Winding Up procedure Before Tribunal and High Court U/S 433, 434 & 439 of Companies Act 1956

Dear investors
At Present if Investors wants some percentage of money back Only solution before them is winding up of the Company Under Section 433, 434 & 439 of The Companies Act 1956.

Winding UP:
Winding up is a means of dissolving a company. In that event, its assets are realized and applied in payment of its debts, and after satisfaction of its debts, the balance, if any, is paid back to the members in proportion to the contribution made by them to the company.
According to Section 425 of the Indian Companies Act, 1956, the winding up of a company can be done by the Tribunal or can be wound up voluntarily.
Section 433(e) of Indian Companies Act, 1956 deals with the tools available to the creditors where the company is unable to pay its debts. The creditors in that case can approach the court of law to get the company wound up in order to recover its debt.
The sub section above does not confer on any person a right to seek an order that a company shall be wound up. It confers power to the court to pass an order of winding up in appropriate cases, i.e. the remedy is discretionary and cannot be claimed as a matter of right. However, the right to petition, being a statutory right cannot be excluded by a clause in the articles of association. A company will not be wound up merely because it is unable to pay its debts so long as it can be revived or resurrected by a scheme or arrangement or it still has prospects of coming back to life.
A debt for a company must be determined or definite sum of money payable immediately or at a future date. A conditional or contingent liability is not a debt, unless the contingency or condition has already happened. Where a company acts as a guarantor for repayment of a loan, and the principle debtor has committed default, the amount guaranteed is a 'debt' in respect of which a petition for winding up will lie under this section. When a dividend is declared by the company, it becomes a debt due by the company and entitles the shareholder to apply under this section in case the company is unable to pay the amount of the dividend. A winding up petition cannot be sustained on the basis of a debt which became due before prior to the company's incorporation even if one of the objects of the company is to was to pay off the debt. The court should not go in a winding-up petition into disputed questions of fact which cannot be sorted out without leading evidence. A claim for damages for breach of contract is not in the category of a debt due. A petition filed by a secured creditor just to exert pressure on the company is liable to be dismissed.

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.
1. Dismiss it, with or without costs
2. Make any interim order, as it thinks fit, or
3. 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 :
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 :
o Particulars of Capital
o Cash and negotiable securities
o Liabilities
o Movable and immovable properties
o Unpaid calls, and
o 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)

SEE SECTION IN BROAD WAY
433. Circumstances in which company may be wound up by Tribunal.

A company may be wound up by the Tribunal,-

(a) if the company has, by special resolution, resolved that the company be wound up by the Tribunal;

(b) if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting;

(c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year;

(d) if the number of members is reduced, in the case of a public company, below seven, and in the case of a private company, below two;

(e) if the company is unable to pay its debts;

(f) if the Tribunal is of the opinion that it is just and equitable that the company should be wound up;

(g) 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;

(h) if the company has acted against the interests of the sovereignty and integrity of India, the security of the State, freindly relations with foreign States, public order, decency or morality;

(i) if the Tribunal is of the opinion that the company should be wound up under the circumstances specified in section 424G:

Provided that the Tribunal shall make an order for winding up of a company under clause (h) on application made by the Central Government or a State Government]


434. Company when deemed unable to pay its debts.

(1) A company shall be deemed to be unable to pay its debts-

(a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding 1[one lakh rupees] then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor;

(b) if execution or other process issued on a decree or order of 2[any Court or Tribunal] in favour of a creditor of the company is returned unsatisfied in whole or in part; or

(c) if it is proved to the satisfaction of the 3[Tribunal] that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the 3[Tribunal] shall take into account the contingent and prospective liabilities of the company.

(2) The demand referred to in clause (a) of sub-section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by any agent or legal adviser duly authorised on his behalf, or in the case of a firm, if it is signed by any such agent or legal adviser or by any member of the firm.


439. Provisions as to applications for winding up.

(1) An application to the 1[Tribunal] for the winding up of a company shall be by petition presented, subject to the provisions of this section,-

(a) by the company; or

(b) by any creditor or creditors, including any contingent or prospective creditor or creditors; or

(c) by any contributory or contributories; or

(d) by all or any of the parties specified in clauses (a), (b) and (c), whether together or separately; or

(e) by the Registrar; or

(f) in a case falling under section 243, by any person authorised by the Central Government in that behalf.

