Company law..6th sem

1. WINDING-UP OF THE COMPANY
 Concept of Winding-up of a company :-
Winding-up of a company is the process of putting an
end to the life of a company. It is a process whereby
assets and property of a company is realized (sold)
and its liabilities are paid-off from such collections or
from contributions from its members, if required.
But, if surplus is left, it’s distributed among its
members.
Winding-up is a process whereby management of a
company’s affairs is taken out of its directors hands
and vested in the hands of an appointed
administrator, known as ‘liquidator'. Such
liquidator takes control of the company, collects its
debts, discharges its liabilities and finally distributes
surplus, if any, among the members in accordance
with their rights.

2.  Purpose of Winding-Up of a company :-
The purpose of winding-up of a company is to
realize the assets and pay-off the liabilities of a
company promptly and fairly in accordance with
the law. At the end of winding-up, the company
will have no assets or liabilities. However,
without assets and liabilities the company
continues to exist even after winding-up. A
company ceases to exist only after upon its
dissolution. Thus, in-between the winding up and
dissolution, the legal status of the company
continues and it can be sued in the court of law.
It can be said that winding-up is a process of
ending a company, while dissolution is an event
when company’s existence brought to an end.

3. DIFFERENCE BETWEEN WINDING-UP AND DISSOLUTION OF A COMPANY
 Winding-up is the first stage
whereby assets are realized,
liabilities are paid-off and
surplus, if any is distributed.
 The Liquidator appointed by
the company or the Court
carries out the winding-up
proceedings.
 The Liquidator can represent
the company during winding-up
process.
 In Winding-up process,
creditors can prove their debts.
 Every winding-up process need
not result in dissolution of
company. In few cases, the
company may be revived.
 Dissolution is the final stage
whereby the existence of the
company is ended by law.
 The order for dissolution
can be passed only by the
court.
 Once the order of
dissolution is passed by the
court, the liquidator no
longer can represent the
company.
 Upon dissolution of the
company, the creditors
cannot prove their debts.
 Dissolution implies putting
an end to the legal existence
of a company i.e. there is no
revival of same company .
Winding-up of a
Company
Dissolution of a Company

4. VARIOUS MODES OF WINDING-UP
 A Company may be wound-up in any of the
following modes-
a. By the Court i.e. Compulsory Winding-up.
b. Voluntary Winding-up
- Member’s Voluntary Winding-up, or
- Creditor’s Voluntary Winding-up
c. Winding-up subject to the supervision of the
Court.

5. WOUND-UP BY THE COURT
(COMPULSORY WINIDNG-UP)
 It shall be noted that the Companies ( Second
Amendment) Act, 2002 has transferred to the
powers of the Court to the ‘National Company
Law Tribunal’. However, the amendment is not
yet effective. Hence, on the amendment is
effective, the term ‘Court’ shall be replaced by the
‘Tribunal’

6. GROUNDS OF COMPULSORY WINDING-UP
 The Company has passed a special resolution of
its being wound up by the Court;
 It is unable to pay its debts;
 The Court is of the opinion that it is just and
equitable that it should be wound up.
 The Company has defaulted in filling its Balance
Sheet and P&L Account or annual return with
ROC for any five consecutive years;
 The Company has acted against the interest of
integrity of India, security of the nation, relations
with foreign countries, morality etc;
 The Company has become sick industrial
undertaking.

7. BASIC PROCEDURE FOR
COMPULSORY WINDING-UP BY THE
COURT
 Winding-up by the Court or Compulsory winding-up
is initiated by an application by way of petition to the
appropriate Court.
 Such Petition shall be filed only extreme cases, where
revival or rehabilitation is absolutely not possible.
 Basically, the High Court has jurisdiction for
winding-up orders, for the companies whose
registered office is situated under the High Court
jurisdiction. However, to reduce the burden of High
Courts, the Central Government may empower the
District Court to exercise the jurisdiction for winding-
up process. However, the District Court can entertain
winding-up of only small companies, with paid-up
capital of not more than Rs 1 lakh and having
registered office within the District.

8. WHO MAY FILE PETITION FOR
THE WINDING-UP BY THE COURT
 An application for the winding-up of a company
has to be made by way of petition to the Court. A
petition may be presented by any of the following
persons:-
a. The Company
b. Creditors, including any contingent or
prospective creditors
c. Any Contributory or contributories
d. Winding-up petition can be filed by all or any of
the parties specified above in clauses (a), (b), (c),
whether together or separately.
e. The Registrar of Companies
f. Persons authorized by Central Government.

