This notes on Winding Up of Companies has been prepared as per the latest amendments of the Companies Act. This Notes is applicable for students appearing for both CA Final November 2017 and also May 2018 exams. Note that, this notes also contain section numbers for each provision. Quoting Section numbers in exam is very critical and will surely fetch you extra marks.
Situations when Tribunal may Windup (S.271)
- Co Passed Resolution
- Co involved in Fraud
- Default in Filing Returns
- Suo-moto by Tribunal
- Co acted against Integrity of India
Petition for Winding up to Tribunal can be made by (S.272)
- the company
- any contributory
- the Registrar
- CG or SG
Petition by contributory:
A contributory shall be entitled to present a petition only if they have held shares for at least six months during the eighteen months immediately before the commencement of the winding up.
Petition by registrar:
Registrar shall obtain the previous sanction of the Central Government to the presentation of a petition
In response to Petition, Tribunal may : (S.273)
- dismiss it
- make any interim order
- appoint a provisional liquidator
- make an order for the winding up
This order shall be made within 90 days from the date of presentation of the petition.
Directions for Filing Statement of Affairs:
Where a petition is filed by a person other than the company, Tribunal may ask the company to object and file Statement of Affairs within 30 days.
Contravention to file SoA is subject to a fine of Rs.25,000 to Rs.5 Lakhs.
Company Liquidators and their Appointments (S.275)
At the time of passing an order for winding up, Tribunal shall appoint a Provisional Liquidator, from the list of insolvency professionals registered under the Insolvency and Bankruptcy Code, 2016.
On appointment, the PL shall file a declaration within 7 days, disclosing conflict of
interest or lack of independence in respect of his appointment.
Ground for Removal and Replacement of Liquidator (S.276)
- Fraud or misfeasance
- Professional incompetence
- Conflict of interest
- Inability to act as provisional liquidator
Intimation to Liquidator and Registrar (S.277)
With in 7 days, the Tribunal makes an order for appointment of provisional liquidator or the winding up of a company, It shall be intimated to the Company Liquidator and the ROC.
In case of listed companies, ROC shall intimate the matter to the SEBI.
The winding up order shall be deemed to be a notice of discharge to the officers, employees and workmen of the company.
Effect of Winding up Order (S.278)
The order for the winding up of a company shall operate in favour of all the creditors and all contributories of the company as if it had been made out on the joint petition of creditors and contributories.
Stay of Suits etc on Winding Up Order (S.279)
Any Suit or legal proceeding against the company, can be commenced after winding up order/appointment of liquidator only with permission of tribunal.
Jurisdiction of Tribunal (S.280)
The Tribunal has power either to accept or dispose of any Suit, Claims or Fast Track Merger.
Submission of Report by Company Liquidator (S.281)
With in 60 days from the winding up order, the Liquidator shall submit report containing the following details of the Company:
- Contingent Liabilities
- Secured Debts
- Contributories and Dues
- Trademarks and IPs
- Holding and subsidiary Companies
- Pending Legal Cases
Directions of Tribunal on Report of Liquidator (S.282)
The Tribunal shall, on consideration of the report of the Company Liquidator, fix a time limit within which the entire proceedings shall be completed and the company be dissolved.
Tribunal may appoint a Sale Committee consisting of Promoters and Creditors, who will then assist the Liquidator in the process of Sale.
Custody of Company Properties (S.283)
All the property and effects of the company shall be deemed to be in the custody of the Tribunal from the date of the order for the winding up of the company.
Settlement of List of Contributories and Application of Assets (S.285)
A person who has been a member shall not be liable to contribute, if he has ceased to be a member for the preceding one year or more before the commencement of the winding up,
If such debt or liability contracted after he ceased to be a member.
Obligations of Directors and Managers (S.286)
A person who has been a director or manager shall not be liable to make further contribution, if he has ceased to hold office for a year or earlier before the commencement of the winding up.
Advisory Committee (S.287)
The advisory committee appointed by the Tribunal shall consist of not more than 12 members, being creditors and contributories.
The Tribunal will hold the meeting with creditors and contributories with in 30 days from date of winding up order to appoint the Advisory committee.
Submission of Periodical Reports to Tribunal (S.288)
Liquidator shall make Reports Each Quarter, with respect to the progress of the liquidation.
Powers and Duties of Company Liquidator (S.290)
- To carry on the business of the company
- Sell Properties
- Sell whole of the undertaking
- Start of Defend any Suit
- Settle claims of Creditors
- Draw Negotiable Instruments
Professional Assistance to Company Liquidator (S.291)
With Approval of Tribunal, the CL may appoint one or more chartered accountants or company secretaries or cost accountants or legal practitioners for assistance.
