WINDING UP

Prof. L.C.B. Gower, “The winding-up of a company is the process

whereby its life is ended, and its property administered for the
bene t of its creditors and members. A liquidator is appointed, and
he takes control of the company, collects its debts, and nally
distributes any surplus among the members in accordance with
their rights.”

The main purpose of winding up a company is to realize its

assets and pay its debts expeditiously and fairly in accordance with
the law. The Companies Act, 2013 provides for an effective time-
bound winding-up process.

Section 255 of Insolvency and Bankruptcy Code, 2016 has been

noti ed w.e.f November 15, 2016- 2013 Act stands amended in
accordance with Schedule XI of the Code.

Prior to this, the term winding up was not de ned under the
Companies Act, 2013.

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.
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Dissolution

A company is said to be dissolved when it ceases to exist as a

corporate entity. On dissolution, the company’s name shall be
struck off by the Registrar from the Register of Companies and he
shall also get this fact published in the Of cial Gazette. The
dissolution thus puts an end to the existence of the company.

Modes of dissolution

The dissolution of a company may be brought about in any of the

following ways:

1. Through the transfer of a company’s undertaking to another

under a scheme of reconstruction or amalgamation. In such
a case the transferor company will be dissolved by an order of
the Tribunal without being wound up.
2. Through the winding up of the company, wherein assets of
the company are realized and applied towards the payment of
its liabilities. The surplus, if any is distributed to the members
of the company, in accordance with their rights.
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Modes of winding up

A company may be wound up in any of the following two ways:

1. Compulsory winding up by Tribunal. (Sec. 271)

2. Liquidation under Insolvency and Bankruptcy Code, 2016.

Grounds of Winding-up (Section 272)

As per section 271, the Tribunal may order for the winding up of a
company on a petition submitted to it under section 272 on any of
the following grounds:

1. The passing of the special resolution for the winding up.

-When a company has by passing a special resolution
resolved to be wound up by the Tribunal, a winding up order
may be made by the Tribunal. The resolution may be passed
for any cause whatever.
2. 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.
3. If on an application made by the Registrar or any other person
authorized by the Central Government by noti cation 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 a 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.
4. If the company has made a default in ling with the
Registrar its nancial statements or annual returns for
immediately preceding ve consecutive nancial years.
5. Just and equitable. The Tribunal may order for the winding up
of a company if it thinks that there are just and equitable
grounds for doing so.
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The Tribunal has very large discretionary power in this case. This
power has been given to the Tribunal to safeguard the interests of
the minority and the weaker group of members. The tribunal, before
passing such an order, will take into account the interest of the
shareholders, creditors, employees and also the general public.
The tribunal may also refuse to grant an order for the compulsory
winding up of the company if it is of the opinion that some other
remedy is available to the petitioner to redress his grievances and
that the demand for the winding up of the company is
unreasonable.
A few of the examples of ‘just and equitable’ grounds on the basis
of which the Tribunal may order for the winding up of the
company are given:

(i) Oppression of minority. In cases where those who control the

company abuse their power to such an extent that it seriously
prejudices the interests of minority shareholders, the Tribunal may
order the winding up of the company.

(ii) Deadlock in management. Where there is a complete deadlock

in the management of the company, the company may be ordered
to be wound up.
Example: Re. Yenidje Tobacco Ltd. W and R were the only two
shareholders as well as the directors of a private company.
Subsequently some serious differences developed, and they
became hostile to each other. They stopped even talking to each
other. It was held that there was a complete deadlock in the
management of the company and, therefore, it would be just and
equitable to order for its winding up.

(iii) Loss of substratum. Where the objects for which a company

was constituted have either failed or become substantially
impossible to be carried out, i.e., ‘substratum of the company’ is
lost.

(iv) Losses. When the business of a company cannot be carried on

except at a loss, the company may be wound up by an order of the
Tribunal on just and equitable grounds.
(v) Fraudulent object. If the business or the objects of the
company are fraudulent or illegal or have become illegal with the
changes in the law, the Tribunal may order the company to be
wound up on just and equitable grounds.
Who may le a petition? (Sec- 272)

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 under
Section 272 by any of the following persons:

(a) the company; or

(b) any contributory or contributories. (Sec- 2(26))
(c) all or any of the parties speci ed above in clauses (a), (b),
(d) the Registrar.
(e) any person authorized by the Central Government in that behalf.
(f) by the Central Government or State Government in case of the
company acting against the interest of the sovereignty and integrity
of India.

Power of Tribunal- Sec 273

Company Liquidators and their appointments- Sec 275

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