THE INSTITUTE OF COMPANY SECRETARIES THE INSTITUTE OF COMPANY SECRETARIES OF INDIAOF INDIA

AHMEDABAD CHAPTERAHMEDABAD CHAPTER

MEMBERS VOLUNTARY WINDING UPMEMBERS VOLUNTARY WINDING UPUNDER SECTION 484 OFUNDER SECTION 484 OF

THE COMPANIES ACT, 1956THE COMPANIES ACT, 1956

Papers prepared and Complied byPapers prepared and Complied byShri D. N. MotwaniShri D. N. Motwani

Practicing Company SecretaryPracticing Company Secretary

SMTP 17.09.2008 at 1.45 P.M.SMTP 17.09.2008 at 1.45 P.M.

Winding up is a process by which a Winding up is a process by which a company registered under the Companies company registered under the Companies

Act ceases to be one after the conclusion of Act ceases to be one after the conclusion of the proceedings and the Company is the proceedings and the Company is

removed from the list of Companies kept removed from the list of Companies kept by the Registrar of Companies. Till the by the Registrar of Companies. Till the passing of the Companies ( Second passing of the Companies ( Second

Amendment ) Act, 2002, the winding up of Amendment ) Act, 2002, the winding up of Companies was done by or under the Companies was done by or under the supervision of the High courts. Now supervision of the High courts. Now

pursuant to the Second Amendment, 2002 pursuant to the Second Amendment, 2002 winding up petitions shall be presented to winding up petitions shall be presented to

the National Company Law Tribunal the National Company Law Tribunal constituted under section 10 FB of the constituted under section 10 FB of the

Companies Act, 1956.Companies Act, 1956.

PART-7 PART-7 Winding up of CompaniesWinding up of Companies

Contains 5 ChaptersContains 5 Chapters

Applicable provisionsApplicable provisions

Sec. 425 to 560.Sec. 425 to 560.

Chapter 1 Sec. 425 _ 432 Chapter 1 Sec. 425 _ 432

Chapter 2 Sec. 433 _ 483Chapter 2 Sec. 433 _ 483

Chapter 3 Sec. 484 _ 521Chapter 3 Sec. 484 _ 521

Chapter 4 Sec. 522 _ 527Chapter 4 Sec. 522 _ 527

Chapter 5 Sec. 528 _ 560 Chapter 5 Sec. 528 _ 560

MODES OF WINDING UPMODES OF WINDING UP

[Section 425 ][Section 425 ] A Company may be wound up :A Company may be wound up : voluntarily by the concerned voluntarily by the concerned

company distinguished as company distinguished as members’ voluntary winding up members’ voluntary winding up and creditors’ voluntary winding up. and creditors’ voluntary winding up. ( Section 488)( Section 488)by the Tribunal under any of the by the Tribunal under any of the circumstances as prescribed. circumstances as prescribed. ( section 433)( section 433)

VOLUNTARY WINDING UP – RESOLUTIONVOLUNTARY WINDING UP – RESOLUTION [Sections [Sections

484 & 485 ]484 & 485 ]A Company, which was formed for a particular A Company, which was formed for a particular duration or event as per its Articles, may wind up duration or event as per its Articles, may wind up voluntarily after the expiry of the period or voluntarily after the expiry of the period or occurrence of the event by passing an ordinary occurrence of the event by passing an ordinary resolution in a general meeting. Any other resolution in a general meeting. Any other company may wind up voluntarily by passing a company may wind up voluntarily by passing a special resolution. Within 14 days of passing of special resolution. Within 14 days of passing of the resolution, the company shall give notice of the resolution, the company shall give notice of the resolution in the Official Gazette and also in a the resolution in the Official Gazette and also in a news paper circulating in the District where the news paper circulating in the District where the registered office of the company is located. If registered office of the company is located. If default is committed in publishing the notice as default is committed in publishing the notice as above, the company and the officer in default above, the company and the officer in default shall be punishable with fine up to Rs. 500 for shall be punishable with fine up to Rs. 500 for every day during which the default continues.every day during which the default continues.

