Winding Up Of Company
Introduction
Winding up of a company is the stage, where by the company takes its last breath. It is a process by which business of the company is wound up, and the company ceases to exist anymore. All the assets of the company are sold, and the proceedings collected are used to discharge the liabilities on a priority basis.
MODES OF WINDING UP
There are three ways, in which a company may be wound up. They are:
Winding up by the court.
Voluntary winding up.
Members Voluntary winding up.
Creditiors Voluntary winding up.
Winding up subject to supervision of the court.
Winding up by Court
A company may be wound up by the court in following situations. Here, the court means "High Court".
If the company itself, has passed a special resolution in the general meeting to wound up its affairs. Special resolution means, resolution passed by three-fourth (3/4") of the members present.
If there is a default, in holding the statutory meeting or in delivering the statutory report to the Registrar.
A company which is limited by shares, and a company limited by guarantee having share capital, is required to hold a " Statutory meeting" of its members, within six months, and after one month, from the date of commencement of it's business. A statutory report of the meeting so held shall also be forwarded to the registrar. [ sec 165 (1) & (5)]
If the company fails to commence it's business within one year from the date of it's incorporation, or suspends it's business for a whole year.
A company limited by shares, has to obtain a "certificate of commencement" of business from the registrar. Unless it obtains such certificate, it cannot carry on it's business operation.
If the number of members, in a public company is reduced to less than seven, and in case of private company less than two.
The statutory requirement of minimum number of members in a public company is seven, and in case of private company, it is two (sec 12)
If the company is unable to pay its debits; where the financial position of the company is, such, that it has more liabilities than assets, and after disposing off the assets, it is still unable to extinguish it's liabilities, it means that company is unable to pay it's debts.
If the court, itself is of the opinion that the company should be wound up.
The court may form such an opinion, if it comes to the knowledge of court that, the company is mismanaged, or financially unsound, or carrying an illegal operations etc.
RELEVANT POINTS
WHO CAN APPLY TO COURT, FOR WINDING UP PETITION ? ( SEC 439)
Following persons can apply to the court, for petition for winding up:
The company itself
The creditor
Any Contributory
Registrar
Any person authorised by central government, in case of oppression or mismanagement (397)
WHAT ORDERS, THE COURT MAY PASS? (SEC 443)
The court may pass any one of the following orders on hearing the winding up petition.
Dismiss it, with or without costs
Make any interim order, as it thinks fit, or
Pass an order for winding up of the company with or without costs.
Consequences of court passing an order for winding up:
If the court is satisfied, that sufficient reasons exist in the petition for winding up, then it will pass a winding up order. Once the winding up order is passed, following consequences follow:
Court will send notice to an official liquidator, to take change of the company. He shall carry out the process of winding up, ( sec. 444)
The winding up order, shall be applicable on all the creditors and contributories, whether they have filed the winding up petition or not.
The official liquidator is appointed by central Government ( sec. 448)
The company shall relevant particulars, relating to, assets, cash in hand, bank balance, liabilities, particulars of creditors etc, to the official liquidator. ( sec. 454)
The official liquidator shall within six months, from the date of winding up order, submit a preliminary report to the court regarding:
Particulars of Capital
Cash and negotiable securities
Liabilities
Movable and immovable properties
Unpaid calls, and
An opinion, whether further inquiry is required or not ( 455)
The Central Govt. shall keep a cognizance over the functioning of official liquidator, and may require him to answer any inquiry. (463)
STAY ORDER
Where, the court has passed a winding up order, it may stay the proceedings of winding up , on an application filed by official liquidator, or creditor or any contributory. (466)
DISSOLUTION OF COMPANY (481)
Finally the court will order for dissolution of the company, when:
the affairs of the company are completely wound up, or
the official liquidator is unable to carry on the winding up procedure for want of funds.
APPEAL : 483
An appeal from the decision of court, will lie before that court, before whom, appeals lie from any order or decision of the former court in cases within it's ordinary jurisdiction.
Voluntary Winding up
A company may , voluntary wind up it's affairs, if it is unable to carry on it's business, or if it was formed only for a limited purpose, or if it is unable to meet it's financial obligation, and etc. A company may voluntary wind up itself, under any of the two modes:
Members voluntarily winding up
Creditors voluntarily winding up
A company may voluntarily wind up itself, either by passing:
An ordinary resolution, where the purpose for which the company was formed has completed, or the time limit for which the company was formed, has expired.
Or
By way of special resolution
Both types of resolution shall e passed in the general meeting of the company. (484)
Once the resolution of voluntarily winding up is passed, then the company may be wound up, either through:
Members voluntarily winding up, or
Creditors voluntarily winding up
The only difference between the abate two, is that in case of members voluntarily winding up, Board of Directors have to make a declaration to the effect, that company has no debts. (488)
MEMBERS VOLUNTARILY WINDING UP
Directors of the company shall call for a Board of Directors Meeting, and make a declaration of winding up, accompanied by an Affidavit, stating that:
The company has no debts to pay, or
The company will repay it's debts; if any, within 3 years from the commencement of winding up, as specified in declaration (488)
Who shall carry out the winding up procedure? & What shall be the procedure?
