RESEARCH PAPER SUBMITTED IN THE FULFILLMENT OF THE COURSE TITLED COMPANY LAW II

FOR OBTAINING THE DEGREE B.A. LL.B. (HONS) DURING THE ACADEMIC YEAR 2022-2023

“COMPARATIVE ANALYSIS OF VOLUNTARY AND COMPULSORY WINDING UP”

SUBMITTED BY: SUBMITTED TO:

MITALI ARYAN DR. PRADIP KUMAR DAS

CUSB2013125070 ASSOCIATE PROFESSOR
B.A. LL.B. (HONS). DEPARTMENT OF LAW
6TH SEMESTER SCHOOL OF LAW AND
SESSION: 2020-2025 GOVERNANCE

1|Page
 ACKNOWLEDGEMENT

I would like to express my thanks and gratitude to our faculty of Company Law – II, Dr. Pradip
Kumar Das for providing me the chance to work on this particular assignment on the topic,
“Comparative Analysis of Voluntary Winding Up and Compulsory Winding Up.” I am obliged
to thank our faculty in the respective subject to provide me with the necessary support required
while making this assignment and for mentoring me throughout this assignment. The whole
journey of completing the assignment was quite interesting, I was completely engrossed and
dived deeper to seek more information related to the topic. I would not have been able to
complete this assignment without the help of my friends, colleagues, and my family members,
so I would like to express my gratitude and thank them as well.

Thank you!!

Mitali Aryan
CUSB2013125070
6TH SEMESTER
B.A. LL.B. (Hons.)

2|Page
 TABLE OF CONTENTS
Acknowledgement……………………………………………………………02
Declaration……………………………………………………………………03
Research methodology and research objective and questions…………….05
Introduction…………………….…………………………………………….06
What is winding up? Why is it required?......................................................07
Modes of winding up…………………………….……..….…….……...07 – 08
Voluntary Winding Up…………………………………….……………08 - 11
i) Members Voluntary Winding Up………………………...…..11 - 12
ii) Creditors Voluntary Winding Up…………………………………13
Steps of Voluntary winding up…………………………………...……..14 - 15
Effects of Voluntary Winding Up………………………..……………..15 - 16
Compulsory Winding Up………………………………………..………16 - 17
Why winding up by the Tribunal?………………………..…………………18
Who can file a petition for Compulsory Winding Up………….…………..18
Procedure of Compulsory Winding Up………………………….…….18 - 19
Commencement of Compulsory Winding Up………………………….19 - 20
Effects of Compulsory Winding Up…………………………………………20
Analysis of Winding up of the Companies……………………….…….20 - 21
Conclusion…………………………………………………………….………21
Bibliography……………………………………………………………...…...22

3|Page
 DECLARATION

I hereby declare that the work reported and the research done in the process of making the
assignment on the topic, “Comparative Analysis of Voluntary and Compulsory Winding Up”
is done in Good Faith and it is an authentic record of my work carried under the supervision
of Dr. Pradip Kumar Das. I have not submitted the assignment elsewhere and I take
responsibility for my work, which has been carried out while completing the assignment.

Mitali Aryan
6TH Semester
B.A. LL.B. (Hons)
CUSB2013125070
School of Law and Governance
Central University of South Bihar

4|Page
RESEARCH METHODOLOGY:

The study is essentially doctrinal and uses an analytical method based on secondary sources.
The primary sources include Company law 1956 and Company amendment law 2013, and
subsequent changes in Company law. The study analyzed the changing prospect of winding up
the Company in India. The secondary sources include available books, research articles, papers,
briefs, and opinions published in various journals and magazines. However, the attention will
be made to rely only on recent work as far as possible.

RESEARCH PROBLEM:

1) Critically analyze the grounds and procedure of voluntary and compulsory

winding up.
2) What are the changing prospects of winding up the Company in India?

RESEARCH HYPOTHESIS:

HO: Non-compliance to the provisions under the companies’ act is the reason for winding up
HA: compliance with the provisions under the companies act is the reason for winding up.

RESEARCH OBJECTIVE:

• To study the meaning of winding up a company.