COMMENCEMENT AND EFFECT OF COMMENCEMENT AND EFFECT OF WINDING – UPWINDING – UP

A voluntary winding up is deemed to have A voluntary winding up is deemed to have commenced from the day when the commenced from the day when the resolution is passed at the general resolution is passed at the general meeting. The Company shall cease to meeting. The Company shall cease to carry on its business from that day except carry on its business from that day except such business as may be required for the such business as may be required for the beneficial to winding up. The corporate beneficial to winding up. The corporate status and the corporate powers of the status and the corporate powers of the Company shall continue until it is Company shall continue until it is dissolved.dissolved.

FILING WITH THE FILING WITH THE REGISTER OF REGISTER OF COMPANIES COMPANIES

DECLARATION OF DECLARATION OF SOLVENCY AND SOLVENCY AND REGISTRATION.REGISTRATION.

A member’s voluntary winding up is solely A member’s voluntary winding up is solely dependent on a declaration to be made at dependent on a declaration to be made at a meeting of the Board duly verified by an a meeting of the Board duly verified by an affidavit to the effect that the Directors affidavit to the effect that the Directors have made a full inquiry into the affairs of have made a full inquiry into the affairs of the Company and having done so they the Company and having done so they have formed the opinion that the have formed the opinion that the company has no debts or that the company has no debts or that the Company will be able to pay its debts Company will be able to pay its debts in full within such period not in full within such period not exceeding three years from the exceeding three years from the commencement of winding up as may commencement of winding up as may be specified in the declaration. be specified in the declaration. The The rules for the conduct of business of the rules for the conduct of business of the tribunal is expected to be issued shortly. tribunal is expected to be issued shortly. See for the time being Form 149 of the See for the time being Form 149 of the erstwhile Companies Rules, 1959.erstwhile Companies Rules, 1959.

The declaration shall be made by the The declaration shall be made by the Board within five weeks preceding the Board within five weeks preceding the date of the general meeting resolution for date of the general meeting resolution for winding up of the Company as per section winding up of the Company as per section 484. The declaration shall be 484. The declaration shall be accompanied by a copy of the report of accompanied by a copy of the report of the Auditors of the Company on the profit the Auditors of the Company on the profit and loss account for the period from the and loss account for the period from the date up to which the last such account date up to which the last such account was prepared to a date as latest as was prepared to a date as latest as possible before making the declaration. possible before making the declaration. The statement of the Company’s assets The statement of the Company’s assets and liabilities as at that date will also be and liabilities as at that date will also be covered by the report of the Auditors.covered by the report of the Auditors.

The declaration including the The declaration including the affidavit and the report of the affidavit and the report of the Auditors shall be delivered to the Auditors shall be delivered to the Registrar for registration before the Registrar for registration before the date of the general meeting for date of the general meeting for passing the resolution.passing the resolution.

Summing up, the position is as under:Summing up, the position is as under:

The Board of Directors shall make The Board of Directors shall make the declaration at a meeting of the the declaration at a meeting of the Board and it should be approved by a Board and it should be approved by a majority of the Directors where the majority of the Directors where the Company has more than two Company has more than two Directors and by all Directors in other Directors and by all Directors in other cases.cases.

The declaration shall be verified by The declaration shall be verified by an affidavit by the Directors on non- an affidavit by the Directors on non- judicial stamp paper as in Form No. judicial stamp paper as in Form No. 149 of erstwhile Companies Rules 149 of erstwhile Companies Rules or in the form prescribed by the or in the form prescribed by the Tribunal.Tribunal.

The declaration shall be made The declaration shall be made within five weeks preceding the within five weeks preceding the date of the general meeting at date of the general meeting at which the resolution is proposed to which the resolution is proposed to be passed.be passed.

The declaration must specify a date The declaration must specify a date not exceeding three years from the not exceeding three years from the commencement of winding up for commencement of winding up for payment of debts of the Company payment of debts of the Company on full.on full.

There shall be attached to the There shall be attached to the declaration copy of the report of the declaration copy of the report of the Auditors of the Company as Auditors of the Company as prescribed.prescribed.

