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VOLUNTARY WINDING UP IN INDIA
- A COMPARATIVE ANALYSIS
Submitted By: Sumita Patwari

INTRODUCTION

Winding-up of a company is a procedure of allocating the assets and concluding the existence of
a company. It is a process of dissolving a company by collecting its assets, paying off its
liabilities out of the assets of the company or from contributions by its members. If any excess is
left, it is distributed amid the members in accordance with their rights.

In the words of Prof. L.C.B. 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 liquidator is appointed and he takes control of the company, collects its
debts and finally distributes any surplus among the members in accordance with their rights.
1


Thus in the words of Pennington, Winding up or liquidation is the process by which the
management of a companys affairs is taken out of its directors hand, its assets are realized by a
liquidator, and its debts and liabilities are discharged out of the proceeds of realization and any
surplus of assets remaining is returned to its members or shareholders. At the end of winding up
the company will have no assets or liabilities, and will therefore be simply a formal step for it to
be dissolved, that is its legal personality as a corporation to be brought to an end.
2


A company registered under the Companies Act, 1956 may be wound up in any of the
following modes:
3

1. By the Court
4
i.e. compulsory winding up;


1
Modern Company Law, 4
th
Edn., p.789
2
Penningtons Company Law, 5
th
Edn., p. 839
3
Section 425, Companies Act, 1956
4
Substituted by Tribunal by Companies (Second Amendment) Act, 2002
Electronic copy available at: http://ssrn.com/abstract=2377165
2


2. Voluntary winding up, which may be either: (a) Members voluntary winding up; or (b)
Creditors voluntary winding up;
3. Winding up subject to the supervision of the Court (Section 522 to 527).
5

In every winding up, a liquidator or liquidators is or are appointed to administer the property of
the company and he or they must apply the assets of the company, first, in the payment of the
creditors in their proper order, and then, in distributing the residue among the members
according to their rights.

The companies are usually wound up voluntarily as it is an easier process of winding up. It is
different from a compulsory winding up. Winding up order by the Tribunal is not common
because normally the members of the company prefer to wind up the company voluntarily for in
such a case they shall have a voice in its winding up. Further, its creditors are left to settle their
affairs without going to a Court, although they may apply to the Court for directions or orders,
when necessary. The procedure involved in a members' voluntary liquidation, a solvent
liquidation commenced by a shareholders' special resolution with no court involvement and no
stigma attached, as all the company's debts are paid in full. Moreover, a voluntary winding up is
far cheaper, speedier and simpler than a winding up by the Tribunal.
6
The power of the Tribunal
to order winding up is exercised only where the winding up is opposed to the interest of the
company or public.

VOLUNTARY WINDING UP UNDER THE COMPANIES ACT, 1956

Part VI I Chapter I I I of the Companies Act, 1956(Sections 484 to 520) extensively deals with
the provisions of voluntary winding up of a company. A company may, voluntarily wind up its
affairs, if it is unable to carry on its business, or if it was formed only for a limited purpose, or if
it is unable to meet its financial obligation, and etc. In case of voluntary winding up, the entire
process is done without the supervision of the Tribunal. When the winding up is complete, the
relevant documents are filed before the Court for obtaining the order of dissolution. A voluntary
winding up may be done by the members as it may be done by the creditors.



5
Omitted by the Companies (Second Amendment) Act, 2002

6
Anne Sharp, Members' solvent liquidation, 2011, Financial Regulation International, F.R.I. 2011,
May, 4-6
3


The circumstances under which a company may be wound up voluntarily are:
7


(a) when the period fixed for the duration of the company as mentioned in its articles has
expired; or
(b) the event, on the happening of which the articles provide that the company is to be dissolved
has occurred; and
(c) the company passes a special resolution that the company be wound up voluntarily

Thus, a company may be wound up voluntarily on the expiry of the term fixed for duration of the
company or on the occurrence of the event as provided in its articles. In these two cases only an
ordinary resolution may be passed in the general meeting of the company. In British Water Gas
Syndicate v. Notts Derby Water Gas Co. Ltd.,
8
held that however prosperous and solvent a
company may be, if the members wish the company to be wound up, they can do so by passing a
special resolution to that effect and no reasons need be given. No articles of the Company can
prevent the exercise of this statutory right. And the right cannot be interfered with by any Court
by means of an injunction or otherwise.

Where the required special resolution was passed at a meeting convened by giving a shorter
notice than that required by the Act, but all the members of the company unanimously agreed
thereto, the resolution being intra vires the company, was held valid. In re, Bailey Hay &
Co. Ltd.,
9
there were only five shareholders, two of whom held between themselves 50% of the
voting power and they passed the resolution. Shareholders who abstained from voting on the
resolution and allowed it to be passed with knowledge of their power to stop it must be deemed
to have assented to the resolution which, accordingly, was held valid.

