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UNIT IV Winding Up For Company Law Bcom Sem 3 Delhi University Complete Notes

UNIT IV Winding Up For Company Law Bcom Sem 3 Delhi University Complete :Winding up is the process by which the normal activities of the corporation or association of person is stopped and the assets and liabilities of the association is assessed and distributed among the shareholders as per the existing agreement. On winding up, the organization ceases to be a going concern. The owners are eligible to get the share of residual property and may require to compensate in the event the assets are insufficient and the existing agreement so specifies.

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UNIT IV Winding Up For Company Law Bcom Sem 3 Delhi University Complete Notes

UNIT IV Winding Up For Company Law Bcom Sem 3 Delhi University Complete : As section 425 of the Act, a company may be wound up in any one of the following ways:

(a) by the court making a winding-up order (compulsory winding up) and

(b) by passing of an appropriate resolution for voluntary winding up at a general meeting of members (voluntary winding up) Voluntary winding can further be divided into members’ voluntary winding up and creditors’ voluntary winding up.

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COMPULSORY WINDING UP As per section 433, company may be wound up by the High Court/Tribunal on:

  ·   Passing a special resolution

·   Failure to hold statutory meeting

·   Failure to commence business

·   Reduction in number of members below minimum

·   Inability to pay its debts

·   Arrears of unpaid salary and the dues of an employee, is not a debt within the meaning of this expression in section

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·   Winding up on just and equitable grounds

·   Default in filing with the Registrar the balance sheet or annual return

·   Acting against the interest of the country

·   If the company is a sick industrial company and is not likely to become viable in future

The company itself, the creditor, any Contributory, registrar or any person authorized by central government  in case of oppression or mismanagement  an apply to the court, for petition for winding up.(Section 439)   Under section 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.   Court will send notice to an official liquidator, to take charge of the company.

He shall carry out the process of winding up. (Section 444). The company shall submit relevant particulars, relating to, assets, cash in hand, bank balance, liabilities, particulars of creditors etc, to the official liquidator. (Section454)  As per section 455, 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.

The Central Govt. shall keep a cognizance over the functioning of official liquidator, and may require him to answer any inquiry. (Section 463) 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. (Section 466)   Under section 481, 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.

UNIT IV Winding Up For Company Law Bcom Sem 3 Delhi University Complete Notes

UNIT IV Winding Up For Company Law Bcom Sem 3 Delhi University Complete : 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.”

According to Halsburry’s Laws of England, “Winding up is a proceeding by means of which the dissolution of a company is brought about & in the course of which its assets are collected and realised; and applied in payment of its debts; and when these are satisfied, the remaining amount is applied for returning to its members the sums which they have contributed to the company in accordance with Articles of the Company.” Winding up is a legal process.

Under the process, the life of the company is ended & its property is administered for the benefits of the members & creditors. A liquidator is appointed to realise the assets & properties of the company. After payments of the debts, is any surplus of assets is left out they will be distributed among the members according to their rights. Winding up does not necessarily mean that the company is insolvent. A perfectly solvent company may be wound up by the approval of members in a general meeting.

There are differences between winding up and dissolution. At the end of winding up, the company will have no assets or liabilities. When the affairs of a company are completely wound up, the dissolution of the company takes place. On dissolution, the company’s name is struck off the register of the companies and its legal personality as a corporation comes to an end.

WINDING UP A REGISTERED COMPANY AND AN UNREGISTERED COMPANY
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. An administrator, called the liquidator, is appointed and he takes control of the company, collects its assets, pays debts and finally distributes any surplus among the members in accordance with their rights. At the end of winding up, the company will have no assets or liabilities. When the affairs of a company are completely wound up, the dissolution of the company takes place. On dissolution, the company’s name is struck off the register of the companies and its legal personality as a corporation comes to an end.

The procedure for winding up differs depending upon whether the company is registered or unregistered. A company formed by registration under the Companies Act, 1956 is known as a registered company. It also includes an existing company, which had been formed and registered under any of the earlier Companies Acts.

In Pierce Leslie & Co. Ltd v. Violet Ouchterlony, 1969 SCR (3) 203 the Hon’ble supreme court held that winding up precedes the dissolution. There ‘is no statutory provision vesting the properties of a dissolved company in a trustee or having the effect of abrogating; the law of escheat. The shareholders or creditors of a dissolved company cannot be regarded as its heirs and successors. On dissolution of a company, its properties, if any, vest in the government.

WINDING UP A REGISTERED COMPANY
The Companies Act provides for two modes of winding up a registered company.

Grounds for Compulsory Winding Up or Winding up by the Tribunal:
1. If the company has, by a Special Resolution, resolved that the company be wound up by the Tribunal.

