STUDY MATERIAL FOR INTERNAL CIRCULATION

COURSE & SEMESTER: 5 YEARS B.COM. LL.B. VI SEM

SUBJECT: COMPANY LAW

UNIT-V
Reconstruction and amalgamation and winding up:

Reconstruction, rehabilitation and amalgamation: concept- Jurisdiction and powers of Court

and NCLT- vesting of rights and transfer of obligations- takeover and acquisition of minority
interest.

Winding up: Concept- modes of winding up- who can apply- procedure under different modes.

RECONSTRUCTION AND AMALGAMATION

It may become necessary for companies to reorganise their capital structure for the progress
and development of their business activities. It has already been stated that a company may
effect a compromise or arrangement with its members or creditors.

Reconstruction: ‘Reconstruction’ occurs when a company transfers the whole of its

undertaking and property to a new company under an arrangement by which the shareholders
of the old company are entitled to receive some shares or other similar interests in the new
company. A reconstruction is affected, for example, to bring about material alteration of the
rights of a class of shareholders or creditors.

‘Reconstruction’ of a company implies reconstruction of a company’s financial structure with

or without its dissolution. It may include the reduction of claims of both the shareholders and
the creditors against the company. The underlying objects of reconstruction may be:

1. Simplification of the capital structure;

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 2. Reduction of fixed charges;
3. Elimination of past losses;
4. Adjustment of arrears of cumulative dividends; and
5. Raising of company’s working capital.

Thus, reconstruction generally becomes necessary on account of deterioration in the financial

position of the company.

Merger or Amalgamation: ‘Amalgamation’ takes place when two or more companies into
one company, the shareholders in the amalgamation companies becoming substantially the
shareholders in the amalgamated company. There may be amalgamation either by the transfer
of one or more undertakings to a new company or by the transfer of one or more undertakings
to an existing company.

Merger and amalgamation of companies (Section-232):

1. Approval of Scheme by holders of Shares: where a company decides to amalgamate with

the other company, it has to prepare a scheme and same thing has to be approved by the
shareholders of a company. Where an application is made to the Tribunal for the sanctioning
of a compromise or an arrangement proposed between a company and any such persons as it
is shown to the Tribunal.

2. Tribunals Sanction: The scheme shall then be sanctioned by the Tribunal. The tribunal may
sanction the reconstruction and amalgamation and pass orders. The Tribunal, after satisfying
itself that the procedure has been complied with, may, by order, sanction the compromise or
arrangement or by a subsequent order, make provision for the following matters, namely:

(a) The transfer to the transferee company of the whole or any part of the undertaking, property
or liabilities of the transferor company from a date to be determined by the parties unless the
Tribunal, for reasons to be recorded by it in writing, decides otherwise;

(b) The allotment or appropriation by the transferee company of any shares, debentures,
policies or other like instruments in the company which, under the compromise or arrangement,
are to be allotted or appropriated by that company to or for any person

(c) The continuation by or against the transferee company of any legal proceedings pending by
or against any transferor company on the date of transfer;

(d) Dissolution, without winding-up, of any transferor company;

(e) Where share capital is held by any non-resident shareholder under the foreign direct
investment norms or guidelines specified by the Central Government or in accordance with any
law for the time being in force, the allotment of shares of the transferee company to such
shareholder shall be in the manner specified in the order;

(f) The transfer of the employees of the transferor company to the transferee company; by the
Securities and Exchange Board under any regulations framed by it;

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3. Certified Copy of Tribunal to be filed with the Registrar:
Where an order has been made by the Tribunal for merging companies or the companies in
respect of which a division is proposed, shall also be required to circulate the following for the
meeting so ordered by the Tribunal, namely:—
(a) The draft of the proposed terms of the scheme drawn up and adopted by the directors of the
merging company;
(b) Confirmation that a copy of the draft scheme has been filed with the Registrar;
(c) A report adopted by the directors of the merging companies explaining effect of
compromise on each class of shareholders, key managerial personnel, promoters and non-
promoter shareholders laying out in particular the share exchange ratio, specifying any special
valuation difficulties;
(d) The report of the expert with regard to valuation, if any;
(e) A supplementary accounting statement if the last annual accounts of any of the merging
company relate to a financial year ending more than six months before the first meeting of the
company summoned for the purposes of approving the scheme.
Where an order made for the transfer of any property or liabilities, then, by virtue of the order,
that property shall be transferred to the transferee company and the liabilities shall be
transferred to and become the liabilities of the transferee company and any property may, if the
order so directs, be freed from any charge which shall by virtue of the compromise or
arrangement, cease to have effect.
Every company in relation to which the order is made shall cause a certified copy of the order
to be filed with the Registrar for registration within thirty days of the receipt of certified copy
of the order.
If a transferor company or a transferee company contravenes the provisions of this section, the
transferor company or the transferee company, as the case may be, shall be punishable with
fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh
rupees and every officer of such transferor or transferee company who is in default, shall be
punishable with imprisonment for a term which may extend to one year or with fine which
shall not be less than one lakh rupees but which may extend to three lakh rupees, or with both.

AMALGAMATION BY GOVERNMENT ORDER (SECTION 237):

The Central Government may by order notified in the Official Gazette provide for the
amalgamation of two or more companies into a single company with such property, powers,
rights, interests, authorities, privileges, liabilities, duties, and obligations as specified in the
order. The order may also provide for continuation by or against the transferee company of any
legal proceedings pending by or against any transferor company. The order may also provide
for necessary consequential, incidental and supplemental provisions. Every member or creditor
of each transferor companies before amalgamation shall have almost same interest in or against
the transferee company. In case, the interest in or right against the transferee company is less
than his interest in or right against the original company, he shall be entitled to compensation
assessed by an authority. Every such assessment shall published in the Official Gazette. The
compensation so assessed shall be paid to the member or creditor concerned by the transferee
company.
Any person aggrieved by any assessment of compensation may within a period of thirty
days from the date of publication in the Official Gazette, prefer an appeal to the tribunal.

