Chapter 10 Winding Up

8/13/2019 Chapter 10 Winding Up

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KNOWLEDGE ACADEMYPhone : X Y Z

CHAPTER-10WINDING UP

1. GROUNDS OR COMPULSORY WINDING UP !Se". #$$%

G&o'n() *o& "o+,')o& /n(n ', Con(2on) 3E4"e,2on)3 /hen )

/n(n ', o&(e& (ene(5

1. The "o+,6n ,6))e) 6 ),e"6

&e)o'2on

7. De*6'2 o* Se". 189 ) +6(e .e.

(a) Default is made in filing the statutory

report

(b) Default is made in holding the

statutory meeting

The Court has the discretion to deny the

winding up order.

It may instead direct the company to -

(a) deliver the statutory report; and

(b) hold the statutory meeting.

$. Non-"o++en"e+en2 o& )'),en)ono* ;')ne))

!6%


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unable to pay its debts.

8. =')2 6n( e>'26;e &o'n(

The Court must be satisfied that -

(a) there are #ust and e+uitable grounds

for winding up the company; and(b) there is no alternate remedy.

The Court may dismiss the petition if the

petitioner is acting unreasonably in

as$ing for a winding up order.

7. PETITION OR COMPULSORY WINDING UP !Se". #$?%

Co+,6n : The company may file a petition where it has passed ,& for compulsory

winding up.

C&e(2o&

creditor can file a petition only on the ground of inability to pay debts.

The petition is not maintainable if the debt has become time barred.

Re)2&6& The registrar must obtain the previous approval of C.

C shall first give an opportunity of being heard to the company.

Con2&;'2o& : If petition is filed on any ground other than the ground of reduction in

number of members below statutory limit* any of the following conditions must be

fulfilled%

(a) The contributory must be an original allottee of shares.

(b) /e must have held his shares for at least 0 months during 1 months

immediately preceding the commencement of winding up.

(c) The shares must have devolved on him by reason of death of a member.

CG :fter considering the inspector2s report of investigation* C may present a petition

to the Court for winding up the company on #ust and e+uitable ground (,ec. 34).

$. WINDING UP


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If it would not benefit company2s creditors in general.

If it is in the interest of #ustice to give the company some time to come out of the

momentary financial crisis or any other temporary difficulty.

If the inability to pay debts is due to a temporary shoc$ of economy and mar$et

and not due to any deliberate or designed action.

PRACTICAL PRO


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Wn(n ', I* 6 ;')ne))e) 6&e )'),en(e(

if such suspension continues for year.

/owever* it is the discretion of the Court whether to order winding up or not.

Whe2he& 2he "o+,6n h6) )'),en(e( 2) ;')ne)) - 6 *e/ "6)e)

!Se". #$$% !M6 1??B%(4) 789 Co. :td. has its subsidiary company &< :td.* which is formed to carry out

some of the ob#ectives of 789 Co. :td. 789 :td. suspends one of its several

businesses* by passing a resolution at the company2s e"traordinary general meting with

effect from st anuary* ==?. The business so suspended continues to be suspended

until


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6"plain the circumstances under which a company may be ordered to be wound

up by the Court on the ground of inability to pay its debts and whether the ban$ will

succeed in this case.

An).

The&e ) n6;2 2o ,6 (e;2) : since the company has defaulted in payment ofinstallments of ban$ loan*

Co'&2 +6 no2 o&(e& /n(n ',

since the power of the Court to order winding up is discretionary

since the Court shall consider the interest of * wor$ers* temporary cash

crisis* loss of ta"es to the overnment* loss of production* loss of business*

probable hardship on other creditors* and public policy

if the Court decides that it is not in the interest of #ustice to wind up the company

T626 I&on 6n( S2ee Co. @ M"&o o&e !In(6% L2(..

#. THE OICIAL LIFUIDATOR !Se". ##B 2o #9$%

O**"6 >'(62o& 2o ;e L>'(62o& : @nly an @fficial :i+uidator can be appointed as

li+uidator of a company

No 6,,on2+en2 o* &e"e@e& : 5here official li+uidator has been appointed* no receiver

shall be appointed to realise the assets of the company.

