Keywords: Company, Winding up, court, tribunal , liquidator , grounds, NCLT.
Abstract:
Since a corporation is regarded as a legal person under Indian law, an analogy has been made comparing its demise to that of a person. In the same way that a man creates a will and transfers his property, a liquidator is likewise appointed in the liquidation of a corporation to take possession of and distribute all of the firm’s assets. Directors and employees no longer have any function after that. As winding up a company also pays a vital role on how the company’s assets and liabilities are settled. Winding up of a company can be done in two ways either by voluntary winding up or by the court or tribunal. Below we will be discussing winding up of company by court in detail about reasons for winding up, who can file for petition and what is the procedure required.
INTRODUCTION
When a business is losing money and must settle all of its debts with creditors, it is said to be liquidated or wound up. A corporation must sell its assets as part of the winding-up procedure in order to cover the outstanding debt. Following the resolution of all liabilities, the firm must distribute any surplus funds to its shareholders before[1] being formally liquidated or ceasing to exist. An explanation of the winding up of a company by the tribunal, which is covered by section 357 of the 2013 Companies Act, is provided below.
According to Section 270 of the Act of 2013, a business can be wound up involuntarily by the company itself or by a tribunal. In the first scenario, the court issues a winding-up order for the firm, and in the second scenario, the shareholders or creditors themselves approve the company’s liquidation in the event that they are unable to pay their debts or experience a loss in business.[2]
- Reasons for winding up of company:
- The goal that motivated the company’s founding has been achieved.
- The business cannot be conducted by the company.
- Promoter demise
- Bankruptcy.
- The business is unable to make creditor payments.
- The company sells its business to another business or a private person.
- The Tribunal may order a company’s compulsory winding up under Section 271 of the 2013 Companies Act for any of the following reasons-special resolution ( S. 271 (1)(b),Integrity and sovereignty,Criminal activities,Annually generated financial return,Fairness and justice
- Who are the persons who can file for petition for winding up of company?
The petition for the winding up of a company may be filed or presented by any of the following, subject to the provisions of Section 272 of the Act:
– Contributory to the Company Either or
– Company registration office (ROC)
– A person that the Central Government has appointed
– State and federal government[3]
- Grounds for compulsory unwinding up of a company:
- If the company has decided that the Tribunal should wind it up in a Special Resolution.
- If the statutory meeting or the statutory report are not held as required or are delivered to the Registrar by mistake. The Registrar or a contributing may file a petition on this basis prior to the passing of 14 days following the final day on which the meeting should have been convened. Instead of adjourning, the Tribunal may require the delivery of a statutory report or the conduct of a statutory meeting.
- If the company either doesn’t start doing business within a year of being incorporated or suspends operations for a full year.
- Only if there is no intention to continue the business is the winding up on this basis ordered, and the Tribunal has discretion in this matter.
- If the number of members falls below the statutory minimum, which is below two for a private business and below seven for a public corporation.
- if the business can’t afford to pay its debts.
7. In the event that the tribunal determines that winding up the corporation is just and equitable.
8.The tribunal may look at the rehabilitation and revival of sick units. The tribunal may order its winding up if a rebirth is unlikely.
- If the company has missed a deadline for any five consecutive fiscal years to file its balance sheet, profit and loss statement, or annual report with the Registrar.[4]
- If the business has operated in a way that is contrary to Indian sovereignty and integrity, state security, friendly relations with other countries, public order, morality, or decency.
- Liquidator:
When a corporation is in the process of being wound up, the Tribunal appoints a liquidator to manage all of its assets.
The powers and responsibilities of a liquidator are outlined in Section 290 of the Company’s Act of 2013 and Section 35 of the Insolvency and Bankruptcy Code of 2016:
-to conduct business
-Pay your debtors.
-sale of assets
-acquire loans
-execute actions.
-approach NCLT.
-to safeguard and maintain the assets
-can seek assistance from the adjudicating authorities if necessary.
-receive qualified assistance.
-to deal with the contributory’s legitimate heir.
-and to carry out such additional tasks.[5]
Case Laws: (1882)
In Re: German Date Coffee Co. concerns a circumstance where the company’s goals called for selling coffee with a Spanish patent, but they were unable to obtain a Spanish patent and instead sold coffee with a German patent. It was fair and just to dissolve the corporation because it had lost its essential foundation.[6]
Yenidje Tobacco Co. Ltd. (1916)
W and R, who had separate businesses as manufacturers of cigarettes, decided to combine their operations and establish a private limited company of which they were
the sole shareholders and directors. They each had one vote, thus the articles stipulated that any disagreements would be settled by arbitration; nonetheless, one of them disagreed with the decision. The two eventually become so angry against one another that they would only communicate through the secretary. Due to the full impasse that resulted, even though business was booming, the company was ordered to be wound up.[7]
[1] Tripti, Winding up a company , Legal Services , ( July. 11, 2022, 8:04 PM), http://www.legalservicesindia.com/article/1319/Winding-Up-of-a-Company.html.
[2]Shambhavi Shree, Role of courts in winding-up of company, Lexpeeps, ( July. 11, 2022, 7:58 PM), https://lexpeeps.in/role-of-courts-in-winding-up-of-company/.
[3] Shambhavi Shree, Role of courts in winding-up of company, Lexpeeps, ( July. 11, 2022, 7:58 PM), https://lexpeeps.in/role-of-courts-in-winding-up-of-company/.
[4] Soumya Bajpai, Commencement of Winding up of Company , Corpbiz, ( July. 11, 2022, 7:55 PM), https://corpbiz.io/learning/winding-up-of-a-company-by-tribunal/.
[5] Shambhavi Shree, Role of courts in winding-up of company, Lexpeeps, ( July. 11, 2022, 7:58 PM), https://lexpeeps.in/role-of-courts-in-winding-up-of-company/.
[6] Dullbonline, https://dullbonline.wordpress.com/2017/06/30/in-re-german-date-coffee-company-1882-20-ch-d-169/https://dullbonline.wordpress.com/2017/06/30/in-re-german-date-coffee-company-1882-20-ch-d-169/, ( last visited July. 18, 2022).
[7] ThelawLane, https://www.thelawlane.com/in-re-yenidje-tobacco-co-ltd-ca-1916/, ( last visited July. 18, 2022).