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 REHABILITATION OF COMPANIES

Where on a demand by the secured creditors of a company representing fifty percent or more
of its outstanding amount of debt, the company has failed to pay the debt within a period of
thirty days of the service of the notice of demand or to secure or compound it to the reasonable
satisfaction of the creditors, any secured creditor may file an application to the Tribunal in the
prescribed manner along with the relevant evidence for such default, non-repayment or failure
to offer security or compound it, for a determination that the company be declared as a sick
company. A company which fail to pay or secure a debt, which is fifty percent or more of its
total outstanding debt, within thirty days of demand notice it may be declared as sick company.

DETERMINATION OF SICKNESS (SECTION 253):

The demand for payment or to secure or to compound such debt shall be made by
secured creditors only. On failure of the company to fulfil the demand to pay or to secure to
compound, any secured thereafter may file an application to the Tribunal. The application shall
be accompanied with relevant evidence for such default, non – payment or failure to offer
security or compound the debt.

A company may also file an application before the Tribunal to declare it a sick company
and also for stay of proceedings discussed above. Further, on sufficient reason to believe that
any company become a sick company; the Central Government, or the Reserve Bank of Indian,
or the State Government, or a public financial institution, or a state level institution, or a
schedule bank may also file reference before the Tribunal. A reference shall not be made in
respect of any company. Where an application for determination as a sick company or by the
company for stay of proceedings:

(a) the company shall not dispose of or otherwise enter into any obligation with regard to its
properties or assets;
(b) the Board of directors shall not take any steps likely to prejudice the interest of the creditors.
The tribunal shall, within a period of sixty days of the receipt of any application,
determine whether a company is a sick company or not. The company shall be given a notice
of the application and a reasonable opportunity to reply to the notice within thirty of the receipt
of the notice.

If the Tribunal is satisfied that a company has become a sick company, the Tribunal
shall by an order decide, whether the company may make repayment of its debt within a
reasonable time. Where Tribunal determine that it is practicable for the sick company to pay
its debt within a reasonable time, the Tribunal shall, by order in writing shall give a time period
to make repayment of the debt.

❖ Application for Revival and Rehabilitation (Section 254):

Once a company is determined as a sick company by the Tribunal, any secured

creditor of the company or the company itself may make an application to the Tribunal for
determination of measures for revival and rehabilitation of the company.

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 An application shall be accompanied by—

(a) audited financial statement of the company relating to the immediately preceding
financial year;
(b) such particulars and documents, duly authenticated in such manner, along with such fee
as prescribed; and
(c) a draft scheme of revival and rehabilitation of the company in prescribed manner.

Where the sick company has no draft scheme of revival and rehabilitation to offer, it
shall file a declaration to that effect along with the application. The application for revival and
rehabilitation shall be made it the Tribunal within a period of sixty days from the date of
determination of the company as a sick company by the Tribunal.

SCHEME OF REVIVAL AND REHABILITATION (SECTION 261):

The company administrator shall prepare or cause to be prepared a scheme of revival

and rehabilitation of the sick company after considering the draft scheme filed along with the
application under Section 254.

The scheme may provide any one or more of following measures, namely –

i. the financial reconstruction of the sick company;

ii. the proper management of the sick company by any change in, or by taking over, the
management of such company;
iii. the amalgamation of –
1. the sick company with any other company; or
2. any other company with the sick company;
iv. takeover of a part or whole of my asset or business of the sick company;
v. the sale or release of a part or whole of any asset or business of the sick company;
vi. the rationalisation of managerial personnel, supervisory staff and workmen in
accordance with law;
vii. such other appropriate preventive, ameliorative and remedial measures;
viii. repayment or rescheduling or restructuring of the debts or obligations of the sick
company to any of its creditors or class of creditors;
ix. such incidental, consequential or supplemental measures as may be necessary or
expedient in connection with or for the purpose of the measures specified in above
clauses.

❖ SANCTION OF SCHEME (SECTION 262):

The scheme prepared by the company administrator shall be place before the creditors of the
company in a meeting for their approval within the period sixty days from his appointment.
This period of sixty days may be extended up to one hundred twenty days.

Approval in Meetings:

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The company administrator shall separate meetings of secured and unsecured creditors. If the
scheme is approved by (a) unsecured creditors representing one – forth in value of the amount
owed by the company and (b) secured creditors representing three – forth in value of the amount
outstanding against financial assistance disbursed to the company; the company administrator
shall submit the Tribunal for sanctioning the scheme. Where the scheme relates to
amalgamation of the sick company with any other company, the scheme shall also be approved
by a special resolution in general meetings by shareholders of both companies. Only after this
approval, the scheme shall be proceeded with.

Examination by Tribunal:

The scheme prepared by the company administrator shall be examined by the Tribunal. If, there
is any modification, the Tribunal shall send the draft to the sick company and the company
administrator. In case of amalgamation, the scheme shall also be sent to other company under
the amalgamation. The Tribunal may publish or cause to be published the draft scheme in brief
in daily newspapers for suggestions and objections. The complete draft scheme shall be kept
at the place where registered office of the company is situated or at a place mentioned in the
advertisement. In light of suggestions and objections received, the Tribunal may make such
modifications as it may consider necessary. The sick company, company administrator,
amalgamating company, and any shareholder or creditor or employee of these companies may
submit suggestions and objections.

Approved Scheme:

After satisfying that the scheme had been validly approved, the Tribunal shall within sixty days
from the receipt of the scheme, pass an order sanctioning such scheme. Yes, this is practically
a challenge for all parties concerned. The sanction accorded by the Tribunal shall be conclusive
evidence that all the requirements of the scheme relating to the reconstruction or amalgamation
or any other measure specified therein have been complied with. A copy of the sanctioned
scheme certified in writing by an officer of the Tribunal to be a true copy thereof shall in all
legal proceedings be admitted as evidence. A copy of the sanctioned scheme shall be filed with
the Registrar by the sick company within a period of thirty days from the date of receipt of a
copy thereof.