The declaration, affidavit, the The declaration, affidavit, the Report of the Auditors and Report of the Auditors and Statement of Assets and Liabilities Statement of Assets and Liabilities must be delivered to the Registrar must be delivered to the Registrar before the date of the general before the date of the general meeting.[ Hitherto, relevant Form meeting.[ Hitherto, relevant Form No. 149 of Companies ( Court ) No. 149 of Companies ( Court ) Rules].Rules].

PRELIMINARY ACTION PRELIMINARY ACTION TO BE TAKEN BY THE TO BE TAKEN BY THE

LIQUIDATORLIQUIDATOR

The Liquidator in a member’s The Liquidator in a member’s voluntary winding up will not be able voluntary winding up will not be able to exercise the following powers to to exercise the following powers to proceed with the Winding up unless proceed with the Winding up unless the same is approved by a special the same is approved by a special resolution of the members of the resolution of the members of the Company:Company:

To institute or defend any suit, To institute or defend any suit, prosecution or legal proceeding (civil prosecution or legal proceeding (civil or criminal) in the name and on or criminal) in the name and on behalf of the Company.behalf of the Company.

To carry on the business of the To carry on the business of the Company as may be necessary for Company as may be necessary for the beneficial winding up.the beneficial winding up.

To sell the movable and immovable To sell the movable and immovable property and actionable claims of property and actionable claims of the Company in any manner that the Company in any manner that may be advantageous may be advantageous

To sell the whole undertaking as a To sell the whole undertaking as a going concern.going concern.

To raise money on the security of To raise money on the security of the assets of the Company for the the assets of the Company for the purpose of winding up.purpose of winding up.

OTHER POWERS OF OTHER POWERS OF THE LIQUIDATORTHE LIQUIDATOR

In order to proceed with the In order to proceed with the winding up, the liquidator can winding up, the liquidator can exercise the following powers and exercise the following powers and duties without the need for any duties without the need for any prior approval.prior approval.

To settle a list of contributories.To settle a list of contributories.

To make calls, if any, on the To make calls, if any, on the contributories.contributories.

To do the day to day activities of the To do the day to day activities of the company for the purpose of winding up company for the purpose of winding up and to execute deeds and documents and to execute deeds and documents and to issue receipts.and to issue receipts.

Where necessary, to inspect the return Where necessary, to inspect the return and record filed by the company with and record filed by the company with the Registrar of Companies, without the Registrar of Companies, without payment of any fee.payment of any fee.

To prove and claim in the insolvency of To prove and claim in the insolvency of any contributory for monies due to the any contributory for monies due to the company from any contributory.company from any contributory.

To draw, accept or endorse bills of To draw, accept or endorse bills of exchange.exchange.

To pursue with the estate of a To pursue with the estate of a deceased contributory for any deceased contributory for any monies due to the company.monies due to the company.

To appoint an agent to do any To appoint an agent to do any business which the liquidator is business which the liquidator is unable to do himself.unable to do himself.

DUTY OF LIQUIDATOR DUTY OF LIQUIDATOR TO KEEP THE TO KEEP THE

CONTRIBUTORIES CONTRIBUTORIES INFORMEDINFORMED

[ Section 496 ][ Section 496 ]

Where a members’ voluntary winding up is Where a members’ voluntary winding up is continuing for more than a year, the continuing for more than a year, the liquidatorliquidator shall shall call a general meeting of the company call a general meeting of the company at the end of the first year from the at the end of the first year from the commencement of winding – up, namely commencement of winding – up, namely when the resolution for voluntary winding – when the resolution for voluntary winding – up is passed and at the end of each up is passed and at the end of each succeeding year, latest within three months succeeding year, latest within three months of conclusion of the year.of conclusion of the year. The liquidator will The liquidator will lay before the meeting the progress of the lay before the meeting the progress of the matters of winding up in the preceding year and matters of winding up in the preceding year and also a statement in the prescribed form in respect also a statement in the prescribed form in respect of the position of liquidation. If the annual of the position of liquidation. If the annual meeting cannot be held within three months of meeting cannot be held within three months of the end of the year, the Central Government has the end of the year, the Central Government has got power to grant extension. This power has got power to grant extension. This power has been delegated to the Regional Director.been delegated to the Regional Director.