In Southern Counties Deposit Bank Limited v. Rider & Kirkwood,
10
a notice calling a general
meeting to wind up the company was issued by the authority of a board meeting at which only
two directors were present. The quorum for board meetings was for six years regarded as two
directors, though the resolution altering the quorum from three to two had not been validly
passed. The court refused the application, for declaring the resolution to be invalid saying it


7
Section 484(1), Companies Act, 1956
8
1889 WN 204
9
(1972) 42 Com Cases 442
10
(1895) 11 TLR 563
4


would not interfere for the purpose of forcing companies to conduct their business according to
the strictest rules, where the irregularity complained of can be set right at any moment.

In I ndian Trading & Engineering Co. Ltd. Re,
11
the Court applied Silkstone Fall Colliery Co.
Re.,
12
where the resolution for voluntary winding-up passed by the shareholders was on the basis
of a bad notice and though the shareholders at a subsequent meeting appointing liquidators
waived the requirement of proper notice and confirmed the resolution, it was held that it was
open to the creditors to challenge the appointment of liquidator.

The resolution, when passed, must be advertised within 14 days of the passing of the resolution
in the Official Gazette and also in some newspaper circulating in the district where the registered
office of the company is situated. A default in complying with the above requirements renders
the company and every officer of the company, who is in default, liable to a penalty which may
extend to five hundred rupees for every day during which the default continues. In Bhargava
(S.P.) v. Rameshwar Shastri,
13
held that a failure to advertise, may be considered to be an
irregularity and curable, not affecting the validity of winding up. A liquidator of the company is
deemed to an officer of the company for the purposes of the above requirements.
14
It was held
in Neptune Assurance Co. Ltd. v. Union of I ndia,
15
that in the Companies Act the expression
voluntary winding up, means a winding up by a special resolution of a company to that effect.
Similarly, the expression winding up by the court means winding up by an order of the Court
in accordance with S. 433 of the Companies Act.

A voluntary winding up commences from the date of the passing of the resolution for voluntary
winding up. This is so even when after passing a resolution for voluntary winding up, a petition
is presented for winding up by the Court.
16
The date of commencement of winding up is
important for various matters, such as liability of past members, who will not be affected if, on
the date of commencement of winding up, a year had elapsed after they ceased to be members,
fraudulent preference may have become unimpeachable, etc. In Re, West Cumberland I ron Steel
Co.,
17
where a voluntary winding up is continued under supervision (section 522), the winding


11
(1910-11) 15 CWN 1047 (Cal)
12
(1875) 1 Ch D 38
13
(1952) 22 Com Cases 106: AIR 1952 MB 3A
14
Section 485, Companies Act, 1956
15
1973 SCR (2) 940
16
Section 486, Companies Act, 1956
17
(1889) 40 Ch D 361
5


up commences not at the date of the presentation of the petition or order for supervision but at
the date of the resolution for voluntary winding up; for the order is only to continue the winding
up.

In Indian States Bank Ltd., Re,
18
when the voluntary liquidation is followed by a compulsory
order, the date of commencement of the compulsory liquidation is the date of voluntary
liquidation. Hence a suit filed before commencement of winding up can be continued by the
company and the liquidator need not be brought on record held in National Stores v.
Ramsaran.
19


The effect of the voluntary winding up is that the company ceases to carry on its business except
so for as may be required for the beneficial winding up thereof.
20
In Rangai Goundan (M.K.),
Re,
21
held that a voluntary winding up does not put an end to the corporate existence of the
company. The company exists until it is dissolved. The powers of the directors continue to the
extent to which they are allowed by the liquidator. In Commr. Of I ncome Tax v. Liquidator,
Ratlam Electric Supply etc. Co. Ltd.
22
, it was held that Section 487 does not contemplate the
carrying on business of the company except to the extent necessary for its beneficial winding up.
It does not prohibit a company which is being voluntarily wound up from receiving income from
other sources and interest on securities.

The property of the company becomes a trust property with the passing of the resolution for
winding up for the benefit of creditors and contributories. The principle of the establishment of
trust was stated in General Rolling Stock Co., J oint Discount Company's Claim, Re,
23
: A duty
and a trust are thus imposed upon the court, to take care that the assets of the company shall be
applied in discharge of its liabilities. What liabilities? All the liabilities of the company existing
at the time when the winding up order was made which gives the right. It appears to me that it
would be most unjust if any other construction were put upon the section.



