This article is written by Shambhavi Shree, a student of KIIT School of Law, Bhubaneswar (4th year). In this article, I am dealing with Winding Up of a Company under the Company’s Act, 2013 and Insolvency and Bankruptcy Code, 2016.
Companies Act, 2013
Section 2(94A) of Companies Act, 2013 means winding up under this act or liquidation under the Insolvency and Bankruptcy Code, 2016. It states that the company is dissolved by the liquidator to pay off its debts. In this the assets are released, liabilities are paid off and the surplus is distributed among its members. A company can be Private Limited Company, Public Limited Company as well as a One-Person Company.
Companies Act, 2013 can be divided into four parts:
PART I-Section 270-303
PART II-Section 304-323 [Replaced by Insolvency and Bankruptcy Code, 2016]
PART III-Section 324-358
PART IV-Section 359-365
- A company can now be wound up under this act only by the Tribunal.
Reasons for winding up of a company
- The company’s objective for its establishment has been fulfilled.
- The company is incapable to carry business.
- Death of promoters.
- The company is unable to pay its creditors.
- The company disposes of its business to another company or an individual.
What are the grounds and circumstances in which company may be wound up by the Tribunal?
- Compulsory winding up by the Tribunal under Section 271 of the Companies Act, 2013 can be applicable on five grounds-
- Special resolution
- Sovereignty and integrity
- Fraudulent activity
- The annual and financial return
- Just and equitable
Who can file a petition for winding up?
- Section 272 of the Company’s Act, 2013 states that petition to be filed to National Company Law Tribunal (NCLT) by:
- Both or either
- Registrar of companies (ROC)
- A person authorized by the Central Government
- Central Government or State Government
What are the powers of Tribunal?
- Section 273 of the Company’s Act, 2013 states the tribunal to make decisions stated below within 90 days.
- Dismiss with or without cost.
- NCLT can make an order for winding up with or without cost.
- If the NCLT thinks fit, can go for an interim order.
- If NCLT thinks fit then he has the power to appoint a provisional liquidator to check the financial statements, assets, and liabilities, etc.
- Any other order as NCLT thinks fit.
- Section 274 talks about the directions for filing the statement of affairs. Firstly the company is entitled to prepare the list of assets and liabilities and then gives details about books of accounts within 30 days.
- According to Section 277 company has to establish a winding-up committee which is-
- Secured creditor
- Official liquidator
- A liquidator has to submit a preliminary report to NCLT within 60 days as stated under Section 281. The preliminary report includes assets, liabilities, paid-up share capital, receivables, guarantees, intellectual rights, contracts, details of the fraud, viability, list of contributory, etc.
Who is a liquidator?
- A liquidator is a person appointed by the Tribunal who manages the entire assets of the company when it is in a winding-up position.
Powers and duties of a liquidator
Section 290 of the Company’s Act, 2013 and Section 35 of the Insolvency and Bankruptcy Code, 2016 states the powers and duties of a liquidator:
- to carry business.
- pay creditors.
- sell assets.
- raise loans.
- execute deeds.
- approach NCLT.
- to protect and preserve the assets.
- if required can take help from adjudicating authority.
- obtain professional assistance.
- to deal with the legal heir of deceased contributory.
- and to perform such other functions.
- Section 292 states that if the liquidator is not calling a meeting then 10% of the creditors and 10% of the contributor consults the liquidator to call for a mandatory meeting.
- Section 292(4) states that any aggrieved person may apply to the tribunal against the liquidator.
- If there is a need to end the corporation or to dissolve the company then the liquidator is entitled to give application to NCLT as per Section 302 of the Company’s Act, 2013.
- Section 329 refers to the situation when the transfer is not in good faith then the liquidator informs the tribunal and the tribunal takes all such assets into their custody.
- If an officer of a company at the time of winding-up sells the assets then he shall be liable with a minimum imprisonment of 3 years which may extend to 5 years and with fine ₹1 lakh-₹3 lakhs which may further extend to ₹3 lakhs-₹5 lakhs.
- Section 356 of this act states that the tribunal has the power to declare dissolution of a company void within 2 years of dissolution. In case the Registrar of Company thinks fit then they can regenerate the company.
- Any creditor who is not satisfied with the liquidator can apply to the Central Government under Section 364.
- Section 365 states that the dissolution of a company has to be consented by the Central Government and the tribunal.
Insolvency and Bankruptcy Code, 2016
It received the assent of the President of India on 28th May 2016 was established in October 2016 and its headquarter is in New Delhi.
Insolvency and Bankruptcy Code, 2016 is divided into five parts-
PART I-Preliminary (Section 1-3)
PART II-Insolvency of corporate forums (Section 4-77)
i) Resolution insolvency process
ii) Liquidation insolvency process
iii) Fast track insolvency process
iv) Voluntary insolvency process
PART III-Insolvency and individual partnership (Section 78-187)
PART IV-Insolvency entities (Section 188-223)
PART V-Miscellaneous provisions (Section 224-255)
- A company can be wound up under this code in two ways:
- By court
- Voluntary winding up
Advantages of Insolvency and Bankruptcy Code, 2016
- Sick Industrial Companies Act (SICA) is removed and solvency was taken by Insolvency and Bankruptcy Code.