STATEMENT OF AFFAIRS AT THE TIME STATEMENT OF AFFAIRS AT THE TIME OF WINDING UPOF WINDING UP

[ Section 511A / 454 ][ Section 511A / 454 ]

A statement of affairs of the company as A statement of affairs of the company as on the date of the commencement of on the date of the commencement of winding up shall be submitted to the winding up shall be submitted to the liquidator duly verified by an affidavit by liquidator duly verified by an affidavit by one or more persons who are as on the one or more persons who are as on the said date, the Directors, Manager, said date, the Directors, Manager, Secretary or other Chief Officer of the Secretary or other Chief Officer of the Company. The statement shall contain the Company. The statement shall contain the following particulars : following particulars :

the assets of the company, cash balance the assets of the company, cash balance in hand and at bank, if any, and the in hand and at bank, if any, and the negotiable securities, if any, held ;negotiable securities, if any, held ;its debts and liabilitiesits debts and liabilitiesnames, residences and occupation of its names, residences and occupation of its creditors, the amount due, whether creditors, the amount due, whether secured or unsecured and if secured, secured or unsecured and if secured, particulars of the securities given, particulars of the securities given, whether by the company or an officer, whether by the company or an officer, their value and date when given.their value and date when given.Debts due to the company and the Debts due to the company and the names, residence and occupation of the names, residence and occupation of the debtors and the amount likely to be debtors and the amount likely to be realized.realized.

SUBMISSION OF THE STATEMENT SUBMISSION OF THE STATEMENT OF AFFAIRSOF AFFAIRS

The statement shall the submitted The statement shall the submitted within 21 days from the date of within 21 days from the date of commencement of voluntary commencement of voluntary winding up as per section 486 winding up as per section 486 namely when the resolution for namely when the resolution for voluntary winding up is passed.voluntary winding up is passed.

POWER OF THE TRIBUNAL TO POWER OF THE TRIBUNAL TO APPOINT OR REMOVE APPOINT OR REMOVE

LIQUIDATORLIQUIDATOR

[ Section 515 ][ Section 515 ]

This section has been wholly modified This section has been wholly modified by the Second Amendment Act, by the Second Amendment Act, 2002.2002.

Where in a voluntary winding up no Liquidator is Where in a voluntary winding up no Liquidator is acting, the Tribunal may appoint the Official acting, the Tribunal may appoint the Official Liquidator or any other person as Liquidator. For Liquidator or any other person as Liquidator. For sufficient reasons the Tribunal may remove a sufficient reasons the Tribunal may remove a Liquidator and appoint the Official Liquidator or Liquidator and appoint the Official Liquidator or any other person as Liquidator where a Liquidator any other person as Liquidator where a Liquidator is appointed by the Tribunal as mentioned is appointed by the Tribunal as mentioned above, the Liquidator shall within 30 days of his above, the Liquidator shall within 30 days of his appointment publish a notice in the Gazette and appointment publish a notice in the Gazette and also deliver to the Registrar for registration copy also deliver to the Registrar for registration copy of the notice of his appointment in the form of the notice of his appointment in the form prescribed. ( Section 516). If the Official prescribed. ( Section 516). If the Official Liquidator is appointed as the Liquidator under Liquidator is appointed as the Liquidator under section 516, his remuneration will be fixed by the section 516, his remuneration will be fixed by the Tribunal and shall be credited to the Central Tribunal and shall be credited to the Central Government.Government.

ANY AGREEMENT WITH CREDITORS ANY AGREEMENT WITH CREDITORS WHEN BINDING ON THE COMPANYWHEN BINDING ON THE COMPANY

Any arrangement entered in to between a Any arrangement entered in to between a company being wound up and its creditors company being wound up and its creditors shall be binding on all concerned if :shall be binding on all concerned if :it is approved by a special resolution of the it is approved by a special resolution of the Company.Company.it is also accepted to by three – fourths in it is also accepted to by three – fourths in number and value of the creditors.number and value of the creditors.Any creditor or contributory may prefer an Any creditor or contributory may prefer an appeal to the Tribunal against the appeal to the Tribunal against the arrangement and this appeal shall be arrangement and this appeal shall be made within three weeks of completion of made within three weeks of completion of the arrangement.the arrangement.