• To study the need for winding up of the company.
• To analyze the mode of winding up by the tribunal
• To find out provisions regarding the voluntary winding up and compulsory winding up.

5|Page
 INTRODUCTION

A business exists mainly because of the legal system, and using the legal system is the only
conceivable way for it to cease to exist and disappear from reality. As a result, the
organization's dissolution is how its existence is put to an end, marking the end of the business.
The company's property was then administered for the profit and advantage of its creditors and
members once it ceased to exist.
The administrator will be in charge of the company's affairs, gather its assets, settle its debts,
and, if any, distribute the excess among its creditors and members following their rights and
obligations.
The Company Act 1956, and company Act, 2013 provide the mechanism for the winding up
of the company. The mechanism can be divided into two categories, Firstly, the winding up by
the order of the court and second, winding up by the creditors and members of the Company.
In the wilful winding, the members and its creditors are allowed to determine their differences
commonly without the intervention of the Court. To make the company more fruitful and more
convenient, the government of India from time to time brings changes and consequently.
Winding-up of a company is a procedure of allocating the assets and concluding the existence
of a company. It is a process of dissolving a company by collecting its assets and paying off its
liabilities out of the assets of the company or from contributions by its members. If any excess
is left, it is distributed among the members by their rights.

6|Page
WHAT IS WINDING UP? WHY IS IT REQUIRED?

In the words of Prof. L.C.B. Gower, “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 liquidator is appointed and he takes control of the company, collects its
debts, and, finally distributes any surplus among the members as per their rights.”1
Thus, in the words of Pennington, “Winding up or liquidation is the process by which the
management of a company’s affairs is taken out of its director’s hand, its assets are realized by
a liquidator, and its debts and liabilities are discharged out of the proceeds of realization and
any surplus of assets remaining is returned to its members or shareholders. At the end of
winding up, the company will have no assets or liabilities, and will therefore be simply a formal
step for it to be dissolved, that is its legal personality as a corporation to be brought to an end.”2

Thus, we can say that the Winding up of the company is a legal process through which the
dissolution of the company is brought about and amidst which assets are collected and realized,
and are used for paying off its debts when these are settled, the remaining amount is then
distributed among the members as per their contribution and by the provisions of the Articles
of Associations.

Winding up of the company is required for several reasons:-

• Closure of business
• Loss faced by the company
• Bankruptcy
• Death of any of the promoters etc.

MODES OF WINDING UP:

Section 425, as amended by the Companies (second amendment) Act, 2002 provides the
following modes of winding up of a company, viz:-
1. Winding up by the court.
2. Voluntary winding up.

1
Modern Company Law’, 4 th Edn., p.789
2
‘Pennington’s Company Law’, 5TH Edn., p. 839

7|Page
 The voluntary winding up may be subdivided into two3:-
(a) Member’s voluntary winding up.
(b) Creditor’s voluntary winding up.
In the case of the former, all the control remains in the hands of members whereas, in the case
of the latter, the control is in the hands of creditors as the company goes insolvent.

In every winding up, a liquidator or liquidators is or are appointed to administer the property
of the company and he or they must apply the assets of the company, first, in the payment of
the creditors in their proper order, and then, in distributing the residue among the members
according to their rights.

VOLUNTARY WINDING UP:

The companies are usually wound up voluntarily as it is an easier process of winding up. It is
different from a compulsory winding up. Winding up order by the Tribunal 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 a voice in its winding up. Further, its creditors are left to settle
their affairs without going to Court, although they may apply to the Court for directions or
orders, when necessary. The procedure involved in a members' voluntary liquidation, a solvent
liquidation commenced by a shareholders' special resolution with no court involvement and no
stigma attached, as all the company's debts are paid in full. Moreover, a voluntary winding up
is far cheaper, speedier, and simpler than a winding up by the Tribunal.4 The power of the

3
Available at: https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-
study-resources/f4/technical-articles/winding-up.html (Last visited on 30th March, 2023 at 12:30 PM)
4
Anne Sharp, “Members' solvent liquidation”, 2011, Financial Regulation International, F.R.I. 2011, May, 4-6

8|Page
Tribunal to order winding up is exercised only where the winding up is opposed to the interest
of the company or the public.