Properties and Liabilities:

Where a sanctioned scheme provides for the transfer of any property or liability of the sick
company to any other company or person or where the scheme provides for the transfer of any
property or liability of any other company or person in favour of the sick company, then, by
virtue of, and to the extent provided in, the scheme, on and from the date of coming into
operation of the sanctioned scheme or any provision thereof, the property shall be transferred
to, and vest in, and the liability shall become the liability of, such other company or person or,
as the case may be, the sick company.

Review of Scheme:

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The Tribunal may review any sanctioned scheme and make such modifications, as it may deem
fit, or may by order in writing direct company administrator, to prepare a fresh scheme
providing for such measures as the company administrator may consider necessary.

❖ WINDING UP OF COMPANY ON REPORT OF COMPANY ADMINISTRATOR

(SECTION 265):

If the scheme is not approved by the creditors, the company administrator shall
submit a report to the Tribunal within fifteen days and the Tribunal shall order for
winding up of the sick company.

THE NATIONAL COMPANY LAW TRIBUNAL

Introduction:
The new Act proposes constitution of a NATIONAL COMPANY LAW TRIBUNAL (NCLT)
to replace the COMPANY LAW BOARD (CLB) and also assume the jurisdiction of High
Court as the sanctioning authority in relation to reconstruction of companies. The proposed
Tribunal was challenged in Thiru R. Gandhi, President, Madras Bar Association vs. Union
of India, wherein the Madras High Court held that certain aspects of the tribunal were against
the basic structure of the constitution and thus unconstitutional. However, the Supreme Court
of India on 11th May, 2010 ruled that the provisions of Companies (Second Amendment) Act,
2002 pertaining to transfer of several judicial and quasi- judicial powers to NCLT are
constitutionally valid subject to amendments being made to make the Tribunal’s members
independent. With the Supreme Court’s green light, the Companies Act, 2013 now provides
for the constitution of NCLT & National Company Law Appellate Tribunal (NCLAT).

Constitution of National Company Law Tribunal (Section 408):

The Central Government shall, by notification, constitute, a Tribunal to be known as the
National Company Law Tribunal consisting of a President and such number of Judicial and
Technical members, as the Central Government may deem necessary, to be appointed by it by
notification, to exercise and discharge such powers and functions as may be conferred on it by
or under this Act or any other law for the time being in force.

Qualification of President and Members of Tribunal (Section 409):

(1) The President shall be a person who is or has been a Judge of a High Court for five years.
(2) A person shall not be qualified for appointment as a Judicial Member unless he—
(a) is, or has been, a judge of a High Court; or
(b) is, or has been, a District Judge for at least five years; or
(c) has, for at least ten years been an advocate of a court.
(3) A person shall not be qualified for appointment as a Technical Member unless he—
(a) has, for at least fifteen years been a member of the Indian Corporate Law Service or
Indian Legal Service; or
(b) is, or has been, in practice as a chartered accountant for at least fifteen years; or
(c) is, or has been, in practice as a cost accountant for at least fifteen years; or
(d) is, or has been, in practice as a company secretary for at least fifteen years; or
(e) is a person of proven ability, integrity and standing having special knowledge and
experience, of not less than fifteen years, in law, industrial finance, industrial
management or administration, industrial reconstruction, investment, accountancy,

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 labour matters, or such other disciplines related to management, conduct of affairs,
revival, rehabilitation and winding up of companies; or
(f) is, or has been, for at least five years, a presiding officer of a Labour Court, Tribunal
or National Tribunal constituted under the Industrial Disputes Act, 1947.

Constitution of Appellate Tribunal (Section 410):

The Central Government shall, by notification, constitute, an Appellate Tribunal to be known
as the National Company Law Appellate Tribunal consisting of a chairperson and such number
of Judicial and Technical Members, not exceeding eleven, as the Central Government may
deem fit, to be appointed by it by notification, for hearing appeals against the orders of the
Tribunal.

Qualifications of chair(Section 411):

(1) The chairperson shall be a person who is or has been a Judge of the Supreme Court or the
Chief Justice of a High Court.
(2) A Judicial Member shall be a person who is or has been a Judge of a High Court or is a
Judicial Member of the Tribunal for five years.
(3) A Technical Member shall be a person of proven ability, integrity and standing having
special knowledge and experience, of not less than twenty-five years, in law, industrial finance,
industrial management or administration, industrial reconstruction, investment, accountancy,
labour matters, or such other disciplines related to management, conduct of affairs, revival,
rehabilitation and winding up of companies.

Selection of Members of Tribunal and Appellate Tribunal (Section 412):

(1) The President of the Tribunal and the chairperson and Judicial Members of the Appellate
Tribunal shall be appointed after consultation with the Chief Justice of India.
(2) The Members of the Tribunal and the Technical Members of the Appellate Tribunal shall
be appointed on the recommendation of a Selection Committee consisting of—
(a) Chief Justice of India or his nominee—Chairperson;
(b) a senior Judge of the Supreme Court or a Chief Justice of High Court Member;
(c) Secretary in the Ministry of Corporate Affairs—Member;
(d) Secretary in the Ministry of Law and Justice—Member; and
(e) Secretary in the Department of Financial Services in the Ministry of Finance—
Member.
(3) The Secretary, Ministry of Corporate Affairs shall be the Convener of the Selection
Committee.
(4) The Selection Committee shall determine its procedure for recommending persons under
sub-section (2).
(5) No appointment of the Members of the Tribunal or the Appellate Tribunal shall be invalid
merely by reason of any vacancy or any defect in the constitution of the Selection Committee.

