BySanjay.K09mbaa44

IntroductionA process whereby all the affairs of the company are

wound up, all its assets are realized, its liabilities paid off and the balance if any is distributed to its shareholders in proportion to their holding in the company.

An administrator called a liquidator, is appointed who takes control of the company, collects its debts and finally distributes any surplus among the members in accordance with their rights.

Winding Up V/s Dissolution

Winding up is a process whereby all assets of the company are realized and used to pay off the liabilities and members.

Dissolution of the company takes place after the entire process of winding up is over. Dissolution puts an end to the life of the company. A dissolution order passed by the Court is like the Death Certificate of the company

Modes of Winding Up

Winding up by the court

Voluntary winding up-Members voluntary winding up Creditors voluntary winding up

Winding up subject to supervision of the court

I. Winding Up by the Court (1/3)A petition for winding up the company must be filed before the court

for winding up under supervision of the Court.

The High Court has the jurisdiction to wind up companies at the place where the registered office of the company is situated. However, the Central Government may empower on any District Court to exercise that jurisdiction, only in respect of small companies with the paid-up capital of not more than Rs. One lakh of rupees and having their registered office within that district.

The High Court may even direct a District Court to retain and continue winding up proceedings which that District Court had no jurisdiction to handle. It may also withdraw any winding up process in a District Court from that Court and proceed with the winding by itself.

I. Winding Up by the Court The following are the situations in which a company might be wounded up

by the court:

1. If the company has passed a special resolution of its being wound up by the Court. It may be mentioned here that without such act cannot be done by the directors themselves. It can be done only if a resolution to this effect has passed at a general meeting of the company. The members can however ratify the act of directors already done.

2. If the company makes default in delivering the statutory report to the Registrar or in holding the Statutory Meeting. A petition under this ground can be made either by the Registrar with the previous approval of the Central Government or by a contributory or after 14 days after the last day on which the statutory meeting should have been held.

3. It does not commence business within one year from its incorporation or it suspends business for a whole year.

Winding Up by the Court4. The number of its members falls before the minimum required

i.e. 2 in case of a private company and 7 in case of a public company.

5. It is unable to pay its debts. A company will be deemed to be unable to pay its debts if: -

(i) If a creditor to whom the company owes more than

Rs.500/- has served a notice on the company in writing demanding that his debt be settled and the company has failed to pay or secure or compound that debt within 3 weeks.

(ii) If it is proved to the satisfaction of the Court that the company cannot pay its debts

(iii) If an execution or other process has not been satisfied by the company.

II. Voluntary Winding Up (1/6)A company may , voluntary wind up it's affairs - if it is unable to carry on it's business, or - if it was formed only for a limited purpose, or - if it is unable to meet it's financial obligation

A company may voluntarily wind up itself, either by passing: - ordinary resolution, where the purpose for which the company

was formed has completed, or the time limit for which the company was formed, has expired or by way of

- special resolution.

Both types of resolution shall be passed in the general meeting of the company (484)

II. Voluntary Winding UpDirectors of the company shall call for a Board of Directors

Meeting, and make a declaration of winding up, accompanied by an Affidavit, stating that;

The company has no debts to pay, or

The company will repay it's debts; if any, within 3 years from the commencement of winding up, as specified in declaration (488)

II. Voluntary Winding Up (Procedure For Members Winding Up)

1. The company shall appoint one or more liquidators, in a general meeting, who shall look after the affair of winding up procedure, and distribution of assets. [ 490 (1)].

2. The liquidator so appointed, shall be paid remuneration for his services, which shall also be fixed in general meeting [490 (2)]. The company shall also give notice of appointment of liquidator to the registrar within ten days of appointment (493).

3. Once the company has appointed liquidator, the powers of Board of Directors, Managing Director, and Manager, shall cease to exists. (491).

4. In case, the winding up procedure, takes more than one year, then liquidator will have to call a general meeting, at the end of each year, and he shall present, a complete account of the procedure, and position of liquidator (496)

II. Voluntary Winding Up

Where the resolution for winding up has been passed, but the Board of Directors are not in a position to give a declaration on the liability of company, they may call a meeting of creditors, for the purpose of winding up. (500)

It is the duty of Board of Directors, to present a full statement of company 's affairs, and list of creditors along with their dues, before the meeting of creditors. [500 (3)]

Whatever resolution, the company passes in creditor's meeting, shall be given to the Registrar within ten days of it's passing. (501)

II. Voluntary Winding Up (Procedure For Creditors Winding Up)

Company in the general meeting [ in which resolution for winding up is passed] , and the creditors in their meeting, appoint liquidator. They may either agree on one liquidator, or if two names are suggested, then liquidator appointed by creditor shall act. ( 502)

Liquidator appointed in general meeting shall act, or He shall act jointly with liquidator appointed by creditor, or Appointing official liquidator, or Some other person to be appointed as liquidator. [502 (2)]The remuneration of liquidator shall be fixed by the creditors, or by the

court. (504)On appointment of liquidator, all the power of Board of Directors shall

cease. (505) In case, the winding up procedure, takes more than one year, then he will

have to call a general meeting, and meeting of creditors, at the end of each year, and he shall present, a complete account of the procedure, and the status / position of liquidation (505).

