WINDING UP BY TRIBUNAL

Feba Sara Vinu & Varnika Tyagi*

I. ABSTRACT

This research paper aims to establish a comprehensive understanding of an essential yet lesser-known
topic that falls under the Winding-up of the Company's ambit. In this study, we will see when the
Company must wind up under what circumstances the Company can wind up and the procedure for
winding up.

According to Section 270 of the Companies Act, 2013, a company can be wound up in 2 way: First by
a tribunal, second by voluntarily winding up. The provision talks about the procedure for winding up by
Tribunal and voluntarily winding up. In winding up by Tribunal, or we can say winding up by the Court,
the petition must file in the Court. It can be filed by the company members or a person other than the
Company. If it deems fit, the Tribunal can dismiss the petition or pass an interim order or appoint a
provisional liquidator as it deems appropriate. All the orders shall be given within 90 days of the filing
of the petition. This all process of winding up will be discussed in detail below.

The paper provides a deeper insight into the understanding of the concepts and some of the slight
demarcations that bring a massive change on the topic being applied practically. It also establishes the
distinguished scope of the issues regarding the Indian laws and American Laws.

Keywords: Winding up, provisional liquidator, liquidation, Tribunal.

II. INTRODUCTION

Evolution and Development: The history of company liquidation law is bound up with the gradual
evolution of the limited liability and the corporate personality extension to the trading concerns known
in the nineteenth century as joint-stock companies.

Three phases are discernible during this development, viz.

1. The first covers the period up to 1844,

2. The second that between 1844 and 1856, and

3. The third, which may be regarded as the era of modem company law, commences with the passing
of the joint-stock companies Act, 1856, and extends to the present day.

During the 17 and 18 centuries, a corporate body came into existence by a Royal charter or by a
particular Act of parliament. Both these methods were costly and dilatory, consequently, to meet the
nation's growing commercial needs. The British parliament has passed an act known as the Bubbles
Act of 1720, which instead of prohibiting fraudulent companies' formation, made all the business of
promoting companies illegal. This proved to be a great set back to the expanding trade and commerce.
The Act was not practically applicable as it remains on the statute book for a long time. It was repeated
in 1825. But only in 1844, the registration and incorporation of the significant partnership were made
compulsory. The joint-stock companies Act of 1844 was the first statute that makes registration
mandatory, but the unlimited liability was also there. The right to trade with limited liability was granted
in 1855, and a year succeeding, in 1856, the entire law associating to such companies was
incorporated. Since the companies' acts have been considerably revised, extended and developed

* Feba Sara Vinu is a third-year student at the University of Petroleum and Energy Studies, Dehradun. and Varnika Tyagi is a
fthird-year student at the University of Petroleum and Energy Studies Dehradun, (Authored on 14th April 2021).
upon until we get to the English Acts of 1948 and 1985 and 1989. The Indian Company Law was
commenced with the Joint Stock Companies Act of 1850. Since then, the collective process of
amendment and incorporation has brought us to the most far-reaching part of the legislation, the
Companies Act 1956. But even so, it is not exhaustive of 'all the methods of incorporating business
interests. A specific Act of parliament can still incorporate a company for business or commercial goals.
The life Insurance Corporation of India, for instance, has been incorporated for business in Life
Insurance under the life Insurance Companies Act of 1956. Institution 80 created are better known as
'corporations". Business firms or other institution incorporated under the Companies Act is known as
companies.

III. PROVISIONS

Winding up by Tribunal: The Company may require winding up by the Tribunal under Section 271 2 of
the Company Act below the following conditions:

• In the situation where the Company does not pay the debts, the debt of the creditor outdoing
Rs 1 lakhs is overdue and due by the Company in 21 days from the due date, or any
accomplishment decree is given in support of the creditor or Tribunal has a judgment that
Company will not pay off any debts later the Company would be responsible toward winding
up.

• If the Company has made the provisions by transferring, a special resolution that wound up is
executed by the Tribunal.

• If no revival and rehabilitation are done in sick companies, the Tribunal may order for a
company's winding up.

• In case the Company is formed fraudulently, or it has reason to believe that the business activity
is conducted fraudulently. The Company stands liable to be wound up by the Tribunal.

• If the Company's formation is for any unlawful purpose, or the Company's management is
chargeable of mischief or misfeasance, then winding up is required by the Tribunal.

• The Company declines to present annual records and monetary statements of the last five
financial years continuously. The registrar made the company debtor and liable for winding up.

• If the Tribunal considers that a company's winding up is necessary for good faith.

Petition to be filed by: Subject to the provisions of Section 272 3 of the Companies Act, the following
can file the petition for winding up of a company:

• A company creditor of the Company holding the debentures.

