In our country, every corporate house has incorporated
many group companies which were run efficiently for some time. But with passage
of time, the utility of having such large number of group companies reduced and
then the management thought it fit to discontinue business activity in such companies.
The typical problem with such companies is
Auditors qualify that the Company is
no more a going concern.
There are assets which are no longer
put to use and if disposed off, would fetch value much lower than its WDV.
There are debtors which will not be realized
There are some creditors who knock your
doors on regular basis.
Under the Companies Act, 1956, it is not very
easy to close a Company which does not have any business activity for the past few
years. However, it is very much possible.
433 of the Act provides for circumstances
in which company may be wound up by Court / Tribunal. According to the Section,
a company may be wound up by the Tribunal under the following circumstances:
(a) if the company has, by special
resolution, resolved that the company be wound up by the Tribunal;
(b) if default is made in delivering the statutory report to the Registrar or in
holding the statutory meeting;
(c) if the company does not commence its business within a year from its incorporation,
or suspends its business for a whole year;
(d) if the number of members is reduced, in the case of a public company,
below seven, and in the case of a private company, below two;
(e) if the company is unable to pay its debts;
(f) if the Tribunal is of the opinion that it is just and equitable that the company
should be wound up;
(g) if the company has made a default in -filing with the Registrar its balance
sheet and profit and loss account or annual return for any five consecutive financial
(h) if the company has acted against the interests of the sovereignty and integrity
of India, the security of the State, freindly relations with foreign States, public
order, decency or morality;
(i) if the Tribunal is of the opinion that the company should be wound up under
the circumstances specified in section 424G:
Provided that the Tribunal shall make an order
for winding up of a company under clause (h) on application made by the Central
Government or a State Government
For understanding the process of winding
up under order of the Court / Tribunal, we presume that any of the circumstances
given in bold above exist.
STEPS FOR THE WINDING UP PROCESS
1) Section 439: Petition for winding up can be made
by any of the persons and in the manner as mentioned in Section 439. In this case,
the Company can make the application.
2) Section 439A: Statement of Affair to be filed on
winding up of a company. The Company shall file with the Tribunal a statement of
its affairs, alongwith the petition for winding up.
3) The petition for winding up shall be made in Form
45, 46 or 47 prescribed under Rule 95 of the Companies (Court) Rules, 1959.
4) A copy of the petition is to be furnished to the
creditor within 24 hours of his requiring the same on payment of the prescribed
5) The Petition is be advertised in Form No. 48 of the
Companies (Court) Rules, 1959 subject to any directions of the Court not less than
14 days before the date fixed for hearing in one issue of English and Regional Language
newspaper circulating in the state concerned. [Rule 99 of Companies (Court) Rules,
6) Apply to the concerned High Court with an affidavit
(notarized) showing sufficient grounds for the appointment of provisional liquidator.
7) Obtain order of the concerned High court appointing
the official liquidator as the provisional liquidator (Rule 106)
8) On receipt of the winding up order from the High
Curt it should be advertised in Form No. 53 of the Companies (Court) Rules, 1959
within 14 days of the date of making the order in one issue of English and Regional
Language newspaper circulating in the state concerned.
9) A copy of the order must be served upon such person
as the Judge may direct (Rule 113)
10) File with the ROC, a certified copy of the order
in Form No. 21 within 30 days from the date of making the order.
11) A statement of Affairs of the Company in Form No.
57 of the Companies (Court) Rules, 1959 must be submitted to the Official Liquidator
within 21 days from the date of appointment of the Official Liquidator or from the
date of the winding up order or within such extended time not exceeding three months.
12) The aforesaid statement must be submitted in duplicate,
one copy of which shall be verified by an affidavit in Form No. 58 of the Companies
(Court) Rules, 1959. [Section 454 of the Companies Act, 1956 and Rule 127 of the
Companies (Court) Rules, 1959]
13) The winding up proceedings will be carried out in
accordance with the provisions of Section 426 to 483 and 528 to 559 and as per the
relevant Rules of the Companies (Court) Rules, 1959.
14) The winding up of a Company by order of the concerned
High Court shall be deemed to be concluded at the date on which the order dissolving
the company has been reported by the Official Liquidator to the concerned Registrar
of Companies [Rule 284(a) of the Companies (Court) Rules, 1959].