The company shall appoint one or more liquidators, in a general meeting, who shall look after the affair of winding up procedure, and distribution of assets. [490 (1)]
The liquidator so appointed, shall be paid remuneration for his services, which shall also be fixed in general meeting [490 (2)]
The company shall also give notice of appointment of liquidator to the registrar within ten days of appointment (493)
Once the company has appointed liquidator, the powers of Board of Directors, Managing Director, and Manager, shall cease to exists. (491)
The liquidator is generally given a free hand, to carry out the winding up procedure, in such a manner, as he thinks best in the interest of creditors, and company.
In case, the winding up procedure, takes more than one year, then liquidator will have to call a general meeting, at the end of each year, and he shall present, a complete account of the procedure, and position of liquidator (496)
When affairs of the company are fully wound up
The liquidator shall take the following steps, when affairs of the company are fully wound up: (497)
Call a general meeting of the members of the company, a lay before it, complete picture of accounts, wining up procedure and how the properties of company are disposed of.
The meeting shall be called by advertisement, specifying the time, place and object of the meeting.
The liquidator shall send to, the Registrar and official Liquidator copy of account, within one week of the meeting.
If from the report, official liquidator comes to the conclusion, that affairs of the company are not being carried in manner prejudicial to the interest of it's members, or public, then the company shall be deemed to be dissolved from the date of report to the court.
However, if official liquidator comes to a finding, that affair have been carried in a manner prejudicial to interest of member or public, then court may direct the liquidator to investigate furthers.
CREDITORS VOLUNTARILY WINING UP
Where the resolution for winding up has been passed, but the Board of Directors are not in a position to give a declaration on the liability of company, they may call a meeting of creditors, for the purpose of winding up. (500)
It is the duty of Board of Directors, to present a full statement of company's affairs, and list of creditors alongwith their dues, before the meeting of creditors. [500 (3)]
Whatever resolution, the company passes in creditor's meeting, shall be given to the Registrar within ten days of it's passing. (501)
Who shall carry out the winding up procedure ? & At shall be the procedure ?
Company in the general meeting [in which resolution for winding up is passed] , and the creditors in their meeting, appoint liquidator. They may either agree on one liquidator, or if two names are suggested, then liquidator appointed by creditor shall act. (502)
Any director, member or creditor may approach the court, for direction that:
Liquidator appointed in general meeting shall act, or
He shall act jointly with liquidator appointed by creditor, or
Appointing official liquidator, or
Some other person to be appointed as liquidator. [502 (2)]
The remuneration of liquidator shall be fixed by the creditors, or by the court. (504)
On appointment of liquidator, all the power of Board of Directors shall cease. (505)
In case, the winding up procedure, takes more than one year, then he will have to call a general meeting, and meeting of creditors, at the end of each year, and he shall present, a complete account of the procedure, and the status / position of liquidation (505).
When affairs of the company are fully wound up ( 509)
The liquidator shall take the following steps, when affair of the company are fully wound up:
Call a general meeting, and meeting of creditors, and lay before it, complete picture of accounts, winding up procedure and how the properties of company are disposed of .
The meeting shall be called by advertisement, specifying the time, place and object of the meeting.
The liquidator shall send to the Registrar and official liquidator copy of account, within one week after the meeting.
If from the report, official liquidator comes to the conclusion, that affairs of the company are not being carried in manner prejudicial to the interest of it's members or public, then the company shall be deemed to be dissolved, from the date of report to the court.
However, if official liquidator comes to a finding, that affairs have been carried in a manner prejudicial to intent of members or public, then court may direct the liquidator to investigate further.
Distribution of property of company on voluntarily winding up [ both members and creditors voluntarily winding up]
Once the company is fully wound up, and assets of the company sold or distributed, the proceedings collected are utilised to pay off the liabilities. The proceedings so collected shall be utilised to pay off the creditors in equal proportion. Thereafter any money or property left, may be distributed among members according to their rights and interests in the company.
Winding up subject to supervision of court
Winding up subject to supervision of court, is different from "Winding up by court".
Here the court only supervise the winding up procedure. Resolution for winding up, is passed by members in the general meeting. It is only for some specific reasons, that court may supervise the winding up proceedings. The court may put up some special terms and conditions also.
However, liberty is granted to creditors, contributories or other to apply to court for some relief. (522)
The court may also appoint liquidators, in addition to already appointed, or remove any such liquidator. The court may also appoint the official liquidator, as a liquidator to fill up the vacancy.
Liquidator is entitled to do all such things and acts, as he thinks best in the interest of company. He shall enjoy the same powers, as if the company is being wound-up voluntarily.
The court also may exercise powers to enforce calls made by the liquidators, and such other powers, as if an order has been made for winding up the company altogether by court. (526)
PRIORITY INDISPOSING LIABILITIES [529 A & 530]
When the company is wound up, by any mode, the liabilities shall be discharged in following priority.
Workman's dues.
Debts due to secured creditors, in case of insolvency.
All ---------, taxes, cesses and rates due from the company to the central government or a state govt.
All wages and salary of any employee due within four months.
All -------- holiday remuneration becoming payable to any employee.
· All such debts shall be paid in full. If assets are insufficient to meet them, they shall abate in equal proportions.
MONEY RECEIVED BY LIQUIDATOR : (553)
Apart from an official liquidator, every liquidator appointed by company or court to carry on the winding up procedure, shall deposit the money is received by him in a scheduled bank, to the credit of a special banking account opened by him.
WINDING UP (CONTD.)
Apart from a normal company, registered under the companies Act, 1956 there are other companies as well winding up procedure for these companies are bit different from a company registered under companies Act.
