WINDING UP UNDER JUST AND EQUITABLE GROUNDS

FINAL DRAFT

SUBMITTED FOR THE PARTIAL FULFILMENT OF THE COURSE, CORPORATE

LAW-II, FOR THE COMPLETION OF BA.LLB HONS. COURSE

SUBMITTED TO: SUBMITTED BY:

Mrs. Nandita S. Jha PAWAS

Faculty of Corporate law-II Roll No. 1544

B.A. LL.B. (hons.)

CHANAKYA NATIONAL LAW UNIVERSITY, NYAYA NAGAR

MITHAPUR, PATNA- 800001

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 DECLARATION BY THE CANDIDATE

I hereby declare that the work reported in the B.A. LL.B. (HONS.) Project report entitled
Winding up under Just and Equitable grounds submitted at Chanakya National Law
University Patna is an authentic record of my work carried out under the supervision of Mrs
Nandita Jha.I have not submitted this work elsewhere for other degree or diploma. I am
fully responsible for the content of my project report.

PAWAS

B.A. LL.B. (HONS.)

Roll No. 1544

Date :

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 ACKNOWLEDGEMENT

I would like to acknowledge my professor for the subject of corporate law -ii without whom
this research project would not have been completed yet. Her guidance has been enlightening
and ever helpful. I would also like to acknowledge my university for providing us the
opportunity to conduct such research work. I would personally thank my class mates who
helped in compiling the whole research work. I would also like to address the university
library for its help and support throughout the research work. Last but not the least I would
like to acknowledge my parents for all the help and support they have extended in the work
that I pursued.

Date:

Signature:

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 TABLE OF CONTENTS

S.no. Title Page number

Declaration 2
Acknowledgement 3
1. Introduction 5
2. Aims and objectives ,,
3. Hypothesis ,,
4. Research methodology ,,
5. Limitations of the study ,,
6. Scope of study ,,
7. CHAPTERISATION ,,

1.INTRODUCTION

1.A TYPES OF WINDING UP

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1.B GROUNDS OF WINDING UP

2.JUST AND EQUITABLE RULE 7

3. JUST AND EQUITABLE GROUND 8-10

CATEGORIES AND ANALYSIS

4. CONCLUSION 11

8. Bibliography 12

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AIMS AND OBJECTIVES

The researcher intends to highlight the following:

 To understand the concept of winding up

 To understand the applicability of the concept of winding up in legal domain.

RESEARCH METHODOLOGY

The researcher has relied upon doctrinal method of research with emphasis on both primary
and secondary sources of data collection. No non doctrinal mode of data collection has been
used to conduct or collect any information regarding the research study.

SOURCES OF DATA COLLECTION

It includes both primary and secondary mode of data collection. These include blogs,
websites, essays, books, commentaries and journals and associated writings.

LIMITATIONS OF STUDY

The research work has the following limitations:

 The researcher is purely doctrinal in nature; no non doctrinal mode is involved.

 The time period of researcher is thirty days.
 The purpose of this research work is solely academic.

SCOPE OF STUDY

The utility of this undertaken research work is to understand the important role a tribunal
plays in winding up a company. Winding up is an important concept which is linked to other
concepts, the understanding thus becomes vital .The concept shall remain ruial to
understanding the corporate affairs of the company in the light of litigations brought before it.

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CHAPTER -1: INTRODUCTION

WINDING UP is the process by which the company ceases its existence. The property of the
company is distributed among members and creditors. A liquidator is appointed as the
administrator who collects the assets of the company pays its debts and distributes any
surplus among members in accordance with their rights. 1 Winding up precedes dissolution2, a
company is not dissolved immediately after it winding up.

Types of winding up:

1. Voluntary winding up –either by members voluntary winding up or creditors winding

up ; there have been amendments with regard to this.
2. Compulsory winding up under the order of the tribunal

The winding up of a company can be at the order of the tribunal under section 271 of
the companies act.

The grounds on which compulsory winding up can be ordered by the tribunal are as follows:3

a. If the company has resolved by a special resolution that it will be wound up by the
tribunal.
b. If the company has acted against the interest of sovereignty and integrity of India
c. If the tribunal is of the opinion that the affairs of the company have been conducted
fraudulently or the very formation is of fraudulent nature
d. If the company has defaulted in filing its financial statements or annual returns for 5
years consecutively
e. If the tribunal is of the opinion that it is just and equitable that the company should be
wound up.

