The winding up of a company is the last stage of a companies’ existence. It is the process by which the company is put to an end i.e. the process through which its corporate existence comes to an end, and it is finally dissolved. As per section 270 of the Companies Act, 2013 a company can be wound up either by a National Company Law Tribunal (“Tribunal”) or by way of voluntary winding up. There may be several reasons for winding up of the company including mutual agreement among stakeholders, loss, bankruptcy, death of promoters etc.
With a view to systemize the procedure of winding up of a Company under Companies Act, 2013, the Ministry of Corporate Affairs (“MCA”) vide notification dated January 24, 2020, has notified the Companies (Winding Up) Rules, 2020. The said Rules are applicable to “companies going into winding up for the circumstances mentioned under section 271”and“Summary procedure for liquidation under section 361”of the Companies Act, 2013 and shall be applicable with effect from April 01, 2020.It is pertinent to mention here that the proceedings pertaining to voluntary winding up and winding up on the grounds of inability to pay debts fall within the ambit of Insolvency and Bankruptcy Code, 2016 since its enforcement.
This article summarizes the provisions of compulsory winding up by the Tribunal, governed by the Companies Act, 2013 (“the Act”) and The Companies (Winding Up) Rules, 2020 (“the Rules”).
PROVISIONS OF COMPULSORY WINDING UP UNDER SECTION 271
A. Circumstances under which the Company can be wound up
As per Section 271 of the Act, the Company may on a petition under section 272,can be wound up by the Tribunal in the following circumstances:
1. By passing Special resolution;
2. Where a Company has acted against the interests of the sovereignty and integrity of India;
3. Where an application is made by Registrar of Companies (“ROC”) to the Tribunal informing that the affairs of the company are fraudulent;
4. Where the Company is in default in filing the financials with ROC for consecutive five financial years;
5. If Tribunal is of the opinion that winding up of the Company is just and equitable.
B. Eligibility criteria for filing the Petition for Winding Up
As per Sec. 272 of the Act, a petition to the Tribunal for the winding up of a company shall be presented by the following:
|Sr. No||Eligible Petitioners||Conditions to present the petition by the Eligible Petitioners|
|1.||Company||A petition presented by the Company for winding up before the Tribunal shall be admitted only if accompanied by a statement of affairs in such form and in such manner as may be prescribed.|
|2.||Any contributory/ contributories||A Contributory shall be entitled to present a petition for the winding up of the Company, where he may be the holder of fully paid-up share Shares or shares in respect of which he is a contributory or some of them were either originally allotted to him or have been held by him and registered in his name must have been either originally allotted or held by him for at least 6 months in the preceding 18 months before commencement of winding-up.|
|3.||Registrar of Companies (ROC)||ROC shall be entitled to present a petition for the winding up of the Company by an application made to Tribunal, where ROC is in the view that affairs of the Company are fraudulent or default in filing financials with ROC for 5 consecutive financial years by the Company.|
|4.||Any person authorized by Central Government||Any person authorized by Central Government shall be entitled to present a petition for the winding up of the Companyif Tribunal is of the opinion that winding up of the Company is just and equitable or if the Company has acted against the interests of the sovereignty and integrity of India.|
C. Procedure for Compulsory Winding up by the Tribunal
Mentioned below is the procedure for filing compulsory winding up:
1. Filing of petition in Form WIN-1 or WIN-2 by the Eligible Petitioner
Eligible petitioners shall file the petitions in the following manner:
a) For the purposes of sub-section (1) of section 272, a petition for winding up of a company shall be presented by the eligible petitioner in Form WIN-1 or WIN-2.In case when the petition presented by the Company, then it shall be presented in the Form WIN-2 and in other cases in Form WIN-1.
b) Every petition shall he verified by an affidavit made by the petitioner or by the petitioners, where there are more than one petitioners, and in case the petition is presented by a body corporate, by the Director, Secretary or any other authorised person thereof, and such affidavit shall be in FormWIN-3.
c) Statements of Affairs must be annexed along with petition in Form WIN-4which shall contain the information up to the date, which shall not exceed thirty days prior to the date of filling the petition duly verified by an affidavit in Form WIN-5.