These companies are:
UNREGISTERED COMPANIES : (583)
In simple words, an unregistered company, is a company which is not registered or covered under provisions of companies Act. 1956 (582)
An unregistered company, cannot be wound up voluntarily, or, subject to super vision of court.
However, the circumstances, in which unregistered company may be wound up, are as follows :
If the company, is dissolved, or has ceased to carry on business, or is carrying on business only for the purposes of winding up, it's affairs,
If the company is unable to pay it's debt
If the court is of opinion, that it is just and equitable, that the company, should be wound up.
A creditor, contributory, or company itself by filing a petition, or any person authorised by central government may institute winding up proceedings.
In respect to other aspects, the same provisions and procedure shall follow, as in winding up of registered company.
A foreign company, carrying on business in India, which has been dissolved, may be wound up, as unregistered company.
FOREIGN COMPANY (584)
A foreign company, is a company which is incorporated outside India, and having a place of business in India.
Winding up of such companies is only limited to the extent of it's assets in India. In respect of assets and business carried outside India, Indian courts has no jurisdiction.
Winding up of a foreign company can only be made through court.
Even if the company had been dissolved or ceased to exist in the country of it's incorporation, winding up order in this country can be made.
Even if a foreign company has been wound up according to foreign law, the courts in India still protect the Indian Creditors. The surplus assets, after paying the creditors, should be distributed among the share holders equally in the same proportion, as the assets ---- to the total issued and paid up capital.
Pendency of a foreign liquidation does not affect the jurisdiction to make winding up order. The Assets can be of any nature and do not take to be in the ownership of the company and can come from any Source [(1944) 2 All.E.R. 556]
As, for persons claiming to be creditors, their presence, itself is sufficient. It is not required to be shown, that company carried on business operations from any place of business in India.
GOVERNMENT COMPANY
A Govt. company, means a company, in which 51% or more of, shares are held by a govt. company.
Winding up procedure for a government company registered under the companies Act, 1956, is nearly similar to normal winding up procedure.
However, courts, take interest of public into consideration, and priority is given to them, as a govt. company is main function is to provide services to public.
Litigation Against Company
In the era of Liberalisation, and rapid industrial growth in diversified sectors, from manufacturing product to services, huge sums of money and high states are involved. Because of this complexities have increased manifold, with an end result being litigation against company, i.e. taking resort of court to solve the disputes with company.
When the company is registered under the companies Act' , 1956, it acquires a separate and legal status for itself. It is different from it's members. A registered company can sue and is sued in it's name , under which it carries it's business.
VARIOUS COURTS/FORUMS WHERE LITIGATION AGAINST A COMPANY MAY BE INITIATED:
Litigation against a company may be initiated before any of the following courts/form depending on the nature of disputes, and identity of the person initiating action.
1.COMPANY LAW BOARD ( C.L.B)
Members of the company may initiate complaints against any office of the company, for contravening any of the provisions of companies Act. All such actions, lie before company law board.
Procedure
When the company is registered under the companies Act', 1956, it acquires a separate and legal status for itself. It is different from it's members. A registered
Any party willing to file a complaint before company Law Board, shall file five (5) copies of complaint, alongwith relevant documents, in form no 1, except in reference made by R.O.C.
No court fees is required
Appeal
Any party, aggrieved by the order of company Law Board, may file an appeal before the high court.
2.BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION
Where a company is unable to meet it's financial obligations, it may prefer it, to be declared as a " sick company". For such declaration, it may apply to BIFR. The bond, may also declare the company to be sick on a reference made by :
Central or State Government,
Reserve Bank of India,
Public Financial Institution,
State Level Institution or
Scheduled Bank
Procedure
All application, reference and documents should be in Hindi or English. ( Regulation b)
Reference by an Industrial company itself, except government company, for declaration as "sick company", shall be made in form "A", and for a Government company in form "AA". (Regulation 19)
Any reference by others, except company itself, shall be made inform "B" except government company, and reference for a government company, shall be made in form "BB".
Any such reference made, shall be filed with six (6) copies, alongwith true copy of documents, and authorised by competent person.
No court fees is required.
Appeal
Any person aggrieved by on order of B.I.F.R. may file on appeal before APPELLATE AUTHORITY FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION ( A.A.I.F.R.) within 45 days from the date of issue of order. This period may be extended upto 60 days, in case of ground for delay shown. [ sec. 25 of SICA]
3.CIVIL & CRIMINAL COURT
A creditor of a company may also file a suit for recovery of his dues, from the company, in the civil or criminal court. Criminal court can only impose punishment on the defaulting officer.
4.MONOPOLIES & RESTRICTIVE TRADE PRACTICES COMMISSION ( MRTPC)
A consumer, dealer, agent or any other associate having business transaction may take action against a company, by filing a complaint for any unfair or Restrictive Trade Practices.
The commission may also intiate complaint against a company, for Monopolistic Trade Practices.
Procedure
The complainant , shall file 2 copies plus , one copy each for respondent/s [ opposite party], alongwith relevant documents and list of witness, if any.
No court fee is required.
Appeal
Any person aggrieved by the order of commission, may file on appeal within 60 days, of the order. ( sec 55)
5.CONSUMER FORUMS
Consumer forums are meant only for protection of consumers. Thus, only a consumer can file a complaint before consumer forums, against a company for defect or deficiency in goods or services sold.
DISTRICT FORUM :
The complainant shall file three (3) copies of complaint, plus one copy each for every opposite party.
