Winding Up Subject to Supervision of Court | Company Law - CLAT PG PDF Download

Winding Up Subject to Supervision of Court

Winding up subject to supervision of court involves the court overseeing the winding-up process, which is initiated by a resolution passed by the members in a general meeting. The court's involvement is limited to specific circumstances, and it may impose special terms and conditions.

Key Points

• Court's Role: The court supervises the winding-up procedure but does not initiate it.
• Resolution by Members: A resolution for winding up is passed by the members in a general meeting.
• Specific Reasons for Court Supervision: The court may supervise the winding-up proceedings for specific reasons and can impose special terms and conditions.
• Petitioners' Liberty: Creditors, contributories, or others have the liberty to apply to the court for relief.
• Voluntary Winding Up: When a company is being wound up voluntarily, any person entitled to petition for compulsory winding up may instead petition for the voluntary winding up to continue under court supervision.
• Fairness to Parties: The petitioner must prove that voluntary winding up cannot continue fairly for all concerned parties.
• Appointment of Liquidator: The court may appoint an additional liquidator or continue with the existing liquidator to ensure security.
• Liquidator's Reporting: The liquidator must file reports on the progress of liquidation with the Registrar every three months.
• Court's Powers: The court may appoint or remove liquidators, including the official liquidator, and enforce calls made by liquidators.
• Liquidator's Powers: The liquidator has the same powers as in voluntary winding up and acts in the best interest of the company.

Winding Up an Unregistered Company

Exclusions from Unregistered Company Winding

• 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 company laws.
• An illegal association formed against the provisions of the Act.

Winding Up of Foreign Companies

• 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.

Provisions Relating to Winding Up of Unregistered Company

• An unregistered company can be wound up by the Tribunal but never voluntarily.
• Circumstances in which an unregistered company may be wound up include:
• 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 its debts.
• If the Tribunal regards it as just and equitable to wind up the company.

Contributory in Winding Up

• A contributory is 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 company;
• Any sum for adjustment of rights of members among themselves;
• Any cost, charges, and expenses of winding up;
• On the making of a winding up order, any legal proceeding can be filed only with the leave of the Tribunal.

Locus Standi of a Contributory in Winding Up Petition

Introduction to the Legal Case

• The Supreme Court of India addressed a legal issue in the case of Severn Trent Inc. v. Chloro Controls (India) Pvt. Ltd., focusing on the right of a contributory to file a petition for winding up a company.
• The case involved the interpretation of Section 439(4)(b) of the Companies Act, 1956.

Understanding Section 439(4)(b)

• Section 439(4)(b) stipulates that a contributory can only present a petition for winding up if the shares they hold meet certain criteria:
• Shares must be either originally allotted to the contributory, registered in their name for a specific period, or devolved on them through the death of a former holder.

Contentions in the Case

• Severn Trent, the appellant, acknowledged that the first criterion (original allotment) was not applicable.
• They argued that the shares should be considered under the criteria of being registered in their name or having devolved through the death of a former holder.

Key Arguments

• Registration Requirement: Severn Trent contended that the requirement for shares to be registered in the contributory's name was not always mandatory. They argued that in certain situations, this requirement could be waived.
• Devolution of Shares: Severn Trent also claimed that the shares could be considered to have devolved upon them through the "death" of the former holder. They argued that after the merger between Capital Control (Delaware) and Severn Trent, the former had effectively ceased to exist, and its shares had devolved to the latter.

Court's Decision

• The Supreme Court ruled that the language of Section 439 was clear and could not be altered. For a contributory to fall under the category of holding shares, the shares must be both held and registered in their name.
• Section 439(4) was determined to be a comprehensive guideline, leaving no room for equitable considerations to override the strict reading of the law.

Key Takeaways from the Case

• The case is significant as it provides a clear Supreme Court ruling on the locus standi of a contributory in winding up petitions.
• It establishes that Section 439(4) is an exhaustive code, and to file a winding up petition, a contributory must strictly adhere to the criteria outlined in the section.
• All categories in Section 439(4)(b) must be interpreted literally and strictly.