Term of office of President, chairperson and other Members(Section 413):

(1) The President and every other Member of the Tribunal shall hold office as
such for a term of five years from the date on which he enters upon his office, but shall
be eligible for re-appointment for another term of five years.
(2) A Member of the Tribunal shall hold office as such until he attains,—
(a) in the case of the President, the age of sixty-seven years;
(b) in the case of any other Member, the age of sixty-five years:

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 (3) The chairperson or a Member of the Appellate Tribunal shall hold office as such for a term
of five years from the date on which he enters upon his office, but shall be eligible for re-
appointment for another term of five years.
(4) A Member of the Appellate Tribunal shall hold office as such until he attains,—
(a) in the case of the Chairperson, the age of seventy years;
(b) in the case of any other Member, the age of sixty-seven years

Salary, allowances and other terms and conditions of service of Members(Section 414):
The salary, allowances and other terms and conditions of service of the Members of the
Tribunal and the Appellate Tribunal shall be such as may be prescribed: Provided that neither
the salary and allowances nor the other terms and conditions of service of the Members shall
be varied to their disadvantage after their appointment.

Acting President and Chairperson of Tribunal or Appellate Tribunal(Section 415):

(1) In the event of the occurrence of any vacancy in the office of the President or the
Chairperson by reason of his death, resignation or otherwise, the senior-most Member shall act
as the President or the Chairperson, as the case may be, until the date on which a new President
or Chairperson appointed in accordance with the provisions of this Act to fill such vacancy
enters upon his office.
(2) When the President or the Chairperson is unable to discharge his functions owing to
absence, illness or any other cause, the senior-most Member shall discharge the functions of
the President or the Chairperson, as the case may be, until the date on which the President or
the Chairperson resumes his duties.

Resignation of Members(Section 416):

The President, the Chairperson or any Member may, by notice in writing under his hand
addressed to the Central Government, resign from his office: Provided that the President, the
Chairperson, or the Member shall continue to hold office until the expiry of three months from
the date of receipt of such notice by the Central Government or until a person duly appointed
as his successor enters upon his office or until the expiry of his term of office, whichever is
earliest.

Removal of Members(Section 417):

(1) The Central Government may, after consultation with the Chief Justice of India, remove
from office the President, Chairperson or any Member, who—
(a) has been adjudged an insolvent; or
(b) has been convicted of an offence which, in the opinion of the Central Government,
involves moral turpitude; or
(c) has become physically or mentally incapable of acting as such President, the
Chairperson, or Member; or
(d) has acquired such financial or other interest as is likely to affect prejudicially his
functions as such President, the Chairperson or Member; or Salary, allowances and
other terms and conditions of service of Members.
(e) has so abused his position as to render his continuance in office prejudicial to the
public interest: Provided that the President, the Chairperson or the Member shall not
be removed on any of the grounds specified in clauses (b) to (e) without giving him a
reasonable opportunity of being heard.
(2) The President, the Chairperson or the Member shall not be removed from his office except
by an order made by the Central Government on the ground of proved misbehaviour or
incapacity after an inquiry made by a Judge of the Supreme Court nominated by the Chief
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Justice of India on a reference made to him by the Central Government in which such President,
the Chairperson or Member had been informed of the charges against him and given a
reasonable opportunity of being heard.
(3) The Central Government may, with the concurrence of the Chief Justice of India, suspend
from office, the President, the Chairperson or Member in respect of whom reference has been
made to the Judge of the Supreme Court until the Central Government has passed orders on
receipt of the report of the Judge of the Supreme Court on such reference.
(4) The Central Government shall, after consultation with the Supreme Court, make rules to
regulate the procedure for the inquiry on the ground of proved misbehaviour or incapacity.

POWERS AND FUNCTIONS OF NCLT:

Orders of Tribunal(Section 420):
(1) The Tribunal may, after giving the parties to any proceeding before it, a reasonable
opportunity of being heard, pass such orders thereon as it thinks fit.
(2) The Tribunal may, at any time within two years from the date of the order, with a view to
rectifying any mistake apparent from the record, amend any order passed by it, and shall make
such amendment, if the mistake is brought to its notice by the parties: Provided that no such
amendment shall be made in respect of any order against which an appeal has been preferred
under this Act.
(3) The Tribunal shall send a copy of every order passed under this section to all the parties
concerned.

Appeal from orders of Tribunal(Section 421):

(1) Any person aggrieved by an order of the Tribunal may prefer an appeal to the Appellate
Tribunal.
(2) No appeal shall lie to the Appellate Tribunal from an order made by the Tribunal with the
consent of parties.
(3) Every appeal under sub-section (1) shall be filed within a period of forty-five days from
the date on which a copy of the order of the Tribunal is made available to the person aggrieved
and shall be in such form, and accompanied by such fees, as may be prescribed: Provided that
the Appellate Tribunal may entertain an appeal after the expiry of the said period of forty-five
days from the date aforesaid, but within a further period not exceeding forty-five days, if it is
satisfied that the appellant was prevented by sufficient cause from filing the appeal within that
period.
(4) On the receipt of an appeal under sub-section (1), the Appellate Tribunal shall, after giving
the parties to the appeal a reasonable opportunity of being heard, pass such orders thereon as it
thinks fit, confirming, modifying or setting aside the order appealed against.
(5) The Appellate Tribunal shall send a copy of every order made by it to the Tribunal and the
parties to appeal.

Appeal to Supreme Court(Section 423):

Any person aggrieved by any order of the Appellate Tribunal may file an appeal to the
Supreme Court within sixty days from the date of receipt of the order of the Appellate
Tribunal to him on any question of law arising out of such order.