No court fees is required.
Appeal
Appeal lies before State Commission, within thirty (30) days, from the date of order.
STATE COMMISSION :
The procedure is same, as that of district forum.
Appeal
The appeal lies before Notation Commission, within 30 days of order.
NATIONAL COMMISSION
The complainant, shall file copies of complaint/appeal, alongwith relevant documents, plus one copy each for every opposite party.
Appeal lies before Supreme Court, within thirty (30) days of order.
Who can initiate litigation against company
1.CONSUMERS
Consumer in general parlance means "one who consumes". A consumer who buys goods or avails of services of a company, may sue a company for any defects/deficiency.
A. A consumer may file a complaint before MRTPC, for any "Unfair Trade Practices", adopted by the company (sec. 36 A of MRTP Act)
The "Unfair Trade Practices" adopted by the company may relate to:
Making false representation of quality of goods or services
Giving a false guarantee or services.
Falsely representing a govt. the price
Gives a false advertisement
(Sec. 10) a consumer may also file a complaint before MRTPC, for any "Restrictive Trade Practice", adopted by company
The Restrictive Trade Practice, means a trade practice adopted by company in such a manner which :
Affects the competition,
Obstructs the free flow of capital, and
Imposes unjustified cost on the consumer. Sec. [2(0)]
The MRTPC, on receipt of complaints from consumer in record to unfair/Restrictive Trade Practice, may pass such order, as it thinks fit.
(B) A consumer may also approach the consumer forum, for any defects/defeciency in goods brought or services availed from a company. However, under the consumer forum, he has to be a consumer, i.e. he should have bought the goods or hired services for his own personal use, and not for any commercial purpose.
Example of " Defects in goods" may be:
New Television set brought not working properly,
New Car brought, not running smoothly
Examples of " Services availed" may relate to:
Delay in allotment of flat,
Negligence in conducting operation
Consumer forum is divided into three parts, according to jurisdiction.
Complaint, where value does not exceed Rs. 5 lakhs - District comm.
Complaint, where value does not exceed Rs. 20 lakhs, and above Rs. 5 lakhs. - State Commission.
Complaint over and above Rs.20 lakhs - National Commission.
Advantages of consumer forum", is No Govt. fees, quick disposal and no need for lawyer.
2.PEOPLE ASSOCIATED WITH COMPANY:
People, who transact business with the company, can also file a case against the company. Such people may be Sellers, Agents, Distributors, Money Lender etc.
Many a times, company is not able to, or is unwilling to pay, to the:
Seller from whom it brought goods on credit,
Money lender from whom it borrowed certain sum of money,
Agent or Distributors, their due commission.
In such circumstances, they can file a simple suit, for recovery in a civil court. If the recovery amount is less than Rs. 20 lakhs ( increased from 5 lakhs), then it has to be filed before district court. If the amount is more than this, then it will be filed before High Court ( In Delhi)
These people can also file a criminal case, if they feel they have been cheated by the company, or the company has committed some sort of fraud on them.
These people whose claims are due, may also file a wining up petition before High Court. However it is essential, that they should be named or termed as creditors, in the books of account of company.
Intent of Agents, Distributors, and even competitions has been also taken care of by MRTP act, 1969
These people can file a complaint or make a reference to Director General for any restrictive trade practice by the company.
Restrictive Trade Practice amount to:
Restricting the dealer to deal only with company
Restricting the agent to buy only specific product
Placing a limit of minimum order to be secured by dealer
Forcing the dealer / Agent to sell the product only at a fixed price etc.
Where a reference is made to Director General, it may investigate into the affairs of company, and if thinks so, file a complaint before MRTPC.
3.SHAREHOLDERS/MEMBERS
Shareholders are integral part of the company. They have a right to participate in the General Meeting of the company, and in the general affairs of business.
Shareholders can initiate a complaint before Company Law Board (C.L.B) for any of the following :
Default in calling General Meeting of company
Default in paying dividend, which has been declared.
Default in transfer of shares
Default in further allotment of shares.
Any sort of oppression or Mismanagement committed upon minority
Any other act in contravention of companies Act.
Members can themselves wind up the company by passing a special resolution. Such an order of winding up shall be made by High Court.
Members can also file a criminal complaints, before a criminal court, alleging misappropriation of money, any forgery committed, any fraudulent act.
4.GOVERNMENT
In all the above noted points/ modes, the central / state government may suo moto initiate complaint, against the company before various tribunals/courts.
For example the Government may, make a reference to ;
Board for Industrial & Financial Reconstruction, for declaring the company to be " sick company".
Director General, under the MRTP Act, for any alleged unfair / Restrictive / Monopolistic Trade Practice.
Consumer forum, for any complaint regarding defects in goods or deficiency in services.
For winding up, in case of complaint received from minority members with respect to mismanagement, or oppression.
ARBITRATION
In recent years, to avoid litigation, there has been a general tendency and inclination towards, resolving the dispute before an independent ARBITRATOR.
An Arbitration clause is incorporated in agreement, and any dispute, will be referred to Arbitrator, whose decision shall be final and finding.
If the company is unwilling to abide by Arbitration clause, then an application may be filed in High Court for Directing the company, to appoint an Arbitrator, and resolve the dispute.
Final order passed by Arbitrator, is called on " Award", and it is final and binding on parties. Appeal lies to High Court, only if, Arbitrator has acted malafide, biased, or failed to perform the duties.