• Shareholders who are a holder of the paid-up shares.

• Prospective creditors whose debts are also unpaid.

• Registrar

• Liquidators

2
Section 271, Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).
3
Section 273, Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).
 • The person authorized on behalf of the State or central government.

Procedure for winding up Tribunal:

• The petition of the winding up of a company is given before the Tribunal when accompanied by
the statement of affairs.

• The creditors need the permission of the Tribunal before making a petition for the winding-up
of the Company. A Tribunal may not admit the petition unless there is a prima facie reason for
the Company's liquidation.

• The copy of the petition also must be filled before the registrar, and then the registrar must
submit his opinion before the Tribunal within 60 days of the admission of the petition under
Section 2724 .

• The petition must be filed as said in form NCLT 1 and the attachments in form NCLT 2 with the
affidavit of the verification in form NCLT 6, and this is according to rule 34.

• The Tribunal, therefore, can pass an order of winding up under Section 273 5 within 90 days of
the petition's presentation and later can make an interim order for the appointment of the
liquidator.

• In Section 2746 if the Tribunal has prima facie reason to pass an order for winding up a
company, it can do so and further, and the objection can be raised within 30days of the order.
The directors must submit the books of accounts to the liquidator within 30 days of the order
passed. The director is liable for the fine if he fails to do so under this section.

• The official liquidator has the right to file a declaration under section 275 7 within seven days in
case of a conflict of interest regarding his appointment. The same liquidator can also be
removed in case of misconduct, fraud, misfeasance, or professional incompetence under
Section 2768

• The registrar under Section 277 9 must notify in the official gazette about the Company being
wound up.

• After the Company's winding up, no suits and legal proceedings would be entertained against
the Company as given under Section 27910. The Tribunal has jurisdiction to dispose of pending
cases of the Company under Section 28011.

• The liquidator then has to submit a report under Section 281 to the Tribunal within 60 days of
a company's winding up. Under Section 282, the entire proceedings for the dissolution must be
completed in a specified time.

• The Company is liable to sell all the assets and pay to creditors first and remaining to
shareholders. If the Company has involved in fraud, then criminal proceedings will take place
against the persons involved in the fraudulent activities.

4
Section 272, Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).
5
Section 273, Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).
6
Section 274, Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).
7
Section 275, Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).
8
Section 276, Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).
9
Section 277, Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).
10
Section 279, Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).
11
Section 278, Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).
Commencement of the winding up of a company:

• As per Section 35712, the winding up of a company takes place by granting the petition to the
Tribunal.

• The Company then can pass the resolution for the voluntary winding up, and the
commencement of the winding-up shall be deemed as soon as the solution has been given.

• If the Tribunal then believes that no fraud or mistake has been made, then the procedure of
voluntarily winding up is considered valid as per the provisions.

• In any other case, the winding up of a company is considered soon as the petition's presentation
before the Tribunal.

Terms of Winding up and Dissolution:

• The terms "Winding up" and "Dissolutions" are the same. But the legal indications of these two
phrases are considerably diverse, and there are fundamental differences between them
concerning the legal procedure included. The prominent features of analysis are proffered
below:

• The complete method for making about a lawful end to a company's life is divided into two
stages – ''winding up'' and ''dissolution''. Winding up is the first stage in which assets are
realized, liabilities are paid off, and the surplus is distributed among its members. Dissolution
is the final stage whereby the law withdraws the existence of the Company.

• The liquidator appointed by the Company or the Court carries out the winding-up procedures,
but the order for demise can be given by the Court only.

• According to the CA, the liquidator can represent the comp in the method of winding up. This
can be arranged till the order of dissolution is given by the Court. Once the Court gives
dissolution orders, the liquidator can no longer represent the Company.

• Creditors can prove their debts in the winding-up but not on the dissolution of the Company.

• Winding up in all cases does not end in dissolution. After giving all the creditors, there may yet
be a surplus; a company may earn profits during beneficial winding up; there may be a scheme
of compromise with creditors while the Company is in winding up and in all such cases, the
Company will in all chance come out of winding up and hand over back to shareholders/senior
management. A dissolution is an act that puts an end to the life of the Company. Winding up is
dealt from Section 27013 to 36514 of Companies Act, 2013.

IV. JUDICIAL PRONOUNCEMENT

1. Reliance Infocomm Limited v. Sheetal Refineries Private Limited15

12
Section 357, Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).
13
Section 270, Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).
14
Section 365, Companies Act, 2013, No. 18, Acts of Parliament, 2013 (India).
15
Reliance Infocomm Ltd. and Ors. vs. Sheetal Refineries Pvt. Ltd. MANU/AP/0411/2007
 According to the Companies Act, 2013, winding up applications could be made based on
"inability to pay debts". In any case, this is presently feasible under The Insolvency and
Bankruptcy Code, 2016. It should be noticed that, if a petition is made to NCLT with the ground
under s.271(1)(a), the procedures which NCLT will adopt will be according to the Insolvency
and Bankruptcy Code, 2016, and not just according to the Indian Companies Act, 2013.

