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European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
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March 2019
Available online: https://ejbss.org/ P a g e | 962
An Analytical Study Of Winding Up Of A Company, The Insolvency And Bankruptcy
Code, 2016
Pulkit
Research Scholar
Department of Law, University of Allahabad
The entire procedure for bringing a lawful end to life of company is divided into two stages.
These two stages are winding up and dissolution. Winding up of company is defined as a process
by which the life of a company is brought to an end and its property administered for benefit of
its members and creditors.1
It is the last stage, putting an end to life of a company. The main
purpose of winding up is to realize the assets and make the payments of company’s debts fairly.
Thus, winding up is the process by which management of a company’s affairs is taken out of its
directors, its assets are realized by a liquidator and its debts are discharged out of proceeds of
realization.2
Winding up by the Court
Winding up by the court or compulsory winding up is initiated by application by way of petition
to appropriate Court for a winding up order. Section 10 of the Companies Act, 1956 deals with
the jurisdiction of for entertaining winding up petition.3
The High court has jurisdiction in relation to the place at which the registered office of the
company is situated, or
The District Court in which jurisdiction has been vested either by the Act or by notification of
Central Government.
GTC Industries Ltd v. Parasrampuria Trading, it was held that only High Court where the
registered office is situated has jurisdiction in winding up, even if there was agreement between
parties will be resolved before High Court where registered office is not situated.
Circumstances in which company may be wound up by the court
Section 433 of the Companies Act, 1956 provides for the circumstances in which company can
be wound up-
1
Steven N. Taieb (2014), Filing for bankruptcy, archived from the original on 18 April 2014
2
"Liquidate your limited company". Gov.uk. Crown. Retrieved 30 July 2014.
3
IIC 2000, p. 8
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If the company has resolved that the company be wound up by the Court by passing special
resolution; or
If the company has defaulted in delivering the statutory report to the Registrar or in holding the
statutory meeting; or
If the company does not commence its business within a year from its incorporation, or suspends
its business for a whole year; or
The number of its members in public company is reduced below seven and in private company
below two; or
The company is not able to pay the debts; or
The Court is of the opinion that company should be wound up on just and equitable grounds; or
The company has defaulted in filing balance sheet or annual return with the Registrar for any 5
consecutive years; or
If the act of the company goes against the interests of sovereignty, integrity and security of India,
friendly relation with foreign states, public order, decency or morality; or
Inability to pay debts – A company shall be deemed to be unable to pay its debts when the
creditor has served on the company a demand in writing for payment of the debt, which is more
than Rs. 500 and company has within three weeks thereafter, neglected to pay or secure or
compound for it to the reasonable satisfaction of the court.4
Just & Equitable Grounds – Court has complete discretion to decide just & equitable grounds
for winding up of a company. Some of the grounds on which court ordered the winding up of
company under this clause,5
Winding up subject to supervision of the Court (Omitted)
In this winding up process, court can only supervise the procedure. In a general meeting, the
resolution for winding up is passed and court may put some general terms. It must be proved by
petitioner that winding up cannot continue with fairness and then an additional liquidator along
with existing liquidator may be appointed by the Court.6 A report regarding the progress of
liquidation must be filed every 3 months with the Registrar by the Liquidator. The court has
power to appoint and remove the liquidator. The court also has the power to enforce calls made
4
"Bankruptcy and Insolvency Act, S. 213
5 Telfer, Thomas G. W.; Welling, Bruce L. (2008). "The Winding-Up and Restructuring Act: Realigning
Insolvency's Orphan to the Modern Law Reform Process". Banking & Finance Law Review. 24: 233–268.
6
"The Winding-up and Restructuring Act: Recommendations for Reform"
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European Journal of Business &
Social Sciences
Available at https://ejbss.org/
ISSN: 2235-767X
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March 2019
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by Liquidator as if order for winding up the company has been made by court itself. The
Liquidator can do all such acts as he thinks best in the interest of the company.7
Winding up under Companies Act, 2013
There are two modes of winding up under the Companies Act, 2013 provides for the provisions
relating to commencement of winding up.
Winding up by Tribunal
National Company Law Tribunal can be initiated by an application by way of petition for
winding up order.
It should be resorted to only when other means of healing an ailing company are of absolutely no
avail.
Remedies are provided by the statute on matters concerning the management and running of the
company.
It is primarily the NCLT which has jurisdiction to wind up companies under the Companies Act,
2013.
There must be strong reasons to order winding up as it is a last resort to be adopted.
Winding-Up of Unregistered Companies:
According to Sec. 582, the expression ‘unregistered company:
(a) shall not include:
(i) A railway company incorporated by any Act of Parliament of the U.K.;
(ii) A company registered under this Act; or
(iii) A Company registered under any previous companies’ law and not being a company the
registered office whereof was in Burma (Myanmar), Aden, or Pakistan immediately before the
separation of that country from India, and
(b) Save as aforesaid, shall include any partnership, association or company consisting of more
than 7 members at that time when the petition for winding-up the partnership, association, or
company, as the case may be, is presented before the Court.
7 NCLT ok ays first insolvency resolution scheme under IBC, Live Mint, 2017
