Winding-up of a company is the process whereby its life is ended and its property administered for the benefit of its creditors and members. An administrator, called a ‘liquidator’, is appointed and he takes control of the company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their rights. In the words of Perrins and Jeffreys’ “Winding-up means applying the assets of a company in the discharge of its liabilities and returning any surplus to those entitled to it, subject to the costs of doing so. The statutory process by which this is achieved is called ‘liquidation’.”
Winding-up of a company differs from insolvency of an individual inasmuch as a company cannot be made insolvent under the insolvency law. Besides, even a solvent company may be wound up.
Winding-up by the Court
Winding-up by the court, also called ‘Compulsory Winding up’, may be ordered in cases mentioned in Section 433 of the Companies Act, 1956. These circumstances are:
1. Special Resolution. The company may, by special resolution: resolve that it be wound up by the court. The resolution may be passed for any cause whatsoever. However, the court may not order for winding-up if it finds it to be opposed to public interest or the terest of the company as a whole.
2. Default in Holding Statutory Meeting. If default is made in delivering the statutory report to the Registrar or in holding the statutory meeting, it may be ordered to be wound up. Petition on this ground can be presented either by the Registrar or by a contributory. If it has to be filed by any other person it should be filed before the expiration of 14 days after the last day on which the statutory meeting ought to have been held [Sec. 439(7)]. The court is empowered, instead of making a winding-up order on this ground, to direct the filing of the report or the holding of the meeting with costs against the persons responsible for the default [Sec. 443(3)].
3. Failure to Commence Business. If a company does not commence business within a year from incorporation or suspends business for a whole year, it may be ordered to be wound up. Failure to commence or to carryon business is not treated as a ground for compulsory winding-up unless the company has no intention of carrying on business or it has become impossible to do so. A company will not be wound up simply because of some temporary interruption, such as a trade depression or because it is waiting for further capital to be subscribed. In Murlidhar Vs. Bengal Steamship Co., a company employed a steamer and two flats. During the First World War, the Government acquired the flats which resulted in suspension of the business of the company for more than a year. The High Court of Calcutta held that “the suspension of business of the company for more than a year, is sufficiently accounted for and does not furnish an indication that there is no intention to carryon the business.”
But where, however, the chances of resuming business are gloomy, the Court may order for the winding-up of the company (Rupa Bharti Ltd. Vs. Registrar of Companies).
4. Reduction in Membership. If the number of members is reduced below the statutory minimum of 7 in a public company or 2 in a private company, the company may be ordered to be wound up.
5. Inability to Pay Debts. The Court may order a company to be wound-up if it is unable to pay its debts. According to Sec. 434, a company shall be deemed to be unable to pay its debts if:
(a) ..A creditor for more. than Rs. 500 has served on the company at its registered ‘Office a demand under his hand requiring payment and the company has for three weeks thereafter neglected to payor secure or compound the sum to the reasonable satisfaction of the creditor; or
(b) execution or other process issued on a judgment or order in favour of a creditor of the company is returned unsatisfied in whole or in part; or
(c) it is unable to pay its debts, taking into account its contingent and prospective liabilities.
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