Audit of Company Liquidator’s Accounts (S.294)
Atleast twice during each year,the Liquidator shall submit the Receipts and Payments Account to the Tribunal.
When the accounts of the company have been audited, the CL shall file one copy with the Tribunal and other to the ROC (To CG too, if it is a Govt Company).
Payment of Debts by Contributory and Extent of Set Off:
At any time after passing the Winding Up order, Tribunal may order any contributory to pay any money due to the company.
Such money shall be set off when future calls on shares are made.
Power to Order Examination of Promoters, Directors etc:
If the Company Liquidator has reported that fraud has been committed by any person, the Tribunal may direct such person or officer shall attend on a day appointed by it.
The person shall be examined on oath and shall answer all such questions as the Tribunal may put, or allow to be put, to him.
Arrest of Person Trying to Abscond India (S.301):
If Tribunal is satisfied that a contributor or a person having property, accounts or papers of the company is about to leave India, or Abscond, he shall be ordered to be the contributory to be detained and his movable property to be seized.
Dissolution of Company by Tribunal (S.302):
Based on application by the Liquidator or on its own motion, Tribunal may direct the company to be Dissolved.
It shall then be intimated to the ROC within 30 days.
Overriding Preferential Payments (S.326)
In the winding up of a company, debts shall be paid in priority to Workmen Dues and Secured Creditors, than all other debts (Debts relating to last two years only).
Such debts shall be cleared within 30 days from sales of assets.
Preferential Payments (S.327)
- Statutory Dues (taxes etc)
- Wages and Salaries
- Accrued Holiday Remunration
- Dues under ESI Act
- Dues under Workmen Compensation Act
- PF and Pension
Fraudulent Preference (S.328)
If Company has converted Certain Creditors such that, they are given preferential payment during winding up, Tribunal shall order the transaction to be invalid.
Disclaimer of Onerous Property:
Onerous Properties are those that have heavy obligations and are very hard to sell.
Within 12 months from date on Winding up order, the Liquidator shall with the approval of Tribunal, DISCALIM the property.
Offences by Officers of Companies in Liquidation (S.336)
- No proper disclosure of assets
- Does not Deliver Books of Accounts in his control
- Conceals information
- Material omissions in Statements
- False representations
- Displays fictitious losses or expenses
- shall be punishable with imprisonment of 3 years to 5 years.
Penalty for Frauds by Officers (S.337)
Any officer of the company, who have committed any fraud to the creditors shall be punishable with:
Imprisonment – 1-3 years
Fine – Rs.1 Lakh to 3 Lakhs
Liability where proper Accounts are not Kept (S.338):
Imprisonment – 1-3 years
Fine – Rs.1 Lakh to 3 Lakhs
Power of Tribunal to Assess Damages against Delinquent Directors (S.340)
Tribunal may order any Manager or Director of the Company, who has been guilty of any misfeasance or breach of trust in relation to the company, to repay or restore the money or property.
Also Fine – Rs.25,000 to Rs.1 Lakh
Statement that Company is in Liquidation (S.344)
Every Invoice or Order of Goods issued by the Company or Liquidator or Manager, shall contain a statement that the company is being wound up.
Any contravention is subject to Fine of Rs.50,000 to Rs.3 Lakhs
Information as to Pending Liquidations (S.348)
If the winding up of a company is not concluded within 1 year after its commencement, the Liquidator shall file an Audited Report to the Tribunal with in 2 months.
Company Liquidator to deposit money into Scheduled Bank (S.350):
If any Company Liquidator at any time retains for more than 10 days a sum exceeding Rs.50,000, shall pay interest on the amount so retained in excess, at the rate of twelve per cent.
Company Liquidation Dividend and Undistributed Assets Account (S.352):
Any moneys payable to creditors or contributories are unpaid for more than 6 months, such moneys shall be deposited into a separate account called Company Liquidation Dividend and Undistributed Assets Account maintained in a scheduled bank.
Summary Procedure for Liquidation (S.361)
Where the company to be wound up has assets of book value not exceeding 1 Crore, Central Government may order for summary procedure.
The Official Liquidator, appointed by the CG, shall forthwith take into his custody or
control all assets.
The Official Liquidator shall, within 30 days of his appointment, submit a report to the Cg, if any fraud is committed in the affairs of the company.