6(2 o* 6"2)

The acts of a li+uidator shall be valid* notwithstanding that it may afterwards be

discovered that his appointment was invalid by reason of any defect or

dis+ualification.

/owever* where his appointment has been shown as invalid or to have

terminated* all his subse+uent acts shall be invalid.

ee) 2o CG

The company shall not pay any remuneration to the official li+uidator.

The official li+uidator shall receive the remuneration from C.

C may charge fees from the company.

#A. COMMENCEMENT O WINDING UP !Se". ##1%

Wn(n ', ; Co'&2 : The time of presentation of winding up petition.

o'n26& /n(n ', : The time of passing resolution for voluntary winding up.9. THE PROISIONAL LIFUIDATOR !Se". #90%

T+e o* +6n 6,,on2+en2 : The Court is empowered to appoint a provisional

li+uidator pending the decision of I winding up petition.

O;e"2 o* 6,,on2+en2

To protect the creditors

To safeguard the assets of the company.

O,,o&2'n2 2o 2he "o+,6n : Aefore ma$ing the appointment of provisional li+uidator*

a notice shall be served on the company. n opportunity shall be given to the company

to ma$e representations.

A,,on2+en2 o* ,&o@)on6 >'(62o& ) 6 (&6)2" +e6)'&e

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The appointment of provisional li+uidator shall be made only if the Court is

satisfied that such appointment is absolutely necessary.

The appointment of provisional li+uidator may be made if-

(a) the company is insolvent; or

(b) the application is presented by the company itself; or(c) the application is unopposed FGirendra ,ingh v Handlal Ahandari ,ons

vt. :td.J*

Po/e&) o* P&o@)on6 >'(62o&

/e shall have same powers as that of a li+uidator.

/owever* his powers may be restricted by the Court.

8. POWERS O THE COURT UNDER COMPULSORY WINDING UP

1. Po/e&) o* 2he Co'&2 ;e*o&e +6n /n(n ', o&(e&

Po/e& 2o )26 )'2) : The Court may stay any suit pending in any Court (other than a

suit pending in ,C or /C).

ower to decide petition

(a) Dismiss it (b) 5inding up order (c) d#ourn (d) Interim order.

Po/e& 2o o&(e& /n(n ', : The Court may ma$e a winding up order if it is #ustified by

circumstances even if the company has no assets or no assets will be available after

paying liabilities.

7. Po/e&) o* 2he Co'&2 6*2e& +6n /n(n ', o&(e&

POWER TO SETTLE LIST O CONTRI


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Po/e& 2o e4"'(e "&e(2o&) :

The Court may fi" the time within which the debts must be proved.

If a creditor fails to prove his debt within the time fi"ed by the Court* such creditor

shall be e"cluded.

De2e&+ne ,&o&2 o* "o)2) : If the assets realised are insufficient to satisfy whole cost*charges and e"penses incurred in winding up* the Court shall determine the order of

priority inter se.

S26 /n(n ',

The Court has the discretion to stay the winding up.

The stay may be granted on such terms and conditions as the Court deems fit.

D))o'2on : The Court has the power to order dissolution of the company as per ,ec.

41.

De"6&e 2he ())o'2on @o( : The Court has the power to declare dissolution as void

as per ,ec. ''=.

. CONSEFUENCES O WINDING UP ORDER!SEC. ### TO ##%

DISCHARGE O OICERS AND EMPLOYEES

Gene&6 &'e :ll the employees and officers of the company shall be discharged.

E4"e,2on : The officers and employees shall continue in office if the business of the

company is continued by the li+uidator for beneficial winding up* with the sanction of the

Court.

Ce))62on o* ,o/e&) o* '(62o& : The @fficial :i+uidator shall become the li+uidator of the company.

B. POWERS O THE LIFUIDATOR !Se". #9%

1. POWERS EXERCISA


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Ch6&e 6))e2)% The li+uidator has the power to raise money by charging the assets of

the company.