18
(1934) 4 Com Cases 64: AIR 1934 All 114
19
AIR 1926 Nag 303
20
Section 487, Companies Act, 1956
21
(1942) 12 Com Cases 198: 1972 Mad 702
22
(1982) 52 Comp Cas. 632
23
(1872) 7 Ch App 646 at 648-649: (1861-73) All ER Rep 434 at 435
6


In Knowles v. Scott,
24
held that a voluntary winding up does not operate as a stay of any existing
proceedings or prevent the institution of new proceedings. The liquidator is treated as a person in
the position of an agent for the company, performing his duties in accordance with the provisions
of the Act. In Dawsons Banks Ltd. v. Nippon Menkwa Kabu-shiki Kaisha,
25
held that the
liquidators are not parties to such suit and it is improper to implead them as defendants. The
change that is brought about by the liquidation in regard to the suit is merely this that in the
conduct of their defence the company would, before liquidation, act through the directors, during
liquidation through the liquidators, and after the stay of liquidation through the directors once
more.

A voluntary winding up does not necessarily operate as a discharge of the companys servants.
In Reigate v. Union Manufacturing Co., (Ramsbottom) Ltd.,
26
held that the passing of a
resolution for voluntary winding up does not operate as notice of discharge of the employees of
the company, if the business is continued by the liquidator or the liquidation is only with a view
to reconstruction. In Fowler v. Commercial Timber Co. Ltd.,
27
F was appointed managing
director of a company for a period of five years, the company passed a resolution that it could
not by reason of its liabilities continue its business. F voted in favour of this resolution. Held, (a)
the voluntary winding up operated as a wrongful dismissal of F, and (b) the fact that F consented
to the winding up by voting for the resolution did not prevent him from recovering damages.

In Midland Counties District Bank Ltd. v. Attwood,
28
held that where the voluntary winding up
is for the purpose of amalgamation or reconstruction, the resolution to wind up voluntarily does
not operate as a notice of discharge to the employees. In Hutton v. West Cork Rly.,
29
held that a
company should not, after the commencement of the winding up, give gratuities to directors or
servants and if they are voted, the liquidator should refuse to pay them.

In Dilip Singh T. v. State of T.N.,
30
a company closed its undertaking without permission of
labour authority. The company went into voluntary liquidation by passing a special resolution.
The director in question had resigned before the date of the resolution. His resignation was


24
(1891) 1 Ch 717
25
AIR 1935 PC 79: (1935) 5 Com Cases 191 at 203
26
(1918) 1 K.B. 593
27
(1930) 2 K.B.1
28
(1905) 1 Ch. 357
29
(1883) 23 Ch D 654
30
(2002) 112 Com Cases 195 (Mad)
7


accepted by the company and all the relevant documents were filed with the ROC. It was held
that the prosecution of such a director for not complying with labour enactments was not
permissible.

There are two kinds of voluntary winding up:
31

(i) Members voluntary winding up; and
(ii) Creditors voluntary winding up.

MEMBERS VOLUNTARY WINDING UP

Sections 490 to 498 of theCompanies Act, 1956 shall apply in relation to a members voluntary
winding up.
32
When the company is solvent and is able to pay its liabilities in full, it need not
consult the creditors or call their meeting. Its directors, or where they are more than two, the
majority of its directors may, at a meeting of the Board, make a declaration of solvency verified
by an affidavit stating that they have made full enquiry into the affairs of the company and that
having done so they have formed an opinion that the company has no debts or that it will be able
to pay its debts in full within such period not exceeding three years from the commencement of
the winding up as may be specified in the declaration. In Collector of Moradabad v. Equity
I nsurance Co. Ltd.,
33
Section 488 does not require that there should be an affidavit by each of
the directors making the declaration. An affidavit by one director is sufficient. In De Courcy v.
Clement,
34
held that while failure to satisfy the conditions under this section makes the
declaration of no effect i.e., a nullity, a mere error or omission, while it may expose the declarant
to the penal consequences, will not prevent the statement from being a statement for the purpose
of satisfying the requirements of the section.

Such a declaration must be made within five weeks immediately preceding the date of the
passing of the resolution for winding up the company and be delivered to the Registrar for
registration before that date. The declaration must embody a statement of the companys assets
and liabilities as at the latest practicable date before the making of the declaration. Any director
making a declaration without having reasonable grounds for the aforesaid opinion, shall be
punishable with imprisonment extending up to six months or with fine extending up to Rs.


31
Section 488(5), Companies Act, 1956
32
Section 489, Companies Act, 1956
33
(1948) 18 Com Cases 309, 317: AIR 1948 Oudh 197
34
(1971) 1 All ER 681: (1971) 41 Com Cases 796 (Ch D)
8


50,000 or with both.
35
In Shri Raja Mohan Manucha v. Lakshminath Saigal,
36
it was held that
where the declaration of solvency is not made in accordance with the law, the resolution for
winding up and all subsequent proceedings will be null and void.