- There are two phases of the insolvency:
a) Resolution process (Section 6-32)
i) Interim Resolution Professional (IRP)
ii) Resolution Professional (RP)
b) Liquidation process (Section 33-54)
3. The control is with the Committee of Creditors (COC). If COC gives 66% voting rights then only is passed.
4. It pronounces insolvency of all different persons that is individuals, firms, corporate, etc.
5. There are two types of creditors:
a) Financial Creditor (FC)
b) Operational Creditor (OC)
6. It establishes a central database which is Information Utility (IU) for complete transparency during insolvency.
- 1 Chairperson
- 3 members from Central Government
- 1 person nominated by Reserve Bank of India (RBI)
- 3 members nominated by Central Government
Eligibility (Regulation 5)
- He/she passed the Limited Insolvency Exam (LIE) in the last 12 months.
- He/she has completed a pre-registration educational course from an Insolvency Professional Agency (IPA).
- He/she has completed any of the following:
a) 10 years experience as a Chartered Accountant (CA), Company’s Secretary (CS), and Certified Management Accountant (CMA) or
b) 15 years experience in management after receiving a bachelor degree or
c) Completed National Insolvency Programme (NIP) or
d) Completed Graduate Insolvency Programme (GIP).
- The minimum amount of default under section 4 of Insolvency and Bankruptcy Code, 2016 is ₹1 lakh and can be extended by the Central Government up to ₹1 crore.
- Section 7, 9, and 10 of the code states that the financial creditor, operational creditor, and the company itself can file an application known as initiation date to NCLT. The tribunal within 14 days has to appoint Interim Resolution Professional (IRP) and the date in which it is appointed is known as the commencement date.
Powers of Interim Resolution Professional (IRP)
Section 17 of the Insolvency and Bankruptcy Code, 2016 states the powers of IRP:
- Manage the corporate debtor business.
- Exercise powers of the board of directors or management of corporate debtors.
- Reporting of business.
- Instructions to the Financial Institution (FI) like banks.
Duties of Interim Resolution Professional (IRP)
- To collect information about a corporate debtor.
- To constitute Committees of Creditors (COC).
- To monitor assets of the corporate debtor and manage its operations.
- To perform duties specified by Insolvency and Bankruptcy Board of India (IBBI).
- To control assets of corporate debtors.
Who Applies before NCLT for Insolvency?
- Section 7 states that the financial creditor along with the other financial creditors gives application to adjudicating authority along with the necessary documents. Now adjudicating authority will identify if there is any default and whether there is pending of disciplinary proceedings within 14 days of receipt. If there is any default then adjudicating authority will reject by giving notice to the financial creditor within 7 days of receipt of the notice. But in case there is no default then within 7 days of application adjudicating authority will intimate it to the applicant and the corporate debtor (defaulting person).
- British Water Gas Syndicate V. Notts Derby Water Gas Co. Ltd. (1889)
If members of the company want to wound up then they can do so by passing a special resolution.
- West Hills Realty Private Ltd. and Ors V. Neelkamal Realtors Tower Private Ltd. on 23rd December 2016
The Hon’ble High Court stated that the petitions which are at the pre-admission stage and have not been served on the respondent will be transferred to the Tribunal.
- Allan Ellis (Transport and packing) Services, Re (1989)
If a voluntary liquidator of three companies failed to fulfill the requirements or court orders were disobeyed under section 551 of the Company’s Act, 2013 then they shall be liable with 3 months of imprisonment.
- Bidyut Baran Bose V. Official Liquidator 535(1980) 151 Cal
In this, the property of the company was sold and the possession was delivered within 1 year of the commencement of winding up of the company. The transaction and the deed were not done in good faith therefore it was held that the transaction is void ab initio under Section 531 A and 536(2) of the Company’s Act, 2013.
- Pabna Dhanbhandar Co. Ltd., Re (488 1936)6 CC 425 (Cal)
In this case, it was held that the maintenance of a bank account is an integral part of carrying on liquidation.
- Madras Provincial Co-operative Bank V. Official Liquidator, South Indian Match Factory (1944)14 CC 228
The bank in which the liquidator deposits the cheque then that bank shall have the notice of liquidators duty. If there is any negligence on part of the liquidator then the bank is liable to pay the loss.
 British Water Gas Syndicate V. Notts Derby Water Gas Co. Ltd (1889)
 West Hills Realty Private Ltd. And Ors V. Neelkamal Realtors Tower Private Ltd. on 23rd December 2016
 Allan Ellis (Transport and packing) Services, Re (1989)
 Bidyut Baran Bose V. Official Liquidator 535(1980) 151 Cal
 Pabna Dhanbhandar Co. Ltd., Re (488 1936)6 CC 425 (Cal)
 Madras Provincial Co-operative Bank V. Official Liquidator, South Indian Match Factory (1944)14 CC 228
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