2. Service of Petition
Every contributory of the Company shall be entitled to be furnished by the petitioner or by his authorised representative with a copy of the petition within 24 hours of the requisition made by the contributory on payment of five rupees per page.
3. Advertisement of Petition
The Petition shall be advertised atleast 14 days before the date fixed for hearing by the Tribunal in Form WIN-6 in any daily newspaper in English and vernacular language widely circulated in the State or Union territory in which the registered office of the company is situated.
Further, an application for leave to withdraw a petition for winding up which has been advertised shall not be heard at any time before the date fixed in the advertisement for the hearing of the petition. Withdrawal of petitionis only allowed upon adherence to order of Tribunal, including costs and it shall be advertised in the same manner as the original petition.
4. Appointment of Company Liquidator (“CL”) or Provisional Liquidator (“PL”)
The process to appoint a Company or Provisional Liquidator is mentioned below:
a) After the admission of a petition for the winding up of a company by the Tribunal, and upon proof by affidavit of sufficient ground for the appointment of a provisional liquidator, the Tribunal, if it thinks fit, and upon such terms and conditions as in the opinion of the Tribunal shall be just and necessary, may appoint a provisional liquidator of the company, pending final orders on the winding up petition, and where the company is not the applicant, notice of the application for appointment of provisional liquidator shall be given to the company in Form WIN 7 and the company shall be given a reasonable opportunity to make its representation unless the Tribunal, for reasons to be recorded in writing, dispenses with such notice.
b) As per Section 275, Company Liquidator (CL) shall be appointed by the Tribunal amongst the Insolvency Professionals registered under the Insolvency and Bankruptcy Code, 2016.
c) Notice of appointment of CLby Tribunal shall be made to the liquidator within 7 days in form WIN-9.
d) The declaration disclosing conflict of interest in Form WIN-10 within7 days of his appointment by CL.
5. Order of Winding up by the Tribunal
The following methodology is prescribed for receipt and filing of the order:
a) For the purposes of sub section (1) of section 277, the order for winding up shall be in Form WIN-11.
b) The Tribunal shall send the signed and sealed order of winding up within 7 days from the date of receipt of the order by the Registrar, to CL in Form WIN-12 and to ROC in Form WIN-13.
c) A copy of the order made by the Tribunal shall also be filed by the liquidator within thirty days of the receipt with the Registrar of Companies in form INC-28 of the Companies (Incorporation) Rules, 2014 within 30 days of the date of order.
d) Contents of the Winding up Order: An order for winding up a company shall inter-alia contain that it will be the duty of such of the persons as are liable to submit the books of account of the company completed and audited up to the date of the order, to attend on the Company Liquidator at required time and place and give him all the information, and it will be the duty of every person who is in possession of any property, books or papers, cash or any other assets of the company, including the benefits derived therefrom, to surrender forthwith such property, books or papers, cash or other assets and the benefits so derived , as the case may be, to the CL.
6. Advertisement of Winding up order
The order for the winding up of a company by the Tribunal shall, within 14days of the date of the order be advertised by the petitioner in a newspaper in the English language and a newspaper in vernacular language widely circulating in the State or the Union territory where the registered office of the company is situated and shall be served by the petitioner upon such person, if any, and in such manner as the Tribunal may direct, and the advertisement shall be in Form WIN 14.
7. Power of CL upon winding up order
On winding up order being made, the following powers can be exercised by CL:
a) CL shall take charge of assets and books of accounts and papers of the Company.
b) The CL can file an application against the promoters/directors of the Company if they do not cooperate in giving the charge of assets and books of accounts of the Company.
c) The CL may make an application before Tribunal thereby seeking direction up on any contributory/ trustee etc. to pay such sum to which the Company is entitled.