Procedure before Tribunal and Appellate Tribunal(Section 424 ):

(1) The Tribunal and the Appellate Tribunal shall not, while disposing of any proceeding before
it or, as the case may be, an appeal before it, be bound by the procedure laid down in the Code
of Civil Procedure, 1908, but shall be guided by the principles of natural justice, and, subject

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to the other provisions of this Act and of any rules made there under, the Tribunal and the
Appellate Tribunal shall have power to regulate their own procedure.
(2) The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging their
functions under this Act, the same powers as are vested in a civil court under the Code of Civil
Procedure, 1908 while trying a suit in respect of the following matters, namely:—
(a) summoning and enforcing the attendance of any person and examining him on oath;
(b) requiring the discovery and production of documents;
(c) receiving evidence on affidavits;
(d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872,
requisitioning any public record or document or a copy of such record or document
from any office;
(e) issuing commissions for the examination of witnesses or documents;
(f) dismissing a representation for default or deciding it ex parte;
(g) setting aside any order of dismissal of any representation for default or any order
passed by it ex parte; and
(h) any other matter which may be prescribed.
(3) Any order made by the Tribunal or the Appellate Tribunal may be enforced by that Tribunal
in the same manner as if it were a decree made by a court in a suit pending therein, and it shall
be lawful for the Tribunal or the Appellate Tribunal to send for execution of its orders to the
court within the local limits of whose jurisdiction,—
(a) in the case of an order against a company, the registered office of the company is
situate; or
(b) in the case of an order against any other person, the person concerned voluntarily
resides or carries on business or personally works for gain.
(4) All proceedings before the Tribunal or the Appellate Tribunal shall be deemed to be judicial
proceedings within the meaning of sections 193 and 228, and for the purposes of section 196
of the Indian Penal Code, and the Tribunal and the Appellate Tribunal shall be deemed to be
civil court for the purposes of section 195 and Chapter XXVI of the Code of Criminal
Procedure, 1973.

➢ POWER TO PUNISH CONTEMPT (SECTION 425):

The Tribunal and the Appellate Tribunal shall have same jurisdiction, powers
and authority in respect of Contempt of themselves as the High Court has under the
provision of the Contempt of Courts Act, 1971.

➢ DELEGATION OF POWERS (SECTION 426):

The Tribunal or Appellate Tribunal may by general or special order direct any
of its officers or employee or any other person to inquire into any matter connected with
any proceeding or appeal before it and to report to it.

➢ TRIBUNAL MEMBERS TO BE PUBLIC SERVANTS (SECTION 427):

The President, Members, officers and other employees of the Tribunal and the
Chairperson, Members, officers and other employees of the Appellate Tribunal shall be
deemed to be public servants under Section 21 of the Indian Penal Code.

➢ PROTECTION OF ACTION TAKEN IN GOOD FAITH (SECTION 428):

No suit, prosecution or other legal proceeding shall lie against the Tribunal, the
President, Member, officer or other employee thereof or against the Appellate Tribunal,
the Chairperson, Member, Officer or other employees thereof or liquidator or any other

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 authorised person for the discharge of any function under this Act in respect of any loss
or damage caused or likely to be caused by any act which is in good faith done in
pursuance of this Act.

➢ POWER TO SEEK ASSISTANCE (SECTION 429):

The Tribunal may in order to take into custody or under its control all property,
books of account or other documents request in writing the Chief Metropolitan
Magistrate, Chief Judicial Magistrate or District Collector within whose jurisdiction
any such property, books of account or other documents of a company are situate or
found to take possession thereof. The magistrate or collector shall –
(a) take possession of such property, books of account or other documents; and
(b) cause the same to be entrusted to the Tribunal or other person authorised by
it.
The Magistrate or Collector may take steps and use force as may be necessary.
No such act shall be called in question on any court or before any authority on any
ground whatsoever.

➢ RIGHT TO LEGAL REPRESENTATION (SECTION 432):

A party to any proceeding or appeal before the Tribunal or the Appellate
Tribunal, as the case may be, may either appear in person or authorise one or more
chartered accountants or company secretaries or cost accountants or legal practitioners
or any other person to present his case before the Tribunal or the Appellate Tribunal.

➢ TRANSFER OF CERTAIN PROCEEDINGS (SECTION 434):

The Central Government may by notification decide date to transfer following proceedings –
(a) All matters, proceedings or cases before the Company Law Board immediately before the
notified date shall transfer to the Tribunal;
(b) All proceedings including arbitration, compromise, arrangement, reconstruction and
winding up, pending before any District Court or High Court shall stand transferred to the
Tribunal from Notified date;
(c) Any reference or inquiry pending before the Board of Industrial and Financial
Reconstruction or any appeal or proceeding before Appellate Authority for Industrial and
financial Reconstruction shall stand abated. The company may make such reference or appeal
before the Tribunal within one hundred and eighty days.

WINDING UP OF A COMPANY

MEANING OF WINDING UP:

Winding up or liquidation of a company represents the last stage in its life. It means a
proceeding by which a company is dissolved. The assets of the company are disposed of, the
debts are paid off out of the released from the assets, and the surplus , if any, is then distributed
among the members in proportion to their holdings in the company.
According to Prof. Gower, winding up of a company is a process whereby its life is
ended and its property administered for the benefit of its creditors and members.
An administrator called liquidator , is appointed and he takes control of the company,
collects its assets, pays its debt and finally distributes any surplus among the members in
accordance with their rights.

MODES OF WINDING – UP (SECTION 270):

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 There are two modes of winding up of a company, namely.,
1. Winding up by the Tribunal; or
2. Voluntary winding up.

I. WINDING UP BY THE TRIBUNAL

Winding up of a company under the order of a Tribunal is also called as “Compulsory Winding
Up”. It is initiated by an application by way of petition to the Tribunal for a winding up order.

