WINDING UP OF COMPANIES

WINDING UP BY COURT
A company may be wound up by an order of the Court. This is called compulsory winding up. Section 433 lays down the following grounds where a company may be wound up by the court. 1. 2. 3. 4. 5. 6. Special resolution [Sec. 433 (a)]; Default in filing statutory report, or holding statutory meeting [Sec-433 (6)];. Failure to commence business within time [Sec. 433 (c)]; Reduction of membership [Sec. 433 (d)]; Inability to pay debts [Sec. 433 (e)]; Just and equitable [Sec. 433(f)].

Special resolution sec-433(a)

Thus by special resolution resolved the company may be wound up by the tribunal Power of tribunal in such cases is discretionary and should be exercised bonafide case

Default in holding statutory meeting (433(a))

Within 6 months from the date on which the company is entitled to commence business The petition for winding up must not be filed before the expiration of 14 days after the last day on which the statutory meeting ought to have been held Petition to wind up is on the ground of nondelivery to the registrar of the statutory report shall not be entertained.
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Failure to commence business

Where a company does not commence business within a year of its incorporation or suspends its business for the whole year. Such suspension must be temporary and can be satisfactorily accounted for Tribunal my refuse to make an order. A company will not be wound if it abandons one of its several businesses, unless that business is the main object of the company.
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Reduction of Members Below Minimum(Section 433(b))

Where the number of members is reduced below 7 in case of a public company and below 2 in case of a private company, The tribunal may order the winding up of the company. If the company carries business with the reduced members for more than 6 months the members shall be personally liable for debts contracted during that period.
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Inability to pay debts (Sec 433(e))

The tribunal may order winding up if it is unable to pay the debts I.e. it has ceased to be commercially solvent. Section 434 says that a company shall be deemed to be unable to pay the debts in the following cases: a. Statutory notice b. Decreed debts c. Commercial insolvancy
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Just and equitable (Sec 433(f))

If it is in the opinion of the tribunal that it is just and equitable that the company should be wound up, such order may be given. E.g Loss of substratum Deadlock in management Oppression of minority Fraudulent purpose Incorporated partnership (quasi) Where the company is a bubble Where the company was insolvent
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Default in filing P/L Account and B/l or annual Report (Sec 433(g))
As per the new section introduced under companies act 2002 if a company has made a default in filing with the registrar balance sheet and profit and loss account or annual report for consecutive 5 financial year the tribunal may order winding up.

Acted against sovereignty and integrity of India (Sec 433(h))

According to companies act 2002, if the company act against the sovereignty and integrity of India and thus maintain friendly relation with the enemy country then the court may order for winding up.

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Sick Industrial company under Sec 424(G)

If the tribunal is of the opinion that the company should be wound up under the circumstances specified under sec 424(G) it may order by petition the winding up of such sick industrial unit. (Companies act2002)

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Who will file the Petition for winding up

Company Any creditor or creditors including any contingent or prospective creditor Any contributory or contributories All or any of aforesaid parties, together or separately The registrar Any person authorized by the central government under section-234
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Consequences of winding up
Intimation to official liquidator and registrar Copy of the winding up in order to be filled with the registrar Order for winding up deemed to be notice of discharge Suits stayed on winding up order Power of the tribunal Responsibility of directors and officers to submit to tribunal audited books of account Effect of winding up order Official liquidator to be liquidator 13