Winding Up of A Company: How Winding up Is Different From Dissolution

Winding up is the process under which liquidation of a company is carried out. During winding up, the company ceases to do business as in the usual course. An administrator, called as a liquidator is appointed and he takes control of the company. In other words, it can be said that winding up is a process whereby the life of the company has ended and its property is administered for the benefits of the creditors and members of that company. Winding up of a company is not the same as insolvency. A perfectly solvent company may also be wound up.

A major part of this process is that at the commencement of winding up, a company is not immediately dissolved. The corporate status and the powers of the company continue. Winding up paves the way for dissolution.

Types of Winding Up:

Section 270 of the Companies Act 2013 states;

• Compulsory winding up under the order of the Tribunal.
• Voluntary winding up:
• Members’ voluntary winding up
• Creditors’ voluntary winding up.

The Act provides for only one kind of winding up which is winding up under the order of the Tribunal. The other two types of winding up have been abolished.

Grounds of compulsory winding up by the Tribunal:

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Section 271 of the Act empowers the Tribunal to order the winding up of a company under following circumstances;

1. If the company has resolved by special resolution that it will be wound up by the Tribunal. In this case, the Tribunal is not bound to order winding up just because the company has so settled. Such power is discretionary and may not be exercised where winding up would be against the interest of the public or company.
2. The Court can order winding up if the company has acted against sovereignty and integrity of India, security of the State, relations with foreign states, decency, morality and public order.
3. The Tribunal can order for winding up of a company if it is of the opinion that the affairs of the company have been conducted fraudulently or the company was formed for unlawful purpose or all the persons concerned in the formation of company, management of the affairs have been guilty of misfeasance or fraud.
4. If the company has made a default in filing its financial statements or annual returns with the registrar for five consecutive financial years.
5. When the Tribunal is of the opinion that it is just and equitable for the company to be wound up. Herein, the Court has a wide discretionary power to make such order when it is desirable.
   The conditions under which the Tribunal broke down the company in past on this ground can be resolved in the general categories. They are as following:

• Whenever there is a deadlock in the management affairs of the company.
• When a company’s fundamental object has failed to materialize.
• When a company is not able to carry on its business except at losses and when there is an anticipation of not achieving any profits in the future as well.
• Where the vital shareholders have adopted an aggressive or forceful approach towards the minority.
• It is fair to wind up a company if it has been formed and brought forth in fraud.

Dissolution:

Dissolution is the process, the result of which is end of the separate legal entity of the company. Upon the completion of the process of dissolution, National Company Law Tribunal (NCLT) passes the order consequent to which, the Company’s name is struck off the Register of Company and thus it ceases to exist. Dissolution of the company can be brought upon in the following two ways:

• By transferring the company to another company, consequent to which the Registrar will strike off its name.
• By realization of the assets and liabilities of the companies. After the dues of the company have been settled in the manner prescribed by The Companies Act, 2013, the company will stand dissolved.

Both the methods require the company to apply to NCLT for dissolution in the prescribed manner along with the required documentation.

Author: Shrishti Mishra – a student of Banasthali Vidyapith, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or   IP & Legal Filing.