O2he& ,o/e&) : The li+uidator has the power to do all such things as may be necessary

for winding up and distributing the assets.

One&o') ,&o,e&2 : The li+uidator has the power to disclaim onerous property.7. POWERS EXERCISA


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PRELIMINARY REPORT

M6n(62o& % It is mandatory for the li+uidator to submit a preliminary report to the Court.

T+e +2 : The preliminary report shall be submitted within 0 months of the winding up

order.

Con2en2)(a) The capital of the company

(b) 6stimated amount of assets of the company

(c) 6stimated amount of liabilities of the company

(d) Causes of failure of the company* if the company has failed

(e) 5hether any further in+uiry is desirable.

URTHER REPORT

O,2on6

The li+uidator is not bound to furnish the further report.

There is no time limit for furnishing the further report.Con2en2)

(a) The particulars relating to promotion and formation of the company.

(b) 5hether any fraud was committed in the promotion or formation of the company.

(c) 5hether any fraud was committed in the company.

(d) ny other matter as the li+uidator deems fit.

C')2o( o* "o+,6n) ,&o,e&2

The li+uidator shall ta$e into his custody all the properties of the company.

Mor this purpose* such steps may be ta$en and such force may be used as is

necessary in the given circumstances.

M6n2en6n"e o* ;oo)

(a) The li+uidator shall maintain proper boo$s of account and other records.

(b) /e shall maintain minutes boo$ of meetings of creditors and contributories.

11. COMMITTEE O INSPECTION UNDER COMPULSORY WINDING UP

!Se". #8# 6n( #89%

A,,on2+en2 ) no2 +6n(62o&

The appointment of committee of inspection is not mandatory.

The committee of inspection shall not be appointed unless the Court is satisfied

that such appointment is necessary.

M6nne& o* 6,,on2+en2

meeting of creditors shall be held. The meeting shall determine the members of

the committee.

meeting of contributories shall be held after the meeting of creditors is held.

The meeting may accept the decision of the creditors2 meeting with or without

modifications or may re#ect it.

5here the meeting of contributories does not accept the decision of the creditors2

meeting in its entirety* the li+uidator shall apply to the Court for directions. Then*the Court shall determine the composition of the committee.

Re+'ne&62on : Ho remuneration is payable to the members of the committee.

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Co+,o)2on o* "o++22ee : The committee shall consist of not more than 3

members.

PROISIONS APPLICArd of total number of members; or

3 members.

Ce))62on o* +e+;e&)h, : person shall cease to be a member of the committee in

the following ways%

&esignation

Insolvency

Compounding or arrangement with creditors.

17. STATEMENT O AAIRS TO


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Co+,e2on o* ('&62on o* 2he "o+,6n

The articles specify the duration after which the company shall be wound up.

,uch duration is completed.

The company has passed an ordinary resolution for voluntary winding up.

O""'&&en"e o* e@en2 ),e"*e( n 2he 6&2"e)

The articles specify an event on the occurrence of which the company shall be

wound up.

,uch an event has occurred.

The company has passed an ordinary resolution for voluntary winding up.

On 6n &o'n( : The company passes a special resolution for winding up.

1#. DECLARATION O SOLENCY !Se". #BB%

LEGAL REFUIREMENTS

M6(e ; /ho+5 : The declaration shall be made by a ma#ority of directors.e&*"62on :The declaration shall be verified by an affidavit.

N62'&e o* (e"6&62on : The directors shall state that -

the company has no debts; or

the company will be able to pay its debts in full within the period specified in

declaration (not being more than years)

W&on (e"6&62on Con)e>'en"e)

director who has no reasonable ground for his opinion that the company will be

able to pay its debts in full within the period specified in the declaration* shall be

punishable with imprisonment upto 0 months or fine upto &s. '* or both. If the debts are not paid in full within the period specified in the declaration* it

shall be presumed that the directors ma$ing the declaration did not have any

reasonable ground for the opinion.