9. CONSEQUENCES OF WINDING-UP ORDER
 Where the Court makes an order for winding-up of a
company, it shall intimate the same to the Official
Liquidator and the Registrar.
 The winding-up order is deemed to be notice of discharge to
the officers and employees of the company except when the
business of the company is continued.
 When a winding up order has been made, no suit or other
legal proceeding shall be commenced against the company
except with the permission of the Court. Any pending suits
shall be stayed, except with Court permission.
 Any arrangement of the property (including actionable
claims) of the company, any transfer of shares in the
company or alteration in the status of its members, made
after the commencement of the winding up shall be void,
unless the Court otherwise orders.
 On a winding-up order being made in respect of a company,
the Official Liquidator, by virtue of his office becomes the
liquidator of company.

10. WHEN ARE WINDING-UP
PROCEEDINGS COMMENCED
 The date of commencement of winding-up is very
important in various matters. Thus, any arrangement
of company’s property, and the transfer of shares,
made after the commencement of the winding-up, is
void. It depends on the date of commencement of
winding-up, whether a person is liable as a present
member or as a past member, in the form of a
contributory. Thus, the date of commencement of
winding-up is vital.
- The winding-up of a company by the Court shall be
deemed to commence at the time of presentation of
petition for the winding-up
- In case of voluntary winding-up when a resolution
has been passed by the company in a general meeting
the winding-up shall be deemed to have commenced
at the time of passing the resolution.

11. VOLUNTARY WINDING-UP OF A COMPANY
 Voluntary Winding-up is an easier process of winding-up
than the compulsory winding-up by the court. In the
process of voluntary winding-up, the company and its
creditors settle their affairs without going to a Court,
although they may apply to the Court for directions or
orders, if and when necessary. For the purpose of winding-
up, one or more liquidators are appointed by the company
in general meeting. Voluntary winding-up is of two kinds :-
a. Member’s Voluntary Winding-up; and
b. Creditor’s Voluntary Winding-up,

12. CIRCUMSTANCES OF VOLUNTARY WINDING-UP
 In the following cases, a company may be wound-up
voluntarily-
a. When the period, if any, fixed for the duration of the
company by the articles has expired, or
b. The event has occurred, on the happening of which Articles
provide that the company is to be dissolved and
c. The company passes a special resolution that the company
be wound up voluntary.
In conditions specified in (a) and (b) above, a company may wind-
up voluntarily by passing an ordinary resolution in the
properly convened general meeting. Any resolution for
winding-up, when passed must be advertised within 14 days
in Official Gazette and also in newspaper where registered
office located. A voluntary winding-up commences from the
date of the passing of the resolution for voluntary winding-
up. The effect of the voluntary winding-up is that the
company ceases to carry on its business except for the
purpose of beneficial winding-up. However, the corporate
status and powers of company continue until it is dissolved.

13. MEMBER’S VOLUNTARY WINDING-UP
 When winding-up of a company is recommended
by the Board of Directors and approved by the
members in general meeting, it is termed as
“member’s voluntary winding-up”.
 Member’s Voluntary Winding-up may be
initiated even when the company is perfectly
solvent and capable of paying its liabilities.

14. PROCEDURE OF MEMBER’S VOLUNTARY WINDING-UP
 A Board meeting shall be convened to pass the resolution for
voluntary winding-up. The Board meeting shall initiate
preparation of the ‘Declaration of Solvency’, and convening a
member’s general meeting.
 After filling the Declaration of Solvency with the Registrar in
e-form 62, the directors shall convene a meeting of the
members of the company and the necessary resolution of
winding-up.
 In case of listed companies, send 3 copies of the notice of
general meeting to the Stock Exchange(s) where the securities
are listed.
 Issue the notice of general meeting to all members, auditors
and directors at least 21 days before the date of general
meeting.
 The general of members shall pass the resolution
(ordinary/special) for the purpose of winding-up.
 In the general meeting, the company shall appoint one or more
liquidators (through ordinary resolution) for the purpose of
winding-up the affairs and distributing the assets of the
company. The remuneration of liquidator(s) is also fixed in the
general meeting.

15.  In case of listed companies, a copy of the proceedings
of the general meeting shall be filed with the Stock
Exchange(s) where the securities are listed.
 The company shall file a notice relating to the
appointment of liquidator with the Registrar of
Companies within 10 days of his appointment.
 The company shall advertise the resolution in the
Official Gazette and also in some newspaper
circulating in the district where the registered office
of the company is situated within 14 days of passing
the resolution for voluntary winding-up .
 The resolution and explanatory statement thereto
should be filed with the Registrar of Companies in
Form No. 23 within 30 days of passing the resolution.
 Once the Liquidator is appointed, all powers of the
Board of Directors, Managing Directors, Whole-Time
Directors and Manager of the company cease ( except
intimate ROC about such appointment)