VOLUNTARY WINDING UP UNDER THE COMPANIES ACT, 1956:

Part VII Chapter III of the Companies Act, 1956(Sections 484 to 520)5 extensively deals
with the provisions of voluntary winding up of a company. A company may voluntarily wind
up its affairs, if it is unable to carry on its business if it was formed only for a limited purpose,
if it is unable to meet its financial obligation, etc. In the case of voluntary winding up, the entire
process is done without the supervision of the Tribunal. When the winding up is complete, the
relevant documents are filed before the Court for obtaining the order of dissolution. A voluntary
winding up may be done by the members as it may be done by the creditors.

The circumstances under which a company may be wound up voluntarily are:6

(a) when the period fixed for the duration of the company as mentioned in its articles has
expired; or
(b) the event, on the happening of which the articles provide that the company is to be
dissolved, has occurred; and
(c) the company passes a special resolution that the company is wound up voluntarily.

Thus, a company may be wound up voluntarily on the expiry of the term fixed for the duration
of the company or on the occurrence of the event as provided in its articles. In these two cases,
only an ordinary resolution may be passed in the general meeting of the company. In the case
of British Water Gas Syndicate v. Notts Derby Water Gas Co. Ltd., 7 held that however
prosperous and solvent a company may be, if the members wish the company to be wound up,
they can do so by passing a special resolution to that effect and no reasons need be given. No
articles of the Company can prevent the exercise of this statutory right. And the right cannot
be interfered with by any Court through an injunction or otherwise.

5
https://www.mca.gov.in/Ministry/pdf/Companies_Act_1956_13jun2011.pdf (Last visited 30th March 2023)
6
Section 484(1), Companies Act, 1956
7
1889 WN 204

9|Page
Where the required special resolution was passed at a meeting convened by giving a shorter
notice than that required by the Act, but all the members of the company unanimously agreed
thereto, the resolution being intra vires the company, was held valid. In re, Bailey Hay & Co.
Ltd.,8 there were only five shareholders, two of whom held between themselves 50% of the
voting power and they passed the resolution. Shareholders who abstained from voting on the
resolution and allowed it to be passed with knowledge of their power to stop it must be deemed
to have assented to the resolution which, accordingly, was held valid.

In Southern Counties Deposit Bank Limited v. Rider & Kirkwood,9 a notice calling a
general meeting to wind up the company was issued by the authority of a board meeting at
which only two directors were present. The quorum for board meetings was for six years
regarded as two directors, though the resolution altering the quorum from three to two had not
been validly passed. The court refused the application, declaring the resolution to be invalid
saying it would not interfere “for the purpose of forcing companies to conduct their business
according to the strictest rules, where the irregularity complained of can be set right at any
moment”.
In Indian Trading & Engineering Co. Ltd. Re,10 the Court applied Silkstone Fall Colliery
Co. Re.,11 where the resolution for voluntary winding-up passed by the shareholders was based
on a bad notice and though the shareholders at a subsequent meeting appointing liquidators
waived the requirement of proper notice and confirmed the resolution, it was held that it was
open to the creditors to challenge the appointment of liquidator.

The resolution, when passed, must be advertised within 14 days of the passing of the resolution
in the Official Gazette and also in some newspapers circulating in the district where the
registered office of the company is situated. Default in complying with the above requirements
renders the company and every officer of the company, who is in default, liable to a penalty
that may extend to five hundred rupees for every day during which the default continues. In
Bhargava (S.P.) v. Rameshwar Shastri,12 held that a failure to advertise may be considered
to be an irregularity and curable, not affecting the validity of winding up. A liquidator of the

8
(1972) 42 Com Cases 442
9
(1895) 11 TLR 563
10
(1910-11) 15 CWN 1047 (Cal)
11
(1875) 1 Ch D 38
12
(1952) 22 Com Cases 106: AIR 1952 MB 3A

