Winding Up

MEANING OF WINDING
UP
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 a ‘liquidator’,
is appointed and he takes control of the company, collects its
assets, pays its debts and finally distributes any surplus among
the members in accordance with their respective rights. At the
end of the winding up the company will have no assets or
liabilities, and it will therefore be simply a formal step for it to
be dissolved, that is, for its legal personality as a corporation to
be brought to an end.
 liquidator
In law, a liquidator is the officer appointed when a
company goes into winding-up or liquidation who has
responsibility for collecting in all of the assets under
such circumstances of the company and settling all
claims against the company before putting the company
into dissolution. Liquidator is a person officially
appointed to 'liquidate' a company or firm. Their duty is
to ascertain and settle the liabilities of a company or a
firm. If there are any surplus assets,they are distributed
to the contributories.
275. Company Liquidators and their appointments
(1) For the purposes of winding up of a company by the Tribunal, the
Tribunal at the time of the passing of the order of winding up, shall
appoint an Official Liquidator or a liquidator from the panel maintained
under sub-section (2) as the Company Liquidator.
(2) The provisional liquidator or the Company Liquidator, as the case
may be, shall be appointed from a panel maintained by the Central
Government consisting of the names of chartered accountants,
advocates, company secretaries, cost accountants or firms or bodies
corporate having such chartered accountants, advocates, company
secretaries, cost accountants and such other professionals as may be
notified by the Central Government or from a firm or a body corporate
of persons having a combination of such professionals as may be
prescribed and having at least Ten years’ experience in company
matters.
(3) Where a provisional liquidator is appointed by the Tribunal, the
Tribunal may limit and restrict his powers by the order appointing him or it
or by a subsequent order, but otherwise he shall have the same powers
as a liquidator.
(4) The Central Government may remove the name of any person or firm
or body corporate from the panel maintained under sub-section (2) on the
grounds of misconduct, fraud, misfeasance, breach of duties or
professional incompetence: Provided that the Central Government before
removing him or it from the panel shall give him or it a reasonable
opportunity of being heard.
(5) The terms and conditions of appointment of a provisional liquidator or
Company Liquidator and the fee payable to him or it shall be specified by
the Tribunal on the basis of task required to be performed, experience,
qualification of such liquidator and size of the company.
(6) On appointment as provisional liquidator or Company
Liquidator, as the case may be, such liquidator shall file a
declaration within seven days from the date of
appointment in the prescribed form disclosing conflict of
interest or lack of independence in respect of his
appointment, if any, with the Tribunal and such obligation
shall continue throughout the term of his appointment.
(7) While passing a winding up order, the Tribunal may
appoint a provisional liquidator, if any, appointed under
clause (c) of sub-section (1) of section 273, as the
Company Liquidator for the conduct of the proceedings
for the winding up of the company.
What are the Duties of an Liquidator?
Once appointed, the liquidator is responsible for:
 Realising the assets of the insolvent company
and achieving the best possible price;
 Address outstanding claims against the limited
company and satisfy the claims as set-out by law;
 Distributing the returns to the
company’s creditors in order of priority;
 Acting in the best interests of the creditors (not
the directors).
Voluntary Winding Up Meaning:
Voluntary Winding takes place when a company becomes insolvent
and is unable to discharge its liabilities. To carry out voluntary
winding up of private limited company procedure, a winding up a
meeting need to be called where a resolution is passed to carry
out the winding up procedure of the company. The creditor's
winding up meeting should be held either of the days fixed for
General meeting or on the very next day.
As per the procedure for winding up of a company in India, the
notice for this creditor's meeting should be sent by post to each of
the creditor while one is sending the notice for general meeting. It
should also be published in Official Gazette and two newspapers
which are popular in the district where registered office of the
company is located.
A Statement of Affairs and list of creditors with amount due
for each of then should be prepared beforehand and should
be laid during the meeting. In case the resolution is passed
during creditor's meeting, a copy of that resolution need to
be filed with Register within ten working days from the date
when resolution is passed.
 During same creditor's meeting, a liquidator shall be
nominated by the creditors. This liquidator shall be as per the
Regulations set by IBC Code 2016 and shall carry out all the
functions related to winding up of the company. He shall
prepare the detailed list of assets and liabilities of the
company and shall also propose the process and timelines for
liquidation. As per the Insolvency and Bankruptcy Code, 2016
the fee to be paid to this liquidator is part of liquidation cost.
 Liquidator shall value, sell, recover and realize all assets of the corporate person.
He shall open bank account for purpose of receiving money from sale of such
assets and will also administer the distribution of such proceed with the
stakeholders within six months of receipt of these proceeds. He shall also keep an
electronic copy of these reports and will save them for at least next eight years
from the date of dissolution of the corporate person. Once the affairs of the
corporate person are completely wound up, the liquidator shall apply with NCLT
for its dissolution along with final report. The final report would consist of audited
liquidation accounts and statements showing the details of disposed of assets and
how they were sold. This Final Report also needs to be filed with ROC and Board.

