Winding Up

➢ Winding Up is the second method of putting and end to life of a

Company
➢ Professor Gower:
“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 Rights”
➢ Company can’t be made insolvent under insolvency laws
➢ A solvent Company can be wound up
➢ Winding Up precedes dissolution

➢ Types of Winding Up (S425)

 3 kinds
a) Compulsory Winding Up under order of Court
b) Voluntary Winding Up
 By Member
 By Creditors
c) Voluntary Winding Up under supervision of Court

➢ Winding Up by Court
 Cases
1. Special Resolution
 Company can decide to wind up by Special
Resolution
 Court is not bound to, discretionary:
 Opposed to public interest
 Opposed to Company’s Interest

2. Default in Holding Statutory Meeting

 Failure to hold Statutory meeting and file statutory
report
 Ordered to be wound up
 Petition to be filed by Registrar or Contributory
 Any other person, within 14 days of having to hold
meeting
 Power of Court discretionary, may direct to hold
statutory meeting and file statutory report

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3. Failure to Commence Business
 Failed to commence business within one year
 Failed to carry on business for one year
 Discretionary -> only when no intention to carry on
business
 If temporary -> no direction

4. Reduction in Membership
 Public Company -> below 7
 Private Company -> below 2

5. Inability to Pay Debts

 Inability to pay debts means
a) Statutory Notice
 Amount exceeding Rs. 500/- notice to be
served on Company and for 3 weeks
Company has failed to pay
 Debt not to be a disputed debt
 Defence available to Company
i. Company acted in good faith
ii. Company likely to succeed in point of
law
iii. Company has Prima Facie Proof
 Notice to be served on Company’s
Registered Office
 Time barred not applicable
 Company’s Power discretionary
b) Decreed Debt
 Amount decreed against Company and
Company refuses to pay
 Winding Up maybe stopped if Company
Bonafide disputes the decree amount
c) Commercial insolvency
 That is, Company is unable to pay the
debts

6. Just and Equitable

 Opinion of Court that it is Just and Equitable
 Principle of ‘Ejusdem Generis’ apply earlier now not
so
 Wide discretionary powers given
 Grounds are as follows:
a) Dead lock

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 b) Loss of Subscription
 Main object failed
 Should Not be temporary difficulty
c) Losses
 When Company can’t carry on business
except at losses
d) Oppression of Minority
 Principle shareholders have adopted an
aggressive, oppressive or squeezing policy
towards minority
e) Fraudulent Purpose
 Company has been conceived and brought
forth in fraud or illegal purpose
f) Incorporated or Quasi Partnership
 When the nature of Company is as above
g) Public Interest
 Against, then allowed

➢ Who can Apply (S439)

1. Petition by Company
 Company has passed special resolution
2. Creditor’s Petition
 Creditor includes secured creditor, debenture holder
and trustee for debenture holders
 Secured and unsecured creditor enjoy same status
 Initiation of civil proceedings not a bar to Winding Up,
stay of suit can be ordered
 Foreign creditor
3. Contributory’s Petition
 On Winding Up, shareholders, known as contributory
4. Registrar’s Petition (S439(5))
 All grounds except special resolution
 To obtain prior permission of Central Government
 And Central Government to sanction only after
Company afforded an opportunity to represent
5. Central Government Petition
 After investigation of the affairs of Company under
Section 235 thereafter business of Company conducted
for fraudulent or unlawful purposes

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➢ Petition where Company under Voluntary Winding Up
(S440)
 Conversion of voluntary Winding Up into Winding Up
by Court
 Petition for Winding Up by Court my be presented
where Company is already under
a) Voluntary liquidation
b) Under supervision of Court
 Petition to be presented
a) Company
b) Contributory
c) Registrar
d) Creditor
e) Central Government
f) Official Liquidator

➢ Powers of Court (S443)

 After hearing
a. Dismiss with or without costs
b. Adjourn the hearing
c. Make interim order
d. Make order for Winding Up
e. Conditional order of Winding Up

➢ Commencement of Winding Up (S441)

 Commencement
a. Not from date of order
b. But from date of presentation of petition
c. If prior resolution has been passed by Company, from
date of passing resolution
d. More than one petition, from date of first petition

➢ Recission of Order (S443)

 Anytime the Court may change its order on changed facts

➢ Stay of proceedings before order (S442)

 Court on application can stay any other proceeding in any
other Court, that is Civil, Criminal or Revenue in nature

➢ Appointment of Provisional Liquidator (S450)

 Court may appoint Provisional Liquidator after presentation
of application but before passing of Winding Up order when
Official Liquidator is appointed
 Court to inform Company before doing so
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 Object of appointment is protection and preservation of
Company’s assets
 Then Provisional Liquidator can become Official Liquidator

 Consequences of Winding Up order

1 Court to send intimation of Winding Up order to Official
Liquidator and Registrar
 Company to file copy of certified order with Registrar
within 30 days of passing of orders
 Registrar to record this in minutes and then notify in
official gazette
 2
Winding Up order means discharge of all officers and
employees of Company except if business is to be
continued
 3
Order operates in favour of all creditors and
contributories of Company
 4
Official Liquidator becomes Liquidator of Company

 Legal Proceedings (S446)