8. Reports by the CL
As per sub section (1) of Section 281 of the Act, the CL shall submit report to the Tribunal in following manner:
a) The CL shall file first Report within 60 days of order in form WIN-16 reporting nature and details of asset of the Company, debts due, guarantees, list of contributories and their dues, subsisting contracts etc. Further, as per sub section (4) of Section 281 of the Act, CL may make further report or reports, if he thinks fit to the Tribunal.
b) The Tribunal shall within 7 days from the receipt of such report, fix a date for the consideration and notify the date on the notice board of the Tribunal and to the CL.
9. Settlement of list of contributories Sec 285 read with Rule 28 to 35
a. Preparation of provisional list of contributories (Rule 28)
Unless the Tribunal dispenses with the settlement of a list of contributories, the CL shall prepare the list of contributories within 21 days of the winding up order. The list shall consist the name of every person who was a member on commencement on winding up or his representative and the list shall be in Form WIN-17.
b. Notice of Settlement (Rule 29)
Upon the filing of the provisional list of contributories mentioned in Rule 28 above, CL shall do the following functions:
c. Settlement List (Rule 30)
On the date appointed for the settlement of the list referred to in rule 29, the Tribunal shall hear any person who objects to being settled as a contributory or as a contributory in such character or for such number of shares or extent of interest as is mentioned in the said list, and after such hearing, shall finally settle the list in accordance with sub-section (1) of section 285 and the aforesaid list when settled shall be certified by the Tribunal under its seal and shall be in Form WIN 20.
d. Notice of settlement to contributories (Rule 31)
Upon the receipt of the settled list of contributories, as certified by the Tribunal in terms of rule 30, the CL shall within a period of 7 days issue notice to every person placed on the said list of contributories in form WIN 21 and shall be sent to each person settled on the said list by pre-paid registered post or speed post at the address mentioned in the said list and an Affidavit confirming the service of notice in form WIN-22.
e. Supplemental list (Rule 32)
The Tribunal may add to the list of contributories by a supplemental list or lists and any such addition shall be made in the same manner in all respects as the settlement of the original list.
f. Variation of list (Rule 33)
Save as provided in rule 31, the list of contributories shall not be varied, and no person settled on the list as a contributory shall be removed from the list, or his liability in any way varied, except by order of the Tribunal and in accordance with such order.
g. Application for rectification of list (Rule 34)
If after the settlement of the list of contributories, the Company Liquidator has reason to believe that a contributory who had been included in the provisional list has been improperly or by mistake excluded or omitted from the list of contributories as finally settled or that the character in which or the number of shares or extent of interest for which he has been included in the list as finally settled or any other particular contained therein, requires rectification. Then the CL can make application for rectification in the list even after the settlement.
h. List of Contributories consisting of past members (Rule 35)
It shall not be necessary to settle a list of contributories consisting of the past members of a company, unless so ordered by the Tribunal and where an order is made for settling a list of contributories consisting of the past members of a company, the provisions of these rules shall apply to the settlement of such list in the same manner as they apply to the settlement of the list of contributories consisting of the present members.
10. Advisory Committee
The Tribunal may direct for constitution of an Advisory Committee and determine the persons who may be the members of the advisory committee. The meeting of the creditors and contributories in accordance with the provisions of subsection (3) of section 287 to determine the persons who may be the members of the advisory committee shall be convened, held and conducted in the manner provided in the prescribed rules for the holding and conducting of meeting of creditors and contributories
11. Meeting of creditors and contributors (Rule 44 – 65)
Subject to any directions given by the Tribunal, rules as hereinafter set out shall apply to meetings of creditors and contributories as may be convened in pursuance of subsection (3) of section 287 and sub-section (3) of section 292.
a. Notice of Meeting:
The provisions of sending notice of the meeting of creditors and contributories by CL is stipulated below:
b. Resolution at Creditors or Contributory meeting:
Resolution shall be deemed to be passed when majority in value of the contributories present personally or by proxy and voting has been made in favour of the resolution.