2. If default is made in delivering the statutory report to the Registrar or in holding the statutory meeting. A petition on this ground may be filed by the Registrar or a contributory before the expiry of 14 days after the last day on which the meeting ought to have been held. The Tribunal may instead of winding up, order the holding of statutory meeting or the delivery of statutory report.

3. If the company fails to commence its business within one year of its incorporation, or suspends its business for a whole year. The winding up on this ground is ordered only if there is no intention to carry on the business and the Tribunal’s power in this situation is discretionary.

4. If the number of members is reduced below the statutory minimum i.e. below seven in case of a public company and two in the case of a private company.

5. If the company is unable to pay its debts.

6. If the tribunal is of the opinion that it is just and equitable that the company should be wound up.

7. Tribunal may inquire into the revival and rehabilitation of sick units. It its revival is unlikely, the tribunal can order its winding up.

8. If the company has made a default in filing with the Registrar its balance sheet and profit and loss account or annual return for any five consecutive financial years.

9. If the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality.

IBA Health v. Info-Drive Systems (CA No. 8230/2010) – Kapadia C.J. begins his analysis by noting that the Company Court is not required in a winding-up proceeding to examine complex issues of law and fact, or resolve serious disputes between parties. The Supreme Court held that a Company Court cannot proceed with a winding-up petition if the respondent raises a “substantial” or “bona fide” dispute as to the existence of the debt.

UNIT IV Winding Up For Company Law Bcom Sem 3 Delhi University Complete : The following observations are pertinent:
· A dispute would be substantial and genuine if it is bona fide and not spurious, speculative, illusory or misconceived. The Company Court, at that stage, is not expected to hold a full trial of the matter. It must decide whether the grounds appear to be substantial. The grounds of dispute, of course, must not consist of some ingenious mask invented to deprive a creditor of a just and honest entitlement and must not be a mere wrangle.

· It is settled law that if the creditor’s debt is bona fide disputed on substantial grounds, the court should dismiss the petition and leave the creditor first to establish his claim in an action, lest there is danger of abuse of winding up procedure. The Company Court always retains the discretion, but a party to a dispute should not be allowed to use the threat of winding up petition as a means of forcing the company to pay a bona fide disputed debt.

· The solvency of a company cannot stand in the way of a winding-up petition if the company does indeed owe an unpaid debt to the creditor.

UNIT IV Winding Up For Company Law Bcom Sem 3 Delhi University Complete Notes

UNIT IV Winding Up For Company Law Bcom Sem 3 Delhi University Complete : The Company Court cannot be “maliciously” used as a “debt collecting agency”, and that “an action may lie in appropriate Court in respect of the injury to reputation caused by maliciously and unreasonably commencing liquidation proceedings against a company and later dismissed when a proper defence is made out on substantial grounds.” This judgment may ensure that a winding-up petition is scrutinised more carefully before it is admitted.

UNIT IV Winding Up For Company Law Bcom Sem 3 Delhi University Complete : The petition for winding up to the Tribunal may be made by :-
1. The company, in case of passing a special resolution for winding up.

2. A creditor, in case of a company’s inability to pay debts.

3. A contributory or contributories, in case of a failure to hold a statutory meeting or to file a statutory report or in case of reduction of members below the statutory minimum.

4. The Registrar, on any ground provided prior approval of the Central Government has been obtained.

5. A person authorised by the Central Government, in case of investigation into the business of the company where it appears from the report of the inspector that the affairs of the company have been conducted with intent to defraud its creditors, members or any other person.

6. The Central or State Government, if the company has acted against the sovereignty, integrity or security of India or against public order, decency, morality, etc.

In Amalgamated Commercial Traders (P) Ltd. v. A.C.K. Krishnaswami, (1965) 35 Company Cases 456 (SC), this Court held that “It is well-settled that a winding up petition is not a legitimate means of seeking to enforce payment of the debt which is bona fide disputed by the company. A petition presented ostensibly for a winding up order but really to exercise pressure will be dismissed, and under circumstances may be stigmatized as a scandalous abuse of the process of the court.”

The above mentioned decision was later followed by this Court in Madhusudan Gordhandas and Co. v. Madhu Woollen Industries Pvt. Ltd. 1971) 3 SCC 632. it was further stated that 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:

1. 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)
2. The winding up order, shall be applicable on all the creditors and contributories, whether they have filed the winding up petition or not.
3. The official liquidator is appointed by central Government ( sec. 448).
4. The company shall relevant particulars, relating to, assets, cash in hand, bank balance, liabilities, particulars of creditors etc, to the official liquidator. ( sec. 454).
5. 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

UNIT IV Winding Up For Company Law Bcom Sem 3 Delhi University Complete Notes

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