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Winding up subject to supervision of the court.
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).
Winding up of a company 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 a 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.
Modes of Winding Up
There are three modes of winding up of a company. These are:
(a) Compulsory winding up by the court.
(b) Voluntary winding up, which is itself of two kinds:
i. Members’ voluntary winding up.
ii. Creditors’ voluntary winding up.
(c) Winding up under the supervision of the court.
Winding up by court:
A company may be wound up by an order of the court. This is called compulsory winding up. Section 433 lays down the following grounds for the winding up of a company by the court.
1. Special resolution of the company:
If the company has by a special resolution resolved that it may be wound up by the court. The power of the court in such a case is discretionary. The court may refuse to order winding up where it is opposed to public or company’s interest.
2. Default in holding statutory meeting:
If a company makes a default in delivering the statutory report to the registrar or in holding the statutory meeting, the court may order winding up of the company either on the petition of the register or on the petition of the contributory. The petition for winding up must not be filed before the expiration of 14 days after the last day on which the statutory meeting ought to have been held. However, the court may instead of making a winding up order, direct the statutory report shall be delivered or that meeting shall be held.
3. Failure to commence or suspension of business:
Where a company does not commence its business within a year from its incorporation, or suspends its business for a whole year, the court may order for its winding up. The power of the court is discretionary and will be exercised only where there is a fair indication that the company has no intension to carry on the business. Where the suspension of the business is temporary or can be satisfactorily accounted for, the court will refuse to make an order. A company will not be wound up if it abandons one of its several businesses, unless that business is the main object of the company.
4. Reduction of members below minimum:
Where the number of members is reduced below 7 in the case of public company and below 2 in case of a private company, the court may order the winding up of the company. This provision is for the protection of existing members against unlimited liability.
5. Inability to pay debts:
The court may order for the winding up of a company if it is unable to pay its debts. The basis of an order for winding up under this clause is that the company has ceased to be commercially solvent i.e. it is unable to met its current demands, although the assets when realized may exceed its liabilities. According to section 434 of the act a company shall be deemed to be unable to pay its debts in the following cases:
a. If a creditor to whom the company owes a sum of Rs.500 or more has served on the company a notice for payment and the company has for three weeks neglected to pay or otherwise satisfy him. But where the company bonafide disputes the debt and the court is satisfied with the defense of the company, the court will not order for its winding up.
b. If execution or other process issued on a decree or order of any court in favor of a creditor is returned unsatisfied in whole or in part.
c. If it is proved to the satisfaction of the court that the company is unable to pay its debts and in determining whether a company is unable to pay its debts, the court will take into account the contingent and the prospective liabilities of the company. What has to be proved under this clause is not whether the company’s assets exceed it s liabilities, but whether it is unable to meet its current demands. If a company is unable to meet its current liabilities, it is commercially insolvent and liable to be bound up.
6. Just and equitable:
The last ground on which the court can order the winding up of a company is when the court is of the opinion that it is just and equitable that the company should be wound up. This clause gives the court a very wide power to order winding up wherever the court considers it just and equitable to do. The court will consider such grounds to wind up a company for just and equitable reasons as are not covered by the preceding fie clauses.
The following are the instances where the courts have exercised their discretion under this clause:
i) Where there is a deadlock in the management.
ii) Where it is impossible to carry on the business of the company except at a loss.
iii) Where the company has ceased to carry on its authorized business and is engaged in an illegal business.
iv) Where the object for which the company is formed is impossible of further pursuit.
v) Where the minority is being disregarded or oppressed.
vi) Where there is lack of confidence in directors.
vii) Where a company has been conceived and brought forth in fraud.
Section 425 of the Companies Act, 1956, deals with the winding up of companies. Winding up of company is a legal procedure to dissolve the company and put an end to its life. The company ceases to be a 'going concern'. The term winding up is defined as, 'the process by which the life of a company is ended and its property is administered for the benefit of its members and creditors.' During the process of winding up, the assets of the company are sold and all the debts of the company are paid off. An administrator, called the liquidator, is appointed to take control of the winding up process of the company. If any surplus is left, the liquidator would distribute it among the owners of the company in accordance to their rights. In case the assets are insufficient, the owners may have to compensate if the agreement so specifies.
Any company does its business under the regulations set by the Act. It needs to follow the provisions of the act and work in accordance to the memorandum and articles set to govern the company's activities. It has to consider the interests of its owners, creditors as well as the public. If the company trespasses any of the provisions of the act, it may lead to winding up of the company. A company may have to face winding up proceedings on many accounts. The company could be wound-up either by a tribunal (through court) or voluntarily by the members of the company.
A sick or potentially sick company can file a petition for voluntary winding up of company. The company must seek clearance for closure from the government. A company referred to the Board of Financial and Industrial Reconstruction can be wound-up after the order is passed by the board. Once the amount of settlement (assets minus liabilities) is determined, the permission of RBI is taken to make the final settlement to the owners of the company.
Compulsory winding up of a company may arise owing to many issues. Winding up application can be filed against the company on the grounds of unlawful activities, or inability to pay the debts, or reports are not filed as provided or not followed memorandum and articles etc. It is greatly affected by the circumstances and facts of the case. However, in the view of public, winding up of company is seen as the company being financially not good. So, the company must try to avoid the situations which lead to a wrong impression on the minds of the public.
After the entire affair is completed, the company is dissolved and its name is removed from the register of companies. The company's legal personality comes to an end and it ceases to exist. As per Section 425 of the Act, the modes of winding up are:
A company may be wound up by the court in following situations. Here, the court means "High Court".
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:
What Orders, The Court May Pass ?(SEC 443)
The court may pass any one of the following orders on hearing the winding up petition.
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 :
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 :
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.
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:
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 :
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;
Who shall carry out the winding up procedure? & What shall be the procedure?
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)
Creditors Voluntarily Winding Up
Who shall carry out the winding up procedure ? & At shall be the procedure ?
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:
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.
Priority Indisposing Liabilities [529 A & 530]
When the company is wound up, by any mode, the liabilities shall be discharged in following priority.
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 (Continued.)
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 :-
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 :
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.
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.
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.
Hi,Joint Partners who manage the company and will be responsible jointly with Incorporation in Qatar for its liabilities in their private properties. All the Joint Partners should be the natural citizens of the State.Thanks.....
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