Com - Law Third Sem Unit 5

UNIT – 5
COMPANY LAW
Winding up of company
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.
As per section 2(94A) of the Companies Act, 2013 -
“Winding up” means winding up under this Act or liquidation under the
Insolvency and Bankruptcy Code, 2016.
Thus, winding up ultimately leads to the dissolution of the company. In

between winding up and dissolution the legal entity of the company remains
and it can be sued in a Tribunal of law.
The modes of winding up may be discussed under the following three

heads, namely:-
1. Compulsory winding up by the court.

2. Voluntary winding up without the intervention of the court.
3. Voluntary winding up with the intervention of the court i.e., under the
supervision of the court.
1. Compulsory Winding Up by the Court:
Winding up of a Company by an order of the court is called the compulsory

winding up. Section 433 of the Companies Act lays down the circumstances
under which a Company may be compulsorily wound up.
They are:- (a) If the Company has by special resolution, resolved that the
Company may be wound up by the court.
(b) If default is made in delivering the statutory report to the Registrar or in
holding the statutory meeting.
(c) If the Company does not commence its business within a year from its
incorporation or suspends it for a whole year.
(d) If the number of members is reduced, in the case of a public Company

below seven, and in the case of a private company below two.
(e) If the Company is unable to pay its debts.
(f) If the court is of the opinion that it is just and equitable that the company
should be wound up.
Persons Entitled to Apply for Liquidation: - The Petition for winding up

of a Company may be presented by any of the following persons (Sec.
439):
(1) The Company.
(2) The creditors which include contingent creditors, prospective creditors,

secured creditors, debenture holders, or a trustee for debenture holders.
(3) The contributories – comprise present and past shareholders of a Company

(Secs. 426 and 428).
(4) The Registrar.
(5) Any person authorized by the Central Government on the-basis of report

of inspectors.
2. Voluntary Winding Up: - A voluntary winding up occurs without the
intervention of the court. Here the Company and its creditors mutually settle
their affairs without going to the court.
This mode of winding up takes place on:

(a) The expiry of the prefixed duration of the Company, or the occurrence of
event whereby the Company is to be dissolved, and adoption by the Company
in general meeting of an ordinary resolution to wind up voluntarily; or
(b) The passing of a special resolution by the Company to wind up

voluntarily.
Section 488 provides for two types of voluntary winding up;

(a) Member’s voluntary winding up and
(b) Creditor’s voluntary winding up.
(a) Member’s Voluntary Winding Up:

This type of winding up occurs only when the Company is solvent. It requires
a declaration of the Company’s solvency at the meeting of Board of Directors.
The declaration must specify the director’s opinion that the Company has no
debt or it will be able to pay its debts in full within three years of the
commencement of the winding up.
(b) Creditor’s Voluntary Winding Up:

It occurs in the absence of declaration of solvency i.e., when the company is
insolvent. Hence, the Act empowers the creditors of dominate over the
members in this mode of winding up so as to effectively protect their interest.
It requires the company to hold the creditors’ meeting wherein the Board
must make a full statement of the company’s affairs together with a detailed
list of creditors including their estimated claims.
3. Winding Up Subject to Supervision of the Court:
Windings up with the intervention of the court are ordered where the
voluntary winding up has already commenced. As a matter of fact, it is the
voluntary winding up but under the supervision of the court. A court may
approve a resolution passed by the Company for voluntary winding up but the
winding up should continue under the supervision of the court.
The court will issue such an order only under the following
circumstances:
(a) If the resolution for winding up was obtained by fraud by the company; or
(b) If the rules pertaining to winding up are not being properly adhered to; or
(c) If the liquidator is found to be prejudicial or is negligent in releasing the

assets of the company.
The Court may exercise the same powers as it has in the case of compulsory
winding up under the order of the court.

Com - Law Third Sem Unit 5

Uploaded by

Copyright:

Available Formats

Com - Law Third Sem Unit 5

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Com - Law Third Sem Unit 5

Uploaded by

Copyright:

Available Formats

UNIT – 5

Winding up of a company is defined as a process by which the life of a

As per section 2(94A) of the Companies Act, 2013 -

Thus, winding up ultimately leads to the dissolution of the company. In

The modes of winding up may be discussed under the following three

1. Compulsory winding up by the court.

1. Compulsory Winding Up by the Court:

Winding up of a Company by an order of the court is called the compulsory

(d) If the number of members is reduced, in the case of a public Company

(e) If the Company is unable to pay its debts.

Persons Entitled to Apply for Liquidation: - The Petition for winding up

(2) The creditors which include contingent creditors, prospective creditors,

(3) The contributories – comprise present and past shareholders of a Company

(4) The Registrar.

(5) Any person authorized by the Central Government on the-basis of report

This mode of winding up takes place on:

(b) The passing of a special resolution by the Company to wind up

Section 488 provides for two types of voluntary winding up;

(b) Creditor’s voluntary winding up.

(a) Member’s Voluntary Winding Up:

(b) Creditor’s Voluntary Winding Up:

(c) If the liquidator is found to be prejudicial or is negligent in releasing the

You might also like