10 | P a g e
company is deemed to be an officer of the company for the above requirements.13 It was held
in Neptune Assurance Co. Ltd. v. Union of India,14 that in the Companies Act the expression
“voluntary winding up”, means a winding up by a special resolution of a company to that effect.
Similarly, the expression “winding up by the court” means winding up by an order of the Court
under S. 433 of the Companies Act.
A voluntary winding up commences from the date of the passing of the resolution for voluntary
winding up. This is so even when after passing a resolution for voluntary winding up, a petition
is presented for winding up by the Court.15 The date of commencement of winding up is
important for various matters, such as liability of past members, who will not be affected if, on
the date of commencement of winding up, a year had elapsed after they ceased to be members,
fraudulent preference may have become unimpeachable, etc. In Re, West Cumberland Iron
Steel Co.,16 where a voluntary winding up is continued under supervision (section 522), the
winding up commences not at the date of the presentation of the petition or order for
supervision but at the date of the resolution for voluntary winding up; for the order is only to
continue the winding up.

There are two kinds of voluntary winding up:17

(i) Members’ voluntary winding up; and
(ii) Creditors’ voluntary winding up.
The following are the steps for initiating a voluntary winding up of a Company:

MEMBERS’ VOLUNTARY WINDING UP:

Sections 490 to 498 of the Companies Act, 1956 shall apply concerning a member’s voluntary
winding up.32 When the company is solvent and can pay its liabilities in full, it need not consult
the creditors or call their meeting. Its directors, or where they are more than two, the majority
of its directors may, at a meeting of the Board, make a declaration of solvency verified by an
affidavit stating that they have made a full inquiry into the affairs of the company and that
having done so they have formed an opinion that the company has no debts or that it will be
able to pay its debts in full within such period not exceeding three years from the
commencement of the winding up as may be specified in the declaration. In Collector of

13
Section 485, Companies Act, 1956
14
1973 SCR (2) 940
15
Section 486, Companies Act, 1956
16
(1889) 40 Ch D 361
17
Section 488(5), Companies Act, 1956

11 | P a g e
Moradabad v. Equity Insurance Co. Ltd.,18 Section 488 does not require that there should
be an affidavit by each of the directors making the declaration. An affidavit by one director is
sufficient. In De Courcy v. Clement,19 held that while failure to satisfy the conditions under
this section makes the declaration of no effect i.e., a nullity, a mere error, or omission, while it
may expose the declarant to the penal consequences, will not prevent the statement from being
a statement to satisfy the requirements of the section. Such a declaration must be made within
five weeks immediately preceding the date of the passing of the resolution for winding up the
company and be delivered to the Registrar for registration before that date. The declaration
must embody a statement of the company’s assets and liabilities at the latest practicable date
before the making of the declaration. Any director making a declaration without having
reasonable grounds for the aforesaid opinion shall be punishable with imprisonment extending
up to six months or with a fine extending up to Rs. 50,000 or both. 35 In Shri Raja Mohan
Manucha v. Lakshminath Saigal,20 it was held that “where the declaration of solvency is not
made as per the law, the resolution for winding up and all subsequent proceedings will be null
and void.”

Procedure for Members’ Voluntary Winding Up:

a) A declaration of solvency must be made by the majority of directors or all of them, if
they are two in number, stating the ability of the Company to pay off its debt in full
within a specified period not exceeding 3 years from the date of commencement of
winding up.
b) Shareholders must pass either an ordinary or special resolution for winding up.
c) Sending notice to the Registrar for the appointment of Liquidator.
d) Appointment of Liquidator and Fixation of his remuneration.
e) Cessation of Boards’ power
f) Filing of vacancy caused by death, resignation, or otherwise.
g) Duty of Liquidators to call upon the meeting of creditors in case of insolvency of the
company.
h) The liquidator must make an account of winding up.

18
(1948) 18 Com Cases 309, 317: AIR 1948 Oudh 197
19
(1971) 1 All ER 681: (1971) 41 Com Cases 796 (Ch D)
20
(1963) 33 Comp. Cases 719

12 | P a g e
CREDITORS VOLUNTARY WINDING UP:
Where a declaration of the solvency of the company is not made and delivered to the Registrar
in a voluntary winding up it is a case of creditor’s voluntary winding up. A winding-up petition
is a perfectly proper remedy for enforcing payment of a just debt. It is the mode of execution
that the Court gives to a creditor against a company unable to pay its debts.21 Sections 500 to
509 of the Companies Act, 1956 shall apply to a creditors’ voluntary winding up. Where the
resolution for winding up has been passed, but the Board of Directors are not in a position to
give a declaration on the liability of the company to the Registrar, they may call a meeting of
creditors, to wind up. It is the duty of the Board of Directors, to present a full statement of the
company’s affairs, and a list of creditors along with their dues, before the meeting of creditors.22