Procedure for Members Voluntary Winding Up:

The company shall appoint one or more liquidators, in a general meeting, who shall look after
the affair of winding up procedure, and distribution of assets.
37
The secretary of a company can
be appointed as liquidator, held in London & Australian Agency Corp. Ltd. Re.,
38
so also a
solicitor can be appointed as liquidator. The liquidator so appointed, shall be paid remuneration
for his services, which shall also be fixed in general meeting.
39
In R. Gertzenstein Ltd. Re,
40
the
remuneration fixed may include the fee for professional services also. But he cannot recover
costs for the services rendered by him as a solicitor over and above the fixed remuneration. In
Globe United Engg. & Foundry Co. Ltd. v. Registrar of Cos.,
41
held that the remuneration
cannot be increased in any circumstances whatever. Even the court does not have power to
increase it. In Cf. Re, Mortimers (London) Ltd.,
42
held that when the voluntary winding up is
superseded by a compulsory winding up, the Court may review the amount. In Amalgamated
Syndicate Ltd., Re,
43
held the remuneration of the voluntary liquidator has to be fixed at the
meeting by the contributories or at a subsequent meeting. If that is not done, an application can
be made to the court for fixing such remuneration as the court thinks just.

The company shall also give notice of appointment of one liquidator to the registrar within ten
days of appointment.
44
Once the company has appointed liquidator, the powers of Board of
Directors, Managing Director, and Manager, shall cease to exist.
45
The liquidator is generally
given a free hand, to carry out the winding up procedure, in such a manner, as he thinks best in
the interest of creditors, and company. In case, the winding up procedure, takes more than one


35
Section 488, Companies Act, 1956
36
(1963) 33 Comp. Cases 719
37
Section 490 (1), Companies Act, 1956
38
(1873) 29 LT 417: 22 WR 45
39
Section 490 (2), Companies Act, 1956
40
(1936) 3 All ER 341: (1938) 8 Com Cases 53
41
(1974) 44 Com Cases 330 (Del)
42
(1937) 1 Ch 289: (1938) 8 Com Cases 56
43
(1901) 2 Ch 181
44
Section 493, Companies Act, 1956
45
Section 491, Companies Act, 1956
9


year, then liquidator will have to call a general meeting, at the end of each year, and he shall
present, a complete account of the procedure, and position of liquidator.
46
In Gerard v. North of
Paris Ltd.,
47
held that under the members voluntary winding up there is a presumption, until the
contrary is shown, that all the debts of the company will be paid in full and it must be taken that
the company is solvent when there is no evidence to the contrary.
The liquidator shall take various steps, when affairs of the company are fully wound up. He shall
call a general meeting of the members and lay before it, complete picture of accounts, winding
up procedure and how the properties of company are disposed of. The meeting shall be called by
advertisement, specifying the time, place and object of the meeting. The liquidator shall send to,
the Registrar and official Liquidator copy of account, within one week of the meeting. If from
the report, official liquidator comes to the conclusion, that affairs of the company are not being
carried in manner prejudicial to the interest of its members, or public, then the company shall be
deemed to be dissolved from the date of report to the court. However, if official liquidator comes
to a finding, that affair have been carried in a manner prejudicial to interest of member or public,
then court may direct the liquidator to investigate furthers.
48


CREDITORS VOLUNTARY WINDING UP

Where a declaration of solvency of the company is not made and delivered to the Registrar in a
voluntary winding up it is a case of creditors voluntary winding up. A winding up petition is a
perfectly proper remedy for enforcing payment of a just debt. It is the mode of execution which
the Court gives to a creditor against a company unable to pay its debts.
49
Sections 500 to 509 of
theCompanies Act, 1956 shall apply in relation to a creditors voluntary winding up. Where the
resolution for winding up has been passed, but the Board of Directors are not in a position to
give a declaration on the liability of company to the Registrar, they may call a meeting of
creditors, for the purpose of winding up. It is the duty of Board of Directors, to present a full
statement of companys affairs, and list of creditors along with their dues, before the meeting of
creditors.
50




46
Section 496, Companies Act, 1956
47
(1936) 2 All ER 905
48
Section 497, Companies Act, 1956
49
Palmers Company Precedents, Part 11, 1960 Edn., at p. 25
50
Section 500, Companies Act, 1956
10


The procedure laid down in Section 500 and the following sections, in regard to the creditors
winding up of an insolvent company, a company which is not able to pay its debts and
liabilities, is based upon the views expressed by J., in In re, Karamelli and Barnett Ltd.
51

Under this procedure the company has to convene a meeting of the creditors to take place
immediately after the meeting of the shareholders, on the same day or the next day; and the
directors have to place a full statement of the position of affairs at the creditors meeting. The
creditors at the meeting have the right to nominate a liquidator and if their nominee is different
from the one nominated by the shareholders, creditors nomination prevails, subject to the power
of interference of the court. Thus, the creditors are given a controlling voice in the winding up of
an insolvent company.

