“Winding up is a means by which the dissolution of a company is brought about and its assets are realised and applied in the payment of its debts. After satisfaction of the debts, the remaining balance, if any, is paid back to the members in proportion to the contribution made by them to the capital of the company.” “The liquidation or winding up of a company is the process whereby its life is ended and its property is administered for the benefit of its creditors and members. An Administrator, called a liquidator, is appointed and he takes control of the company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their rights.” As per Section 2(94A) of the Companies Act, 2013, “winding up” means winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016. Thus, winding up ultimately leads to the dissolution of the company. In between winding up and dissolution, the legal entity of the company remains and it can be sued in a Tribunal of law.. Winding up of accompany is a process of putting an end to the life of a company. It is a proceeding by means of which a company is dissolved and in the course of such dissolution, its assets are collected, its debts are paid off out of the assets of the company or from contributions by its members, if necessary. If any surplus is left, it is distributed among the members in accordance with their rights. In winding up administrator called liquidator is appointed and he takes control of the company, collects its debts and finally distributes any surplus among the members in accordance with their rights.Winding up of a company is defined as a process by which the life of a company is brought to an end and its property administered for the benefit of its members and creditors. In words of Professor Gower, “Winding up of a company is the process whereby its life is ended and its Property is administered for the benefit of its members & creditors. An Administrator, called a liquidator is appointed and he takes control of the company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their rights.”
As per section 270 of the Companies Act 2013, the procedure for winding up of a company can be initiated either:
a) By the tribunal or b) Voluntary.
1. When the company is unable to pay its debts 2. If the company has by special resolution resolved that the company be wound up by the tribunal. 3. If the company has acted against the interest of the integrity or morality of India, security of the state, or has spoiled any kind of friendly relations with foreign or neighboring countries. 4. If the company has not filled its financial statements or annual returns for preceding 5 consecutive financial years. 5. If the tribunal by any means finds that it is just & equitable that the company should be wound up. 6. If the company in any way is indulged in fraudulent activities or any other unlawful business, or any person or management connected with the formation of company is found guilty of fraud, or any kind of misconduct.
Section 272 provides that a winding up petition is to be filed in the prescribed form no 1, 2 or 3 whichever is applicable and it is to be submitted in 3 sets. The petition for compulsory winding up can be presented by the following persons:
a) The company b) The creditors; or c) Any contributory or contributories d) By the central or state govt. e) By the registrar of any person authorized by central govt. for that purpose.
The tribunal after hearing the petition has the power to dismiss it or to make an interim order as it think appropriate or it can appoint the provisional liquidator of the company till the passing of winding up order. An order for winding up is given in form 11.
b) Voluntary winding up of a company: The company can be wound up voluntarily by the mutual decision of members of the company, if: a) The company passes a Special Resolution stating about the winding up of the company. b) The company in its general meeting passes a resolution for winding up as a result of expiry of the period of its duration as fixed by its Articles of Association or at the occurrence of any such event where the articles provide for dissolution of company.
1. Conduct a board meeting with 2 Directors and thereby pass a resolution with a declaration given by directors that they are of the opinion that company has no debt or it will be able to pay its debt after utilizing all the proceeds from sale of its assets.
2. Issues notices in writing for calling of a General Meeting proposing the resolution along with the explanatory statement.
3. In General Meeting pass the ordinary resolution for the purpose of winding up by ordinary majority or special resolution by 3/4th majority. The winding up shall be started from the date of passing the resolution.
4. Conduct a meeting of creditors after passing the resolution, if majority creditors are of the opinion that winding up of the company is beneficial for all parties then company can be wound up voluntarily.
5. Within 10 days of passing the resolution, file a notice with the registrar for appointment of liquidator.
6. Within 14 days of passing such resolution, give a notice of the resolution in the official gazette and also advertise in a newspaper.
7. Within 30 days of General meeting, file certified copies of ordinary or special resolution passed in general meeting.
8. Wind up the affairs of the company and prepare the liquidators account and get the same audited.
9. Conduct a General Meeting of the company.
10. In that General Meeting pass a special resolution for disposal of books and all necessary documents of the company, when the affairs of the company are totally wound up and it is about to dissolve.
11. Within 15 days of final General Meeting of the company, submit a copy of accounts and file an application to the tribunal for passing an order for dissolution.
12. If the tribunal is of the opinion that the accounts are in order and all the necessary compliances have been fulfilled, the tribunal shall pass an order for dissolving the company within 60 days of receiving such application.
13. The appointed liquidator would then file a copy of order with the registrar.
14. After receiving the order passed by tribunal, the registrar then publish a notice in the official Gazette declaring that the company is dissolved.
Effect of Winding up by tribunal (Sec. 279): According to this section, the order for winding up of a company shall operate in favour of all the creditors and all contributories of the company as if it had been made out or the joint petition of creditors and contributories.
Effect of voluntary winding up (Sec. 309): In the case of a voluntary winding up, the company shall from the commencement of the winding up cease to carry on its business except as far as required for the beneficial winding up of its business. The corporate state and corporate powers of the company shall continue until it is dissolved.
Statutory Liability: A director of a company has certain fiduciary duties and Section 166 of the Companies Act, 2013 lays down the duties of a director which inter alia provides that a director shall act in good faith and exercise his duties with reasonable care, skill and diligence. He shall not carry out any activity which may provide undue gain and advantage to him or his relatives. It is further laid down in Section 250 of the Companies Act, 2013 that once a company is dissolved under the strike off procedure it shall cease to operate as a company except for the purpose of realising the amount due to the company and for the payment or discharge of the liabilities or obligations of the company. Therefore the liability, if any, of every director, manager or other officer who was exercising any power of management, and of every member of the company dissolved, shall continue and may be enforced as if the company had not been dissolved. Further Section 339 of the Companies Act, 2013, inter alia, lays down that if in the course of the winding up of a company, it appears that any business of the company has been carried on with intent to defraud creditors of the company or any other persons or for any fraudulent purpose, the Tribunal may, if it thinks it proper so to do, declare that any person, who is or has been a director, manager, or officer of the company or any persons who were knowingly parties to the carrying on of the business in the manner aforesaid shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Tribunal may direct. Therefore, if the business is carried on for fraudulent purposes or a fraud is found out, then the director who is responsible for carrying on the business shall be held personally liable.
Income Tax Liability: Section 179 of the Income Tax Act 1961 provides that when any private company is wound up and the tax assessed cannot be recovered, then every person who was a director of the private company during the relevant previous year shall be jointly and severely liable for the payment of such tax. It is for the directors to then prove that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on their part in relation to the affairs of the company.
Contractual Liability: A director may be considered as an agent of the company who enters into a contract on behalf of a company. Therefore, the ordinary principle of agency shall be applicable and a director generally cannot be held personally liable on a contract unless expressly provided for or where he has provided personal guarantee for performance of a contract. Also, apart from this when any breach of contract takes place, a director should be able to prove that he has acted honesty and diligently in discharge of his duties and has not committed any fraud or breach of trust.
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