2[(g) in a case falling under clause (h) of section 433, by the Central Government or a State Government.]

(2) A secured creditor, the holder of any debentures (including debenture stock), whether or not any trustee or trustees have been appointed in respect of such and other like debentures, and the trustee for the holders of debentures, shall be deemed to be creditors within the meaning of clause (b) of sub-section (1).

(3) A contributory shall be entitled to present a petition for winding up a company, notwithstanding that he may be the holder of fully paid-up shares, or that the company may have no assets at all or may have no surplus assets left for distribution among the share-holders after the satisfaction of its liabilities.

(4) A contributory shall not be entitled to present a petition for winding up a company unless-

(a) either the number of members is reduced, in the case of a public company, below seven, and, in the case of a private company, below two; or

(b) the shares in respect of which he is a contributory, or some of them, either were originally allotted to him or have been held by him, and registered in his name, for at least six months during the eighteen months immediately before the commencement of the winding up, or have devolved on him through the death of a former holder.

(5) Except in the case where he is authorised in pursuance of clause (f) of sub-section (1), the Registrar shall be entitled to present a petition for winding up a company only on the grounds specified in 3[clauses (b), (c), (d), (e) 4[, (f) and (g)] of section 433:

Provided that the Registrar shall not present a petition on the ground specified in clause (e) aforesaid, unless it appears to him either from the financial condition of the company as disclosed in its balance-sheet or from the report of 5[a special auditor appointed under section 233A or an inspector] appointed under section 235 or 237, that the company is unable to pay its debts:

Provided further that the Registrar shall obtain the previous sanction of the Central Government to the presentation of the petition on any of the grounds aforesaid.

(6) The Central Government shall not accord its sanction in pursuance of the foregoing proviso, unless the company has first been afforded an opportunity of making its representations, if any.

(7) A petition for winding up a company on the ground specified in clause (b) of section 433 shall not be presented-

(a) except by the Registrar or by a contributory; or

(b) before the expiration of fourteen days after the last day on which the statutory meeting referred to in clause (b) aforesaid ought to have been held.

(8) Before a petition for winding up a company presented by a contingent or prospective creditor is admitted, the leave of the 1[Tribunal] shall be obtained for the admission of the petition and such leave shall not be granted- ;

(a) unless, in the opinion of the Tribunal/ Court, there is a prima fade case for winding up the company; and

(b) until such security for costs has been given as the 1[Tribunal] thinks reasonable.

Relevant Important Material:

(i) The right to apply for winding up of a company being a creature of statute, none other than those on whom the right to present a winding up petition is conferred by the statute can make an application for winding up of a company; National Textiles Workers’ Union v. P.R. Ramakrishnan, 1983 (53) Comp. Cas. 184: 1983 (1) Com LJ (SC) 1: AIR 1983 SC 759.

(ii) No statutory right is conferred on the workers to present a petition for winding up of a company, they therefore cannot prefer a winding up petition against a company; National Textiles Workers’ Union v. P.R. Ramakrishnan, 1983 (53) Comp. Cas. 184: 1983 (1) Com LJ (SC) 1: AIR 1983 SC 75.

(iii) A winding up order will not be made on a creditor’s petition if it would not benefit him or the company’s creditors generally; Madhu Sudan Gordhandas & Co. v. Madhu Woollen Industries Pvt. Ltd., 1972 (42) Comp. Cas. 125: AIR 1971 SC 2600.

(iv) A Court Receiver is a creditor within the meaning of section 439 (1) (b) of the Indian Companies Act and therefore, is competent to maintain the petition for winding up of the company; Harinagar Sugar Mills Co. Ltd. v. M.W. Pradhan (now G.V. Dalvi) Court Receiver, High Court, Bombay, 1966 (36) Comp. Cas. 426: 1966 (2) Com LJ 17: AIR 1966 SC 1707.

Winding up By The Court

A company may be wound up by the court in following situations. Here, the court means "High Court".

1. 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.
2. If there is a default, in holding the statutory meeting or in delivering the statutory report to the Registrar.
3. 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)]
4. 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.
5. 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.
6. If the number of members, in a public company is reduced to less than seven, and in case of private company less than two.
7. 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)
8. 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.
9. 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.

Thanks & Regards
Air Law Associates
Dr. Zulfiqar Ali Khan
Advocate
No.462, Addl Law Chambers
High Court of Madras
Chennai-600 104
MB: 9884102961