Whatever resolution, the company passes in creditor's meeting, shall be given to the Registrar
within ten days of its passing.
52
In Re, Eros Films Ltd.,
53
held the giving of notices under this
section is analogous to the filing, under the law of insolvency, of a declaration of inability to pay
debts. In Pure Milk Supply Co. Ltd. v. S. Hari Singh,
54
held non-compliance with the provisions
of Section 501 renders the directors liable to fine but does not make the proceedings of the
meeting invalid.
The creditors appoint the liquidator, approve the accounts and regulate the winding up
proceedings.
55
In Re, Caston Cushioning Ltd.,
56
held a liquidator appointed by a resolution of
the members cannot be replaced by one appointed by a majority in value but not in number of
the creditors. In Re, Centrabind Ltd.,
57
held where a liquidator is appointed by the members of
the company but the creditors did nothing, the liquidator appointed by the members will not be
disentitled to act as the liquidator of the company. He has locus-standi to take all proceedings.
The creditors may appoint a Committee of Inspection consisting of not more than five creditors
in order to regulate and supervise the winding up proceedings.
58


Section 509 deals with the various steps to be taken by the liquidator, when affairs of the
company are fully wound up. This section has the same provisions as that of members voluntary


51
(1917)1 Ch 203
52
Section 501, Companies Act, 1956
53
(1963)1 All ER 383: (1963)33 Com Cases 467
54
AIR 1962 Punj 190: (1962) 32 Com Cases 659
55
Section 502, Companies Act, 1956
56
(1955) 1 All ER 508: (1955) 25 Com Cases 138
57
(1966) 3 All ER 889: (1967) 37 Com Cases 468 (Ch D)
58
Section 503, Companies Act, 1956
11


winding up under Section 497 of the Act. Once the company is fully wound up, and assets of the
company sold or distributed, the proceedings collected are utilized to pay off the liabilities. The
proceedings so collected shall be utilized to pay off the creditors in equal proportion. Thereafter
any money or property left may be distributed among members according to their rights and
interests in the company.
59
In Pamarti Venkataswamy v. Kondandarama Bus Transport Ltd.,
60

held the shareholders can draw a scheme for distributing the companys assets and business
among themselves, undertaking in turn to pay off the companys debts.

In voluntary winding up it is left to the company, the contributories and the creditors to settle
their affairs without intervention of the Court as far as possible. However, the Act contains
certain provisions which provide a means of access to the Court with a view to speed up the
liquidation proceedings and to overcome the difficulties that may arise in the course of
liquidation. The Court will intervene in the voluntary winding up whenever it is satisfied that
such an intervention will be just and beneficial. In appropriate cases the Court can be approached
for compulsory winding up (Section 440) or winding up being conducted under the supervision
of the Court.
61


COMPARATIVE STUDY OF VOLUNTARY WINDING UP LAW UNDER
COMPANIES ACT, 1956 WITH UK LEGISLATION AND COMPANIES
ACT, 2013

The study of insolvency laws have gained importance over the years due to growing cross
borders business ventures. This has made it necessary to be aware of the legislative framework
with regard to corporate insolvency and latest developments in other countries too. The laws
relating to voluntary winding up in India is very much similar to those prevailing in UK. In UK
the insolvency laws are governed by the Insolvency Act, 1986, Insolvency Rules, 1986,
the Company Director Disqualification Act, 1986. The insolvency proceedings governed by this
Act fall under two categories namely, (a) Insolvency proceedings in respect of companies
registered under the Companies Act, 2006 and unregistered companies; (b) Insolvency
proceedings in respect of individuals known as bankruptcy. The Legislative Reform


59
Section 511, Companies Act, 1956
60
(1958) 28 Com Cases 50: AIR 1958 AP 666
61
Section 522, Companies Act, 1956

12


(Insolvency) (Miscellaneous Provisions) Order 2010 and The Insolvency (Amendment) Rules
2010 came into force on 6 April 2010 and made a number of changes in relation to voluntary
liquidations. The amendments generally apply only to cases where the resolution for voluntary
winding up was passed on or after 6 April 2010 (unless it went into liquidation under Paragraph
83 of Schedule B1 to the Act and the preceding administration commenced before 6 April 2010
or was an administration by virtue of an administration order where the application was made
before 6 April 2010).
62


Prior to enactment of Insolvency Act, the Bankruptcy Act 1914 did not apply to corporate
insolvency. Corporate insolvency provisions were contained in the Companies Act, 1985.
Kenneth Cork Committee (Insolvency Law Review Committee) recommended spin off and
enactment of Insolvency Act 1985. Thereafter the 1985 Act on the very first day was replaced by
Insolvency Act 1986. It was substantially amended by Insolvency Act 1994. Further the
Enterprise Act 2002 has attempted to fundamentally change approaches to corporate insolvency
regulation in the United Kingdom.
63
By endeavouring to improve the administration procedure
first introduced by the Insolvency Act 1986, the legislature has given paramount consideration to
corporate rescue outcomes through the administration procedure, as originally envisaged by the
Cork Committee in its seminal report of 1982.
64


