TERM PAPER ON WINDING UP OF A COMPANY BY COURT

SUBMITTED TO PROF. ANITA RAO GSIB, VISAKHAPATNAM

SUBMITTED BY G V RAVI KIRAN 1226111142 SECTION A

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pays debts and finally distributes any surplus among the members in accordance with their rights. Introduction Winding up of a company is defined as a process by which the life of a company is brought to an end and its property administered for the benefit of its members and creditors. may be ordered in case mentioned in Section 433. A company formed by registration under the Companies Act. 2|Page . the company will have no assets or liabilities. the company's name is struck off the register of the companies and its legal personality as a corporation comes to an end. At the end of winding up. 1956 is known as a registered company. It need to consider many cases and scenarios before calling for the winding up of a company. Abstract Winding up of a company by court is been a big process. is appointed and he takes control of the company. which had been formed and registered under any of the earlier Companies Acts. On dissolution. Section 438 to 483 specifically deals with winding up along with the sections 528 to 559. the dissolution of the company takes place. It also includes an existing company.WINDING UP OF A COMPANY BY COURT Objective To study the all the implications and cases relating the winding up of a company by a court. An administrator. collects its assets. The Court will make an order for winding up on an application by any of the person enlisted in section 439. Types of winding up of a company The act provides three kinds of winding up of a company 1) Winding up by court 2) Voluntary winding up(members and creditors) 3) Voluntary winding up under supervision. called the liquidator. The procedure for winding up differs depending upon whether the company is registered or unregistered. Winding up by the Court is also called as a Compulsory Winding up. When the affairs of a company are completely wound up.

It is only for some specific reasons. requires an extraordinary resolution.Section 10 says-“Courts having jurisdiction to wind up” it shall be read with Section 2(11) which states “jurisdiction of a court in respect of all matters relating to companies. The precise figures vary in different countries.. If the company itself.Winding up by court Winding up subject to supervision of court. Extraordinary resolutions are generally only required in certain specific situations required by statute. Section 10.C. unless a power has been specifically conferred upon a Company Court. that court may supervise the winding up proceedings. S. Special resolution means. Resolution for winding up is passed by members in the general meeting. whether they are residents of the state or not. whereas an ordinary resolution only requires a bare majority. Even if there is an Agreement that dispute shall be resolved before any specific court. but commonly an extraordinary resolution must be affirmed by not less than 75% of members casting votes. Merely because any of the circumstances enumerated under section 433 exists. Section 433 gives the power to court to wind up the company under following cases 1. does not purport to invest the Company Court with jurisdiction over every matter arising under the Act.” In the case of Haryana Telecom Ltd. has passed a special resolution in the general meeting to wound up its affairs. resolution passed by three-fourth (3/4") of the members present. in the United Kingdom.Special resolution In business or commercial law. The Karnataka High Court held that Court/Courts. winding up petition can only be filed before the Court where registered office of the company is situated. The court may put up some special terms and conditions . For example. an extraordinary resolution or special resolution[1] is a resolution passed by the shareholders of a company by a greater majority than is required to pass an ordinary resolution. So. to wind up a company voluntarily on the ground that it cannot by reason of its insolvency continue its business. 3|Page . should decide a petition for winding up of a company under the Companies Act and not under Arbitration and Reconciliation Act. within whose jurisdiction registered office of the company is situated. it does not follow that the court is bound to order winding up.C. Once the Court exercises jurisdiction by reason of the fact that the registered office of the company is situated in the state over which the High Court has jurisdiction. is different from "Winding up by court. alone would have the jurisdiction to try the case and not the Court within whose jurisdiction complainant/shareholder is residing. Civil Court will have the jurisdiction to entertain the petition. No one can ask for winding up of a company as a matter of right. its jurisdiction will automatically extend to all persons. V Sterlite Industries Ltd. held that the H. even if there was an arbitration agreement between the parties." Here the court only supervises the winding up procedure.

