Compulsory Winding Up of Companies_ Grp 6

8/2/2019 Compulsory Winding Up of Companies_ Grp 6

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COMPULSORY

WINDING UP OF

COMPANIESNiraj Satnalika 11IB-038Nivesh Somani 11IB-039

Rohan Johri 11IB-48

Sabhyasachi Mandal 11IB-051

Sujay Deshmukh 11IB-068

Prithvi Chandra Verma 11IT-023

Ritwik Vijayan 11IT-026

Vaqar Merchant 11IT-032

Anupam Sinha 11IT-035


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MEANING OF WINDING UP

Company ceases to exist by a legal process called winding up.

Winding up of a company is the process whereby its life is

ended and its property administered for the benefits of

creditors and members. An administrator called a liquidator is

appointed and he takes control of the company, collects its

assets, pays it debts and finally distributes any surplus amongthe members in accordance with their rights.


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WINDING UP vs DISSOLUTION

Winding Up Dissolution

Winding up precedes dissolution. Dissolution is post winding up

Post winding up the legal entity of thecompany remains and it can be used in

a court of law.

On dissolution the company ceases toexist, its name is struck off the

Registrar of Companies by the

Registrar and the fact is published in

the official gazette


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FORMALITY FOR

DISSOLUTION

After affairs of company have been completely wound up and

official liquidator has made an application to the court in that

behalf, the company is dissolved from the date of the courts

order.


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Modes of Winding Up

Compulsory Winding up under order of the Court

Voluntary winding up

Voluntary winding up under supervision of the court


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Winding up by the Court (Sec. 433)

Grounds for Winding up by the Court

Special ResolutionIf the company has, by special resolution,

resolved that the company be wound by the Court.

Default in holding statutory meeting or in delivering statutory

report to the registrar

Failure to commence business within one year of incorporation or

suspending its business for a whole year.


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Membership below Legal limit

In case of membership falling below 7 in public and below 2 in

private companies.

Inability to pay Debts

When the company is unable to honor its monetary

commitments. Under Section 434, following 3 cases are

considered,

1. Inability to pay When the credit sum exceeds Rs 500, within

three weeks of the demand for payment by the creditor or his

agent


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2. Where the company fails to satisfy a court decree in

favor of a creditor, in whole or in part.

3. Where it is proved to the court that the company is

unable to pay its debts, i.e., the company is

commercially insolvent.

If proved, The Court may do the following

Make a winding up order

Postpone a winding up order

Refuse the winding up order if the majority in value of the

creditors oppose, for good reason.


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Just & Equitable

A company may be wound up if the court is of the opinion that it

is just & equitable that a company should be wound up.

When the main objective of company has failed.

When there is complete deadlock in the management of the

company.

When the majority of stakeholders have adopted an oppressive

policy towards the minority.


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When the business of the company becomes illegal or

deemed fraudulent

When the business of the company can not be carried out

except at losses.

When there is an event, on happening of which, the

company is prescribed to be wound up.

When it is a mere bubble company and does not carry onany business or own any property.


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Who may petition

Petition by the company

Creditors petition

Contributorys petition

Petition by all or any two of above mentioned parties

Registrars petition

Petition at instance of Central Government


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Petition by company

Directors can make the petition if:-

A special resolution to this effect has been passed.

Even if no such resolution is passed, but directors are of the

opinion that the circumstances leading to the insolvency should

be investigated by the court.


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Petition by creditor

Any creditor(s) may file the petition if the company is

unable to pay its debts, even a prospective creditor can

do it with Courts prior permission. The definition of

creditor includes:-

Secured creditor

Holder of any debenture

Trustee from debenture holders

Government for outstanding revenue

Exceptionunder Limitation Act


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Petition by contributory - I

Contributory is a present member or past member

(whose membership ceased within a year preceding

the winding up) who is liable to contribute to the

assets of the company in winding up.

Any provision in the articles of association that

deprives members of their right to petition for

winding up is void.


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Petition by contributory - II

If a contributory is an original allot tee, or became

shareholder through transmission or had been registered for

at least six months during 18 months preceding the petition,

he/she may file the petition if the company has committed a

default :

In filing Statutory report or holding Statutory meeting

Commencing business within one year of incorporation.

If there is a deadlock in management


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Registrars petition

The Registrar of Companies can file the petition if

company defaults on following grounds:

In filing Statutory report or holding Statutory meeting

Non-commencement of business within one year of incorporation or

suspension of business for a year

Unable to pay debts

Court is in opinion of winding up

Number of members falls below statutory minimum


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Petition at instance of Central

Government

Section 243 of Company Law states-

If from the reports ofinvestigators it appears that business

of company has an intent to defraud its creditors, members,

any other person or if the management is guilty of fraud,

Central Govt. may authorize a person to file the petition for winding

up.


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Jurisdiction to Wind Up

According to sec 10, the competent authority for winding up

of companies is the High Court or District Court (to the extent

to which jurisdiction has been conferred) in relation to the

place where the company`s registered office is situated.