POWER OF THE TRIBUNAL TO POWER OF THE TRIBUNAL TO DETERMINE ANY QUESTIONDETERMINE ANY QUESTION [Section 518 ] [Section 518 ] On an application being made by the On an application being made by the Liquidator or creditor or contributory, the Liquidator or creditor or contributory, the Tribunal may :Tribunal may :determine any question of winding up.determine any question of winding up.Set aside any order of attachment or Set aside any order of attachment or any other order against the estate of the any other order against the estate of the company.company.Accede to the staying of the proceedings Accede to the staying of the proceedings of winding up.of winding up.Copy of the order staying the winding Copy of the order staying the winding up will be forwarded by the company to up will be forwarded by the company to the Registrar of Companies. This section the Registrar of Companies. This section has been wholly modified.has been wholly modified.

PUBLIC EXAMINATION OF PUBLIC EXAMINATION OF PROMOTERS, DIRECTORS ETC.PROMOTERS, DIRECTORS ETC.

[Section 519 ] [Section 519 ] This section has been entirely changed. This section has been entirely changed. During the course of winding up if the During the course of winding up if the Liquidator is of opinion that a fraud had Liquidator is of opinion that a fraud had been committed by any person in the been committed by any person in the promotion or formation of the company or promotion or formation of the company or by an officer in relation to the company by an officer in relation to the company since its formation, the Liquidator may since its formation, the Liquidator may make a report to the Tribunal. The make a report to the Tribunal. The Tribunal after considering the report may Tribunal after considering the report may order that the person concerned shall be order that the person concerned shall be publicly examined. In this connection, the publicly examined. In this connection, the following provisions of sub sections (2) to following provisions of sub sections (2) to (11) of section 478 will also apply :(11) of section 478 will also apply :

The Liquidator shall take part in the The Liquidator shall take part in the examination and employ legal assistance examination and employ legal assistance as may be sanctioned by the Tribunal.as may be sanctioned by the Tribunal.

Any creditor or contributory may take Any creditor or contributory may take part in the examination either personally part in the examination either personally or by Chartered Accountants or Company or by Chartered Accountants or Company Secretaries or Cost Accountants or legal Secretaries or Cost Accountants or legal practitioners entitled to appear before practitioners entitled to appear before the Tribunal under section 10 GD.the Tribunal under section 10 GD.

The Tribunal may put such questions to The Tribunal may put such questions to the person as it thinks fit and the person the person as it thinks fit and the person shall answer all questions on oath.shall answer all questions on oath.

The person being examined shall be The person being examined shall be furnished, at his cost, copy of the furnished, at his cost, copy of the Liquidator’s report and he is free to Liquidator’s report and he is free to employ any of the person listed in employ any of the person listed in clause (b) above to assist him.clause (b) above to assist him.

An examination under this provision An examination under this provision may, if the Tribunal directs, be held may, if the Tribunal directs, be held before any person or authority before any person or authority authorized by the Tribunal as per authorized by the Tribunal as per new sub section (10) of section 478.new sub section (10) of section 478.

ACCEPTANCE OF SHARES FOR ACCEPTANCE OF SHARES FOR SALE OR PROPERTYSALE OR PROPERTY

[Section 507 & 494 ] [Section 507 & 494 ]

Where in a members’ voluntary winding up the Where in a members’ voluntary winding up the Liquidator is authorized by a special resolution of Liquidator is authorized by a special resolution of the company, he may transfer the whole or part the company, he may transfer the whole or part of its business or property to another company of its business or property to another company ( call the transferee company ) and receive as ( call the transferee company ) and receive as consideration the shares, policies or like interest consideration the shares, policies or like interest in the transferee company or he may enter in to in the transferee company or he may enter in to arrangement where by the members of the arrangement where by the members of the transferor company may receive any other transferor company may receive any other benefit form the transferee company.benefit form the transferee company.