II. Voluntary Winding Up Distribution of property of company on voluntarily

winding up:Once the company is fully wound up, and assets of the

company sold or distributed, the proceedings collected are:

- utilized to pay off the liabilities - utilized to pay off the creditors in equal proportion - any money left is distributed among members

according to their rights and interests in the company.

III. Winding Up Subject to Supervision Of CourtDifferent from "Winding up by court.“ - The court only supervise the winding up procedure - Resolution for winding up, is passed by members in the general meeting.

- It is only for some specific reasons, that court may supervise the winding

up proceedings. The court may put up some special terms and conditions also.

However, liberty is granted to creditors, contributories or other to apply to court for some relief. (522)

The court may also appoint liquidators, in addition to already appointed, or remove any such liquidator. The court may also appoint the official liquidator, as a liquidator to fill up the vacancy.

Liquidator is entitled to do all such things and acts, as he thinks best in the interest of company. He shall enjoy the same powers, as if the company is being wound-up voluntarily.

The court also may exercise powers to enforce calls made by the liquidators, and such other powers, as if an order has been made for winding up the company altogether by court. ( 526)

1. The Company

2. Any creditor of the Company

3. Any contributory or shareholder.

4. The Registrar may petition for winding up

5. Any person authorized by the Central Government. Under

section 243.

6. The Official Liquidator

Persons may petition the Court for winding up: -

Priority Indisposing off the Liabilities [529 A & 530] When the company is wound up, by any mode, the liabilities

shall be discharged in following priority.Workman's dues. Debts due to secured creditors, in case of insolvency. All taxes, cesses and rates due from the company to the

central government or a state govt. All wages and salary of any employee due within four

months. All holiday remuneration becoming payable to any

employee.All such debts shall be paid in full. If assets are insufficient to

meet them, they shall abate in equal proportions.

Case Study

Workers of M/s. Rohtas

Industries Ltd. Vs

M/s. Rohtas Industries Ltd

PETITIONER:WORKERS OF M/S ROHTAS

INDUSTRIES LTD.

Vs.

RESPONDENT:M/S ROHTAS INDUSTRIES LTD.

DATE OF JUDGMENT - 27/04/1987

A case was filed against M/S ROHTAS INDUSTRIES LTD, (in the

state of Bihar) by its workers to wind up the company, since because

for not paying them their salaries for past seven years, on which by

orders of the Court dated 5.2.86 it was directed that all salaries and

wages-due to the workers from May 1979 onwards shall be paid to

them in 'three installment's.

It appears that they have not yet been paid in spite of the directions

from this Court.

Also the State of Bihar has issued a Notification dated December 12,

1986, wherein this industry has been declared to be a sick industry.

and by this Notification the Bihar Government has declared the said

Industrial :Undertaking shall be and remain a relief undertakings for

one year from the date of issue of the Notification.

Case facts:

Case Facts (cond…)State of Bihar frankly conceded that so far as the liability of

payment of wages to the workers is concerned the State

Government wants that it should be paid.

From the month of May, 1979 till 8th July, 1986 when this

industry closed down an amount of Rs.89,00,000 remains to

be paid to the workers as their salaries and emoluments.

The products produced by this industry which are lying in

stocks are of the value of Rs.91,77,000.

Questions……

1. Under what mode of winding up, does the case

comes under…?

Questions……

1. Under what mode of winding up, does the case

comes under…?

Answer:

Voluntary winding up-

a.) Members voluntary winding up

b.) Creditors voluntary winding up

2. What would be the judgment for the

case….?

2. What would be the judgment for the

case….?

Answer:

No, winding cannot be.., because

1. The company already got a finished product stock value of

Rs.91,77,000, and its liability is only Rs.89,00,000

2. By a Notification the Bihar Government has declared the

Industry as a sick industry & Undertaking shall be and

remain a relief undertakings for one year from the date of

issue of the Notification.

Thank You