CIRCUMSTANCES FOR WINDING UP BY TRIBUNAL (SECTION 271):

A company may be wound up by the Tribunal on a petition filed under Section 272 of
the Act.
The company may be wound up by Tribunal-
1. If the Company is Unable to Pay its Debts (sub – section 2 of Section 271):
A company may be wound up by the Tribunal if it is unable to pay its debts. In this
stage company has reached a stage where it is commercially insolvent, which means that
the company is unable to pay its debts or liabilities as they arise in the ordinary course of
business.
A company shall be deemed to be unable to pay its debts, if the company has to pay
the sum within twenty – one days after the receipt of demand or to provide adequate security
or re – structure or compound the debt to the reasonable satisfaction of the creditor
2. Special Resolution of the Company:
Winding up under this is not common because normally the members of
the company prefer to wind up the company voluntarily for in such a case they
shall have voice in its winding up. If the company has resolved by special
resolution that the company be wound up by the Tribunal.
3. Against the Sovereignty of India:
If the company has acted against the interests of the sovereignty and
integrity of India, its security of the State, friendly relations with foreign States,
public order, decency or morality then the Tribunal may order for the winding
up of a company.
4. If a Company is Sick:
If the Tribunal has ordered the winding up of the company in case of a
sick company.
5. If the Affairs of the Company is Fraudulent:
If, on application by the Registrar or the Government, the Tribunal is of
the opinion that the affairs of the company has 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 up.
6. Default in Submitting the Financial Statements or Annual Returns with the
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.
7. Just and Equitable Grounds:
If the Tribunal is of the opinion that it is just and equitable to wind up
the company then they can do so. The words ‘Just and Equitable’ are of the

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 widest significance and do not limit the jurisdiction of the Tribunal to any
particular case. The principle of Just and Equity must be rest with the judicial
discretion of the Tribunal depending upon the facts and circumstances of each
case.
The Tribunal may order winding up under the ‘Just and Equitable’
clause in the following circumstances:
2. When the Substratum of the Company is Gone: The main purpose or basis
of a company can be said to have disappeared only when the object for which it
was incorporated has substantially failed, or when it is impossible to carry on
the business of the company except at a loss, or the existing and possible assets
are insufficient to meet the existing liabilities.
3. When the Management is carried on in Such a Way that the Minority
disregarded or Oppressed: Oppression of minority shareholders will be a ‘just
and equitable’ ground where those who control the company abuse their power
to such an extent as to seriously prejudice the interest of minority shareholders.
4. Where there is Deadlock in the Management of the Company: When the
shareholding is more or less equal and there is a case of complete deadlock in
the company on account of lack of probity in the management of the company
and there is no hope or possibility of smooth and efficient continuance of the
company as a commercial concern, there may arise a case for winding up on the
‘just and equitable’ ground.
5. Where the Public Interest is likely to be Prejudiced: Where the concept of
prejudice to public interest is introduced, it would appear that the Tribunal
winding up a company will have to take into consideration not only the interest
of shareholders and creditors but also public interest in the shape of need of the
community, interest of the employees, etc.

PETITION FOR WINDING UP (SECTION 272):

A petition to the Tribunal for the binding up of a company shall be presented by –
a) The company;
b) Any creditor or creditors, including any contingent or prospective creditor or creditors;
c) Any contributory or contributories;
d) All or any of the person in above clauses together;
e) The Registrar;
f) Any person authorised by the Central Government in that behalf; or
g) In case the company has acted against the interests of the sovereignty and integrity of
India, its security of the State, friendly relations with foreign States, public order, decency or
morality , by the Central Government or State Government.
The Registrar shall not be entitle to present a petition for winding up on the grounds
the Registrar shall not present a petition on the ground that the company is unable 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 an inspector appointed under section 210 that the
company is unable to pay its debts. The Registrar shall obtain the previous sanction of the
Central Government to the presentation of a petition. The Central Government shall not accord
its sanction unless the company has been given a reasonable opportunity of making
representations.
A petition presented by the company for winding up before the Tribunal shall be
admitted only if accompanied by a statement of affairs in such form and in such manner as may
be prescribed.

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 A copy of the petition made under this section shall also be filed with the Registrar and
the Registrar shall, without prejudice to any other provisions, submit his views to the Tribunal
within sixty days of receipt of such petition.

POWERS OF TRIBUNAL (SECTION 273):

The Tribunal, on receipt of a petition for winding up, may pass any of the following orders,
namely—
1. dismiss it, with or without costs;
2. make any interim order as it think fit;
3. appoint a provisional liquidator of the company till the making of a winding up order;
4. make an order for the winding up of the company with or without cost; or
5. any other order as it think fit.
The Tribunal shall make the order within ninety days from the date of presentation of the
petition. Before appointing a provisional liquidator, the Tribunal shall give notice to the
company and afford a reasonable opportunity to it to make its representations. However, for
special reasons to be recorded in writing, the Tribunal may dispense with such notice. The
Tribunal shall not refuse to make a winding up order on the ground only that the assets of the
company have been mortgaged for an amount equal to or in excess of those assets, or that the
company has no assets. Where a petition is presented on the ground that it is just and equitable
that the company should be wound up, the Tribunal may refuse to make an order of winding
up, if it is of the opinion that some other remedy is available to the petitioners and that they are
acting unreasonably in seeking to have the company wound up instead of pursuing the other
remedy.

➢ COMPANY LIQUIDATOR AND THEIR APPOINTMENTS (SECTION 275):

For the purposes of winding up of a company by the Tribunal, the Tribunal at the time of
passing of the order of winding up shall appoint an Official Liquidator or a liquidator from
the panel maintained as the Company Liquidator.

