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Preamble
Winding up is a process by means of which the affairs of a company are wound up in a manner to dissolve the
company and put an end to the life of a Company. In the process of winding up, the companys assets and
properties are administered for the benefit of the members and creditors of the Company. The administrator,
called liquidator, realises its assets, pays its debts and finally distributes the surplus, if any, among the
members/creditors, in accordance with their right as provided in the article of the Company.
In other words, winding up is a legal process to dissolve the business of a company. The term Winding Up and
liquidation are used interchangeably. However, there are various means of winding up, i.e., by way of members
voluntary up, creditors winding up, winding up by the tribunal etc.
In this article we have dealt with practical aspects in relation to members voluntary winding up.
Provisions of Winding up
Section 425 to Section 520 of the Companies Act, 1956 (Act, 1956) (corresponds to Section 270 to Section 365
of the Companies Act, 2013) read with Companies Court Rule, 1959 (hereinafter referred to as CCR, 1959),
deals with the provisions of winding up. Since the provisions of the Companies Act, 2013 has not yet come into
force, the provisions of the Act, 1956 still governs the proceedings of winding up.
Modes of Winding Up
The Act, 1956 provides for the following three types of winding up:
1. Winding up by the order of the Tribunal or Compulsory winding up (Sec 433 to Sec 483)
2. Voluntary winding up (Sec 484 to Sec 520)
3. Subject to the supervision of the Court.
Grounds on which winding up may take place
7. If the company has made default in filing its Balance sheet and Profit and Loss account or annual return for
any five consecutive financial year.
8. If the company has acted against the sovereignty or integrity of India, the security of the state or friendly
relation with foreign state etc,
9. If the tribunal is of the opinion that the Company should be wound up under circumstances mentioned under
Section 424G (sick company).
Voluntary winding Up
1.
Compulsory winding up of a
company is brought about by an
order of the court.
2.
Appointment of liquidator:
Liquidator is an officer appointed by the creditors of the company (in case of Creditors Voluntary Winding up) or
by the members of the Company (in case of Members Voluntary Winding up), when the company goes into
winding up or liquidation voluntarily. A company may appoint an insolvency practitioner (CA, CS or Lawyer) to
whom it wishes to act as a liquidator for the purpose of voluntary winding up. However, the Official liquidator is
appointed by the Central Government as per section 448 of the Act, 1956 who shall be attached to the High Court
of the state for the purpose of conducting liquidation proceeding or say winding up proceeding of those companies
which are ordered to be wound up by the Tribunal. Functionally the Official Liquidator is under the supervision and
control of the High Court but administratively is under the control of the Central Government through the Regional
Director.
1. Members voluntary winding up: Winding up the affairs of the company voluntarily under the supervision of
members whereby declaration of solvency is made by the Board and the same has been filed with the Registrar.
2. Creditors voluntary winding up: Winding up the affairs of the Company when declaration of solvency is not
made by the directors and the Creditors of the Company control and supervise the entire process.
Sec 488
Sec
488(1)
Sec
488(2)
Required
Form
Time frame
X day
Form 149
in GNL2
On (X) day
Sec 490
Y+35
Sec
493(1)
and (2)
Sec 485
Within (Y+35+14)
Sec
488(2),
Rule
127 of
CCR,
1959
Form 57
along
with Form
58
Within (Y+35+21)
Sec 485
MGT
14
Within (Y+35+30)
Sec 516
and
Rule
315 of
the
CCR,
1959
Form 151
and Form
152
Within (Y+35+7)
Rules
124 to
134 and
312 to
361 of
CCR,
1959
Sec
497(1)
(a)
Form 156
Within (Y+35+30+15)
Sec
497(1)
(b)
Form 155
Within (Y+35+30+15+7)
Sec
497(1)
Within (Y+35+30)
Within
(Y+35+30+15+7+21)
Form 157
for
accounts
in GNL2
Within
(Y+35+30+15+7+21+7)
Sec
497(5)
Sec
497(5)
Sec
497(6)
Sec
497(6B)
MGT
14
Within
(Y+35+30+15+7+21+30)
However, there are differences between members voluntarily winding up and creditors voluntarily winding up.
Only solvent company can opt for members voluntarily winding up, therefore the process requires filing of
Declaration of Solvency by the directors of the company and once the company has appointed liquidator, the
power of Board of directors, Managing director and manager shall cease to exist. Whereas, Creditors voluntary
winding up is resorted to by the insolvent companies. It requires the holding of meetings of creditors besides those
of the members right from the beginning of the process of voluntary winding up. It is the creditors who get the right
to appoint liquidator and hence, the entire process of winding up takes place under the supervision and control of
the Creditors of the Company.
Thus, the entire windingup process are greatly affected by the facts and circumstances of a particular case.
Foreign capital contribution
In case the company has any capital contribution from a foreign entity the same will also have to be refunded at
the time of winding up. At the time of distribution of assets to such foreign entity, compliances with RBI need to be
ensured. AD Category1 banks have been allowed to remit winding up proceeds of the Companies in India which
are under liquidation, subject to payment of applicable taxes. Liquidation may be subject to any order of winding up
issued by the court or the official liquidator in case of voluntary winding up under the provisions of the Act, 1956.
AD Category I banks shall allow the remittance provided the applicant submits the following documents:
i. No objection or Tax clearance certificate from Income Tax Department for the remittance.
ii. Auditors certificate confirming that all liabilities in India have been either fully paid or adequately provided for.
iii. Auditors certificate to the effect that the winding up is in accordance with the provisions of the Companies Act.
iv. In case of winding up otherwise than by a court, an auditors certificate to the effect that there is no legal
proceedings pending in any court in India against the applicant or the company under under liquidation and
there is no legal impediment in permitting the remittance.
Winding up and dissolution
Many get confused between winding up, dissolution and insolvency. But the fact is that winding up and insolvency
are two different phases. Even a solvent Company can wind up its affairs, with the approval of the members of the
Company. Further, there are differences between winding up and dissolution also. Winding up is a process that
leads to dissolution. During winding up, the assets and liabilities of the Companies are disposed off by the
liquidator so that at the end, the company shall not have any assets or liabilities. Whereas, when the
affairs of the company are fully wound up, dissolution takes place. On dissolution, the name of the Company
gets struck off the register of the Companies and its legal status as a corporation disappears.