 Once this Final Report is submitted, NCLT shall pass the order for dissolution and
the company shall stand dissolved from this date of NCLT order. A copy of this
order needs to be forwarded to ROC within 14 days when the order was passed.
 MODES OF WINDING UP OF
COMPANY 270(1)
With the passing of Insolvency and Bankruptcy Code, 2016, a
company can now be wound up under the Companies Act,
2013 only by the Tribunal. The concept of voluntary winding
up, as provided earlier, has been removed. Section 2(94A), as
amended by the Insolvency and Bankruptcy Code, defines
the expression winding up to mean winding up under this Act
or liquidation under the Insolvency and Bankruptcy Code,
2016, as applicable. Chapter XX of the Act contains
provisions for winding up of a company.
 Winding up by the
Tribunal
Winding-up by the Tribunal, may be ordered in cases mentioned in section
271. The Tribunal will make an order for winding up on an application by
any of the persons enlisted in section 272.
Apart from sections 271 to 303 (Part I of Chapter XX) which deal
specifically with winding up by the Tribunal, sections 324 to 358 (Part III of
Chapter XX), being the provisions applicable to every mode of winding up,
are also relevant to the subject of “winding up by the Tribunal”. Sections
304 to 323, which dealt with the voluntary winding up, have been deleted,
with the passing of the Insolvency and Bankruptcy Code, 2016.
Grounds for compulsory winding up [Section 271] - Section 271 provides
for circumstances in which a company may be wound up by Tribunal. The
section reads:
“A company may be wound up by the Tribunal—
(a) if the company has, by special resolution, resolved that the
company be wound up by the Tribunal;
(b) 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;
(c) if on an application made by the Registrar or any other person
authorised by the Central Government by notification under this
Act, the Tribunal is of the opinion that the affairs of the company
have been conducted in a fraudulent manner or the company was
formed for fraudulent and unlawful purpose or the persons
concerned in the formation or management of its affairs have been
guilty of fraud, misfeasance or misconduct in connection therewith
and that it is proper that the company be wound up;
(d) if the company has made a default in filing with
the Registrar its financial statements or annual
returns for immediately preceding five consecutive
financial years; or
(e) if the Tribunal is of the opinion that it is just and
equitable that the company should be wound up.
Two of the grounds for winding up by the Tribunal -
Inability to pay debt and winding up under Chapter
XIX of the Act – have been deleted with the
passing of Insolvency and Bankruptcy Code.
 Winding up by special
The company may, resolution
by special resolution, resolve that it can be wound
up by the Tribunal. The resolution may be passed for any cause
whatsoever. However, court (now Tribunal) must see that the winding
up is not opposed to public interest or the interest of the company as a
whole - B. Viswanathan v. Seshasayee Paper and Boards Ltd.
[1992] 73 Comp. Cas. 136 (Mad.).
The court (now Tribunal) is also to take into account the
possibility/potency of the company to have a financial revival, when
the company is incurring loss that led the company to pass special
resolution for winding up. The court (now Tribunal) cannot allow a
design underlying to frustrate an arbitration proceeding where a
significant amount is involved - Advance Television Network Ltd. v.
ROC [2011] 108 SCL 702 (Delhi)
Further, it may be noted that the right of the company to file
the winding up petition is not based merely on the ground
mentioned in clause (b) (i.e. by passing special resolution). A
company may present that petition, without special
resolution, on other grounds mentioned in Section 271.
acting against the interests of sovereignty and integrity
of India or of the security of the State or even of the friendly
relations with foreign States are understandable given the
prevailing geo-political scene and its contours, the
remaining grounds of public order, decency and morality, do
not appear to belong to the same strain. 271(1)
 Company’s affairs been conducted in a fraudulent or unlawful manner
etc. [Section 271(c)]
 Section 271(d) provides a ground of winding up for default in filing
financial statements or annual returns.
 The Tribunal may also order for the winding up of a company if it is of
the opinion that it is just and equitable that the company should be
wound up. This is a separate and independent ground for a winding up
order, and for a case to be made out under it, it is not necessary that
the circumstances should be analogous to those which justify an order
on one of the six other specific grounds already dealt with. In exercising
its power on this ground, the Court (now Tribunal) shall give due
weightage to the interest of the company, its employees, creditors and
shareholders and the interest of the general public. The relief based on
the just and equitable clause is in the nature of a last resort when the
other remedies are not efficacious enough to protect the general
interests of the company - Gadadhar Dixit v. Utkal Flour Mills (P.)
Ltd. [1989].
THANKS