The Quorum shall be at least three creditors or contributories entitled to vote and where total creditors or contributors do not exceed 3, then all creditors or contributors entitled to vote.
d. Minutes of proceedings:
The chairman of the meeting shall cause minutes of the proceedings at the meeting in the following manner:
12. Examination of Promoters or Directors u/s 299 And 300 read with rule 139 to 154
The process of examination of Promoters or Directors is mentioned below:
a) Where CL made a report stating fraud by the promoters/ directors of the Company:
Tribunal may after considering the report, direct that such person or officer shall attend before the Tribunal on an appointed day for examination as to the promotion or formation or the conduct of the business of the company or as to his conduct and dealings as an officer thereof.
b) Issue of summons against the directors or promoters:
Tribunal may, upon hearing, make an order for issuing summons against persons named in the order in form WIN-62 and Summon shall be in form WIN- 63.
c) Order directing examination shall be in form WIN-64 and shall be made at least 7 days prior to date fixed for hearing. No person shall take part in examination except CL and his Authorised Representative.
13. Sale by Company Liquidator
The process of sale of asset or property of the Company can be made by the CL, post taking previous sanction of the Tribunal. The procedure of sale is mentioned below:
a) Every sale shall be held by the CL, or, if the Tribunal shall so direct, by an agent or an auctioneer approved by the Tribunal, and subject to such terms and conditions, if any, as may be approved by the Tribunal and all sales shall be made by public auction or by inviting sealed tenders or by electronic bidding or in such manners as the Tribunal may direct.
b) Where property forming part of a company’s assets is sold by the Company Liquidator through an auctioneer or other agent, the gross proceeds of the sale shall, unless, the Tribunal otherwise orders, be paid over to the liquidator by such auctioneer or agent and the charges and expenses connected with the sale shall afterwards be paid to such auctioneer or agent in accordance with the scales, if any, fixed by the Tribunal.
14. Termination of winding up
The process of conclusion of winding up of the affairs of the Company is mentioned below:
a) When all affairs have been fully wound up, CL shall file application for dissolution within 10 days along with audited financial accounts & auditor’s certificate.
b) Upon application filed, Tribunal shall in consideration of accounts and auditor’s certificate, pass an order of dissolution.
c) Liquidator shall pay the balance into Company Liquidation Dividend and Undistributed Assets Account any unclaimed dividends payable to creditors or undistributed assets refundable to contributories in his hands on the date of the order of dissolution, and such other balance in his hands.
d) The winding up of a company shall, for purposes of section 302, be deemed to be concluded at the date on which the order dissolving the company has been reported by the Company Liquidator to the Registrar of Companies unless any fund or assets of the company remaining unclaimed or undistributed in the hands or under the control of the Company Liquidator, have been distributed, or paid into the Company Liquidation Dividend and Undistributed Assets Account as provided in section 352.
SUMMARY PROCEDURE FOR LIQUIDATION UNDER SECTION 361
The rules allow any of the following class of companies to close their business by making a winding up application to Central Government without going to Tribunal. For the purpose of clause (ii) of sub-section (1) of section 361, the class of companies shall be as under, based on the latest audited Balance Sheet:
|Companies accepting deposit and having total outstanding deposits||Upto INR 25 Lacs|
|Companies having total outstanding loan including secured loan||Upto INR 50 Lacs|
|Companies having total turnover||Upto INR 50 Crores|
|Companies with Paid up capital||Upto INR 1 Crore|
The provisions of the Rules related to filing and audit of the Company Liquidator’s accounts and its procedure (Rule 91 to 99 of the Rules) and disposing of assets (Rule 165 to 167 of the Rules) shall be applicable to above class of companies with modification that the word “Tribunal” shall be considered as “Central Government”.
The striking feature of this rule is thesummary procedure for liquidation. An important factor for such summary winding up is that the Central Government will provide required approvals to such companies for the normal winding up process which is otherwise undertaken through the Tribunal, thereby reducing the burden on Tribunal and greatly shortening the overall winding up timelines.Further, there were no rules for winding up by tribunal being notified till now andbefore the said rules were notified, winding-up was being governed under the Companies (Court) Rules 1959 of the erstwhile Companies Act, 1956. While this shift certainly looks promising on paper, however, it remains to be seen how the establishmentscope with this newfound responsibility.