1
Official liquidator v. Commr (1992) 73 Comp cases 168 (mad)
2
Practical guidance Indian Companies’ Law, Winding Up of the Company, https://www.lexisnexis.com
/ap/pg/indiacompanieslaw/document Practical guidance .
3
Avtar Singh, Company law, 16th edition,EBC pg 237-258

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CHAPTER 2: JUST AND EQUITABLE RULE

A ‘just and equitable winding up petition’ is a bespoke petition that is designed to deal with a
range of shareholder disputes in a company. If there has been a breakdown in mutual trust
and confidence which is impeding the management of a company, a shareholder may petition
to have the company wound up. It is then down to the court to consider the application and
decide whether it is appropriate to close a company down when such an action may be
against the interests of one or more of the company’s shareholders.

How does the court reach a decision?

The decision whether to wind up a company on just and equitable grounds is discretionary, so
the court will consider all the factors involved before making a winding up order. If the court
believes there is some other remedy, such as one party purchasing the other party’s shares for
a specific amount, it will usually prefer to go down that route

When Might a Just and Equitable Winding Up Petition be presented?

An example of a scenario in which a just and equitable winding up petition might be

presented is in the case of a disagreement about the way a company is run, or the direction a
company is going in. If this dispute cannot be resolved, a winding up petition can be
presented to close the company down. However, the decision to wind up the company is
down to the discretion of the court, so, just because a petition has been issued, it does not
automatically mean the company will come to an end.

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CHAPTER 3 : JUST AND EQUITABLE GROUND

The last ground on which tribunal can order the winding up of a company is when it is of the
opinion that it is just and equitable that the company should be wound up. This gives the
tribunal a very wide discretionary power to order winding up whenever it appears to be
desirable. The tribunal may give due weight to the interest of the company, its employees,
creditors and shareholders and general public interest should also be considered 4. Though the
tribunal is not bound to construe this clause (ejusdem generis) as only covering grounds of a
like nature, yet it will require grounds of a like magnitude before acting under the clause. 5The
rule has been entirely abandoned and the words are to be treated as conferring a discretionary
power which is of the widest character and the tribunal are left to work out for themselves the
principles on which such orders should be granted. 6 For a long period ejusdem generis
dominated the interpretations of the just and equitable provision. But the rule has been
entirely abandoned and the words are to be treated as conferring a discretionary power which
is of the widest character and the tribunal are left to work out for themselves the principles on
which such orders should be granted.7 There must be a really strong ground for liquidating a
company. Moreover, 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 petitioner and he is acting unreasonably in
seeking to have the company wound up, instead of that other remedy 8. The role of the
tribunal discretion is to consider all the affected interests and not merely those of creditors. 9 It
is neither desirable nor possible to categorise facts that render it just and equitable to wind up
a company.

4
Veeramachineni seethaiah vs body venkatasubbiah AIR 1949 Mad 675;Cine Industries and recording co.ltd ,
re, AIR 1942 Bom 231;(1942) 12 Comp cas 215
5
Cowasjee v nath singh oil co ltd (1921) 59 IC 524
6
B.H. McPherson , “Winding up on the just and Equitable ground”(1964) 27 MLR 288.followed in jivabhai
marghabhai patel vs extrusion processes (P) Ltd , (1966) 2 Comp LJ 74 (Bom)
7
Supra 3 pg 234
8
Lokenath gupta v credits (P) ltd, (1968) 38 comp cas 599 : (1968) 1 comp LJ 253
9
Ramdeo ranglal vs ghoornia tea co (P) Ltd (2005) 60 SCL 449(Guj)

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‘The tendency to create categories or headings is wrong ; the general words of the sub –
section should remain general and not be reduced to the sum of particular instances But the
circumstances in which the courts have in the past dissolved companies on this ground can be
resolved into general categories. 10 :

1. In case of a deadlock – often occurs in the management of the company. The just and
equitable clause in such instances should if invoked when there is difference in the
view of the majority and minority directorate such instance is not sufficient for
winding up.11a justifiable lack of confidence resting on a lack of probity in the
conduct of a company’s affairs12 should suffice a deadlock situation.
2. In case of loss of substratum- it is the instance where the main object has failed to
materialise or has lost its substratum. The substratum of the company an only be said
to have disappeared only when the objet for which it has been incorporated has
substantially failed or when it is impossible to Carry on the business of the Company
except at loss.13
3. In case of losses- a company cannot carry out its business only at losses. Mere
apprehension of loss incurring in such instances is not sufficient. The object of trading
is to incur profits which must be achieved at the end of the day.
4. In case of oppression of minority- in cases where the principal shareholders have
adopted an aggressive or oppressive policy towards the minority. The infamous case
in this regard is R.Sabapathi Rao v Sabapathi press ltd,14where the directors of a
company were able to exercise a dominating influence on the management of the
company and the minority shareholders were outvoted and the profits were retained
only with them.
5. In case of fraudulent purpose- the act as well as the object for which the company
has been incorporated must not be fraudulent in nature.
6. In case of public interest- any conduct of the company must not be in contravention
with the public interest of the country. If such companies are allowed to function it
may contravene the capital interest and resources of the country. This ground has to
be scrutinized properly as it may lead to abuse of process granted by the legislation.