When the Board of Directors passed the resolution for the closing of the affairs of the Company
but their position is not obvious about the liability of the Company. In such a situation they
might call a meeting of all creditors regarding the winding up of the Company.23 So in such a
circumstance, it is the liability of the Board of Directors to provide the full description of the
Company business and dues on it before the creditors meeting.24 Hence the resolution must be
submitted to the Registrar within ten days of its passing.25 In Re Karamelli and Barnett Ltd26
in the procedure of winding up, the Company must arrange a meeting of the creditors and
shareholders. After that, the Directors must describe the position of the Company's business
affairs to the creditors. Furthermore, in the case of Pure Milk Supply Co. Ltd. v. S. Hari
Singh,27 the honorable Court said that on the observance of section 509 of the Company Act
1956, held directors liable to pay a fine, but does not affect the proceeding of the meeting.
Section 509 of the Act above offers the various method of full wound-up of the Company.

21
Palmer’s Company Precedents, Part 11, 1960 Edn., at p. 25
22
Section 500, Companies Act, 1956
23
Section 500, Companies Act, 1956
24
Section 500(3), Companies Act, 1956
25
Section 501, Companies Act, 1956
26
Companies Act, 1956 39
27
AIR 1962 Punj 190: (1962) 32 Com Cases 659

13 | P a g e
STEPS OF VOLUNTARY WINDING UP:28

Step 1: Convene a Board Meeting with two Directors or a majority of Directors. Pass a
resolution with a declaration by the Directors that they have made an inquiry into the affairs of
the Company and that, having done so, they have formed the opinion that the company has no
debts or that it will be able to pay its debts in full from the proceeds of the assets sold in
voluntary winding up of the company. Also, fix a date, place, and time agenda for a General
Meeting of the Company within five weeks of this Board Meeting.
Step 2: Issue notices in writing calling for the General Meeting of the Company proposing the
resolutions, with a suitable explanatory statement.
Step 3: In the General Meeting, pass the ordinary resolution for winding up of the company
by ordinary majority or special resolution by 3/4 majority. The winding up of the company
shall commence from the date of passing of this resolution
Step 4: Hold a meeting of the creditors the same day or the day after the company's resolution
to be wound up has been approved. The corporation may be voluntarily wound up if two-thirds
of its creditors, measured by value, believe that doing so is in the best interests of all parties.
The corporation must be wound up by a tribunal if it is unable to pay all of its debts upon
dissolution.
Step 5: Within 10 days of passing the resolution for winding up of the company, file a notice
with the Registrar for the appointment of a liquidator.
Step 6: Within 14 days of passing a resolution for winding up of the company, give notice of
the resolution in the Official Gazette and also advertise in a newspaper with circulation in the
district where the registered office is present.
Step 7: Within 30 days of the General Meeting for winding up of the company, file certified
copies of the ordinary or special resolution passed in the General Meeting for winding up of
the company.
Step 8: Wind up affairs of the company and prepare the liquidator's account of the winding up
of the company and get the same audited.
Step 9: Call for the final General Meeting of the Company.

28
Taxguru Voluntary Winding Up under Companies Act 2013; Available at: https://taxguru.in/company-
law/voluntary-winding-companies-companies-act-2013.html (Last Visited on 30th March 2023 at 12: 45 PM)

14 | P a g e
Step 10: Pass a special resolution for disposal of the books and papers of the company when
the affairs of the company are completely wound up and it is about to be dissolved.
Step 11: Within two weeks of the final General Meeting of the Company, file a copy of the
accounts and file an application to the Tribunal for passing an order for dissolution of the
company.
Step 12: If the Tribunal is satisfied, the Tribunal shall pass an order dissolving the company
within 60 days of receiving the application.
Step 13: The company liquidator would then file a copy of the order with the Registrar.
Step 14: The Registrar, on receiving the copy of the order passed by the Tribunal then
publishes a notice in the Official Gazette that the company is dissolved.