Chapters I I to V of Part I V of the I nsolvency Act, 1986 comprising of Sections 84 to 116
(corresponding sections in the Companies Act, 1956 are Sections 484 to 520) deal with voluntary
winding up.
65
The Indian law adopts the provisions of the English law with little or no
difference. Most of the provisions relating to voluntary winding up are same as that of Act of
1986. However, there are few striking differences relating to the power of liquidators and
directors during the winding up procedure.

Like the Companies Act, 1956 there are two types of voluntary winding up under the Insolvency
Act, 1986. Members voluntary winding up is commenced by a resolution of the shareholders
that the company is wound up and that a named licensed insolvency practitioner is appointed the


62
http://www.legislation.gov.uk/ukpga/1986/45/part/IV/chapter/III
63
http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft916.pdf
64
John Tribe Company voluntary arrangements and rescue: a new hope and a Tudor orthodoxy,
2009, Journal of Business Law, J.B.L. 2009, 5, 454-487
65
Palmer's Company Law, 24
th
Edn., 1987, Vol. 1, Para 89-01A, Pages 1493
13


liquidator.
66
If the directors make a statutory declaration of solvency within five weeks prior to
the resolution, the liquidation will proceed as a members voluntary liquidation.
67
Otherwise the
process will be a creditors voluntary liquidation and a meeting of creditors must be held within
14 days of the members resolution.
68
If the meeting of creditors nominates a practitioner other
than the one nominated by the members as liquidator, the creditors choice will prevail.

On the appointment of a liquidator in a creditors voluntary winding-up, all powers of the
directors cease except so far as are preserved by the creditors committee or the creditors.
69
If the
shareholders do not appoint a liquidator, the powers of the directors are not exercisable except so
far as are necessary to secure compliance to convene a meeting of creditors, the production of a
statement of affairs and to protect the assets or dispose of perishable assets. In a voluntary
liquidation, the company must cease to carry on its business except so far as is necessary for its
beneficial winding-up.

There are number of similarities in the two laws however, Section 89 of the Insolvency Act,
1986 clearly mentions a time limit to commence the creditors voluntary winding up. There is no
such exact time frame provided under the corresponding Section 500 of the Companies Act,
1956.

Further, as stated earlier under Section 490 of the Companies Act, 1956 the remuneration cannot
be increased in any circumstances whatever; even the court does not have power to increase it. In
English law, however, by virtue of the rules under the English Insolvency Act, 1986, a voluntary
liquidator can make an application showing that his remuneration is insufficient according to
objective standards. The court then gets an unfettered discretion both as to the amount and the
basis of the increase having regard to all the circumstances and to the criteria set out in the
rules.
70


Under the Indian law, the liquidator's remuneration is paid out of the assets of the company. But
where those assets were not sufficient to pay him for his labours, English Court allowed him to


66
Section 84 of the Insolvency Act, 1986
67
Section 89 of the Insolvency Act, 1986
68
Section 98 of the Insolvency Act, 1986
69
Section 91 of the Insolvency Act, 1986

70
Tony Rowse NMC Ltd., Re, (1996) 2 BCLC 225 (Ch D)
14


recover his costs and remuneration out of the trust property which was held by the company on
trust for its investors.
71


Section 494 of the Companies Act does not render the liquidator the position of an officer of the
court but, subject to this, his position as regards taking possession of the assets is the same as in
the case of a winding up by the Court. The liquidator should at once take possession of the
books, deeds and documents of the company etc. However, the position of the liquidator is a
stronger one by virtue of Section 246 of the English Act whereby it is provided that a lien or
other right to retain possession of the books, papers or other records of the company is
unenforceable to the extent that its enforcement would deny possession of any books, papers or
other records to the office-holder.

Under Section 502 of the Companies Act, 1956, the creditors are given a preferential right in the
matter of the appointment of a liquidator, with a power to the court to vary the appointment on
application made within seven days, by a director, member or creditor. However, the Insolvency
Act, 1986 restricts the authority of directors to enter into transactions which are binding on the
company where no liquidator is appointed or nominated in a creditors voluntary winding up.
72


Part I I of Chapter XX (Sections 304 to 323) of the Companies Act, 2013 deals with voluntary
winding up. The provisions of the Act are similar to that of the Act. The only difference is the
provisions are compressed unlike the elaborative sections in the Act. The procedure for
voluntary winding up, powers of liquidator, commencement etc. remains the same with slight or
no difference.

