How to Wind-up Company under Companies Act, 2013 by VEDANT JAIN at LEXCLIQ

Under section 270 there is only one kind of winding i.e., to be done by the order of the tribunal. Section 271 gives the grounds on which winding-up can be done: –

  1. Special resolution – the company by special resolution can apply to the tribunal for the winding-up but it is the discretionary power of the tribunal to order winding-up or not.
  2. Acts against sovereignty – the company can be wound up if it has acted against the interest of sovereignty and integrity of India, the security of the state, friendly relations with other states, public order and morality. Again, discretion is to be exercised by the tribunal.
  3. Fraudulent conduct of affairs – if the registrar or any person applies to the tribunal that affairs of the company are conducted in a fraudulent manner or for unlawful purpose or management is guilty of fraud/misfeasance/misconduct then it can be wound-up.
  4. Default in filing financial statements – if for the 5-years the co. has failed to file financial statements with the registrar then it also can be wound-up.
  5. Just & Equitable Grounds – this clause gives the tribunal the widest discretionary power to order the winding-up of a company. Tribunal may consider the interests of shareholders, employees, creditors and the general public. The words left the discretionary powers of the widest character and the tribunal is to exercise its discretion judicially. If some other remedy is available it cannot grant the order for winding-up. Some of the grounds under this clause can be: –
  6. Deadlock – when there is a complete deadlock in the management of the company then it can be ordered winding-up. But in Re Yenidje Tobacco Ltd., the tribunal held just the difference of opinions between the majority and minority cannot be a ground for winding-up. Also, Calcutta HC held that “winding-up cannot be ordered on the ground of friction and disputes between directors”. If the company is earning profit just a mere difference of views cannot be considered as complete deadlock.
  7. Loss of Substratum – when the company has failed to materialize the main objective or lost its substratum, it can be ordered to wind up. Substratum is the special or central purpose for which the business was started in the first place and if that cant is fulfilled it can be ordered to wind up. In Rajan Nagindas Doshi v. British Burma Petroleum Co. Ltd., Bombay HC held that when other subsidiary objects in the memorandum can be achieved but not the main object then also it can be wound-up on just & equitable ground. However, a temporary difficulty that does not hinder the main object cannot be allowed to order winding-up on this ground. In Seth Mohan Lal v. Grain Chambers Ltd., the Supreme Court observed that “The substratum of a company can be said to have disappeared only when the object for which it was incorporated has substantially failed, or when it is impossible to carry on the business of the company except at a loss, or the existing and possible assets are insufficient to meet the existing liability”.
  8. Losses – when the company is carrying of business on losses then it can be ordered to wind up on the just & equitable ground. In Bachharaj Factories v. Hirjee Mills Ltd., it was held that winding-up can be ordered when it will be needless for a company to carry on business when there is no hope of achieving the object of trading at a profit. But Bombay HC in Re Shah Steamship Navigation Co. held that “the court will not be justified in making a winding-up order merely on the ground that the company has made losses and is likely to make losses”.
  9. Oppression and Mismanagement – it is also just & equitable to order wind-up when the majority has adopted an oppressive or hostile policy towards the minority shareholders. The Madras HC in R Sabapathi Rao v. Sabapathi Press Ltd., the court observed that when the directors of company exercise dominating position over the management and outvote the minority and retained the profits among the family members and when shareholders did not receive a copy of the balance-sheet nor the audit reports then all these acts are considered as a ground for winding-up.
  10. Fraudulent Purpose – when the company is formed for the conduct which is in nature of the fraud or illegal purpose then the order of winding-up can be made. But when there is fraud in promotion or misrepresentation in the prospectus then it can be changed by the majority shareholders therefore can’t be ground under this clause.

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