SANCTION OF TRIBUNAL OR SANCTION OF TRIBUNAL OR COMMITTEE OF INSPECTIONCOMMITTEE OF INSPECTION

In addition to the approval of the company In addition to the approval of the company in general meeting by special resolution, in general meeting by special resolution, the acceptance of shares or other benefit the acceptance of shares or other benefit from the transferee company as from the transferee company as consideration for sale of the property of consideration for sale of the property of the company in voluntary winding up also the company in voluntary winding up also seems to require the sanction of the seems to require the sanction of the Tribunal in a members’ voluntary winding Tribunal in a members’ voluntary winding up of the committee of Inspection in a up of the committee of Inspection in a creditors’ voluntary winding up as creditors’ voluntary winding up as provided in section 507.provided in section 507.

RIGHT OF DISSENTIENT MEMBERRIGHT OF DISSENTIENT MEMBER

Pursuant to sub section (3 ) of section 494, Pursuant to sub section (3 ) of section 494, a member of the transferor company, who a member of the transferor company, who did not vote in favor of the special did not vote in favor of the special resolution, may convey his dissent in resolution, may convey his dissent in writing to the Liquidator within 7 days of writing to the Liquidator within 7 days of the passing of the resolution and may the passing of the resolution and may require him to abstain from carrying into require him to abstain from carrying into effect the resolution or he may require him effect the resolution or he may require him to purchase his interest. In the light of to purchase his interest. In the light of what is provided in section 507, the what is provided in section 507, the Liquidator shall take such further action as Liquidator shall take such further action as may be directed by the Tribunal. may be directed by the Tribunal.

FINAL MEETING AND FINAL MEETING AND DISSOLUTIONDISSOLUTION

[Section 497 ] [Section 497 ] As soon as the affairs of the company are As soon as the affairs of the company are wound up, the Liquidator shall take the wound up, the Liquidator shall take the following steps :following steps :make an account as to how the winding up make an account as to how the winding up has been conducted and how the property has been conducted and how the property of the company has been disposed of .of the company has been disposed of .call a general meeting of the company and call a general meeting of the company and a meeting of the creditors for the purpose a meeting of the creditors for the purpose of placing the accounts before the of placing the accounts before the meetings.meetings.

PROCEDURE FOR CALLING THE PROCEDURE FOR CALLING THE MEETINGSMEETINGS

A meeting of the members of the A meeting of the members of the company will be held.company will be held.The meeting shall be called by The meeting shall be called by advertisement in a news paper advertisement in a news paper circulating in the district where the circulating in the district where the registered office is situate at least registered office is situate at least one month before the meeting. The one month before the meeting. The time, place and object of the meeting time, place and object of the meeting will be specified in the will be specified in the advertisement. See Forms 155 and advertisement. See Forms 155 and 156 which were earlier applicable.156 which were earlier applicable.

The notice of the meeting shall also be The notice of the meeting shall also be published in the Official Gazette at least one published in the Official Gazette at least one month before the meeting.month before the meeting.Within one week after the date of the meeting, Within one week after the date of the meeting, the Liquidator shall send a report to the the Liquidator shall send a report to the Registrar of Companies and Official Liquidator Registrar of Companies and Official Liquidator about the date on which the meeting was held about the date on which the meeting was held and send a copy of the account to them.and send a copy of the account to them.The quorum for the meeting shall be two The quorum for the meeting shall be two members or creditors, as the case may be.members or creditors, as the case may be.If the quorum was not present at the meeting, If the quorum was not present at the meeting, the Liquidator shall make a return to the the Liquidator shall make a return to the Registrar and Official Liquidator to the effect Registrar and Official Liquidator to the effect that the quorum was not present and that the that the quorum was not present and that the meeting was not held.meeting was not held.

