This article has been written by Mr. Yuvraj Singh Rathore, a penultimate student of BBA LLB (H.) at ICFAI Law School, The ICFAI University, Jaipur.

Abstract

A company is an artificial person created by law and as such, the existence of the company can only be taken to the cessation via due process of law. By the virtue of its characteristic, viz. Perpetual Succession, a company is deemed to live forever irrespective of the life and financial status of its shareholders, but there are certain circumstances when the company left with no way other than to wind up and dissolve. Dissolution and Winding-up are different lexicons used for different purposes which will be discussed in the article at length. Moreso, embarking with a basic overview of the terms ‘Winding-up’ & ‘Dissolution’, this article takes its route through legal implications, detailed step-by-step procedure and grounds of Winding-up and dissolution alongwith the concerning rules, regulations, statutes & precedents. Further, this article will enumerate the list of documents required for the Winding-up and dissolution of the company.

Additionally, this article aims to subsume the Compulsory Winding-up in pursuance to order of the Court and Voluntary Winding-up in depth.

Introduction

मात्रास्पर्शास्तु कौन्तेय शीतोष्णसुखदुः खदाः |

आगमापायिनोऽनित्यास्तांस्तितिक्षस्व भारत ||14||

~Shri Krishna; Bhagwat Geeta 2.14

Madhav while addressing Arjun, says, “Hey Parth, the contact between the senses and the sense objects gives rise to fleeting perceptions of happiness and distress. These are non-permanent and come and go like the winter and summer seasons. O descendant of Bharat, one must learn to tolerate them without being disturbed.” The sum and substance of this shloka is “Nothing lasts forever”, everything which was started, will come to an end, some or other day,[1] likewise despite the company having the feature of perpetual succession, there are time come when the company come to an end. It can happen to possible on manifold reasons. Winding-up and dissolution of a company is governed by the provisions of Bankruptcy and Insolvency Code, 2016 and the Companies Act, 2013. Insofar as the jurisdiction concerned, National Company Law Tribunal (“NCLT”) and National Company Law Appellate Tribunal (“NCLAT”) are the bodies which look after such matters.

Winding-up and Dissolution

Albeit, these lexicons are used in the same sense, significant to mention here that these lexicons have different meaning and are a part of the same transaction. Winding-up is a process of taking the life of the company to the end, in which the company cease to carry normal business, a liquidator is appointed and assigned to sell the assets, and pay off debt and liability, thereafter if some surplus is left, it will be distributed the members in proportion to their respective shares, whereas, dissolution is generally a subsequent stage of Winding-up, where, company lost its state of existence which was formed by the law. The process of Winding-up can be initiated with the order of the Court or with a resolution passed for voluntary Winding-up.  

Modes of Winding-up & Dissolution

Winding-up can also be done in two ways, i.e.

Compulsory Winding-up

It ensues when the tribunal passes an order to wind up the company. It can happen to be possible by the reasons like-

• If the manner in which the company formed, is fraudulent
• If the company failed in paying off the debts
• If it is just and equitable in view of tribunal to wind up the company
• If the company is declared bankrupt as per the Insolvency and Bankruptcy Code.
• If the company defaults in filing its annual returns or financial statement for the preceding five consecutive financial years with the ROC
• Most importantly, if the act of the company is against the interests of the integrity and sovereignty of India, public order and security of the state, morality or decency.[2]

Voluntary Winding-up 

It ensues when the company is wound up in pursuance to the general or special resolution passed therein itself and a liquidator is appointed therefor. The reasons may be-

• Expiry of period for its duration fixed by its articles, or
• Occurrence of an event in respect of which articles specifically provide to wind up the company.[3]

Procedure for Winding-up of Company

In case of compulsory Winding-up, at the very outset, 

• A petition for Winding-up has to be filed before the Tribunal in Form WIN 1 or WIN 2, accompanied with an affidavit in Form WIN 3, by the company itself or by creditors of the company or by any other stakeholder or by the Central Government or the State Government or by registrar itself on behalf of the company.[4] Further, Petition is required to be accompanied with statement of affairs of the company (updated; not older than 30 days). It is to be submitted in the format of Form Win 4 (Only if the petition is filed by company itself). The statement of affairs must be accompanied with an affidavit to be submitted in Form WIN 5.[5]
• In case where the petition is filed by creditors or someone else, mentioned supra, before admission, if the Tribunal is of the opinion that there is a prima facie case, then the Tribunal shall grant its leave for admission. The Tribunal may also ask for the security cost to the extent that the Tribunal thinks reasonable. After the admission, the Tribunal may order the company to file its statement of affairs alongwith its objections within 30 days in the manner prescribed supra.[6]
• Thereafter, an advertisement has to be published in English and vernacular language in regard to the notice of the petition within 14 days before the date fixed for hearing in any daily newspaper (subject to any directions of the Tribunal). The format of the advertisement should be Form WIN 6. [7]
• On the bedrock of the official proof through the affidavit so furnished, an insolvency professional, registered under the Insolvency and Bankruptcy Code, 2016, shall be appointed by the Tribunal as liquidator.[8] In case when the petition is filed by someone other than the company, intimation regarding the appointment of the liquidator shall be given to the company in Form WIN 7. The notice of such appointment shall be sent by the registrar of companies to the official liquidator in the format of Form WIN 9 within 7 days of the order. 
• After the due appointment of the Liquidator, he shall forthwithly take into his custody or control all the concerning documentation, actionable claims, books, papers & other properties or assets of the company.
• After the Winding-up of the company, the Liquidator shall prepare a final report and furnish before the Tribunal for passing the order of dissolution of the company. [9] An application is also required to be furnished by the Liquidator before the Tribunal pertaining to the dissolution of the company, upon which the Tribunal, after ascertaining it as just and reasonable, shall pass an order of dissolution of the company.[10]