 After order
 No legal proceeding
 Or subject to terms as the Court may impose
 Pending suits to be proceeded with only by leave of
Court
 Object -> to prevent assets of Company from being
frittered away in vexatious litigations
 Winding Up Court to have jurisdiction to decide
a) Any suit or proceeding by or against the Company
b) Any claim made by or against the Company
c) Any application made for compromise or
arrangement with creditors
d) Any question of priorities or any question
whatsoever whether of law or fact which may
relate to or arise in the course of Winding Up

 Procedure of Winding Up by Court

 Central Government to attach to each High Court an
Official Liquidator
 Act of Liquidator valid notwithstanding defect in
appointment

 Statement of Affairs
 Within 21 days of order of Winding Up or
appointment of Official Liquidator, statement of
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 affairs to be submitted by Company to Official
Liquidator
 Statement to be verified by
a) Director
b) Manager
c) Secretary
d) Chief Officer
e) Such other person as Court directs
 Particulars to be contained
i. Assets of Company – cash in hand and at Bank
and negotiable securities
ii. Debts and liabilities
iii. Details of creditors
iv. Details of debts due to Company
v. Required information

 Report by Official Liquidator

 Within 6 months Official Liquidator to submit
Preliminary Report to Court showing
i. Amount of issued and paid up capital / assets
and liabilities
ii. If Company has failed – reasons
iii. Whether further inquiry required

 Custody of Company’s property (S456)

 Official Liquidator to take into custody all of Company’s
property; effects and actionable claims

 Powers of Liquidator (S457)


i. Institute and defend legal proceedings
ii. To carry on business of Company
iii. Sell immovable and moveable property and
actionable claims
iv. To raise security
v. Other things necessary
 Above powers with sanction of Court
 Without sanction of Court
i. To do all acts of Company
ii. Inspect records and returns of Company and files
of Registrar without payment of fee
iii. To prove and claim dues
iv. To draw, endorse and accept Negotiable
Instruments on behalf of Company
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 v. To execute letters of administration on behalf of
deceased
vi. To appoint agent on his behalf
 But subject to control of Court
 Official Liquidator may seek directions of Court
 Official Liquidator to call meetings of creditors and
contributories and consider their decisions
 Person aggrieved by act or decision of Official
Liquidator may apply to Court
 Official Liquidator to present to the Court twice a year
an account
 Moneys received by Official Liquidator to be paid into
the public account of India in Reserve Bank of India
 Court to get all accounts audited
 Official Liquidator to send copy of accounts to every
creditor and contributory
 Where liquidation is of Central Government to be sent
to Central Government
 Central Government to take cognizance of misconduct
on part of Official Liquidators

➢ Committee of Inspection (S464)

 Court to appoint Committee of Inspection to act with
Official Liquidator
 Official Liquidator within 2 months call creditors to decide
membership and then within 14 days meeting of
contributories
 In case of conflict, Official Liquidator to apply to Court for
final decision

 Features
a) 12 members
b) Right to inspect accounts of Official Liquidator
c) Member to resign by notice in writing to Official
Liquidator
d) Quorum 1/3 of the members or 2, whichever is higher
e) Office to be vacant
i. Adjudged insolvent
ii. Compounding or arrangement with creditors
iii. Absent from 5 consecutive meetings without leave
of absence
f) Meeting to be called by Official Liquidator or by
themselves

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➢ General Power of Court
1. Power to stay Winding Up (S466)
 On application of Official Liquidator, creditor or
contributory
 Sufficient reason
2. Settlement of list of contributories (S467)
 That is, the list of assets and liabilities
3. Adjustment of rights of contributories (S475)
 And then distribute surplus among persons entitled to
it
4. Power to arrest absconding contributory (S479)
 Arrest and seize
5. Saving of existing powers (S480)
 General powers of Court for recovery also applicable
6. The right of set off (S469)
 Any other dues to be set off
 Limited right of set off in following cases
i. Unlimited Company – only against money due to
him from Company or independent dealing, that is,
of debt of contributory
ii. Limited Company – those whose liability is
unlimited same right as above
iii. Any other Company – set off against money due
on call
7. Delivery of property (S468)
 Court to call for information from person or persons
 Private enquiry can be held
8. Power to order deposit in the Reserve Bank (S471)
 All moneys received to be deposited in public account
of Reserve Bank
9. Power to exclude creditors (S474)
 Can exclude those creditors who are entitled to benefits
10. Public Examination (S478)
 In case of report of fraud by Official Liquidator to Court
– specific allegation – not an accusation
 Pre-requisite conditions
i. Official Liquidator has made further report
ii. Such report contains a finding of fraud
iii. Finding of fraud against the person whose
examination is sought
iv. Individual is one who has taken part in promotion
of Company and is officer of Company

 Official Liquidator to take part

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  Opportunity of being heard

➢ Dissolution of Company (S481)

 If Winding Up can’t take place, Court to direct dissolution
 Within 30 days Official Liquidator to file report with
Registrar

➢ Enforcement of Orders and Appeals

 Enforcement of Orders (S482)
 Enforceable though out the country through Courts
having appropriate Jurisdiction
 Appeals from Orders (S483)
 Appeal can be filed in same Court which passed or
delivered them