Winding up of a company is the stage, where by the company takes its last breath. It is a process by which business of the company is wound up, and the company ceases to exist anymore. All the assets of the company are sold, and the proceedings collected are used to discharge the liabilities on a priority basis.
MODES OF WINDING UP
There are three ways, in which a company may be wound up. They are:
Winding up by the court.
Voluntary winding up.
Members Voluntary winding up.
Creditiors Voluntary winding up.
Winding up subject to supervision of the court.
Winding up by Court
A company may be wound up by the court in following situations. Here, the court means "High Court".
If the company itself, has passed a special resolution in the general meeting to wound up its affairs. Special resolution means, resolution passed by three-fourth (3/4") of the members present.
If there is a default, in holding the statutory meeting or in delivering the statutory report to the Registrar.
A company which is limited by shares, and a company limited by guarantee having share capital, is required to hold a " Statutory meeting" of its members, within six months, and after one month, from the date of commencement of it's business. A statutory report of the meeting so held shall also be forwarded to the registrar. [ sec 165 (1) & (5)]
If the company fails to commence it's business within one year from the date of it's incorporation, or suspends it's business for a whole year.
A company limited by shares, has to obtain a "certificate of commencement" of business from the registrar. Unless it obtains such certificate, it cannot carry on it's business operation.
If the number of members, in a public company is reduced to less than seven, and in case of private company less than two.
The statutory requirement of minimum number of members in a public company is seven, and in case of private company, it is two (sec 12)
If the company is unable to pay its debits; where the financial position of the company is, such, that it has more liabilities than assets, and after disposing off the assets, it is still unable to extinguish it's liabilities, it means that company is unable to pay it's debts.
If the court, itself is of the opinion that the company should be wound up.
The court may form such an opinion, if it comes to the knowledge of court that, the company is mismanaged, or financially unsound, or carrying an illegal operations etc.
RELEVANT POINTS
WHO CAN APPLY TO COURT, FOR WINDING UP PETITION ? ( SEC 439)
Following persons can apply to the court, for petition for winding up:
The company itself
The creditor
Any Contributory
Registrar
Any person authorised by central government, in case of oppression or mismanagement (397)
WHAT ORDERS, THE COURT MAY PASS? (SEC 443)
The court may pass any one of the following orders on hearing the winding up petition.
Dismiss it, with or without costs
Make any interim order, as it thinks fit, or
Pass an order for winding up of the company with or without costs.
Consequences of court passing an order for winding up:
If the court is satisfied, that sufficient reasons exist in the petition for winding up, then it will pass a winding up order. Once the winding up order is passed, following consequences follow:
Court will send notice to an official liquidator, to take change of the company. He shall carry out the process of winding up, ( sec. 444)
The winding up order, shall be applicable on all the creditors and contributories, whether they have filed the winding up petition or not.
The official liquidator is appointed by central Government ( sec. 448)
The company shall relevant particulars, relating to, assets, cash in hand, bank balance, liabilities, particulars of creditors etc, to the official liquidator. ( sec. 454)
The official liquidator shall within six months, from the date of winding up order, submit a preliminary report to the court regarding:
Particulars of Capital
Cash and negotiable securities
Liabilities
Movable and immovable properties
Unpaid calls, and
An opinion, whether further inquiry is required or not ( 455)
The Central Govt. shall keep a cognizance over the functioning of official liquidator, and may require him to answer any inquiry. (463)
STAY ORDER
Where, the court has passed a winding up order, it may stay the proceedings of winding up , on an application filed by official liquidator, or creditor or any contributory. (466)
DISSOLUTION OF COMPANY (481)
Finally the court will order for dissolution of the company, when:
the affairs of the company are completely wound up, or
the official liquidator is unable to carry on the winding up procedure for want of funds.
APPEAL : 483
An appeal from the decision of court, will lie before that court, before whom, appeals lie from any order or decision of the former court in cases within it's ordinary jurisdiction.
Voluntary Winding up
A company may , voluntary wind up it's affairs, if it is unable to carry on it's business, or if it was formed only for a limited purpose, or if it is unable to meet it's financial obligation, and etc. A company may voluntary wind up itself, under any of the two modes:
Members voluntarily winding up
Creditors voluntarily winding up
A company may voluntarily wind up itself, either by passing:
An ordinary resolution, where the purpose for which the company was formed has completed, or the time limit for which the company was formed, has expired.
Or
By way of special resolution
Both types of resolution shall e passed in the general meeting of the company. (484)
Once the resolution of voluntarily winding up is passed, then the company may be wound up, either through:
Members voluntarily winding up, or
Creditors voluntarily winding up
The only difference between the abate two, is that in case of members voluntarily winding up, Board of Directors have to make a declaration to the effect, that company has no debts. (488)
MEMBERS VOLUNTARILY WINDING UP
Directors of the company shall call for a Board of Directors Meeting, and make a declaration of winding up, accompanied by an Affidavit, stating that:
The company has no debts to pay, or
The company will repay it's debts; if any, within 3 years from the commencement of winding up, as specified in declaration (488)
Who shall carry out the winding up procedure? & What shall be the procedure?
