
visited on 1st November 2018.
24
(1917) 1 Ch 203.
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During the same creditor's meeting, a liquidator shall be nominated by the creditors. He shall
prepare the detailed list of assets and liabilities of the company and shall also propose the process
and timelines for liquidation. The Section 490 of the Companies Act, 1956 gives that Company
must delegate at least more than one liquidator, in the general meeting who must care for the
winding up procedure of the Company and the Secretary of it can be designated. In Re London &
Australian Agency Corp. Ltd25., the court held that the solicitor could be appointed as liquidator
and remuneration must be paid to him for his services. As per the Insolvency and Bankruptcy
Code, 2016 the fee to be paid to this liquidator is part of liquidation cost. Liquidator shall value,
sell, recover and realize all assets of the corporate person. He shall open bank account for
purpose of receiving money from sale of such assets and will also administer the distribution of
such proceed with the stakeholders within six months of receipt of these proceeds. He shall also
keep an electronic copy of these reports and will save them for at least next eight years from the
date of dissolution of the corporate person. In Re Amalgamated Syndicate Ltd.26, the
remuneration for the liquidator in voluntary winding up of the company has to be fixed at the
meeting by the contribution if the court also can adjust the compensation if it not done.
Once the affairs of the corporate person are completely wound up, the liquidator shall apply with
NCLT (National Company Law Tribunal) for its dissolution along with final report. The final
report would consist of audited liquidation accounts and statements showing the details of the
disposed off assets and how they were sold. This Final Report also needs to be filed with ROC
(Registrar of Companies) and Board.
Once this Final Report is submitted, NCLT shall pass the order for dissolution and the company
shall stand dissolved from this date of NCLT order. A copy of this order needs to be forwarded
to ROC within 14 days when the order was passed.
CHAPTER 5
25
(1873) 29 LT 417:22 WR 45.
26
(1901) 2 Ch 181.
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CONCLUSION
A company is an artificial legal entity. Hence it cannot not come to end as a natural person or
other entity. The winding up is one of the legal procedures through which the life of the
Company can be ended. This mechanism comprehends the process of selling the assets, pays its
debts and disseminated any residual assets to the creditors or shareholders and then dissolving
the affairs of the company according to laws as well as the article of association.
The winding up of the company under the supervision of the Court is entirely different from the
winding of the Company through Court. In the case of the supervisory wind up of the Company,
the Court only supervises the mechanism or proceeding of the wind up the affairs of the
Company. Members of the company finally passed the resolution for the winding up the business
of the Company and the Court for some particular grounds with some special conditions,
supervise the proceeding of the winding up of the Company. Moreover, the creditors and
contributors have the autonomy to apply to the Court for supervision of the winding up the
Company under section 522.
SELECT BIBLIOGRAPHY
Books Referred:
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Griffin, Stephen, Company Law Fundamental Principles, Pearson, 2015.
Majumdar, A.K. and Kapur, Dr. G.K., Company Law and Practice, Taxmann
Publications Pvt. Ltd., New Delhi, 2012.
Talbot, Le, Critical Company Law, Routledge-Cavendish, New York, 2008.
Finch, V., Corporate Insolvency Law: Perspectives and Principles, Cambridge University
Press, 2002.
Articles Referred:
Allail, Belal, “An Analysis of Winding Up of Companies under Indian Companies Act, 2013”,
International Journal of Law, Volume 4, Issue 2, 2018, pp. 117-122.
Internet Sources:
Companies Act 2013- Winding up, available at
http://www.accaglobal.com/content/dam/ACCA_Global.
Practical Guidance of the Indian Companies Law: Winding Up of Companies, available
at http://www.lexisnexis.com/ap/pg/indiacompanieslaw/document.
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