Compulsory Winding-up Under Companies Act 2013

LEGAL FORUM

The winding up process is the last stage in the life of a company, wherein its existence is dissolved and all its assets are used to satisfy the creditors and shareholders. Jyoti Srivastava gives a brief overview of the process of winding up under the provisions of the Companies Act, 2013

A company is a juristic person that comes into existence by way of incorporation and can be dissolved by undertaking a winding-up process as per the provisions of the Companies Act, 2013 (“New Act”). The winding up process is the last stage in the life of a company, wherein its existence is dissolved and all its assets are used to satisfy the creditors and shareholders.

Reasons for Winding Up

The reasons for compulsory winding up under the Companies Act, 1956 (Old Act) and the New Act remain same, except that the following grounds stand deleted as reasons for compulsory winding up under the New Act:

a. Suspension of the business for one year from the date of incorporation or suspension of business for a whole year; or

b. Reduction in number of members of a company below two (in case of a private company) and seven (in case of a public company).

However, a new ground has been added for compulsory winding up under the New Act. On the application by the Registrar or any other person authorised by the Central Government by way of notification under the New Act, if the Tribunal is of the opinion that the affairs of the company have been carried out in a fraudulent manner or unlawful purpose or any person concerned or involved in the management or affairs of the company has acted in a fraudulent manner or misfeasance or misconduct, that it is better to wind up the company.

Winding Up Process

Chapter XX, Part-I of the New Act deals with the compulsory winding up process. The petition for compulsory winding up can be presented to the appropriate authority by:

a. The company; or
b. The creditors (contingent/ prospective creditors1/creditors); or
c. Any contributory or contributories; or
d. All or any person specified in (a) (b) (c) together; or
e. By the Central or the State government2; or
f. By the Registrar or any person authorised by the Central government for that purpose.

Filing of Winding up Petition

The draft rules provide that a winding up petition (‘Petition’) is to be filed under section 272 of the New Act in the prescribed form no 1, 2 or 3, whichever is applicable and is to be submitted in three sets.

Statement of Affairs of the Company

If the company files the Petition, it shall be accompanied with the statement of affairs (‘Statement’) in Form No. 4 read with section 272(5) of the New Act. The Petition shall state the facts up to a specific date, which shall not be the date more than fifteen days prior to the date of making of the Statement. A Chartered Accountant in practice shall duly certify this Statement. The fee for filing the Petition shall be submitted as prescribed in Annexure-B of the draft rules.

Advertisement of the Petition

Subject to the directions of the Tribunal, the petition shall be advertised in not less than fourteen days before the date fixed for hearing in one daily newspaper in English language and one daily newspaper in the principal regional language circulating in the State or union territory where the registered office of company is situated. The advertisement needs to be carried out in Form No 6. The previous requirement of publication in the official gazette of the State or union territory mentioned in Company Court Rules (1959), has been done away with under the New Act.

Final Order and its Content

The Tribunal after hearing the Petition has the power to dismiss it, with or without cost, or to make an interim order, as it thinks fit, or can appoint the provisional liquidator of the company till the passing of the winding up order. An order for winding up of a company will be in Form 11 and contains the footnote prescribing the following duties:

a. To submit the complete and audited book of accounts up to the date of order;
b. To attend the company liquidator at the required time and place with all information;
c. To surrender the assets3 of the company and documents related to it, including those documents from which the benefit from the assets accrues.

Winding up or liquidation is not a legal exercise only to satisfy the debts of creditors, but also signifies loss of brand value that the company enjoyed in its entire history. There is not much of a difference in the manner in which the two legislations deal with the process of liquidation, except that the New Act has somewhat simplified the process. The draft rules pertaining to the winding up of a company are yet to be released by the Ministry of Corporate Affairs. Winding-up of every company is food for thought to others in the field to understand what went wrong in governing a company.

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