Section 484 remains intact with the corresponding Section being 304. Section 485 is amended by
Section 307 by increasing the fine to five thousand rupees from five hundred. Section 486 and
487 remain intact with corresponding Sections being 308 and 309 respectively. Section 488 is
amended by Section 305 by adding two more things that the declaration must contain namely,
Cl.305 (2) (b) it contains a declaration that the company is not being wound up to defraud any
person or persons and Cl.305 (2) (d) where there are any assets of the company, it is
accompanied by a report of the valuation of the assets of the company prepared by a registered


71
Horris v. Conway, 1989 BCLC 28: (1989) 2 Comp LJ 145, 157 (Ch D)
72
A Company (No 006341 of 1992), Re; B. Ltd. Ex p., (1994) 1 BCLC 225 (Ch D)

15


valuer. Further the punishment under Cl.305 (4) has been enhanced from six months and fifty
thousand rupees to imprisonment for a term which shall not be less than three years but which
may extend to five years or with fine which shall not be less than fifty thousand rupees but which
may extend to three lakh rupees, or with both.

Sections 490 and 502 have been combined in the same Section and have been amended by
Section 310. Under this earlier the company in general meeting could appoint the liquidator
however now this has to be followed by appointing Company Liquidator from the panel prepared
by the Central Government. Section 500 and 501 has been combined under Section 306 and now
notice of the meeting of the creditors need not be advertised in the Official Gazette and
newspapers. Further the punishment for default is enhanced from ten thousand rupees to fine
which shall not be less than fifty thousand rupees but which may extend to two lakh rupees and
the director of the company who is in default shall be punishable with imprisonment for a term
which may extend to six months or with fine which shall not be less than fifty thousand rupees
but which may extend to two lakh rupees, or with both.

Sections 492 and 506 have been combined in Section 311; however, earlier the company had
power only to fill the vacancies and there was no provision as to removal of Company
Liquidator. The new Section has clear provisions regarding the removal of the Liquidator.
Section 493 has been amended by Section 312 whereby the fine has been reduced to five
hundred rupees from one thousand rupees. Section 491, 503, 512 remains intact with the
corresponding Sections being 313, 314 and 315 respectively.

Sections 496 and 508 have been combined under Section 316 and now the Company Liquidator
shall report quarterly on the progress of winding up of the company. Further the fine has been
enhanced from one thousand rupees to ten lakh rupees. Sections 497 and 509 have been
combined under Section 318 whereby the time limit for sending the copy of final winding up
accounts of the company has been raised to two weeks from one week. Further the fine has also
been enhanced from five thousand to one lakh rupees. Sections 494, 511, 517, 518 and 520
remain intact with the corresponding Sections being 319, 320, 321, 322 and 323 respectively.




16


CONCLUSION

After a clear perusal of the laws and procedures of voluntary winding up under the Companies
Act, 1956 and Insolvency Act, 1986, it can be concluded that these provisions may not be
verbatim copies of each other, yet they are very similar in many aspects. A clear understanding
of the international insolvency laws is important due to rise in cross border business ventures.
Hence from the above discussion we can draw a conclusion that most of the provisions carry
similar meaning however there are few striking differences to be found in the English Law is that
the position of the Liquidator is stronger than that in India. For instance, if there are grievances
regarding his remuneration he can apply to the Court and get his dues or even increase it,
restrictions on directors rights etc.

The Companies Act, 2013 is not that elaborative like the Act. It contains all the provisions of the
Act however, many of the sections are combined under a single Section and certain provisions
have been removed. The most important thing to be noted is that most of the provisions relating
to the punishments have been amended. Where the company or an officer of the company fails to
comply with the said provisions of the Act or Act, the fine amount and the imprisonment term is
enhanced. Further the time limit for submitting reports by liquidator or members to authorities
have also been altered.

It can be concluded that voluntary winding up is preferred because it is easier and speedier. The
members and creditors have a say and control over the proceedings. It is to be noted that winding
up by the Tribunal is approached only if there is a dire need for it, if the proceedings are
detrimental to the interests of the company and public at large










17


BIBLIOGRAPHY
PRIMARY SOURCE
Companies Act, 1956
Insolvency Act, 1986
Companies Act, 2013

SECONDARY SOURCE
Books Referred:
A Ramaiya, Guide to Companies Act, (2010), LexisNexis Butterworths Publications,
17
th
Edn.
C.R.Datta, The Company Law, (2008), LexisNexis Butterworths Publications, 6
th
Edn.
Palmer's Company Law, (1987), Stevens & Sons Ltd. Publications, Vol 1, 24
th
Edn.