EFFECT OF VOLUNTARY WINDING UP:

The effect of the voluntary winding up is that the company ceases to carry on its business
except so far as may be required for the beneficial winding up thereof.29 In Rangai Goundan
(M.K.), Re,30 held that a voluntary winding up does not put an end to the corporate existence
of the company. The company exists until it is dissolved. The powers of the directors continue
to the extent to which they are allowed by the liquidator. In Commr. Of Income Tax v.
Liquidator, Ratlam Electric Supply, etc. Co. Ltd.31 , it was held that Section 487 does not
contemplate the carrying on the business of the company except to the extent necessary for its
beneficial winding up. It does not prohibit a company that is voluntarily wound up from
receiving income from other sources and interest on securities.

The property of the company becomes a trust property with the passing of the resolution for
winding up for the benefit of creditors and contributries. The principle of the establishment of
trust was stated in General Rolling Stock Co., Joint Discount Company's Claim, Re,32: “A
duty and a trust are thus imposed upon the court, to take care that the assets of the company
shall be applied in discharge of its liabilities. What liabilities? All the liabilities of the company
existing at the time when the winding up order was made which gives the right. It appears to
me that it would be most unjust if any other construction were put upon the section.”

29
Section 487, Companies Act, 1956
30
(1942) 12 Com Cases 198: 1972 Mad 702
31
(1982) 52 Comp Cas. 632
32
3 (1872) 7 Ch App 646 at 648-649: (1861-73) All ER Rep 434 at 435

15 | P a g e
A voluntary winding up does not necessarily operate as a discharge of the company’s servants.
In Reigate v. Union Manufacturing Co., (Ramsbottom) Ltd.,33 held that the passing of a
resolution for voluntary winding up does not operate as notice of discharge of the employees
of the company if the business is continued by the liquidator or the liquidation is only with a
view to reconstruction. In Fowler v. Commercial Timber Co. Ltd.,34 F was appointed
managing director of a company for five years, the company passed a resolution that it could
not because of its liabilities continue its business. F voted in favor of this resolution. Held, (a)
the voluntary winding up operated as a wrongful dismissal of F, and (b) the fact that F
consented to the winding up by voting for the resolution did not prevent him from recovering
damages.

COMPULSORY WINDING UP (WINDING UP BY THE COURT):

According to section 433, a company may be wound up by the tribunal under the following
circumstances35:-

a) If the company has, by special resolution, resolved that the company be wound up by
the Tribunal.
b) If the default is made in delivering the statutory report to the Registrar or in holding the
statutory meeting.
c) If the company does not commence its business within a year from its incorporation or
suspends its business for a whole year.
d) If the number of members is reduced, in the case of a public company, below seven,
and in the case of a private company, below two.
e) If the company is unable to pay its debts.
f) If the Tribunal thinks that it is just and equitable that the company should be wound
up.
g) If the company has made a default in filing with the Registrar its balance sheet and
profit and loss account or annual return for any five consecutive financial years.

33
(1918) 1 K.B. 593
34
(1930) 2 K.B.1
35
Companies Act 2013

16 | P a g e
 h) 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.
i) If the tribunal is of that the company should be wound up under the circumstances
specified in section 424-G.

Provided that the Tribunal shall make an order for the winding up of a company under clause
(h) on an application made by the Central Government or a state government. A company may
be wound up at an order of the Tribunal. This is also called compulsory winding up. The cases
in which a company may be wound up are given in section 433.

WHY WINDING UP OF THE COMPANY BY TRIBUNAL?36

The company may require to wound up by the tribunal under section 271 under the following
circumstances:

❖ In case the company does not pay the debts, the debt of the creditor exceeding Rs 1
lakhs is due and unpaid by the company within 21 days from the due date, or any
execution decree is passed in favor of the creditor or tribunal has a reason that company
will not pay off any debts then the company would be liable for winding up.

❖ In case a company has made the provisions by passing a special resolution that wound
up being made by the tribunal.

❖ In the case of sick companies if no revival and rehabilitation is done, then the tribunal
may order the winding up of a company.