The company shall appoint one or more liquidators, in a general meeting, who shall look after the affair of winding up procedure, and distribution of assets. [490 (1)]
The liquidator so appointed, shall be paid remuneration for his services, which shall also be fixed in general meeting [490 (2)]
The company shall also give notice of appointment of liquidator to the registrar within ten days of appointment (493)
Once the company has appointed liquidator, the powers of Board of Directors, Managing Director, and Manager, shall cease to exists. (491)
The liquidator is generally given a free hand, to carry out the winding up procedure, in such a manner, as he thinks best in the interest of creditors, and company.
In case, the winding up procedure, takes more than one year, then liquidator will have to call a general meeting, at the end of each year, and he shall present, a complete account of the procedure, and position of liquidator (496)
When affairs of the company are fully wound up
The liquidator shall take the following steps, when affairs of the company are fully wound up: (497)
Call a general meeting of the members of the company, a lay before it, complete picture of accounts, wining up procedure and how the properties of company are disposed of.
The meeting shall be called by advertisement, specifying the time, place and object of the meeting.
The liquidator shall send to, the Registrar and official Liquidator copy of account, within one week of the meeting.
If from the report, official liquidator comes to the conclusion, that affairs of the company are not being carried in manner prejudicial to the interest of it's members, or public, then the company shall be deemed to be dissolved from the date of report to the court.
However, if official liquidator comes to a finding, that affair have been carried in a manner prejudicial to interest of member or public, then court may direct the liquidator to investigate furthers.
CREDITORS VOLUNTARILY WINING UP
Where the resolution for winding up has been passed, but the Board of Directors are not in a position to give a declaration on the liability of company, they may call a meeting of creditors, for the purpose of winding up. (500)
It is the duty of Board of Directors, to present a full statement of company's affairs, and list of creditors alongwith their dues, before the meeting of creditors. [500 (3)]
Whatever resolution, the company passes in creditor's meeting, shall be given to the Registrar within ten days of it's passing. (501)
Who shall carry out the winding up procedure ? & At shall be the procedure ?
Company in the general meeting [in which resolution for winding up is passed] , and the creditors in their meeting, appoint liquidator. They may either agree on one liquidator, or if two names are suggested, then liquidator appointed by creditor shall act. (502)
Any director, member or creditor may approach the court, for direction that:
Liquidator appointed in general meeting shall act, or
He shall act jointly with liquidator appointed by creditor, or
Appointing official liquidator, or
Some other person to be appointed as liquidator. [502 (2)]
The remuneration of liquidator shall be fixed by the creditors, or by the court. (504)
On appointment of liquidator, all the power of Board of Directors shall cease. (505)
In case, the winding up procedure, takes more than one year, then he will have to call a general meeting, and meeting of creditors, at the end of each year, and he shall present, a complete account of the procedure, and the status / position of liquidation (505).
When affairs of the company are fully wound up ( 509)
The liquidator shall take the following steps, when affair of the company are fully wound up:
Call a general meeting, and meeting of creditors, and lay before it, complete picture of accounts, winding up procedure and how the properties of company are disposed of .
The meeting shall be called by advertisement, specifying the time, place and object of the meeting.
The liquidator shall send to the Registrar and official liquidator copy of account, within one week after the meeting.
If from the report, official liquidator comes to the conclusion, that affairs of the company are not being carried in manner prejudicial to the interest of it's members or public, then the company shall be deemed to be dissolved, from the date of report to the court.
However, if official liquidator comes to a finding, that affairs have been carried in a manner prejudicial to intent of members or public, then court may direct the liquidator to investigate further.
Distribution of property of company on voluntarily winding up [ both members and creditors voluntarily winding up]
Once the company is fully wound up, and assets of the company sold or distributed, the proceedings collected are utilised to pay off the liabilities. The proceedings so collected shall be utilised to pay off the creditors in equal proportion. Thereafter any money or property left, may be distributed among members according to their rights and interests in the company.
Winding up subject to supervision of court
Winding up subject to supervision of court, is different from "Winding up by court".
Here the court only supervise the winding up procedure. Resolution for winding up, is passed by members in the general meeting. It is only for some specific reasons, that court may supervise the winding up proceedings. The court may put up some special terms and conditions also.
However, liberty is granted to creditors, contributories or other to apply to court for some relief. (522)
The court may also appoint liquidators, in addition to already appointed, or remove any such liquidator. The court may also appoint the official liquidator, as a liquidator to fill up the vacancy.
Liquidator is entitled to do all such things and acts, as he thinks best in the interest of company. He shall enjoy the same powers, as if the company is being wound-up voluntarily.
The court also may exercise powers to enforce calls made by the liquidators, and such other powers, as if an order has been made for winding up the company altogether by court. (526)
PRIORITY INDISPOSING LIABILITIES [529 A & 530]
When the company is wound up, by any mode, the liabilities shall be discharged in following priority.
Workman's dues.
Debts due to secured creditors, in case of insolvency.
All ---------, taxes, cesses and rates due from the company to the central government or a state govt.
All wages and salary of any employee due within four months.
All -------- holiday remuneration becoming payable to any employee.
· All such debts shall be paid in full. If assets are insufficient to meet them, they shall abate in equal proportions.
MONEY RECEIVED BY LIQUIDATOR : (553)
Apart from an official liquidator, every liquidator appointed by company or court to carry on the winding up procedure, shall deposit the money is received by him in a scheduled bank, to the credit of a special banking account opened by him.
WINDING UP (CONTD.)
Apart from a normal company, registered under the companies Act, 1956 there are other companies as well winding up procedure for these companies are bit different from a company registered under companies Act.