2. Indo Rolhard Industries Ltd. Vs. M.K. Mahajan & Anr16.

In this case, a petition was filed by two shareholders for winding up of the appellant company,
which is stated in section 433 of the Companies Act, 1956. The company court, by the
impugned order, admitted the petition, directed the Company to be wound up and, ordered the
citation to be published in the "Legislator" (English) and "Jansatta" (Hindi). The primary issue
was whether the company court could order the Company's winding up without ordering the
petition to be publicized. The Court held that the National Conduits case alludes to Rule 96 of
the Companies (Court) Rules, 1959 ("Company Rules"), which expresses that when an
application for winding up is introduced under the watchful eye of the judge "for directions with
regards to the advertisements to be published and the persons, assuming any, upon whom
copies of the petition are to be served", the judge may guide that notice be given to the
Company before giving directions concerning the ad of the petition. High Court, in this case,
followed the ability to entertain an application by the Company (that in the interest of justice or
to prevent abuse of the process of the Court, the petition for winding up be not promoted), to
Rule 9 of the Company Rules and set out that the Company might make such an application in
any event, when there is an unconditional admission of the petition for winding up. Additionally,
Punjab High Court in Lord Krishna Sugar Mills Ltd. v. Smt. Abinash Kaur observed that in an
appropriate case, the Court could suspend notice of a petition for winding up, forthcoming
disposal of an application for revoking the order of admission of the petition.

3. Pierce Leslie and Co. Ltd v. Violet Ouchterlony 17

In this case, the Hon'ble Supreme Court held that winding up goes before the dissolution. There is no
statutory plan vesting the properties of a separated company in a trustee. It is to be seen that in a broke
down Company, the shareholders cannot be seen as replacements or recipients. On dissolution of a
company, its properties, expecting to be any, vest in the legislature.

V. COMPARITIVE ANALYSIS

What legislation applies to bankruptcies and reorganizations in India?

United States

• The applicable US laws are:

India

• The applicable Indian laws are:

16
Indo Rolhard Industries Ltd. vs. M.K. Mahajan and Ors. MANU/DE/0036/2013
17
Peirce Leslie and Co. Ltd. vs. Violet Ouchterlony Wapshare and Ors. MANU/SC/0221/1968
 • Sick Industrial Companies (Special Provisions) Act, 1985 ("SICA") (applicable to scheduled
industries1 only) and the

The Companies Act provides for three types of winding up: (a) by the Court (b) voluntary (members and
creditors), and (c) subject to the supervision of the Court.

What court(s) are involved in the bankruptcy process? Are there restrictions on the matters that
the Court (s) can deal with?

United States

A Bankruptcy Court will direct a case under the Bankruptcy Code. They are a part of the federal judicial
system. This Court has jurisdiction over all issues emerging under the Bankruptcy Code. If the matter
arrangements with insolvency as a non-core issue, the Bankruptcy Court's authority will be limited, and
this Court, in such a situation, would send their findings to the United States District Court for a last
removal of the matter. Nonetheless, the gatherings may agree to the previous request being passed by
the bankruptcy judge in such a case.

India

Under the Companies Act, a winding-up should be possible in any three after ways:

a) by the Court.
b) voluntary and
c) subject to the supervision of the Court.

VI. CONCLUSION

A company is an artificial legal entity; hence it could not end as a natural person or other entity. The
winding-up is one of the legal procedures through which the life of the Company can be terminated.
Winding up can be compulsory or voluntary. Compulsory winding up occurs when a company is forced,
by law and usually by a tribunal order, to appoint the liquidator for carrying the control of the Company's
assets and adopting the procedure for the winding up of the Company. The Company which is subject
to the wind-up May or not be insolvent. The Insolvency and Bankruptcy Code, 2016 merge and change
the laws relating to organizations' insolvency, association firms, constrained obligation organization into
a single enactment. It intends to give a time-bound resolution and enabled the creditors to initiate the
insolvency resolution process if default happens.

VII. SUGGESTIONS AND RECOMMENDATIONS

In my opinion, the procedure for winding up has enhanced several changes from time immemorial, and
now practically also it has implemented well. If any company does any default, it cannot escape from
the authorities.

We want to suggest that the Company can wound up if the Tribunal think the reason is just and
equitable, but what is this just. Equitable has not been mentioned anywhere only through precedents.
We can see what is and impartial, so there should be specified grounds that are just and equitable so
that there is no ambiguity.