within six months.2. It is held only once in life of a public company. such. and a company limited by guarantee having share capital. The statutory requirement of minimum number of members in a public company is seven. that it has more liabilities than assets. A company which is limited by shares. and after disposing off the assets. A statutory report of the meeting so held shall also be forwarded to the registrar. It can be convened by the directors of the company only. and after one month. (4) that the company was effecting an unauthorised sale of its machinery. in a public company is reduced to less than seven. Reduction in membership If the number of members. is required to hold a " Statutory meeting" of its members. one of whom shall be the chief executive of the company. on the grounds : (1) that the company was unable to pay the debts due to the appellants. it means that company is unable to pay it's debts Madhusudan Gordhandas & Co vs Madhu Woollen Industries Pvt ltd case The appellants filed a petition for winding up of the respondent company. Inabilty to pay debts If the company is unable to pay its debits. it is still unable to extinguish it's liabilities. it is two (sec 12) 5. Unless it obtains such certificate. The directors shall not send the statutory report duly certified by not less than three directors. Default in holding statutory meeting Statutory meeting is the first meeting of the members of the public limited company. and in case of private company less than two. Even if business in all units of company is suspended it would be still open to court to examine whether it would be possible for the company to resume its business. 3. and in case of private company. from the date of commencement of it's business. or suspends its business for a whole year. it cannot carry on its business operation. (3) that the company was indebted to other creditors. in holding the statutory meeting or in delivering the statutory report to the Registrar. If there is a default. (2) that the company showed their indebtedness in their books of account for a much smaller amount. where the financial position of the company is. It comes under section 433 b and 433 c. has to obtain a "certificate of commencement" of business from the registrar. and (5) that the company had incurred losses and 4|Page . It is provided in companies' ordinance that the directors shall send a notice of statutory meeting at least 21 days before the day of the meeting to all the shareholders of the company. A company limited by shares. 4. Failure to commence business If the company fails to commence it's business within one year from the date of its incorporation.

It resembles a partnership but is actually not a partnership. So court gave the judgement to wind up the company in order to break the deadlock.and lastly if the court finds that the company had participated in quasi partnership. applied to the court for a remedy to have the company wound up. The company was wound up and Ebrahimi received his capital interest. They could not agree how the company could be managed. However. Secondly when object of company had failed . or carrying an illegal operations Winding up under this ground can be passed under following cases Firstly when there is deadlock in the management of a company. Even if assets and liabilities are equal . and therefore the substratum of the company disappeared and there was no possibility of the company doing any business at profit. Just and equitable If the court. 6. in that case also we can call for a winding up of a company. Consider yenidije tobacco co case where Yenidje Tobacco Company Limited had two shareholders with equal shares and each were directors. But the High Court dismissed the petition. there wont be any fixed assets . A few years later. so it will be difficult to run a company . The court gave the judgement as The House of Lords stated that as a company is a separate legal person. when Mr Nazar's son came of age. clearly unhappy at this. itself is of the opinion that the company should be wound up. they believed that as the company was so similar in its operation as it was when it was a partnership. There was no provision for breaking the deadlock. the company is mismanaged. Consider Ebrahimi v Westbourne Galleries Ltd case . 5|Page .thirdly when the business of company cannot be carried out except at losses. They decided to incorporate as the business was highly successful. at which they passed an ordinary resolution to have Mr Ebrahimi removed as a Director. Mr Ebrahimi and Mr Nazar were the sole shareholders in the company and took a Directors' salary rather than dividends for tax reasons. he was appointed to the board of directors and Mr Ebrahimi and Mr Nazar both transferred shares to him.in that case also court can call for winding up. or financially unsound. they created what is now known as a Quasi-Partnership. the court would not normally entertain such an application. buying and selling expensive rugs. The court may form such an opinion.stopped functioning. due to insolvency situation. A quasi partnership is a type of business strategy that joins two or more entities. Similarly even if the assets are unable to meet its liabilities . if it comes to the knowledge of court that. where Mr Ebrahimi and Mr Nazar were partners. Mr Nazar and son then called a company meeting. Mr Ebrahimi.

Conclusion The court initially don t want to wind up a company even though it is not performing well. 6|Page . But if the companies not maintaining the records well and not responding correctly the court can immediately call for a winding up a company. It still want to see weather there is any chance to resume the operations of a company. It also want to resume the operations of a company because the technology the companies were using will help for the development of a country also.

html http://www.companyliquidator.html http://www.References http://www.ie/en/business-termination-court.lexvidhi.aspx 7|Page .gov.in/winding_up_4.cro.com/article-details/winding-up-of-a-company-67.