19. MEM


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D'2 o* >'(62o& n "6)e o* n)o@en" : In the following 3 cases the li+uidator shall

call a meeting of the creditors* and thereafter proceed as if it is creditor2s voluntary

winding up%

(a) 5here the li+uidator forms an opinion that the company will not be able to pay its

debts in full within the period specified in the declaration of solvency.(b) 5here the period specified in the declaration of solvency has e"pired without the

debts having been paid in full.

n6 +ee2n 6n( ())o'2on

(a) The li+uidator shall lay the final account and hold a final meeting as soon as

affairs are fully wound up.

(b) fter laying the final account in '(62o& :ny vacancy arising in the office of li+uidator shall be

filled by the creditors.

Re+'ne&62on o* >'(62o& : The remuneration of li+uidator shall be fi"ed by the

creditors.

1. APPOINTMENT O COMMITTEE O INSPECTION UNDER

CREDITORS OLUNTARY WINDING UP !Se". 90$%

Po/e& o* 6,,on2+en2 : The creditors have a discretionary power to appoint committee

of inspection.

M6nne& o* 6,,on2+en2

The creditors may nominate a ma"imum of ' members.

fter nomination has been made by the creditors* the members may nominate a

ma"imum of ' members.

C&e(2o&) &h2) : The creditors may ob#ect to the nominees of members. In such a

case* the nominees of members shall not act as members of the committee.

Co'&2 n2e&@en2on % @n any application made to the Court for directions* the Court

may intervene.

Po/e&) o* 2he Co'&2 % The Court may appoint any person to act as member of thecommittee.

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1B. OLUNTARY WINDING UP SU'(62o&

The Court is empowered to remove the li+uidator appointed in voluntary winding

up.

The Court has the power to appoint @fficial :i+uidator as additional li+uidator.

The Court may remove any li+uidator* anytime.

The Court may fill the vacancy arising in the office of li+uidator.

1?. DISSOLUTION !Se". #B1%

G&o'n() *o& ())o'2on : The Court may order dissolution of the company in the

following cases%

(a) The affairs of the company have been completely wound up.

(b) The Court is satisfied that -

(i) the li+uidator cannot proceed with the winding up of a company -

for want of funds and assets; or

for any reason whatsoever and

(ii) it is #ust and reasonable in the circumstances of the case that an order of

dissolution of the company should be made.

E**e"2@e (62e o* ())o'2on : The company shall be dissolved as from the date of the

order of the Court.

70. REIAL O A COMPANY !Se". 99?%

Po/e& o* 2he Co'&2 : The Court is empowered to order that the order of dissolution is

void.

E**e"2 o* o&(e&

Dissolution shall be void ab initio.

ll conse+uences resulting from the dissolution are avoided.

ll proceedings conducted during the interval between the date of dissolution and

the date of declaration of dissolution as void shall not have any legal effect.

E**e"2@e (62e o* &e@@6 : The company shall be revived as from the date of order ofCourt declaring dissolution as void.

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T+e +2 *o& &e@@6 : The application for revival may be made within 3 years from the

date of dissolution of the company.

71. DEUNCT COMPANIES !Se". 980%

1. INFUIRY '& : The registrar can ma$e an in+uiry only if he has

reasonable cause to believe that-

the company is not carrying on business; or

the company has ceased to be in operation.

P&o"e('&e% The registrar shall send a letter of in+uiry to the company.

7. Re, ; 2he "o+,6n : 5ithin month* the company failed to reply to the

notice served by the registrar.

$. Sho/ "6')e no2"e ; &e)2&6&

Con(2on *o& ))'e o* no2"e : 5ithin month* the company is re+uired to reply to the

notice served by registrar.

P&o"e('&e% The registrar shall send a registered letter referring to earlier letter

#. Re, ; 2he "o+,6n : 5ithin month* the company is re+uired to show cause

to the registrar.

9. PU


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8. Re, ; 2he "o+,6n : 5ithin months* the company is re+uired to show

cause to the registrar.