10
D.D. Prentice , ‘Winding Up on the Just and Equitable ground: the partnership analogy’’(1973) 89 LQR 107,
108
11
Supra 4 para 675
12
Etisalat Mauritius ltd vs etisalat DB Telecom pvt ltd (2013) 181 comp cas 417(Bom)
13
Seth mohanlal vs grain chambers ltd AIR 1968 Sc 772 (1968) comp lJ 275, 285
14
AIR 1925 Mad 489

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The remedy of winding up must be used as last resort when no other alternative choice is left.
The court has to see that when an equally effective alternate remedy is available before it
commences the proceeding of winding up. However it is properly valid to pass an order to
windup any company on Just and Equitable grounds because there are many people working
in any company therefore justice should be provided to them by way of such petition if the
company is not working properly or any dispute arises in it.

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CHAPTER-4: CONCLUSION

A company is an artificial legal entity cannot hence it could not come to end as natural person
or other entity. The winding up is one of the legal procedures through which the life of the
Company can be ended. This mechanism comprehends the process of selling the assets pays
it debts and disseminated any residual assets to the creditors or shareholders and then
dissolving the affairs of the company according to laws as well as the article of association.
Winding up can be compulsory or voluntary. Compulsory winding up take place when a
company is forced, by law and usually by a tribunal order, to appoint the liquidator for
carrying the control the assets of the Company and adoption of the procedure for the winding
up of the Company. The Company which is subject to the wind up May or not be insolvent.
The Company Act, 1956 and Company Act, 2013 are progressively trying to solve the
complex and sophisticated issue of the Winding Up of the Company. The various provisions
of these Acts have been collaterally working in the field of settling the winding up problem.
Despite these with the development of times and progress of winding up companies, there are
several issues came in front of the judiciary and it always tried to mitigate the friction in the
process of winding up of companies. In the recent time, for the serving, the interest of the
stakeholders in the process of winding up the role played by NCLT can’t be ignored. Indeed
the effort of NCLT is to expedite the winding up process and serve it is mandate.

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 BIBLIOGRAPHY

PRIMARY SOURCES

Case laws:

 Amalgamated Syndicate Ltd., Re,2 Ch 181(1901)

 Assurance Co. Ltd. v. Union of India, SCR (2) 940 (1973)
 British Water Gas Syndicate v. Notts Derby Water Gas Co. Ltd, WN 204 (1889)
 National Stores v. Ramsaran, AIR Nag 303(1926)
 London & Australian Agency Corp. Ltd. Re, 29 LT 417: 22 WR (1873)
 Re, West Cumberland Iron Steel Co, 40 Ch D 361(1889)
 Shri Raja Mohan Manucha v. Lakshminath Saigal, 33 Comp. Cases 719 (1963)
 Vijay Lakshmi Talkies v. Roa, AIR. Adh.pr.285 (1966)

 Etisalat Mauritius ltd vs etisalat DB Telecom pvt ltd (2013) 181 comp cas 417(Bom)
 Seth mohanlal vs grain chambers ltd AIR 1968 Sc 772 (1968) comp lJ 275, 285

 Veeramachineni seethaiah vs body venkatasubbiah AIR 1949 Mad 675;Cine

Industries and recording co.ltd , re, AIR 1942 Bom 231;(1942) 12 Comp cas 215
 Cowasjee v nath singh oil co ltd (1921) 59 IC 524
 B.H. McPherson , “Winding up on the just and Equitable ground”(1964) 27 MLR
288.followed in jivabhai marghabhai patel vs extrusion processes (P) Ltd , (1966) 2
Comp LJ 74 (Bom)
 Lokenath gupta v credits (P) ltd, (1968) 38 comp cas 599 : (1968) 1 comp LJ 253
 Ramdeo ranglal vs ghoornia tea co (P) Ltd (2005) 60 SCL 449(Guj)

 Official liquidator v. Commr (1992) 73 Comp cases 168 (mad)

SECONDARY SOURCES:

 Avtar Singh, Company law, 16th edition,EBC pg 237-258

 Ministry of Corporate Affairs http://www.mca.gov.in/Min istryV2/companiesact2013.html
 Practical guidance Indian Companies’ Law, Winding Up of the Company,
https://www.lexisnexis.com /ap/pg/indiacompanieslaw/documentPractical guidance Indian
Companies Law

 Winding Up of the Compan https://www.lexisnexis.com/ap/pg/indiacompanieslaw/document

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