Provisional liquidator shall have same powers as a liquidator unless the Tribunal limit
or restrict his power by an order.
The provisional liquidator or the Company Liquidator, shall be appointed from a panel
maintained by the Central Government consisting of the names of chartered accountants,
advocates, company secretaries, cost accountants or firms or bodies corporate having such
chartered accountants, advocates, company secretaries, cost accountants and other
professionals as may be notified by the Central Government or from a firm or a body corporate
of persons having a combination of such professionals and having at least ten years’ experience
in company matters. The Central Government may remove the name of any person or firm or
body corporate form the penal on the grounds of misconduct, fraud, misfeasance, breach of
duties or professional incompetence. The Central Government shall give him or it a reasonable
opportunity of being heard before remove him or it from the panel. The terms and conditions
of appointment of a provisional liquidator or Company Liquidator and the fee payable to him
or it shall be specified by the Tribunal on the basis of task required to be performed, experience,
qualification of such liquidator and size of the company. On appointment as provisional
liquidator or Company Liquidator, as the case may be, such liquidator shall file a declaration
within seven days from the date of appointment in the prescribed form disclosing conflict of
interest or lack of independence in respect of his appointment, if any, with the Tribunal and
such obligation shall continue throughout the term of his appointment. While passing a winding
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up order, the Tribunal may appoint a provisional liquidator, if any, as the Company Liquidator
for the conduct of the proceedings for the winding up of the company.

DUTIES OF LIQUIDATOR:
Followings are the duties of the official liquidator of a company:
1. Conduct Proceedings in Winding Up: The liquidator shall conduct the proceedings
in winding up the company and perform duties imposed by the Tribunal.
2. Report : The official liquidator shall as soon as possible prepare a report of the
statement of affairs of the company. The report shall contain the particulars as to
1. The amount of the capital issued, subscribed and paid up, and the estimated
amount of assets and liabilities.
2. If the company has failed as to the cause of failure; and
3. Whether, in his opinion, further enquiry is desirable as to any matter relating
to the promotion, formation, or failure of the company, or the conduct of
business thereof.
3. Custody of Company Property: Where a winding up order has been made or where
a liquidator has been appointed, shall take into his custody all the property, effect and
actionable claims to which the company is entitled. So long as there is no liquidator,
all the property of the company shall be in the custody of Tribunal.
4. Meetings of Creditors and Contributories: The liquidator may summon general
meetings of the creditors or contributories whenever he thinks fit for the purpose of
ascertaining their wishes.
5. Directions from the Tribunal: The liquidator may apply to the Tribunal for directions
in relation to any particular matter arising in winding up. He shall also use his own
discretion in the administration of the assets of the company and in the distribution
thereof among the creditors.
6. Proper Books: The liquidator shall keep proper books for making entries or recording
minutes of the proceedings at meetings and such other matters as may be prescribed,
any creditor or contributory may, subject to the control of the Tribunal, inspect any
such books personally or by his agent.
7. Audit of Accounts: The liquidator shall at such times as may be prescribed but at least
twice each year during his tenure of office, present to the Tribunal an account of his
receipts and payments as liquidator. The account shall be in the prescribed form and
shall be duly verified.
8. Appointment of Committee of Inspection: The Tribunal may at the time of making
an order for the winding up of a company or at any time thereafter, direct that there
shall be appointed a committee of inspection to act with the liquidator.

POWERS OF LIQUIDATOR:
The liquidator shall exercise the following powers:
1. To institute or defend suits and other proceedings, civil, criminal in the name of a company
2. To carry on the business of the company so far as may be necessary for the beneficial
winding up of the company.
3. To sell the immovable and movable properties with power to transfer the whole or sell the
same.
4. To raise money on the security of the company’s assets
5. To do all acts and to execute documents and deeds on behalf of the company
6. To inspect the records and returns of the company.
7. To take out in his name, letters of administration to any deceased contributory and to do any
other act necessary for obtaining payment of any money due from a contributory.

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8. To appoint an agent to do any business which he is unable to do himself.

REMOVAL AND REPLACEMENT OF LIQUIDATOR (SECTION 276):

The Tribunal may, on a reasonable cause being shown and for reasons to be recorded in writing,
remove the provisional liquidator or the Company Liquidator on any of the following grounds,
namely:—
(a) misconduct;
(b) fraud or misfeasance;
(c) professional incompetence or failure to exercise due care and diligence in
performance of the powers and functions;
(d) inability to act as provisional liquidator or as the case may be, Company Liquidator;
(e) conflict of interest or lack of independence during the term of his appointment that
would justify removal.
In the event of death, resignation or removal of the provisional liquidator or Company
Liquidator, the Tribunal may transfer the work assigned to him or it to another Company
Liquidator for reasons to be recorded in writing. Where the Tribunal is of the opinion that any
liquidator is responsible for causing any loss or damage to the company due to fraud or
misfeasance or failure to exercise due care and diligence in the performance of his or its powers
and functions, the Tribunal may recover or cause to be recovered such loss or damage from the
liquidator and pass such other orders as it may think fit. The Tribunal shall, before passing any
order under this section, provide a reasonable opportunity of being heard to the provisional
liquidator or, as the case may be, Company Liquidator.

II. VOLUNTARY WINDING UP

Voluntary winding up means winding up by the members or creditors of a company
without interference by the Tribunal. The object of voluntary winding up is that the company,
i.e., the members as well as the creditors, are left free to settle their affairs without going to the
Tribunal they may however apply to the Tribunal for any directions, if and when necessary.
The Central Government came out with a comprehensive regulatory legislation titled as “The
Insolvency and Bankruptcy Code, 2016”. The Code is intended to regulate the conduct of the
corporate insolvency resolution process, liquidation process and provides fresh start to the
bankruptcy process. It abolishes Voluntary winding up of companies (Sections 304 to 323 of
Companies Act, 2013) and regulates liquidation process.

The Process of Voluntary Winding up of solvent company is now shifted from the Companies
Act, 2013 to Insolvency and Bankruptcy Code, 2016 w.e.f. 1st April, 2017. Some of the major
differences as compared to earlier regime are as follows:
• Shifting of Powers from Official Liquidator to Insolvency Professional.
• Jurisdictional Authority has been shifted from High Court to National Company Law
Tribunal (NCLT)
• Governing sections and corresponding rules and regulations for Member’s Voluntary
Winding is now shifted to Section 59 of the Insolvency and Bankruptcy Code, 2016
(IBC) read with Insolvency and Bankruptcy Board of India (Voluntary Liquidation
Process) Regulation, 2017.
• Timeline for carrying out the Voluntary Winding up process under the IBC is of 12
months, however in the event of Liquidation process continuing for more than 12
months, the Liquidator has to submit Annual Status Report indicating the progress of
such Liquidation.

