Closing down a business is never easy, but sometimes it becomes necessary. Winding up a company is the legal process that puts an end to a company’s operations, sells off its assets, pays off its debts, and distributes whatever is left to shareholders.
While some companies choose to wind up voluntarily, others might have the process initiated by an external party, such as a creditor. In certain cases, the winding up happens through a tribunal, a judicial authority with the power to liquidate companies.
In this guide, we’ll walk you through how a company can be wound up by a tribunal under the Companies Act, 2013, and the role of tribunals in this process.
By the end, you’ll have a clearer understanding of how the law handles such scenarios, what steps are involved, and what you need to keep in mind if you’re ever in this position.
What Does Winding Up by Tribunal Mean?
Winding up by tribunal is a form of compulsory winding up, which means it’s initiated by an external party—like a creditor—rather than the company itself.
The tribunal, which serves as a legal body with judicial authority, has the power to order the winding up of a company on various grounds laid out by law.
These grounds can include situations like:
- Inability to pay debts: The company simply can’t meet its financial obligations.
- Threats to public order or morality: If the company’s actions are against public decency, state security, or even friendly relations with other countries, the tribunal can step in.
- Fraudulent or unlawful conduct: If the company has been operating illegally or fraudulently, winding up could be the outcome.
- Failure to file financial statements: If the company hasn’t filed financial statements or annual returns for five consecutive years, this triggers the tribunal’s involvement.
- Winding up required under another law: If any other law currently in force requires it, the tribunal may be called upon to wind up the company.
- “Just and equitable” reasons: Sometimes, the tribunal may decide that it’s simply fair to wind up the company, even if none of the other grounds are directly met.
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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 |
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FAQs:
What is the difference between winding up and dissolution of a company?
Winding up refers to the process of closing a company’s operations and selling off its assets to pay debts. Dissolution is the final step in this process when the company legally ceases to exist. While winding up can be done voluntarily by the company or forced by a tribunal, dissolution always follows after the winding up is complete and is ordered by the tribunal.
How long does it take to wind up a company by tribunal?
The timeline can vary depending on factors like the company’s size, complexity of issues, and the cooperation of stakeholders. There’s no set timeline for tribunal winding up, but it could take anywhere from a few months to several years depending on the circumstances.
How can I avoid the winding up of my company by tribunal?
The best way to avoid this is by keeping your company financially stable, compliant with laws, and operating ethically. Also, resolve any disputes with creditors, shareholders, or government authorities quickly. If you receive a winding-up petition, consult a legal expert and take action to defend or settle the matter before it escalates.