16.  The company shall submit to the liquidator a statement of the
company’s affairs, with 21 days of the commencement of winding-up.
 The Liquidator shall realize the assets, prepare the list of creditors,
settle the list of contributories and after paying off liabilities, he shall
distribute the surplus, if any, among the contributories.
 As soon as the affairs of the company have been fully wound-up, the
liquidator has to prepare an account of the winding-up proceedings in
Form No. 156 and the same shall be audited.
 The Liquidator shall call final meeting of the company for presenting
his account of winding-up. At the final meeting of the company the
liquidator shall present the account of the winding-up, showing how
the winding-up has been conducted and how the property of the
company has been disposed off. The notice of the final meeting ( one
month in advance) shall appear in Official Gazette and also in some
newspaper circulating in the district where the registered office of the
company is situated.
 The Liquidator shall submit a copy of his account of winding-up and
return of the final meeting, with the ROC and Official Liquidator,
within one week of final meeting.
 The ROC shall register the documents. The Official Liquidator shall
make a scrutiny of books and papers and shall submit his report to
the High Court, as whether or not company’s affairs have been
conducted in a manner prejudicial to the interests of its members or
public interest. On receipts of the report from Official Liquidator, the
Court shall make an order for the dissolution of the company.

17. COURT CAN INTERVENE IN
VOLUNTARY WINDING-UP
PROCEDURE
 The Court has the following powers relating to
member’s/creditor’s voluntary winding-up-
a. To appoint the Official Liquidator or any other
person’s as liquidator on justifiable cause being
shown.
b. To remove the liquidator and appoint the Official
Liquidator or any other person as liquidator on
justifiable cause being shown.
c. To determine the remuneration of liquidator when
Official Liquidator is appointed as liquidator.
d. To amend, vary, confirm or set aside the
arrangement entered into between a company and
its creditor’s on an appeal being made by any
creditor or contributory within 3 weeks of the
completion of the arrangement.

18. CREDITOR’S VOLUNTARY WINDING-UP
 When winding-up of a company is initiated by the
Creditor’s, it is termed as creditor’s voluntary
winding-up. Creditor’s voluntary winding-up
may be started when the company’s financial
position is weak i.e. the company may be on the
verge of insolvency and incapable of paying its
liabilities.

19. DIFFERENCE BETWEEN MEMBER’S
AND CREDITOR’S VOLUNTARY
WINDING-UP
 Winding-up process initiated by
the directors, members of the
company.
 Directors file a declaration of
solvency with the ROC, prior to
convening general meeting.
 Creditors do not participate
directly in the control of the
liquidation.
 Company is deemed to be
solvent.
 Liquidator is appointed by
company.
 Liquidator can exercise some of
his powers with sanction of
special resolution of members.
 Winding-up process initiated by
the creditors of the company.
 No declaration of solvency is
necessary in case of creditor’s
voluntary winding-up.
 The control of liquidation
remains in the hands of the
creditor’s.
 Company is deemed to be
insolvent.
 Liquidator is appointed by
creditors.
 Liquidator can exercise some of
hi powers with the sanction
Court or the Committee of
inspection or creditors.
Member’s Winding-up Creditor’s Winding-up

20. CONCEPT OF DECLARATION OF SOLVENCY
 In case of member’s voluntary winding-up, the majority
directors may pass a resolution in a Board meeting, along with
a declaration of solvency (verified by an affidavit). The
declaration of solvency states the opinion of the directors that
the company will be able to pay its debts in full, within such
period of 3 years from the commencement of winding-up.
 Such declaration of solvency must be made within 5 weeks
immediately preceding the date of passing the resolution for
winding-up. Further, the declaration shall be delivered to the
Registrar for registration before that date. The declaration
must contain a statement of the company’s assets and
liabilities as at the latest date before the making the
declaration. If the declaration of solvency is not made
according with the legal provisions, the resolution for winding-
up and all subsequent proceedings will be null and void . Any
director making a false declaration shall be criminally liable,
punishable with imprisonment extending upto 6 months or
with fine extending upto Rs 50,000 or with both.

21. WINDING-UP SUBJECT TO THE
SUPERVISION OF THE COURT
 When a company goes for voluntary winding-up procedure,
the Court may make an order that the voluntary winding-
up shall continue, but subject to such supervision of the
Court. The application for such Court intervention is made
by a creditor, contributory or the voluntary liquidator,
when there are irregularities or frauds in the voluntary
winding-up.
 The object of the supervision order is to safeguard the
interest of the company, contributories and creditors. When
an order is made for a winding-up subject to supervision of
Court, the Court may, by that or any subsequent order,
appoint an additional liquidator or liquidators. Generally,
the old liquidator is permitted to continue by the Court, if
there is no complaint against him. It may be noted that
winding-up subject to supervision of the court comes into
play only after the company has passed a resolution for
voluntary winding-up. In this, case, the Court controls
aspects of winding-up such as appointment, removal of
liquidators, make calls to contributories etc.