What are the kinds of winding-up of the Company? Explain in detail.

Question: What are the kinds of winding-up of the Company under the Companies Act 2013? Explain in detail. [BJS 2011]

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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:

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:

1. Special Resolution: The company has passed a special resolution that it be wound up by the Tribunal.
2. 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.
3. Fraudulent Conduct: The company has been conducting its affairs in a fraudulent manner or was formed for a fraudulent or unlawful purpose.
4. 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.
5. 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:

1. 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.
2. Passing a Special Resolution: A special resolution must be passed in the general meeting within four weeks of filing the declaration.
3. Appointment of Liquidator: An insolvency professional is appointed as the Liquidator.
4. Winding-up Process: The Liquidator realises the assets, pays the liabilities, and distributes the surplus.
5. 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

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.