. S2&n o** 2he n6+e o* 2he "o+,6n

Con(2on3o& )2&n o** : 5ithin months* the company failed to show cause to the

registrar.P&o"e('&e : The registrar shall publish a notice in the official aette. Mrom the date of

such publication* the company shall be deemed to be dissolved.

B. CONSEFUENCES O STRIKING O THE NAME O THE COMPANY

The "o+,6n ) (e*'n"2 : Mrom the date of publication of notice in the @fficial aette*

the company shall become defunct.

L6;2 o* +e+;e&) e2".% The liability of members* directors and manager shall not be

affected.

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- 0 -


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77. RESTORATION O NAME O THE COMPANY !Se". 980%

T+e +2 *o& +6n 6,,"62on : The application shall be made to the Court within

3 years from date of stri$ing off the name of the company.

Con(2on) *o& &e)2o&62on : The Court shall not ma$e an order of restoration unless it

is satisfied that -(a) the company was carrying on business or was in operation at the time of stri$ing

off the name; or

(b) it is #ust and e+uitable that the name of the company be restored.

D&e"2on) ; Co'&2 : The Court may give such directions as it deems fit for the

purpose of placing the company and all other persons in the same position as nearly as

may be. as if the name of the company had not been struc$ off.

E**e"2) o* &e)2o&62on : The company* creditors* debtors and members shall go bac$ to

the position in which they were before the date on which the name of the company was

struc$ off.7$. ORDER O PAYMENT O LIA


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R). 0 6h)% is the amount of overriding preferential payments (&s. 4 la$hs due to

secured creditors and &s. la$hs dues to wor$ers)

R). 98 6h) 2o ;e ,6( ,&o,o&2on62e : to secured creditors (&s. 3 la$hs) and

wor$ers2 dues (&s. 34 la$hs).

No ,6+en2) )h6 ;e +6(e% towards ta"es and duties payable to the overnmentauthorities and unsecured creditors.

!No@. 700?% Ho/ "6)h ) 2o ;e ()2&;'2e( 2o/6&() ,6+en2 o* @6&o') 6;2e)5

!Se". 97?A%

() s. &aman :td. was wound up by the Court. The official li+uidator invited claims

from its creditors which stood as under%

Income ta" dues% &s. la$hs

,ales ta" dues% &s. ' la$hs

Dues of 5or$ers% &s. 3' la$hs

Nnsecured loans payable to directors% &s. 3' la$hsTrade creditors who supplied raw material% &s. ' la$hs

,ecured creditor being the ban$ers of the company% &s. ?' la$hs

------------------

&s.'0 la$hs

OOOOOOOOOO

@fficial :i+uidator could realise only &s. 1 la$hs by sale of assets and realisations

made from the company2s debtors* which is not sufficient to pay to all the creditors.

lease decide the order of priority for payment to creditors e"plaining the relevant

provisions of the Companies ct* ='0.An).

R). 100 6h)% is the amount of overriding preferential payments (&s. ?' la$hs due to

secured creditors and &s. 3' la$hs dues to wor$ers)

R). B0 6h) 2o ;e ,6( ,&o,o&2on62e : to secured creditors (&s. 0 la$hs) and

wor$ers2 dues (&s. 3 la$hs).

No ,6+en2) )h6 ;e +6(e% to the overnment authorities for income ta" dues* sales

ta" dues* unsecured loans payable to directors or to trade creditors who supplied raw

material.

[email protected]% Ho/ "6)h ) 2o ;e ()2&;'2e( 2o/6&() ,6+en2 o* @6&o') 6;2e)5!Se".97?A%

()


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of the company in favour of the secured creditors. 6"plain the procedure to be followed

by the li+uidator for payment of dues as provided in the Companies ct* ='0.

An).

R). 0 6h)% is the amount of overriding preferential payments (&s. 4 la$hs due to

secured creditors and &s. la$hs dues to wor$ers)Se"'&e( "&e(2o&) 6n( ('e) 2o /o&e&) )h6 ;e ,6( n *' % since the amount

realised by realisation of assets (vi. &s. ?) la$hs is sufficient to pay in full the

overriding preferential payments (&s. 4 la$hs due to secured creditors and &s.

la$hs dues to wor$ers).

