Winding-up of Company by Vaibhav Sharma @ Lexcliq

A company is a legal entity/personality- meaning a company, in the eye of the law, is considered to be a legal person having certain rights and duties under the stated law. Every country has its very own separate corporate law through which the said companies are governed (hereby we will discuss only India & UK only) but few principles in corporate law are universal and are worldwide for say- the company having the right to buy the property and sell the property on its own name owned solely by it, or perpetual succession i.e. as a juristic person, a company enjoys such thing, in layman language, the company never dies, nor its life depends on the life of its founder(members).

Even if all the member dies, it shall not affect the privileges, immunities, estates, and possessions of the company (although if the stated company is in loss then it may go under Winding-Up process that is altogether a different thing rest companies life, in general, is unending). Winding-Up of any corporates may be need due to various such reasons like: conclusion of business, misfortune, bankruptcy, passing endlessly of promoters, and so forth. The major modes for winding-up a company are primarily of two types: – Voluntary Winding-Up, Compulsory Winding i.e. Winding-Up by Tribunal. Under this project, we would understand the wholesome procedure of Winding-Up of the Company and its Indian perspective, per se legal mechanism of permanently shutting down of any stated company.


Starting with a brief look back at India’s Company Law (after its independence). Indian Company Law is adopted from UK’s act. India got its independence in the year 1947 during that time the government was inclined more towards the complete “Closed Economy” and indeed they were pretty much right with this decision as priorities were quite different, the economy was not so stable, no proper laws in first hand which might have created problems. Thus India was a closed economy that got its Company Act in the year 1956 designed keeping in mind the needs and necessities of that time. But by the end of 1990 Indian government was facing a big financial crunch and the scenario became much complex as the country was on verge of a Financial Emergency (although never imposed) in the year 1991. Then Government decided to come up with a new economic policy and decided to liberalize the trade. Thus due to this liberalization, India removed trade barriers and entered privatization: allowed foreign companies/entities to come and work in India.

Thus due to all this, the act of 1956 became incumbent in handling the situation of 1991 as it was made keeping in mind the situation of 1956 (post-independence). Then also the government didn’t completely repeal the act of 1956 till 2013 kept on regularly amending the same act. But by the year 2013, it was felt that a new act is needed. In those 57 years during which the Act of 1956 was in existence, the corporate world and the business environment have evolved significantly and thus there was a need to revamp the legislation governing such companies. The Act of 2013 is more of rule-based legislation containing 470 sections only, which means that the substantial part of this legislation would be in the form of rules only.


The wholesome concept of winding-up in India was introduced through the act of Companies, 1956 (Act, 1956), which later got amended by the Companies Act, 2013 (the concept remain almost similar in both acts with brief changes). Under the Companies Act, 1956 there were three major modes of winding up:

  1. Winding Up by Court or Compulsory Winding Up;
  2. Voluntary Winding Up, and;
  3. Winding Up subject to the supervision of the Court

WINDING-UP UNDER COMPANIES ACT, 2013: – (herein under “Act” to be considered as “Companies Act, 2013” and “Code” to be meant as “Insolvency and Bankruptcy Code, 2016”)


Prior to Code corporates were wounded-up through the Act under following two major modes:

  1. Voluntary Winding Up
  2. Compulsory Winding i.e. Winding Up by Tribunal

Voluntary winding-up and winding-up by Tribunal on the ground of inability to pay debts, later these were omitted from the Act and placed under the Code under Section 59 and Sections 33 to 54, respectively. Simultaneously, winding-up by the Tribunal, aside from lack to pay debts as per Section 271 of the Act, Section 255 of the Code has also been amended following Schedule-11. Presently, there are a total of five circumstances listed under Section 271of the Act, under which winding-up by Tribunal could be under took. The conditions for filing a petition of winding-up are:

  1. If the corporate by special resolution has resolved that it should wind-up by the Tribunal,
  2. If the corporate acted against the interests of the sovereignty and integrity of the country, the security of the any particular state, or has friendly relations with foreign enemy country,
  3. If on an application made by the ROC or by any other person authorized by Union Government by notification under this particular Act, to which the Tribunal is of the opinion that the affairs of the corporate were conducted fraudulently or the said corporate was formed for a fraudulent and unlawful purpose or the persons concerned within the formation or any such committed fraud, thus the corporate must wound-up;
  4. If the corporate has made a default in filing with the ROC any of its statements (financial) or returns (annual) for immediately preceding those five consecutive financial fiscal years; or
  5. If the Tribunal is of the opinion that it is “just and equitable” that the Company must be “winded-up.


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