An Overview on Winding Up of a Company
Winding up of a Company is a process of putting an end to the life of a company by shutting or closing down the company. It is a proceeding using which a company is dissolved, and in the course of such dissolution its assets are collected, its debts are paid off out of the assets of the company or from contributions by its members, if necessary. If any surplus is left, it is distributed among the members by their rights.
The main purpose of winding up of a company is to realize the assets and pay the debts of the company expeditiously and fairly by the law.
Modes of Winding up of a Company (Private Limited Company)
- Compulsory winding up or Winding up by Tribunal
- Voluntary winding up
- Member’s Voluntary winding up
- Creditor’s Voluntary winding up
Winding up of a Company by Tribunal: Grounds
A Company may be wound up on the following grounds:
- If the company has, by special resolution, resolved that the company be wound up by the Tribunal;
- If the company has acted against the interest of the security of the State and the sovereignty and integrity of India;
- If the Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent/unlawful manner;
- If the company has not filed or has made any default in filing of financial statements or annual returns with the Registrar for immediately preceding five consecutive financial years;
- Where the company fails to pay off its debts or any execution decree has been passed or where a tribunal has a reason to believe that the company won’t pay off any debts;
- If the Tribunal is of the opinion that it is just and equitable that the company should be wound up.
Grounds on which a Company may be Wound up Voluntarily
- If the company passes a resolution for winding up of the Company.
- If the period fixed for the duration of the company by the articles has expired.
Procedure for Winding up of a Company by Tribunal
The procedure is as mentioned below:
- The petition has to be filed by the creditor to the tribunal for the winding up of a company in Form No. NCLT. 1 and any attachments have to be accompanied in Form No. NCLT. 2 which has to be verified by an affidavit in Form No. NCLT. 6
- The tribunal on receipt of such petition and application for winding up shall pass an order, within 90 days from the date of presentation of the petition.
- The tribunal can also dismiss the application by giving notice in Form No. NCLT. 5 to the opposite party before appointing a provisional liquidator.
- If the tribunal is satisfied that it is a prima facie case for winding up, the tribunal shall pass an order to direct the company which is bound to be wound up, to files its objections along with a statement of affairs within 30 days of the order. The tribunal may grant the extension of 30 days in special circumstances.
- The directors and other officers of the company have to submit the completed and audited books of accounts of the company within 30 days of such order being passed by the tribunal.
- The tribunal shall appoint a provisional liquidator or a company liquidator at the time of passing an order for winding up of the company and such liquidator shall file a declaration within 7 days from the date of appointment about any conflict of interest or lack of independence in respect of his appointment.
- The tribunal may appoint the provisional liquidator as the company liquidator for the conduct of proceedings for the winding up of a company and the liquidator so appointed can also be removed and replaced for reasons of misconduct or fraud.
- After the tribunal appoints a provisional liquidator or passes an order for winding up, the tribunal within 7 days from the date of passing such order, intimate the same to the liquidator and the registrar.
- Then the registrar shall endorse the same and notify about the order in the official gazette.
- Within 3 weeks of such order of winding up, the Company Liquidator shall make an application to the tribunal to constitute a Winding Up Committee to assist and monitor the process of liquidation.
- Winding Up Committee shall submit the final report to the tribunal.
- No other legal suit or proceeding can commence against the company once the tribunal has passed an order for winding up.
- The Company liquidator has to submit a report to the tribunal within 60 days of the passing of an order of winding up and the report must consist of particulars as mentioned in the section.
- After properly scrutinizing the report by the company liquidator, the tribunal shall fix a time within which the entire proceedings shall be completed, and the company shall be dissolved.
- The tribunal may also order the sale of the company and the sale committee may be appointed to assist the company liquidator in this matter.
- Once the order of winding up has been passed, the company liquidator shall take into his control and custody all the property, effects or actionable claims to which the company is entitled, and the tribunal shall pass an order to set up an advisory committee to advise the liquidator and report to the tribunal.
- The liquidator has to maintain proper books of accounts which shall be audited by the tribunal.
- The tribunal may call the contributors to pay to the extent of their liabilities or to set-off.
- The tribunal has to examine the directors and promoters of the company liquidator who have reported any fraud.
- Once the affairs of the company have been completely wound up, the company liquidator shall make an application to the Tribunal for dissolution of such company and within 30 days, a copy of the order has to be sent to the registrar by the company liquidator and the same shall be recorded in the register by the Registrar.
After the winding up of a company, the company has to distribute the excess among the shareholders and then it ceases to exist. In case you wish to know more on this you are advised to contact Enterslice.
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