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Who may apply for voluntary liquidation?
A corporate person who intends to liquidate itself voluntarily which has not committed any
default may initiate voluntary liquidation proceedings under the provisions of this Chapter.
[Section 59(1)] So, Any Company or LLP which has not defaulted in payment and have a full
capacity to repay debt can apply for voluntary liquidation.
Pre-Liquidation Process
➢ Declaration of Solvency
A declaration from majority of the directors of the company verified by an affidavit stating
that:
• They have made a full inquiry into the affairs of the company and they have formed an
opinion that either the company has no debt or that it will be able to pay its debts in full
from the proceeds of assets to be sold in the voluntary liquidation; and
• The company is not being liquidated to defraud any person;
The above declaration shall be accompanied with the following documents:
•Audited financial statements and record of business operations of the company for the
previous 2 years or for the period since its incorporation, whichever is later;
• A report of the valuation of the assets of the company, if any prepared by a registered
valuer;
➢ Members Approval
A special resolution of the members of the company in a general meeting requiring the
company to be liquidated voluntarily and appointing an insolvency professional to act as the
liquidator must be passed within 4 weeks of declaration of solvency;
➢ Creditors Approval
If the company owes any debt to any person, Creditors representing two thirds in value of the
debt of the company shall approve the resolution passed for voluntary liquidation within seven
days of such resolution.
➢ Intimation to ROC and IBBI
The company shall notify the ROC and the IBBI about the resolution passed to liquidate the
company within 7 days of such resolution or the subsequent approval by the creditors, as the
case may be. [Section 59(4)]
➢ Voluntary Liquidation Commencement Date
The voluntary liquidation proceedings in respect of a company shall be deemed to have
commenced from the date of passing of the special resolution, subject to the approval of the
creditors. [Section 59(5)]
Voluntary Liquidation Process
➢ Public Announcement
Liquidator shall make public announcement within 5 working days of his appointment to
submit claims within 30 days. It must be published in one English daily and one regional daily
newspaper wherein registered office of the corporate person is situated. It must also be posted
in the website of corporate persons, if having. It must be sent to the IBBI via e-
mail public.ann@ibbi.gov.in for posting it in board’s website.

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Public Announcement must contain the following:
•Liquidation commencement date;
•Name, Address, Contact number, Registration number of liquidator;
•Mode of submission of claim;
•Last date of submission of claim;
➢ Opening of Bank Account
A new bank account with scheduled bank must be opened with the word ‘In Liquidation’ at
last after the name of corporate person for receiving and paying settlement amount. Each and
every financial transaction must be settled through this account.
➢ Collection and Verification of Claims
All claims must be made within 30 days of public announcement. Liquidator must verify the
correctness of each claim and prepare a list of stakeholders.
➢ Preparation of Preliminary Report
Based on claims received, liquidator needs to prepare Preliminary Report within 45 days from
the date liquidation commencement date containing capital structure, assets and liabilities,
claims received etc.
➢ Distribution of Proceedings
Liquidator needs to sell all the assets by auction or through direct party, realize amount from
creditor and distribute proceedings among all the stakeholders.
➢ Submission of Final Report
Liquidator must prepare a final report containing liquidation proceedings and submit it to the
ROC, IBBI and NCLT. Based on final report and application for dissolution, NCLT pass an
order for dissolution of corporate entity.
➢ Filing of order with ROC
Copy of order received from NCLT needs to be filled with ROC in e-form INC-28 for
dissolution of a corporate entity.
Role of Adjudicating Authority i.e NCLT in whole Process
The Adjudicating Authority i.e NCLT is competent to declare the corporate person as dissolved
after due liquidation and distribution of its assets. The NCLT comes into the picture only at the
final stage of liquidation after application for Dissolution of Corporate Person is made by
Liquidator after distribution of Liquidation assets of the Corporate Person by following the
procedure stipulated under the Code.
Roles and Responsibilities of Liquidator in whole Process
Liquidator of corporate person is assigned with the following task
• To verify claims of all the creditors;
• To carry on the business of the corporate debtor for its beneficial liquidation as he
considers necessary;
• To value, sell, recover and realize all assets of and monies due to such corporate person
in a time bound manner;
• To open a bank account for the purpose of receiving all moneys due to the corporate
person;

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 • To pay and settle with the creditors of the corporate person;
• To obtain any professional assistance from any person or appoint any professional, in
discharge of his duties, obligations and responsibilities;
• To maintain registers specified under regulation 10 of schedule 2;
• To distribute proceeds to the stakeholders within a period of 6 (six) months of receipt
of the proceeds; and
• To preserve a physical or an electronic copy of the reports, registers and books of
account for at least 8 (eight) years after the dissolution of the corporate person, either
with himself or with an information utility.

Unclaimed Proceeds of Liquidation (Regulation 39)

The liquidator shall apply to the NCLT for an order to transfer into the Companies Liquidation
Account to the Public Account of India, any unclaimed proceeds of liquidation or undistributed
assets or any other balance payable to the stakeholders on the date of the order of dissolution.
A person claiming to be entitled to any money paid into the Companies Liquidation Account
may apply to the Board for an order for payment of the money claimed; which may, if satisfied
that such person is entitled to the whole or any part of the money claimed, make an order for
the payment to that person of the sum due to him, after taking such security from him as it may
think fit.
Any money paid into the Companies Liquidation Account, which remains unclaimed thereafter
for a period of fifteen years shall be transferred to the general revenue account of the Central
Government.

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