These companies are:
UNREGISTERED COMPANIES : (583)
In simple words, an unregistered company, is a company which is not registered or covered under provisions of companies Act. 1956 (582)
An unregistered company, cannot be wound up voluntarily, or, subject to super vision of court.
However, the circumstances, in which unregistered company may be wound up, are as follows :
If the company, is dissolved, or has ceased to carry on business, or is carrying on business only for the purposes of winding up, it's affairs,
If the company is unable to pay it's debt
If the court is of opinion, that it is just and equitable, that the company, should be wound up.
A creditor, contributory, or company itself by filing a petition, or any person authorised by central government may institute winding up proceedings.
In respect to other aspects, the same provisions and procedure shall follow, as in winding up of registered company.
A foreign company, carrying on business in India, which has been dissolved, may be wound up, as unregistered company.
FOREIGN COMPANY (584)
A foreign company, is a company which is incorporated outside India, and having a place of business in India.
Winding up of such companies is only limited to the extent of it's assets in India. In respect of assets and business carried outside India, Indian courts has no jurisdiction.
Winding up of a foreign company can only be made through court.
Even if the company had been dissolved or ceased to exist in the country of it's incorporation, winding up order in this country can be made.
Even if a foreign company has been wound up according to foreign law, the courts in India still protect the Indian Creditors. The surplus assets, after paying the creditors, should be distributed among the share holders equally in the same proportion, as the assets ---- to the total issued and paid up capital.
Pendency of a foreign liquidation does not affect the jurisdiction to make winding up order. The Assets can be of any nature and do not take to be in the ownership of the company and can come from any Source [(1944) 2 All.E.R. 556]
As, for persons claiming to be creditors, their presence, itself is sufficient. It is not required to be shown, that company carried on business operations from any place of business in India.
GOVERNMENT COMPANY
A Govt. company, means a company, in which 51% or more of, shares are held by a govt. company.
Winding up procedure for a government company registered under the companies Act, 1956, is nearly similar to normal winding up procedure.
However, courts, take interest of public into consideration, and priority is given to them, as a govt. company is main function is to provide services to public.
Litigation Against Company
In the era of Liberalisation, and rapid industrial growth in diversified sectors, from manufacturing product to services, huge sums of money and high states are involved. Because of this complexities have increased manifold, with an end result being litigation against company, i.e. taking resort of court to solve the disputes with company.
When the company is registered under the companies Act' , 1956, it acquires a separate and legal status for itself. It is different from it's members. A registered company can sue and is sued in it's name , under which it carries it's business.
VARIOUS COURTS/FORUMS WHERE LITIGATION AGAINST A COMPANY MAY BE INITIATED:
Litigation against a company may be initiated before any of the following courts/form depending on the nature of disputes, and identity of the person initiating action.
1.COMPANY LAW BOARD ( C.L.B)
Members of the company may initiate complaints against any office of the company, for contravening any of the provisions of companies Act. All such actions, lie before company law board.
Procedure
When the company is registered under the companies Act', 1956, it acquires a separate and legal status for itself. It is different from it's members. A registered
Any party willing to file a complaint before company Law Board, shall file five (5) copies of complaint, alongwith relevant documents, in form no 1, except in reference made by R.O.C.
No court fees is required
Appeal
Any party, aggrieved by the order of company Law Board, may file an appeal before the high court.
2.BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION
Where a company is unable to meet it's financial obligations, it may prefer it, to be declared as a " sick company". For such declaration, it may apply to BIFR. The bond, may also declare the company to be sick on a reference made by :
Central or State Government,
Reserve Bank of India,
Public Financial Institution,
State Level Institution or
Scheduled Bank
Procedure
All application, reference and documents should be in Hindi or English. ( Regulation b)
Reference by an Industrial company itself, except government company, for declaration as "sick company", shall be made in form "A", and for a Government company in form "AA". (Regulation 19)
Any reference by others, except company itself, shall be made inform "B" except government company, and reference for a government company, shall be made in form "BB".
Any such reference made, shall be filed with six (6) copies, alongwith true copy of documents, and authorised by competent person.
No court fees is required.
Appeal
Any person aggrieved by on order of B.I.F.R. may file on appeal before APPELLATE AUTHORITY FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION ( A.A.I.F.R.) within 45 days from the date of issue of order. This period may be extended upto 60 days, in case of ground for delay shown. [ sec. 25 of SICA]
3.CIVIL & CRIMINAL COURT
A creditor of a company may also file a suit for recovery of his dues, from the company, in the civil or criminal court. Criminal court can only impose punishment on the defaulting officer.
4.MONOPOLIES & RESTRICTIVE TRADE PRACTICES COMMISSION ( MRTPC)
A consumer, dealer, agent or any other associate having business transaction may take action against a company, by filing a complaint for any unfair or Restrictive Trade Practices.
The commission may also intiate complaint against a company, for Monopolistic Trade Practices.
Procedure
The complainant , shall file 2 copies plus , one copy each for respondent/s [ opposite party], alongwith relevant documents and list of witness, if any.
No court fee is required.
Appeal
Any person aggrieved by the order of commission, may file on appeal within 60 days, of the order. ( sec 55)
5.CONSUMER FORUMS
Consumer forums are meant only for protection of consumers. Thus, only a consumer can file a complaint before consumer forums, against a company for defect or deficiency in goods or services sold.
DISTRICT FORUM :
The complainant shall file three (3) copies of complaint, plus one copy each for every opposite party.