In case of voluntary Winding-up,

• The company has to pass a resolution in a general meeting or a special resolution for voluntary Winding-up of the company for supra given reasons i.e. Expiry of the period for its duration fixed by its articles, or occurrence of an event in respect of which articles specifically provide to wind up the company and liquidator will be appointed by the company therefor.[11] 
• A declaration has to be made by the director(s) in regards to the Winding-up of the company, as to the directors are of the opinion that the company has no debt or whether it will pay off its debt in full from the proceeds of assets sold in voluntary Winding-up, in the meeting of the board and same declaration is required to be verified by the affidavit. [12]
• After completion of the tasks handed over to the liquidator, the liquidator will prepare a report pertaining to the disposition of property and assets of the company along with the discharge of liabilities thereto and will submit the same before the general meeting of the company called up by him. On the satisfaction of the majority of members, a resolution will be passed for dissolution.
• Within 2 weeks of the meeting, an application will be filed in court along with the said report by the liquidator before the Tribunal for passing an order of dissolution of the company. If the Tribunal is satisfied as to the winding of the company is just and fair, the Tribunal will pass an order for dissolution of the company within 60 days of the receipt of the said application. [13]

In three ways, a company can be dissolved, i.e.

1. a company may be dissolved in compliance to the order of the Court without being wound up for the purpose of reconstruction and amalgamation;[14]
2. the Registrar may remove the name from the register of companies when the company becomes a defunct company;[15]
3. by the process of Winding-up.

Documents required 

The following necessary papers are required for Winding-up a Company:

• Ministry of Corporate affairs certificate of Incorporation of the company
• MOA and AOA of the company
• NOC of bank for closure of bank account of the company
• Copy of the Board Resolution
• Copy of the resolution of the creditors 
• Statement of Accounts of the Company
• Winding-up Petition (Form WIN 1 or WIN 2)
• Statement of Affairs (Form WIN 4)
• Affidavit of Concurrence (Form WIN 5)
• Advertisement (Form WIN 6)
• Appointment of  Liquidator (Form WIN 7 and WIN 8)
• Procedure for Winding-up a defunct or Dormant Company (Form STK-2) 16]

Judicial Track (case laws)

Re Prudential Capital Markets v. Unknown

In this case Court decided that if once petition has been moved to the Court, the Company, in respect of Winding-up and dissolution of which the petition is moved, won’t be allowed to carry out any attachment, distress, or execution of estate sans the leave of the Court. If happens so, such a transaction would be considered invalid on account Court’s consideration that the procedure of Winding-up has been stated from the moment the petition was moved to the Court. The Court will consider the bona fide intention and absence of knowledge as to such petition has been moved in the Court while taking any action against the noncompliance of this rule.

GT Swami v. Good Luck Agencies

Hither, on the ground that the real firm had been wound up due to a name-related err, the Court allowed the revocation of the Winding-up order and restored the business status.

Narendra BahudurTondon v. Shankar Lal

As in the case of Re Prudential Capital Markets v. Unknown decided, the Court allowed the company to dispose the property, file legal claims, transfer the shares, or change the status of the members, but provided that the permission of the Court is must to be taken.[17]

Conclusion

The process of Winding-up and dissolution of a company is governed by intricate legal frameworks, including the Bankruptcy and Insolvency Code, 2016, and the Companies Act, 2013. Despite a company’s characteristic of perpetual succession, circumstances may arise that necessitate its cessation through due legal process. Most people don’t know that the terms ‘Winding-up’ & ‘dissolution’ which commonly used together or interchangeably, are different from each other. Dissolution can be stratified as a subsequent stage of Winding-up. Moreover, discussion in this article has touched upon key judicial precedents, shedding light on the complexities and nuances involved in the Winding-up process. These cases underscore the significance of legal compliance and the role of the court in overseeing the orderly dissolution of companies.

In essence, the Winding-up and dissolution of a company represent the culmination of its lifecycle, subject to legal formalities, judicial oversight, and adherence to statutory requirements. As companies navigate through these procedures, they must ensure compliance with relevant laws and regulations while safeguarding the interests of stakeholders and creditors.

Reference

[1] This blog was originally written by Puraan Katha, published on Speekingtree website. The link for the same is; https://www.speakingtree.in/blog/nothing-is-permanent-784630

[2] S. 271, the Companies Act, 2013; & S. 433 in the Companies Act, 1956.

[3] S. 304, the Companies Act, 2013

[4] S. 272 (1), ibid, read with rule 3 of the Companies (Winding-up) Rules, 2020.

[5] S. 272 (5), ibid, read with rule 4 of the Companies (Winding-up) Rules, 2020.

[6] S. 272 (6) & S. 274 (1), ibid, read with rule 4 of the Companies (Winding-up) Rules, 2020.

[7] S. 306, ibid, read with rule 7 of the Companies (Winding-up) Rules, 2020

[8] S. 273(1)(c), ibid, read with rule 14(6) of the Companies (Winding-up) Rules, 2020.

[9] S. 277(8), ibid.

[10] S. 302, ibid.

[11] S. 304 & S. 310, ibid.

[12] S. 305, ibid.

[13] S. 318, ibid.

[14] S. 394, ibid. 

[15] S. 560, ibid.

[16] This article was originally published on Enterslice website. The link for the same is; https://enterslice.com/winding-up-of-a-company 

[17] This article was originally written by Anchal, published on Aklegal website. The link for the same is; https://aklegal.in/petition-for-voluntary-winding-up-of-companies/