The Central Government may empower any District Court to

exercise jurisdiction conferred by this Act(in respect of small companies, with paid up capital of not more

than 1 lakh rupees)

The expression "registered office" means the place which has

longest been the registered office of the company during the 6

months immediately preceding the presentation of the

petition for winding up

Case: Haryana Telecom Ltd. V Sterlite Industries Ltd., S.C


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Transfer of Winding up

Proceedings

Transfer of winding up proceedings to District Court

Withdrawal of winding up from one District Court to another

Power of High Court to retain winding up proceedings in

District Court

Jurisdiction of High court under sections 435, 436 and 437 tobe exercised at any time and at any stage


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Commencement of the Winding

up

If a resolution has been passed by the company for voluntary

winding up, the winding up of the company shall be

commenced at the time of the passing of the resolution, all

proceedings taken in the voluntary winding up shall bedeemed to have been validly taken.

In any other case, the winding up of a company by the Court

shall be deemed to commence at the time of the presentation

of the petition for the winding up. Powers of Court

Any transfer of property if made within a period of one year

before the presentation of a petition for winding up shall be

void against the liquidator


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Powers of the Court on

presentment of the Petition

1. Restrain Proceedings against company:

2. Hearing Petition


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Restrain Proceedings against

company

At any time after the presentation of a winding up petition and before a

winding up order has been made, the company, or any creditor or

contributory, may-

Where any suit or proceeding against the company is pending in the

Supreme Court or in any High Court, apply to the Court in which thesuit or proceeding is pending for a stay of proceedings therein; and

Where any suit or proceeding is pending against the company in any

other Court, apply to the Court having jurisdiction to wind up the

company, to restrain further proceedings in the suit or proceeding;

and the Court to which application is so made may stay or restrain theproceedings accordingly, on such terms as it thinks fit.


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Hearing Petition

After receiving the petition for winding up for the company,

the court fixes a date for hearing of petition and at least 14

days before the date so fixed, will issue notice to the company

to appear and state its case and shall also cause the issue of

public notice of the same in order to notify all creditors andcontributories


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Hearing Petition

On hearing a winding up petition, the Court may-

Dismiss it, with or without costs; or

Adjourn the hearing conditionally or unconditionally; or

Make any interim order that it thinks fit; or

Make an order for winding up the company with or without

costs, or any other order that it thinks fit

Where the petition is presented on the ground that it is just and

equitable that the company should be wound up, the Court may

refuse to make an order of winding up, if it is of opinion thatsome other remedy is available to the petitioners and that they are

acting unreasonably in seeking to have the company wound up

instead of pursuing that other remedy.


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Consequences of the Winding up Order

Required to file with the Registrar of Companies, a certified copy ofthe courts order, within one month of the order, within 1 month of the

order

The order for winding up shall be deemed to be notice of discharge tothe officers and employees of the company, except when the business

of the company is continued for the purpose of beneficial realization of

assets

The power of the Board of Directors are terminated and the same will

now be exercised by the official liquidator


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The winding up shall operate in favor of all the creditors and all the

contributors of the company

The official liquidator shall become the liquidator of the company

Any debt payable on the future date has to be paid immediately on the

winding date


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For period of limitation in respect of suits, the period between the

date of application and date of winding up needs to be excluded also

a period of 1 year post winding up needs to be excluded

No suit or legal proceeding can be commenced against the

company without the leave of the court

The court winding up the company shall have full powers to

entertain or dispose of any new or pending suit or proceeding by or

against the company


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Official Liquidator

The liquidator is a person who helps the court to complete the

liquidation proceedings.

In Compulsory winding up of a company only Official

Liquidator can function as liquidator.

The Official Liquidator is appointed by the CentralGovernment for each High Court.

Official Receiver is appointed at District Court who shall act as

the Official Liquidator.

The Court has no power to appoint a private person or bodyas liquidators.


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Provisional Liquidator

The court may appoint Official Liquidator as Provisional

Liquidator for a limited time.

On passing the winding up order the provisional liquidator

shall become the liquidatorof the company.

He shall have the same powers as a liquidator unless theCourt limits his powers. (Sec. 450)


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Powers of Court after Winding Up

Order

1. Power to stay winding up proceedings(Sec. 466)

If stay order is in the interest of general public.

Either altogether or for limited period

2. To settle a list of contributories and order for the realization of

companys assets in order to discharge its liabilities.(Sec. 467)

3. To order for delivery of property to the liquidator.(Sec. 468).


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Powers of Court after Winding Up

Order (cont...)

4. Power to make calls (Sec. 470)

To make calls on contributories for payment of expenses in case of

deficiency of assets.

5. Powers to exclude creditors not proving in time. (Sec. 474)

Time within which creditors have to prove their claims.


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6. Power to summon persons of having property of thecompany(Sec 477)

The court may summon any one before it known or suspected to possess

any property or books or papers of the company.

7. Powers to order public examination of promoters, directors etc.

(Sec. 478)

If in the opinion of official liquidator a fraud has been committed during

promotion , formation or conduct of the business of the company.


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8. Power to arrest a contributory intending to abscond(Sec. 479)

The court may order him to be arrested and his books and movable

property to be seized.

9. Powers to order for the dissolution of the company. (Sec. 481)

When affairs of the company have been wound up or liquidator cannot

proceed with the winding up for any just and equitable reason.


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10.Powers of court to order dissolution of company void(Sec.

599)

The court may at any time within two years of the date of dissolution ,

declare a dissolution void

A certified copy of the order has to submitted to Registrar within 30 days


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References

www.companyliquidator.gov.in

Business Legislation for Management- M C Kuchhal & Deepa

Prakash
http://www.companyliquidator.gov.in/http://www.companyliquidator.gov.in/


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Thank you

Documents

Compulsory Winding Up of Companies_ Grp 6