Winding up of a company is the process whereby
its life is ended i.e. , the company dissolved and its
property administered for the benefit of its creditors
Modes of Winding up - According to sec 425 of
the companies Act, 1956 a company may be wound
up in any one of the three ways,
(I) compulsory winding up ie., by Court (s.433)
(Ii) voluntary winding up; (s 484)
(ii) voluntary winding up subject to the supervision
of the Court.(s 522)
1.Winding up by the Court /
Compulsory Winding up(s.433)
Grounds on which company may be wound up by
the court:(A) IF THE COMPANY HAS, BY SPECIAL RESOLUTION, SO RESOLVED ;
(B) IF DEFAULT IS MADE IN DELIVERING THE STATUTORY REPORT TO THE
REGISTRAR OR IN HOLDING THE STATUTORY MEETING, WHERE APPLICABLE; BUT
PETITION SHOULD BE FILED WITHIN 14 DAYS.
(C) IF THE COMPANY WITHIN A YEAR FROM ITS INCORPORATION, OR DOES NOT
COMMENCE ITS BUSINESS SUSPEND ITS BUSINESS FOR A WHOLE YEAR,
(D) IF THE NUMBER OF MEMBERS IS REDUCEDIN THE CASE OF A PUBLIC COMPANY, BELOW 7, AND
IN THE CASE OR A PRIVATE COMPANY, BELOW 2;
Compulsory winding up(contd..)
(e) if the company is unable to pay its debts ;(s 434)
A company shall be unable to pay its debts :
A). If a creditor to whom the company owes more than Rs 500 then
due, has served on the co. a demand in writing and the co. has
within 3 weeks thereafter neglected to pay or secure or compound
the sum to the reasonable satisfaction of the Creditor.
B). if an execution or other process issued on a decree or order of
any court in favour of Creditor has not been satisfied by the
C) . If is proved to the satisfaction of the court that the company is
unable to pay its debts including contingent and prospective
WHO MAY PETITION FOR
THE WINDING UP(SEC 439)
An application for the winding up of a company has to made by
way of petition to the court under sec 439 by any of the
Any parties specified above in clauses A,B & C. Whether
together or separately
The registrar of companies
Any person authorized by central govt. u/s 243
Procedure for winding up
Date of commencement of winding up - date on which the petition is
presented to court. As such, Until winding up order is made , the company
will have to comply with the requirements of the companies act as are
required if company not wound up. However in case if voluntary winding
up,the winding of the company is deemed to have commenced at the time of
the passing of the resolution.
Hearing of Petition. - notices issued to all concerned parties. Before
hearing the petition the provisional liquidators are appointed to safe guard
the assets of the company.
Intimation to Official Liquidator /ROC.
On hearing the petition the court may dismiss it, with or without costs,
adjoin the hearing conditionally or unconditionally, make any interim order
that it thinks fit, make an order for winding up the company with or without
costs or any other order that it thinks fit.
Consequences of Winding up order :
the court must, as soon as the winding up order is made, cause intimation thereof to
be sent to the official liquidator and the registrar(S444).
The petitioner and the company must also file with the registrar within 30 days a
certified copy of the order.(S445(1)). In case the certified copy is not filed the
petitioner is fined (S445).
the registrar should take the minutes in his book and notify in the official Gazette
that such order has been made(S445(2)).
The order for winding up is deemed to be a notice of discharge to the officers and
the employees except when the business is continued.
and suits against the company are stayed, unless the court gives leave to continue or
All power of the board of directors cease and the same are then exercised by the
On the commencement of the winding up the limitation ceases to run in favour of the
Any disposition of the property of the company and any transfer of shares in the
company are then void. the official liquidator, by virtue of his office becomes the
liquidator of the company and takes possession and control of the assets of the
Any distress or execution put in force without the court
orders are void.(S537(a))
Any type of sale or floating charge created within the period
of proceedings are void.[S534]
Statement of affairs to be made to the liquidator
Order of Dissolution by the Court -thereafter the company
has no existence
Voluntary Winding up - Winding up by the members or creditors without
any intervention of the Court is called voluntary winding up.
As per section 484, a company may be wound up voluntarily
by Ordinary resolution or by Special resolution.
By passing an ordinary resolution in
a. where either the time fixed by the articles for the duration of
the company has expired OR
b. the event specified in the Articles has occurred on which the
company is to be dissolved.
Voluntary winding up (cont)
In any other case, the company may resolve
to be wound up voluntarily by passing a
special resolution in general body meeting of
A voluntary winding up is deemed to commence from the
time the resolution for voluntary winding up is passed.
when the company has passed the resolution for voluntarily
winding up, it must within 14 days, give notice in official
gazette and also in some newspapers circulating both in
English and in local language, in the district where the
registered office of the company is situated.