Articles Referred:
John Tribe Company voluntary arrangements and rescue: a new hope and a Tudor
orthodoxy, 2009, Journal of Business Law, J.B.L. 2009, 5, 454-487
Anne Sharp, Members' solvent liquidation, 2011, Financial Regulation International,
F.R.I. 2011, May, 4-6

Websites visited:
http://www.legislation.gov.uk/ukpga/1986/45/part/IV/chapter/III (UK Govt)
http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft916.pdf (Office of Fair
Trading)
http://www.jstor.org/stable/1327367
http://www.companyliquidator.gov.in/winding_up_3.html# (Ministry of Corporate
Affairs)
http://login.westlawindia.com/maf/wlin/app/document?&srguid=ia744d06500000140cea
3f1666e0d1b7f&docguid=IE092A561D37B11E08093A488213A42B9&hitguid=IE092A
561D37B11E08093A488213A42B9&rank=2490&spos=2490&epos=2490&td=2891&cr
umb-action=append&context=45&resolvein=true
18


LIST OF CASES
British Water Gas Syndicate v. Notts Derby Water Gas Co. Ltd.; 1889 WN 204
Bailey Hay & Co. Ltd., Re; (1972) 42 Com Cases 442
Southern Counties Deposit Bank Limited v. Rider & Kirkwood; (1895) 11 TLR 563
Indian Trading & Engineering Co. Ltd. Re;

(1910-11) 15 CWN 1047 (Cal)
Silkstone Fall Colliery Co. Re.; (1875) 1 Ch D 38
Bhargava (S.P.) v. Rameshwar Shastri; (1952) 22 Com Cases 106: AIR 1952 MB 3A
Neptune Assurance Co. Ltd. v. Union of India; 1973 SCR (2) 940
West Cumberland Iron Steel Co., Re; (1889) 40 Ch D 361
Indian States Bank Ltd., Re; (1934) 4 Com Cases 64: AIR 1934 All 114
National Stores v. Ramsaran; AIR 1926 Nag 303
Rangai Goundan (M.K.), Re; (1942) 12 Com Cases 198: 1972 Mad 702
Commr. Of Income Tax v. Liquidator, Ratlam Electric Supply etc. Co. Ltd.; (1982) 52
Comp Cas. 632
Joint Discount Company's Claim, Re; (1872) 7 Ch App 646 at 648-649: (1861-73) All
ER Rep 434 at 435
Knowles v. Scott; (1891) 1 Ch 717
Dawsons Banks Ltd. v. Nippon Menkwa Kabu-shiki Kaisha; AIR 1935 PC 79: (1935)
5 Com Cases 191 at 203
Reigate v. Union Manufacturing Co., (Ramsbottom) Ltd.; (1918) 1 K.B. 593
Fowler v. Commercial Timber Co. Ltd.; (1930) 2 K.B.1
Midland Counties District Bank Ltd. v. Attwood; (1905) 1 Ch. 357
Hutton v. West Cork Rly.; (1883) 23 Ch D 654
Dilip Singh T. v. State of T.N.; (2002) 112 Com Cases 195 (Mad)
Collector of Moradabad v. Equity Insurance Co. Ltd.; (1948) 18 Com Cases 309, 317:
AIR 1948 Oudh 197
De Courcy v. Clement; (1971) 1 All ER 681: (1971) 41 Com Cases 796 (Ch D)
Shri Raja Mohan Manucha v. Lakshminath Saigal; (1963) 33 Comp. Cases 719
London & Australian Agency Corp. Ltd., Re; (1873) 29 LT 417: 22 WR 45
R. Gertzenstein Ltd., Re; (1936) 3 All ER 341: (1938) 8 Com Cases 53
19


Globe United Engg. & Foundry Co. Ltd. v. Registrar of Cos.; (1974) 44 Com Cases
330 (Del)
Cf. Re, Mortimers (London) Ltd.; (1937) 1 Ch 289: (1938) 8 Com Cases 56
Amalgamated Syndicate Ltd., Re; (1901) 2 Ch 181
Gerard v. North of Paris Ltd.; (1936) 2 All ER 905
Karamelli and Barnett Ltd., Re; (1917)1 Ch 203
Eros Films Ltd., Re,
1
(1963)1 All ER 383: (1963)33 Com Cases 467
Pure Milk Supply Co. Ltd. v. S. Hari Singh; AIR 1962 Punj 190: (1962) 32 Com Cases
659
Re, Caston Cushioning Ltd.; (1955) 1 All ER 508: (1955) 25 Com Cases 138
Re, Centrabind Ltd.; (1966) 3 All ER 889: (1967) 37 Com Cases 468 (Ch D)
Pamarti Venkataswamy v. Kondandarama Bus Transport Ltd.; (1958) 28 Com Cases
50: AIR 1958 AP 666
Tony Rowse NMC Ltd., Re, (1996) 2 BCLC 225 (Ch D)
Horris v. Conway, 1989 BCLC 28: (1989) 2 Comp LJ 145, 157 (Ch D)