Winding up a company is the process of terminating its business operations and liquidating its assets. The company may choose to start the process on its own initiative, or it may be started by an outside party like a creditor. A tribunal may also be used. The purpose of winding up is to bring an end to the company’s operations, discharge its debts, and distribute the remaining assets among its shareholders.
Winding up a company can be a complex and time-consuming process, involving multiple stakeholders such as shareholders, employees, and creditors. It is governed by various laws and regulations, and the process can differ depending on the circumstances and the type of winding up.
In this blog post, we will show you how to wind up a company by tribunal under the Company Act, 2013. We will also present a critical study of the related laws under the Company Act, 2013, with a focus on the role of tribunals in this process.
What is Winding Up by Tribunal?
Winding up by tribunal is a type of compulsory winding up that is initiated by an external entity, such as a creditor, and is usually done through a tribunal. The tribunal is a judicial body that has the power to order the winding up of a company on various grounds, such as:
- The company is unable to pay its debts.
- The company's actions have been detrimental to public order, decency or morality, the security of the state, friendly relations with foreign states, and India's sovereignty and integrity.
- The company has been conducting its affairs in a fraudulent or unlawful manner.
- The company has made a default in filing its financial statements or annual returns for five consecutive financial years.
- The company has been ordered to be wound up by a tribunal under any other law for the time being in force.
- The tribunal is of the opinion that it is just and equitable that the company should be wound up.
The tribunal can also order the winding up of a company on the application of the Registrar of Companies, the Central Government, the State Government, or a person authorized by the Central Government.
The tribunal can appoint a provisional liquidator or a company liquidator to take charge of the company’s affairs and assets, and to carry out the winding up process. The tribunal can also supervise the winding up process and give directions to the liquidator as it deems fit.
The tribunal can also make orders for the dissolution of the company, the distribution of the assets, the settlement of claims, the audit of accounts, and the disposal of records.
What are the Related Laws under the Company Act, 2013?
The Company Act, 2013 is the main law that governs the winding up of a company by tribunal in India. The Act provides for the following provisions related to the winding up of a company by tribunal:
| Section | Provision |
|---|---|
| 271 | Specifies the circumstances under which the tribunal may order the winding up of a company |
| 272 | Specifies the persons who may file a petition for the winding up of a company by tribunal, and the form and manner of the petition |
| 273 | Specifies the powers of the tribunal to order the winding up of a company or to dismiss the petition or to make any other order as it thinks fit |
| 274 | Specifies the directions that the tribunal may give to the company or the creditors or any other person in relation to the winding up petition |
| 275 | Specifies the appointment and removal of the provisional liquidator by the tribunal |
| 276 | Specifies the effect of the appointment of the provisional liquidator on the powers of the board of directors and the status of the company |
| 277 | Specifies the powers and duties of the provisional liquidator |
| 278 | Specifies the appointment and removal of the company liquidator by the tribunal |
| 279 | Specifies the effect of the winding up order on the status and powers of the company and the board of directors |
| 280 | Specifies the powers and duties of the company liquidator |
| 281 | Specifies the submission of the report by the company liquidator to the tribunal and the creditors and the members of the company |
| 282 | Specifies the appointment and constitution of the advisory committee to assist the company liquidator in the winding up process |
| 283 | Specifies the custody and vesting of the company’s assets in the company liquidator |
| 284 | Specifies the settlement of the list of contributories and the application of the assets in the winding up process |
| 285 | Specifies the examination of the promoters, directors, and other officers of the company by the tribunal or the company liquidator |
| 286 | Specifies the arrest and seizure of the property of the persons who are liable to pay money to the company or who have misapplied or retained the company’s property |
| 287 | Specifies the books and papers of the company to be kept by the company liquidator and the inspection and audit of the same |
| 288 | Specifies the payment of the debts of the company and the ranking of the claims in the winding up process |
| 289 | Specifies the payment of the surplus, if any, to the members of the company after the payment of the debts and the expenses of the winding up process |
| 290 | Specifies the dissolution of the company by the tribunal after the completion of the winding up process |
| 291 | Specifies the appeal against the orders of the tribunal in the winding up process |
| 292 | Specifies the stay of the winding up proceedings by the tribunal or the appellate tribunal |
| 293 | Specifies the continuance of the suits and other legal proceedings against the company after the winding up order |
| 294 | Specifies the voluntary winding up of the company not to stop after the winding up order by the tribunal |
| 295 | Specifies the committee of inspection to supervise the winding up process and to assist the company liquidator |
| 296 | Specifies the powers of the company liquidator to accept the shares or securities of another company as a consideration for the sale of the company’s assets |
| 297 | Specifies the power of the Central Government to order the winding up of a company on the ground of national security or public interest |
| 298 | Specifies the power of the Central Government to appoint inspectors to investigate the affairs of the company before or after the winding up order |
| 299 | Specifies the power of the Central Government to direct the company liquidator to prosecute the persons who are guilty of any offense in relation to the company |
| 300 | Specifies the power of the Central Government to enforce the orders and directions of the tribunal in the winding up process |
| 301 | Specifies the power of the Central Government to make rules for the winding up of a company by tribunal |
| 302 | Specifies the power of the tribunal to make regulations for the winding up of a company by tribunal |
| 303 | Specifies the application of the provisions of the Act to the winding up of a company by tribunal |
What are the Challenges Faced by Tribunals in the Winding Up Process?
The tribunals face various challenges in the winding up process of a company, such as:
| Challenge | Description |
|---|---|
| Delays | The process may take a long time due to the backlog of cases, the lack of infrastructure and manpower, the complexity of the issues, and the frequent appeals and stay orders |
| Valuation | The valuation and realization of the assets of the company may be difficult, especially in the case of intangible assets, disputed assets, or assets located in different jurisdictions |
| Conflicts | The conflicts and disputes among the stakeholders, such as the creditors, the shareholders, the employees, and the government, may arise over the claims, the distribution, and the priority of the assets |
| Risks | The risks of fraud, mismanagement, and malpractice by the company or the liquidator may occur, such as the siphoning of funds, the falsification of records, the destruction of evidence, or the collusion with the interested parties |
| Resources | The resources and expertise required to manage the liquidation process efficiently and effectively may be inadequate, such as the legal, financial, technical, and administrative support |
FAQs:
Q: What is the difference between winding up and dissolution of a company?
A: Winding up is the process of terminating the business operations and liquidating the assets of a company, while dissolution is the final step of winding up that legally ends the existence of the company. Winding up can be done voluntarily by the company or compulsorily by a tribunal, while dissolution can only be done by a tribunal after the completion of the winding up process.
Q: How long does it take to wind up a company by tribunal?
A: The time taken to wind up a company by tribunal depends on various factors, such as the size and nature of the company, the complexity and number of the issues involved, the cooperation and consent of the stakeholders, and the efficiency and availability of the tribunal and the liquidator. There is no fixed time limit for the winding up process, but it may take anywhere from a few months to several years.
Q: How can I avoid the winding up of my company by tribunal?
A: The best way to avoid the winding up of your company by tribunal is to ensure that your company is financially sound, legally compliant, and ethically responsible. You should also try to resolve any disputes or claims with your creditors, shareholders, employees, or government authorities amicably and promptly. If you receive a winding up petition from any party, you should consult a legal expert and take appropriate steps to defend your company or negotiate a settlement.
