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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