Winding Up of a Company
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Winding up is a means by which the dissolution of a company is brought about and its assets realised and applied in payment of its debts, and after satisfaction of the debts, the balance, if any, remaining is paid back to the members in proportion to the contribution made by them to the capital of the company.”1 “The liquidation or winding up of a company is the process whereby its life is ended and its property is administered for the benefit of its creditors and members.
An Administrator, called a liquidator, is appointed and he takes control of the company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their rights.” As per section 2(94A) of the Companies Act, 2013, “winding up” means winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016. Thus, winding up ultimately leads to the dissolution of the company. In between winding up and dissolution the legal entity of the company remains and it can be sued in a Tribunal of law.
A company is said to be dissolved when it ceases to exist as a corporate entity. On dissolution, the company’s name shall be struck off by the Registrar from the Register of Companies and he shall also get this fact published in the Official Gazette. The dissolution thus puts an end to the existence of the company.
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Modes of Winding up
A company may be wound up in any of the following two ways:
1. Compulsory winding up. (Sec. 272)
2. Liquidation under Insolvency and Bankruptcy Code, 2016.
Compulsory Winding up
Compulsory Winding up Winding up a company by an order of the Tribunal is known as compulsory winding up.
Grounds of Winding up
As per section 271, Tribunal may order for the winding up of a company on a petition submitted to it on any of the following grounds:
1. Passing of special resolution for the winding-up.
When a company has by passing a special resolution resolved to be wound up by the Tribunal, winding up order may be made by the Tribunal. The resolution may be passed for any cause whatever. Tribunal may not order for the winding up if it finds it to be opposed to public interest or the interest of the company as a whole.
2. If the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality.
3. If on an application made by the Registrar or any other person authorised by the Central Government by notification under this Act, the Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purpose or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that it is proper that the company be wound up.
4. If the company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding five consecutive financial years.
5. Just and equitable – The Tribunal may order for the winding up of a company if it thinks that there are just and equitable grounds for doing so. The Tribunal has very large discretionary power in this case. The term ‘just and equitable’ grounds may include any of the grounds for the winding up of the company.