No ,6+en2) )h6 ;e +6(e% to the overnment authorities for ta" and duties due or

to unsecured creditors.

[email protected]% Ho/ "6)h I) 2o ;e ()2&;'2e( 2o/6&() o@e&&(n ,&e*e&en26

,6+en2) 5 !Se". 97?A%

(3) The @fficial :i+uidator of the Aogus :imited (in li+uidation) has realised ' la$hsby selling the land owned by the company. The company owes &s. crore to its

ban$ers towards a loan secured by the company2s land and factory buildings. The ban$

has claimed that the amount realised by sale of land must be paid in full to it in

preference to the Kwor$men2s dues2 to the e"tent of &s. 3' la$hs. 6"amine the ban$2s

claim with reference to the relevant provisions of the Companies ct* ='0.

An).

R). 179 6h) : is the amount of overriding preferential payments.

R). 90 6h) 2o ;e ,6( ,&o,o&2on62e : to Aan$ as a secured creditor (&s. 4 la$hs)

and wor$men2s dues (&s. la$hs).The "6+ o* 2he ;6n ) no2 @6( : ,ince the claim of the Aan$ ran$s pari-passu with

wor$men2s dues* and therefore* the Aan$ is entitled only to receive &s.4 la$hs out of

&s.' la$hs realised by the sale of assets charged in the favour of the Aan$.

!M6 700B No@. 7009% Whe2he& 6 (e"&ee ho(e& "6n "6+ ,&o&2 o@e&

/o&+en ('e) 6n( )e"'&e( "&e(2o&) !Se". 97?A%

() @C :td. was a supplier of raw material to ,< :td.* which could not ma$e

payment to @C :td. owing to huge losses and financial constraints. Nltimately* ,'en"e) /he&e ,&o,e&2e) o* 2he "o+,6n 6&e )o( 62 &o)) 'n(e&@6'e 2o 6

,&@62e "o+,6n n /h"h )on o* MD ) n2e&e)2e( 6n( *o62n "h6&e ) "&e62e(

on "'&&en2 6))e2)5 !Se". 9$1A 6n( 9$#% !No@. 700%

() s Info-tech @vertrading :td. was ordered to be wound up compulsorily by an

order dated 'th @ctober* 3? of the Delhi /igh Court. The official li+uidator who hasta$en control of the assets and other records of the company has noticed the following%

(i) The


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D62e o* "o++en"e+en2 o* /n(n ', : Hot given.

E**e"2 o* @o'n26& 2&6n)*e& : ny voluntary transfer of property within preceding 3

months of commencement of winding up is void (,ec. ' ).

S6e o* ,&o,e&2e) o* 2he "o+,6n 2o ,&@62e "o+,6n In /h"h )on o* MD )

In2e&e)2e( ) @o( : since the given transaction attracts ,ec. ' assuming that such sale was

made within preceding 3 months of commencement of winding up.

since the given transaction is not entered into in the ordinary course of business

since the given transaction is not entered into in good faith and for valuable

consideration.

An). !%

D62e o* "o++en"e+en2 o* /n(n ', : Hot given.

D62e o* o&(e& o* /n(n ', : - 'th @ctober* 3?

D62e o* "&e62on o* *o62n "h6&e : st anuary* 3?

Se". 9$# ) 622&6"2e( : assuming that the floating charge was created within preceding

3 months of commencement of winding up.

A+o'n2 o* *o62n "h6&e @6(

Mloating charge upto &s. ' crores alongwith interest P 'Q p.a. or such other rate

as may be notified by C in the @fficial aette.

/owever* if the whole amount of overdraft facility is not utilised by the company*

the floating charge shall be valid only upto such amount as is actually advanced

by the ban$ to the company plus interest P 'Q p.a. or such other rate as may be

notified by C in the @fficial aette.

Chapter 10 Winding Up

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