What are the kinds of winding-up of the Company? Explain in detail.
Find the question and answer of Company Law only on Legal Bites.;
Question: What are the kinds of winding-up of the Company under the Companies Act 2013? Explain in detail. [BJS 2011]Find the question and answer of Company Law only on Legal Bites. [What are the kinds of winding-up of the Company under the Companies Act 2013? Explain in detail.]AnswerWinding-up is the process through which a company is brought to an end. During this process, the company's assets are sold off to pay its debts, and any surplus is distributed among the members....
Question: What are the kinds of winding-up of the Company under the Companies Act 2013? Explain in detail. [BJS 2011]
Find the question and answer of Company Law only on Legal Bites. [What are the kinds of winding-up of the Company under the Companies Act 2013? Explain in detail.]
Answer
Winding-up is the process through which a company is brought to an end. During this process, the company's assets are sold off to pay its debts, and any surplus is distributed among the members. After winding-up, the company ceases to exist as a legal entity.
Kinds of Winding-up under the Companies Act, 2013
Under the Companies Act, 2013 (as amended by the Insolvency and Bankruptcy Code, 2016), there are primarily two types of winding-up:
| S.No. | Kind of Winding-up | Meaning |
|---|---|---|
| 1. | Winding-up by the Tribunal (Compulsory Winding-up) | Winding-up ordered by the National Company Law Tribunal (NCLT) |
| 2. | Voluntary Winding-up | Winding-up initiated voluntarily by the company's members or creditors |
1. Winding-up by the Tribunal (Compulsory Winding-up)
(Sections 271 to 303 of Companies Act, 2013)
Who files the Petition:
- The company itself
- Any creditor(s)
- Any contributory (member)
- The Registrar of Companies (ROC)
- Any person authorised by the Central Government
Grounds for Tribunal Winding-up: (Section 271)
The Tribunal may order winding-up if:
- Special Resolution: The company has passed a special resolution that it be wound up by the Tribunal.
- Acts Against Interests of Sovereignty: The company has acted against the interests of the sovereignty and integrity of India, the security of the State, or public order, decency, or morality.
- Fraudulent Conduct: The company has been conducting its affairs in a fraudulent manner or was formed for a fraudulent or unlawful purpose.
- Default in Filing Financial Statements or Annual Returns: The company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding 5 consecutive financial years.
- Just and Equitable: The Tribunal is of the opinion that it is just and equitable that the company should be wound up.
Procedure:
- Petition is filed to NCLT.
- NCLT may accept or reject.
- If accepted, a provisional liquidator may be appointed.
- After hearing, NCLT may pass the winding-up order.
- Official Liquidator (appointed by Central Government) takes control of the company’s assets.
- Assets are sold, liabilities are discharged, and surplus (if any) is distributed.
2. Voluntary Winding-up
(Now governed mostly under the Insolvency and Bankruptcy Code, 2016)
Who initiates:
- The members (shareholders) of the company, when the company is solvent.
- The creditors, if the company is insolvent.
Conditions for Voluntary Winding-up:
Earlier, under Section 304 of the Companies Act, 2013, voluntary winding-up could occur when:
- The company passes a special resolution to wind-up voluntarily.
- The company in a general meeting passes a resolution that due to expiry of duration or occurrence of an event (mentioned in articles) the company should be dissolved.
Now as per IBC:
- Section 59 of the Insolvency and Bankruptcy Code governs voluntary liquidation of solvent companies.
Key Steps for Voluntary Winding-up:
- Declaration of Solvency: The majority of directors must make a declaration stating that the company has no debt or it will pay its debts in full.
- Passing a Special Resolution: A special resolution must be passed in the general meeting within four weeks of filing the declaration.
- Appointment of Liquidator: An insolvency professional is appointed as the Liquidator.
- Winding-up Process: The Liquidator realises the assets, pays the liabilities, and distributes the surplus.
- Dissolution: After the process, an application is made to the NCLT for dissolution.
Important Changes after IBC, 2016
- Sections 304 to 323 of the Companies Act, 2013 (which earlier dealt with voluntary winding-up) have been omitted.
- Voluntary liquidation of solvent companies is now governed under Section 59 of the Insolvency and Bankruptcy Code, 2016.
- Tribunal winding-up under Companies Act, 2013 remains applicable for compulsory winding-up.
Differences Between Winding-up by Tribunal and Voluntary Winding-up
| Basis | Winding-up by Tribunal | Voluntary Winding-up |
|---|---|---|
| Initiation | Through a petition before NCLT | By company itself through resolutions |
| Reason | Misconduct, fraud, or inability to operate properly | Decision of shareholders or financial inability |
| Liquidator | Official Liquidator appointed by Tribunal | Insolvency professional appointed by company |
| Applicable Law | Companies Act, 2013 | Insolvency and Bankruptcy Code, 2016 |
Thus, under the Companies Act, 2013, winding-up can either be:
- Compulsory (by Tribunal) when statutory grounds exist, or
- Voluntary (now governed mostly under IBC, 2016) when the company or creditors decide to liquidate.
The key aim of the winding-up process is to ensure an orderly closure of the company while protecting the rights of creditors, employees, and shareholders.