No court fees is required.
Appeal
Appeal lies before State Commission, within thirty (30) days, from the date of order.
STATE COMMISSION :
The procedure is same, as that of district forum.
Appeal
The appeal lies before Notation Commission, within 30 days of order.
NATIONAL COMMISSION
The complainant, shall file copies of complaint/appeal, alongwith relevant documents, plus one copy each for every opposite party.
Appeal lies before Supreme Court, within thirty (30) days of order.
Who can initiate litigation against company
1.CONSUMERS
Consumer in general parlance means "one who consumes". A consumer who buys goods or avails of services of a company, may sue a company for any defects/deficiency.
A. A consumer may file a complaint before MRTPC, for any "Unfair Trade Practices", adopted by the company (sec. 36 A of MRTP Act)
The "Unfair Trade Practices" adopted by the company may relate to:
Making false representation of quality of goods or services
Giving a false guarantee or services.
Falsely representing a govt. the price
Gives a false advertisement
(Sec. 10) a consumer may also file a complaint before MRTPC, for any "Restrictive Trade Practice", adopted by company
The Restrictive Trade Practice, means a trade practice adopted by company in such a manner which :
Affects the competition,
Obstructs the free flow of capital, and
Imposes unjustified cost on the consumer. Sec. [2(0)]
The MRTPC, on receipt of complaints from consumer in record to unfair/Restrictive Trade Practice, may pass such order, as it thinks fit.
(B) A consumer may also approach the consumer forum, for any defects/defeciency in goods brought or services availed from a company. However, under the consumer forum, he has to be a consumer, i.e. he should have bought the goods or hired services for his own personal use, and not for any commercial purpose.
Example of " Defects in goods" may be:
New Television set brought not working properly,
New Car brought, not running smoothly
Examples of " Services availed" may relate to:
Delay in allotment of flat,
Negligence in conducting operation
Consumer forum is divided into three parts, according to jurisdiction.
Complaint, where value does not exceed Rs. 5 lakhs - District comm.
Complaint, where value does not exceed Rs. 20 lakhs, and above Rs. 5 lakhs. - State Commission.
Complaint over and above Rs.20 lakhs - National Commission.
Advantages of consumer forum", is No Govt. fees, quick disposal and no need for lawyer.
2.PEOPLE ASSOCIATED WITH COMPANY:
People, who transact business with the company, can also file a case against the company. Such people may be Sellers, Agents, Distributors, Money Lender etc.
Many a times, company is not able to, or is unwilling to pay, to the:
Seller from whom it brought goods on credit,
Money lender from whom it borrowed certain sum of money,
Agent or Distributors, their due commission.
In such circumstances, they can file a simple suit, for recovery in a civil court. If the recovery amount is less than Rs. 20 lakhs ( increased from 5 lakhs), then it has to be filed before district court. If the amount is more than this, then it will be filed before High Court ( In Delhi)
These people can also file a criminal case, if they feel they have been cheated by the company, or the company has committed some sort of fraud on them.
These people whose claims are due, may also file a wining up petition before High Court. However it is essential, that they should be named or termed as creditors, in the books of account of company.
Intent of Agents, Distributors, and even competitions has been also taken care of by MRTP act, 1969
These people can file a complaint or make a reference to Director General for any restrictive trade practice by the company.
Restrictive Trade Practice amount to:
Restricting the dealer to deal only with company
Restricting the agent to buy only specific product
Placing a limit of minimum order to be secured by dealer
Forcing the dealer / Agent to sell the product only at a fixed price etc.
Where a reference is made to Director General, it may investigate into the affairs of company, and if thinks so, file a complaint before MRTPC.
3.SHAREHOLDERS/MEMBERS
Shareholders are integral part of the company. They have a right to participate in the General Meeting of the company, and in the general affairs of business.
Shareholders can initiate a complaint before Company Law Board (C.L.B) for any of the following :
Default in calling General Meeting of company
Default in paying dividend, which has been declared.
Default in transfer of shares
Default in further allotment of shares.
Any sort of oppression or Mismanagement committed upon minority
Any other act in contravention of companies Act.
Members can themselves wind up the company by passing a special resolution. Such an order of winding up shall be made by High Court.
Members can also file a criminal complaints, before a criminal court, alleging misappropriation of money, any forgery committed, any fraudulent act.
4.GOVERNMENT
In all the above noted points/ modes, the central / state government may suo moto initiate complaint, against the company before various tribunals/courts.
For example the Government may, make a reference to ;
Board for Industrial & Financial Reconstruction, for declaring the company to be " sick company".
Director General, under the MRTP Act, for any alleged unfair / Restrictive / Monopolistic Trade Practice.
Consumer forum, for any complaint regarding defects in goods or deficiency in services.
For winding up, in case of complaint received from minority members with respect to mismanagement, or oppression.
ARBITRATION
In recent years, to avoid litigation, there has been a general tendency and inclination towards, resolving the dispute before an independent ARBITRATOR.
An Arbitration clause is incorporated in agreement, and any dispute, will be referred to Arbitrator, whose decision shall be final and finding.
If the company is unwilling to abide by Arbitration clause, then an application may be filed in High Court for Directing the company, to appoint an Arbitrator, and resolve the dispute.
Final order passed by Arbitrator, is called on " Award", and it is final and binding on parties. Appeal lies to High Court, only if, Arbitrator has acted malafide, biased, or failed to perform the duties.
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