❖ In case the company is formed fraudulently, or it has reason to believe that the activity
of the business is conducted fraudulently then that company is liable to be wound up
by the tribunal.

36
Corpbiz’s Commencement of Winding up of Companies by Tribunals; Available at:
https://corpbiz.io/learning/winding-up-of-a-company-by-tribunal/

17 | P a g e
 ❖ In case the formation of the company is for any unlawful purpose, or the management
of the company is guilty of misconduct or misfeasance, then winding up is necessary
by the tribunal.

❖ In case the company fails to submit annual returns and financial statements of the
last five financial years continuously then the registrar made the company defaulter n
liable for winding up.

❖ If the tribunal has the opinion that winding up of a company is necessary for the good
faith of the company.

WHO CAN FILE A PETITION FOR WINDING UP OF THE COMPANIES

THROUGH TRIBUNALS?
An application to wind up the company compulsorily be filed by the following:
• The Company
• Any Director of the company
• A creditor of the company
• Any contributors to the company
• A liquidator of the company
• A judicial manager of the company
• Where the company is carrying on or had carried on banking business
• Various ministers on the grounds specified by the law

OTHER IMPORTANT POINTS:37

The registrar must obtain prior sanction from the Central Government, before the
presentation of the petition for the winding up of the company. Further, the Central
Government must give a reasonable opportunity to the company before granting such
sanction to the registrar.
The registrar shall also receive a copy of the petition, and he needs to submit his views
to the Tribunal within 60 days of the receipt of the petition.

37
https://www.legalwiz.in/blog/understanding-compulsory-winding-up-of-a-company

18 | P a g e
PROCEDURE OF COMPULSORY WINDING UP:38
✓ The petition for the winding up of a company is admitted before the tribunal if it is
accompanied by the statement of affairs as prescribed in the form.
✓ The creditors require the permission of the tribunal before making a petition for the
winding up. The tribunal may not admit the petition of winding up of the company
unless there is a prima facie reason for the liquidation of the company.
✓ The copy of the petition also has to be filled before the registrar, and then the registrar
has to submit his opinion before the tribunal within 60 days of the admission of the
petition in the tribunal under section 272.39
✓ The petition is filled as prescribed in form NCLT 1 and attachments in form NCLT 2
along with the affidavit of verification in form NCLT 6 according to Rule 34
✓ The tribunal shall pass an order of winding up under section 27340 within 90 days of
the presentation of the petition and can make an interim order for the appointment of
the liquidator. A notice is served to the concerned persons for the appointment of the
provisional liquidator.
✓ According to section 274, the tribunal may order the winding up of a company provided
it has a prima facie case to do so. Moreover, an objection may be made within 30 days
of the order. Within 30 days of the order's passage, the directors are required to deliver
the books of accounts to the liquidator. If the director violates this section, he is
responsible for the fine.
✓ The official liquidator has the right to file a declaration under section 275 within seven
days in case of a conflict of interest regarding his appointment. The same liquidator can
also be removed in case of misconduct, fraud, misfeasance, or professional
incompetence under section 276.41
✓ The registrar under section 277 shall notify the official gazette about the company
being wound up. The official liquidator within three weeks shall make an application
to the tribunal for the constitution of the Winding-up Committee which provides the
report monthly and then a final report is submitted to the tribunal after the dissolution
of the company.
✓ After the winding up of a company, no suits and legal proceedings can be entertained
against the company as suggested under section 27942. The tribunal has jurisdiction to
dispose of cases of pending cases of the company under section 280.
✓ The liquidator has to submit the final report under section 281 to the tribunal within 60
days of the winding up of a company. Under section 282 further, the entire proceedings
for the dissolution have to be completed in a specified time.

38
IBID
39
Companies Act, 2013
40
IBID
41
Supra note 38
42
Companies Act 2013

19 | P a g e
 ✓ The company is liable to sell all the assets and pay to creditors first and the remaining
to shareholders. If the company has involved in fraud, then criminal proceedings will
take place against the persons involved in the fraudulent activities.

