Winding up under 2013 Act | Company Law - CLAT PG PDF Download

Introduction

• A private limited company, being an artificial judicial person, has to comply with various legal requirements such as appointing an auditor, filing income tax returns, and submitting annual returns. Failure to meet these compliances can lead to penalties and disqualification of directors from forming another company.
• When a private limited company becomes inactive with no transactions, it is advisable to wind up the company to avoid these issues.

Voluntary Winding Up Process

• Initiation: Shareholders can initiate the voluntary winding up of a company at any time.
• Settling Dues: If there are secured or unsecured creditors or employees, all outstanding dues must be settled.
• Closing Bank Accounts: Once all dues are cleared, the company’s bank accounts should be closed.
• Regularizing Compliance: Any overdue compliance, such as income tax returns or annual filings, must be regularized. Additionally, GST registration should be surrendered.
• Filing Application: After ceasing all activities and surrendering registrations, a winding up application petition can be filed with the Ministry of Corporate Affairs.

Winding Up of a Company by Tribunal

Winding up of a company may be required due to a number of reasons including closure of business, loss, bankruptcy, passing away of promoters, etc. The procedure for winding up of a company can be initiated voluntarily by the shareholders or creditors or by a Tribunal.

As per Companies Act 2013, a company can be wound up by a Tribunal, if:

• The company is unable to pay its debts.
• The company has by special resolution resolved that the company be wound up by the Tribunal.
• The company has acted against the interest of the sovereignty and integrity of India, the security of the State, friendly relations with foreign states, public order, decency or morality.
• The Tribunal has ordered the winding up of the company under Chapter XIX.
• If the company has not filed financial statements or annual returns for the preceding five consecutive financial years.
• If the Tribunal is of the opinion that it is just and equitable that the company should be wound up.
• If the affairs of the company have been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purposes or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and it is proper that the company be wound up.

Voluntary Winding up of a Company

The winding up of a company can also be done voluntarily by the members of the Company, if:

• If the company passes a special resolution for winding up of the Company.
• The company in general meeting passes a resolution requiring the company to be wound up voluntarily as a result of the expiry of the period of its duration, if any, fixed by its articles of association or on the occurrence of any event in respect of which the articles of association provide that the company should be dissolved.

Steps for Voluntary Winding Up of a Company

Step 1: Convene a Board Meeting

• Hold a board meeting with two directors or a majority of directors.
• Pass a resolution with a declaration that the directors have investigated the company’s affairs and believe it has no debts or can pay its debts in full from the proceeds of assets sold during the voluntary winding up.
• Set the date, time, and agenda for a General Meeting of the company, scheduled five weeks after the board meeting.

Step 2: Issue Notices for General Meeting

• Send written notices calling for the General Meeting, proposing the resolutions with an explanatory statement.

Step 3: Pass Resolution in General Meeting

• In the General Meeting, pass the ordinary resolution for winding up the company by a simple majority or a special resolution by a three-fourths majority.
• The winding up process begins from the date of passing this resolution.

Step 4: Conduct Creditors Meeting

• On the same day or the next day after passing the winding up resolution, hold a meeting of the creditors.
• If two-thirds in value of the creditors agree that winding up is in everyone's interest, the company can be wound up voluntarily.
• If the company cannot meet all its liabilities upon winding up, it must be wound up by a Tribunal.

Step 5: File Notice for Liquidator Appointment

• Within 10 days of passing the winding up resolution, file a notice with the Registrar for the appointment of a liquidator.

Step 6: Public Notice of Resolution

• Within 14 days of passing the winding up resolution, publish a notice of the resolution in the Official Gazette and in a newspaper with circulation in the district where the registered office is located.

Step 7: File Certified Copies of Resolution

• Within 30 days of the General Meeting for winding up the company, file certified copies of the ordinary or special resolution passed in the General Meeting.

Step 8: Wind Up Affairs and Prepare Accounts

• Wind up the company’s affairs and prepare the liquidator’s account of the winding up process, getting it audited.

Step 9: Call Final General Meeting

• Call for the final General Meeting of the company.

Step 10: Pass Special Resolution for Disposal of Records

• Pass a special resolution for the disposal of the company’s books and papers once the affairs are completely wound up and the company is about to be dissolved.

Step 11: File Accounts and Application for Dissolution

• Within two weeks of the final General Meeting, file a copy of the accounts and an application to the Tribunal for an order dissolving the company.

Step 12: Tribunal Dissolution Order

• If the Tribunal is satisfied, it will pass an order dissolving the company within 60 days of receiving the application.

Step 13: File Order with Registrar

• The company liquidator will file a copy of the dissolution order with the Registrar.

Step 14: Registrar Publishes Dissolution Notice

• The Registrar, upon receiving the copy of the Tribunal’s order, will publish a notice in the Official Gazette declaring the company dissolved.

Objectives or Reasons for Winding Up a Company

Avoid Compliance

• A company, being a legal entity formed under the Companies Act, is obligated to maintain regular compliance throughout its existence.
• The winding-up process offers a way to close down an inactive company and escape from ongoing compliance responsibilities.