Consequences of Voluntary Winding-up :
A voluntary winding up is deemed to be commence at the time when the
resolution for voluntary winding up is passed.
The company ,from the commencement of the winding up, must cease
to carry on its business except so far as may be required to secure a
beneficial winding up.
The transfer of shares and alterations in the status of members, made
after commencement becomes void.
A resolution to wind up voluntarily operates as notice of discharge to the
employees of the company.
On the appointment of the liquidator all the powers of the board of
directors shall cease except after the permission of the registrar.
Types of voluntary winding up :
Types of Voluntary Winding up - Voluntary winding up may be of two types,
a) Members’ voluntary winding up ;
b) Creditors’ voluntary winding up.
A) Members’ Voluntary Winding up - Members’ voluntary winding up is possible
only in case of solvent companies.
1) DECLARATION OF SOLVENCY (S448)–
The directors must enquire whether the company will be able to able to pay all
its debts within the period of 3 years.
In order to be effective, this declaration must be made within 5 weeks
immediately preceding the date of passing of the winding up resolution by the
delivered to the Registrar for filing ; and
must be accompanied by a copy of the report of the auditors of the company on
the accounts and balance sheet.
Appointment and remuneration of liquidators: (S492) the
company in general meeting must:
a) appoint one or more liquidators
b)fix the remuneration
Any remuneration so fixed cannot be increased in any circumstances
whatever, whether with or without the sanction of the court. No liquidator shall
charge of his office unless his remuneration is fixed.
Board’s power to cease: (S491)on the appointment of the liquidators all the
powers of the directors cease but their powers may continue if the general body or
the liquidator sanctions it.
Notice of the appointment of the liquidator to be given to the
registrar(S493):within 10 days of his appointment .otherwise Rs.1000 fine per
Power of liquidator to accept shares, etc., as consideration of sales
of property of the company(S497):
Duty of liquidator to call creditors meeting in case of insolvency
S495 : if the liquidator finds that the company will not be able to pay its debts he
should tell it to the creditors with all records.
Duty of liquidator to call general meeting at the end of each
year(S496): In case the winding takes more then one year the liquidator must call a
general meeting and tell the acts and winding operations done by him.
Final meeting and dissolution(S497): the liquidator must(a)make up an
account of the winding up showing how the company has been disposed of (b)call the
general meeting of the company for laying the account before it as well as
B) Creditors Voluntary
Winding Up : Creditors’ voluntary winding up -
Where the Board of directors does not file a declaration
as to solvency of the company, the voluntary winding up is
called ‘ the Creditors voluntary winding up.
- if the members and creditors nominate two different persons as
liquidators creditors nominee shall become the liquidator of the company.
- Besides, in the case of creditors winding up if the creditors so wish a
committee of inspection ‘ may be appointed to work along with the
Notice to registrar: A company of any resolution passed at the creditors
meeting must be filed with the registrar within 10 days of the passing thereof.
otherwise fine of 500 Rs per day(S501).
Appointment of liquidator: (S502) the creditors and the members at
their respective first meeting may nominate a person to be liquidator but should
take the board of directors into considerations.
Committee of inspection(S503): The creditors at their first or any
subsequent meeting, appoint a committee of inspection of not more than 5
Fixing of liquidator’s remuneration(S505): the remuneration of the
liquidator is fixed by the committee of inspection.
Board’s power to cease on appointment of liquidator(S505):
all the powers of the directors should go to the liquidator.
Duty of liquidator to call meeting of company and creditors
at the end of each year[S508]: within 3 months from the end of the
Final meeting and dissolution [S509]
Voluntary winding up under supervision of
A voluntary winding up may be effected under
supervision of the Court where an application
to that effect is made by a creditor or a
contributory or the company or the liquidator
and the Court makes an order that the
voluntary winding up should continue subject
to the supervision of the Court.
Such an order is passed by the Court where
(i) the resolution for winding up was obtained by fraud, or
(ii) the rules relating to the winding up order have not been
(iii) the liquidator is prejudicial or is negligent in collecting
The Court is also empowered under the section 527 to make
an order for compulsory winding up superseding the order
of winding up under its supervision.
Contributory - the term ‘ contributory ‘ is
defined under section 428 to mean every person
liable to contribute to the assets of a company in
the event of its being wound up.
The expression includes the holder of any shares
which are fully paid up.
A past member shall however be not liable to contribute if
he ceased to be a member for one year or more before the
commencement of the winding up.