COMMENCEMENT OF WINDING UP THROUGH TRIBUNALS:

• Under section 357, the winding up of a company takes place through the presentation
of the petition to the tribunal.
• The resolution than can be passed by the company for the voluntary winding up and the
commencement of the winding-up shall be deemed as soon as the resolution has been
passed.
• If the tribunal has reason to believe that no fraud o mistake has been made then the
procedure of voluntarily winding up is considered to be valid as per the provisions.
• In any other case, the winding up of a company is considered as soon as the presentation
of the petition before the tribunal

EFFECTS OF COMPULSORY WINDING UP:

Compulsory winding up takes place when a creditor of an insolvent company asks the court
for a wind-up. If the company goes into liquidation, the court of law appoints a liquidator for
the liquidation.43

• The primary objective of the liquidator is to raise as many funds as needed to

pay the creditors.
• The company will then be dissolved and its name will be struck off from the list
of companies in the registrar’s office.
• Any surplus money left will be distributed amongst the shareholders of the
company.
• This legal process ends with the company’s name struck off from the list of
companies in the registrar’s office.
• After the name is struck off, the company ceases to exist anymore.

ANALYSIS OF WINDING UP OF THE COMPANY:

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

43

https://www.tutorialspoint.com/business_law/business_law_winding_up_company.htm#:~:text=Compulsory
%20Winding%20Up,-
Compulsory%20winding%20up&text=The%20company%20will%20then%20be,the%20shareholders%20of%20t
he%20company.

20 | P a g e
for the accomplished partners or shareholders. Winding up can allude to the dissolving of either
a company or an organization.44
On the off chance that fuse is the way toward bringing (Hannigan 2012; Singh 2010) the
company into reality, at that point winding up is the way toward conveying a conclusion to the
presence of that supposed simulated individual viz. Company. A company can't bite the dust
of a characteristic demise. It has an inconclusive life expectancy, yet if 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 an 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 additionally alludes to Liquidation. On liquidation,
the company name is erased from the rundown of organizations by the Registrar of
organizations, and the same is distributed in the official gazette.

CONCLUSION:

To conclude, the Winding up of the company is the stage, whereby the company takes its last
breath and in the course of which the dissolution of the company is brought about and the
company ceases to exist. The property of which is administered for the benefit of the members
and the creditors. During this the assets are collected and realized by the Liquidator, the
liabilities are paid off with that money, and the remaining surplus is distributed among the
members following the provisions of AOA.

There are two modes of winding up –

i) Voluntary winding up & ii) Compulsory Winding up

Both these modes of winding up follow certain procedures and provisions, having their
characteristics and methods different from each other.

44
https://www.investopedia.com/terms/w/windingup.asp

21 | P a g e
BIBLIOGRAPHY:

j) WEBSITES:
a) https://www.investopedia.com/terms/w/windingup.asp
b) https://www.legalwiz.in/blog/understanding-compulsory-winding-up-of-a-
company
c) https://www.accaglobal.com/gb/en/student/exam-support-
resources/fundamentals-exams-study-resources/f4/technical-articles/winding-
up.html
d) https://corpbiz.io/learning/winding-up-of-a-company-by-tribunal/
e) https://www.tutorialspoint.com/business_law/business_law_winding_up_compan
y.htm#:~:text=Compulsory%20Winding%20Up,-
Compulsory%20winding%20up&text=The%20company%20will%20then%20b
e,the%20shareholders%20of%20the%20company.
f) https://taxguru.in/company-law/voluntary-winding-companies-companies-act-
2013.html

ii) BOOKS: Avtar Singh ‘s Company Law EBC Publication, 17th Edition 2018

ARTICLES & RESEARCH PAPERS:

Patwari, Sumita, Voluntary Winding Up in India - A Comparative Analysis (January 10, 2014).
Available at:
SSRN: https://ssrn.com/abstract=2377165 or http://dx.doi.org/10.2139/ssrn.2377165

Belal Allail; Research Scholar, Faculty of Law, Aligarh Muslim University, Aligarh, Uttar
Pradesh, India; An analysis of winding up of companies under Indian companies act 2013;
International Journal of Law ISSN: 2455-2194 Impact Factor: RJIF 5.12 www.lawjournals.org
Volume 4; Issue 2; March 2018; Page No. 117-122

22 | P a g e