Fast to Close

• Closing a company in India can be done by filing an application with the Ministry of Corporate Affairs (MCA) within a timeframe of about 3 to 6 months.
• The entire process is streamlined and can be completed online, making it quick and efficient through services like IndiaFilings.

Avoid Fines

• Failing to meet compliance deadlines can result in fines and penalties for a company, including the debarment of Directors from establishing another company.
• Officially winding up an inactive company helps in avoiding these potential fines and liabilities in the future.

Low Cost

• Winding up a company can be more cost-effective compared to maintaining compliance for a dormant company.
• In some cases, it might be cheaper to wind up and later incorporate again when needed. Services like IndiaFilings offer winding up assistance starting from Rs.29899, all-inclusive.

Easy to Close

• A company with minimal or no activities that has adhered to compliance requirements can be closed easily in India.
• If there are any overdue compliance issues, these need to be rectified first, and necessary registrations surrendered, before proceeding with the closure.

Modes of Winding Up

According to Section 270 of the Companies Act 2013, the procedure for winding up a company can be initiated either by the tribunal or voluntarily.

I. Winding Up of a Company by a Tribunal

Under the Companies Act 1956, a tribunal could wind up a company based on reasons such as:

• Suspension of business for one year from the date of incorporation or suspension of business for a whole year.
• Reduction in the minimum number of members as specified in the act (2 for private companies and 7 for public companies).

With the introduction of the Companies Act 2013, the grounds for winding up by a tribunal have changed. A company can now be wound up by a tribunal under the following circumstances:

• When the company is unable to pay its debts.
• If the company has resolved by special resolution that it be wound up by the tribunal.
• If the company has acted against the integrity or morality of India, the security of the state, or has harmed friendly relations with foreign or neighboring countries.
• If the company has failed to file its financial statements or annual returns for the preceding five consecutive financial years.
• If the tribunal finds it just and equitable to wind up the company.
• If the company is involved in fraudulent activities or unlawful business, or if any person or management connected with the company is found guilty of fraud or misconduct.

II. Who Can Apply

According to Section 272, a winding-up petition can be filed in the prescribed form (No. 1, 2, or 3) and submitted in three sets. The petition for compulsory winding up can be presented by the following parties:

• The company
• The creditors
• Any contributory or contributories
• The central or state government
• The registrar or any person authorized by the central government for this purpose

When filing the petition, it must be accompanied by a Statement of Affairs in Form No. 4. The petition should state the facts up to a specific date, not more than 15 days prior to the date of making the statement. The Statement of Affairs should be certified by a Practicing Chartered Accountant. The petition must be advertised in at least two newspapers (one in English and one in a regional language) not less than 14 days before the date fixed for hearing.

III. Final Order and Its Content

The tribunal has the authority to dismiss the petition, make an interim order, or appoint a provisional liquidator until the winding up order is passed. An order for winding up is issued in Form 11.

IV. Voluntary Winding Up of a Company

A company can be wound up voluntarily by mutual agreement among its members if:

• The company passes a Special Resolution for winding up.
• The company passes a resolution in its general meeting for winding up due to the expiry of the period set by its Articles of Association or upon the occurrence of an event specified in the articles for dissolution.

Procedure for Voluntary Winding Up

1. Board Meeting and Resolution:
   • Conduct a board meeting with at least two directors.
   • Pass a resolution with a declaration from the directors that the company has no debt or will be able to pay its debts using the proceeds from asset sales.
2. Notice for General Meeting: Issue written notices calling for a General Meeting to propose the winding-up resolution along with an explanatory statement.
3. Passing the Resolution: In the General Meeting, pass the winding-up resolution by an ordinary majority or a special resolution (3/4th majority). The winding up process starts from the date of passing the resolution.
4. Meeting of Creditors: Conduct a meeting of creditors after passing the resolution. If the majority of creditors agree that winding up is beneficial, the company can be wound up voluntarily.
5. Appointment of Liquidator: Within 10 days of passing the resolution, file a notice with the registrar for the appointment of a liquidator.
6. Notice in Official Gazette: Within 14 days of passing the resolution, give notice of the resolution in the official gazette and advertise it in a newspaper.
7. Filing of Resolutions: Within 30 days of the General Meeting, file certified copies of the ordinary or special resolution passed in the meeting.
8. Liquidator's Account: Wind up the company's affairs, prepare the liquidator's account, and get it audited.
9. Final General Meeting: Conduct a General Meeting of the company.
10. Disposal of Documents: In the final General Meeting, pass a special resolution for the disposal of books and necessary documents when the company's affairs are completely wound up and it is about to dissolve.
11. Application for Dissolution: Within 15 days of the final General Meeting, submit a copy of accounts and file an application to the tribunal for passing an order for dissolution.
12. Tribunal's Order: If the tribunal finds the accounts in order and all compliances fulfilled, it will pass an order for dissolving the company within 60 days of receiving the application.
13. Registrar's Notification: The appointed liquidator will file a copy of the tribunal's order with the registrar. The registrar will then publish a notice in the official Gazette declaring the company dissolved.