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.
Winding up a Registered
The Companies Act provides for two modes
of winding up a registered company.
Grounds for Compulsory Winding Up or Winding
up by the Tribunal
- If the company has, by a Special Resolution, resolved
that the company be wound up by the Tribunal.
- 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.
- 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
- 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.
- If the company is unable to pay its debts.
- If the tribunal is of the opinion that it is just and
equitable that the company should be wound up.
- Tribunal may inquire into the revival and rehabilitation
of sick units. It its revival is unlikely, the tribunal can order its
- 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
- 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.
The petition for winding up to the Tribunal may be made
- The company, in case of passing a special resolution
for winding up.
- A creditor, in case of a company's inability to pay debts.
- 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.
- The Registrar, on any ground provided prior approval
of the Central Government has been obtained.
- 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.
- 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.
Voluntary Winding Up of a Registered Company
When a company is wound up by the members or the creditors
without the intervention of Tribunal, it is called as voluntary winding
up. It may take place by:-
- By passing an ordinary resolution in the general meeting
if :- (i) the period fixed for the duration of the company by the articles
has expired; or (ii) some event on the happening of which company is
to be dissolved, has happened.
- By passing a special resolution to wind up voluntarily
for any reason whatsoever.
Within 14 days of passing the resolution, whether ordinary
or special, it must be advertised in the Official Gazette and also in
some important newspaper circulating in the district of the registered
office of the company.
The Companies Act (Section 484) provides for two methods for voluntary winding up:-
Members' voluntary winding up
It is possible in the case of solvent companies which are
capable of paying their liabilities in full. There are two conditions
for such winding up:-
- A declaration of solvency must be made by a majority
of directors, or all of them if they are two in number. It will state
that the company will be able to pay its debts in full in a specified
period not exceeding three years from commencement of winding up. It
shall be made five weeks preceding the date of resolution for winding
up and filed with the Registrar. It shall be accompanied by a copy of
the report of auditors on Profit & Loss Account and Balance Sheet,
and also a statement of assets and liabilities upto the latest practicable
- Shareholders must pass an ordinary or special resolution
for winding up of the company.
The provisions applicable to members' voluntary winding
up are as follows:-
Creditor's voluntary winding up
- Appointment of liquidator and fixation of his remuneration
by the General Meeting.
- Cessation of Board's power on appointment of liquidator
except so far as may have been sanctioned by the General Meeting, or
- Filling up of vacancy caused by death, resignation or
otherwise in the office of liquidator by the general meeting subject
to an arrangement with the creditors.
- Sending the notice of appointment of liquidator to the
- Power of liquidator to accept shares or like interest
as a consideration for the sale of business of the company provided
special resolution has been passed to this effect.
- Duty of liquidator to call creditors' meeting in case
of insolvency of the company and place a statement of assets and liabilities
- Liquidator's duty to convene a General Meeting at the
end of each year.
- Liquidator's duty to make an account of winding up and
lay the same before the final meeting.
It is possible in the case of insolvent companies. It requires
the holding of meetings of creditors besides those of the members right
from the beginning of the process of voluntary winding up. It is the creditors
who get the right to appoint liquidator and hence, the winding up proceedings
are dominated by the creditors.
The provisions applicable to creditors' voluntary winding
up are as follows:-
- The Board of Directors shall convene a meeting of creditors
on the same day or the next day after the meeting at which winding up
resolution is to be proposed. Notice of meeting shall be sent by post
to the creditors simultaneously while sending notice to members. It
shall also be advertised in the Official Gazette and also in two newspapers
circulating in the place of registered office.
- A statement of position of the company and a list of
creditors along with list of their claims shall be placed before the
meeting of creditors.
- A copy of resolution passed at creditors' meeting shall
be filed with Registrar within 30 days of its passing.
- It shall be done at respective meetings of members and
creditors. In case of difference, the nominee of creditors shall be
- A five-member Committee of Inspection is appointed by
creditors to supervise the work of liquidator.
- Fixation of remuneration of liquidator by creditors or
committee of inspection.
- Cessation of board's powers on appointment of liquidator.
As soon as the affairs of the company are wound up, the
liquidator shall call a final meeting of the company as well as that of
the creditors through an advertisement in local newspapers as well as
in the Official Gazette at least one month before the meeting and place
the accounts before it. Within one week of meeting, liquidator shall send
to Registrar a copy of accounts and a return of resolutions.
Winding up an Unregistered
According to the
Companies Act, an unregistered company includes any partnership, association,
or company consisting of more than seven persons at the time when petition
for winding up is presented. But it will not cover the following:-
- A railway company incorporated by
an Act of Parliament or other Indian law or any Act of the British Parliament;
- A company registered under the
Companies Act, 1956;
- A company registered under any previous
- An illegal association formed against
the provisions of the Act.
However, a foreign company carrying on business in
India can be wound up as an unregistered company even if it has been dissolved
or has ceased to exist under the laws of the country of its incorporation.
The provisions relating to winding up
of a unregistered company:-
- Such a company can be wound up by
the Tribunal but never voluntarily.
- Circumstances in which unregistered company may
be wound up are as follows:-
- If the company has been dissolved
or has ceased to carry on business or is carrying on business only
for the purpose of winding up its affairs.
- If the company is unable to pay
- If the Tribunal regards it as
just and equitable to wind up the company.
- Contributory means a person who is liable to contribute
to the assets of a company in the event of its being wound up. Every
person shall be considered a contributory if he is liable to pay any
of the following amounts:-
- Any debt or liability of the
- Any sum for adjustment of rights
of members among themselves;
- Any cost, charges and expenses
of winding up;
- On the making of winding up order,
any legal proceeding can be filed only with the leave of the Tribunal.