REPORT BY OFFICIAL LIQUIDATORREPORT BY OFFICIAL LIQUIDATOROn receipt of the account and return about On receipt of the account and return about the meeting, whether held or not, the the meeting, whether held or not, the Official Liquidator shall examine the books Official Liquidator shall examine the books and papers of the company and if he finds and papers of the company and if he finds that everything is in order, he shall make a that everything is in order, he shall make a report to Tribunal that the affairs of the report to Tribunal that the affairs of the company have not been conducted in a company have not been conducted in a manner prejudicial to the interests of its manner prejudicial to the interests of its members or to the interests of its members or to the interests of its members or to public interest.members or to public interest. The company shall be deemed to be The company shall be deemed to be dissolved from the date of submission of dissolved from the date of submission of the report to the Tribunal.the report to the Tribunal. The Registrar, on receiving the account The Registrar, on receiving the account and the return in respect of the meeting, and the return in respect of the meeting, shall forthwith register them.shall forthwith register them.

IF LIQUIDATOR IS OF OPINION IF LIQUIDATOR IS OF OPINION THAT COMPANY WILL NOT BE THAT COMPANY WILL NOT BE

ABLE TO PAY ITS DEBTS.ABLE TO PAY ITS DEBTS.If the Liquidator in a members’ If the Liquidator in a members’ voluntary winding up is of the opinion voluntary winding up is of the opinion that the company will not be able to that the company will not be able to pay its debts in full, then the pay its debts in full, then the provisions in sections 508 and 509 provisions in sections 508 and 509 will apply as if the winding up were a will apply as if the winding up were a creditor’ voluntary winding up. In creditor’ voluntary winding up. In that case the provisions of sections that case the provisions of sections 496 & 497, explained above, will not 496 & 497, explained above, will not apply.apply.

PETITION FOR WINDING UP BY PETITION FOR WINDING UP BY TRIBUNAL IN A VOLUNTARY TRIBUNAL IN A VOLUNTARY

WINDING UPWINDING UP

[Section 440 & 441 ] [Section 440 & 441 ]

Section 440 & 441 have been Section 440 & 441 have been substituted by new sections as per substituted by new sections as per The second Amendment Act, 2002.The second Amendment Act, 2002.

Pursuant to Section 440 , where a Pursuant to Section 440 , where a company is being wound up company is being wound up voluntarily, a petition for its winding voluntarily, a petition for its winding up by the Tribunal may be presented up by the Tribunal may be presented by :by :

any person authorized to do so under any person authorized to do so under section 439. This has been explained section 439. This has been explained in another chapter.in another chapter.

The Official Liquidator.The Official Liquidator.

The Tribunal may pass a winding up The Tribunal may pass a winding up order on the petition if it is satisfied order on the petition if it is satisfied that the voluntary winding up, that the voluntary winding up, already commenced, cannot be already commenced, cannot be continued taking in to account the continued taking in to account the interests of the creditors or interests of the creditors or contributories or both.contributories or both.

COMMENCEMENT OF WINDING UPCOMMENCEMENT OF WINDING UP

Where in a voluntary winding up a Where in a voluntary winding up a resolution has already been passed, the resolution has already been passed, the Tribunal may agree that the winding up Tribunal may agree that the winding up shall be deemed to have commenced on shall be deemed to have commenced on the passing of the resolution even when a the passing of the resolution even when a petition is presented under section 440. petition is presented under section 440. But where the Tribunal feels otherwise on But where the Tribunal feels otherwise on proof of fraud or some mistake, the proof of fraud or some mistake, the Tribunal may order that the winding up Tribunal may order that the winding up shall be deemed to commence at the time shall be deemed to commence at the time of presentation of petition for winding up of presentation of petition for winding up under section 440.under section 440.

If the official liquidator, however, makes a If the official liquidator, however, makes a report that the affairs of the company report that the affairs of the company have been conducted in a manner have been conducted in a manner prejudicial to the interests of members or prejudicial to the interests of members or to public interest, the Tribunal may by to public interest, the Tribunal may by order direct the Official Liquidator to make order direct the Official Liquidator to make a further investigation of the affairs of the a further investigation of the affairs of the company. The Tribunal, on receipt of the company. The Tribunal, on receipt of the report of the Official Liquidator on further report of the Official Liquidator on further investigation, may order that the company investigation, may order that the company may stand dissolved or may make such may stand dissolved or may make such other order depending on the nature of other order depending on the nature of the further report of the Official Liquidator.the further report of the Official Liquidator.

LIABILITY OF LIQUIDATOR FOR LIABILITY OF LIQUIDATOR FOR FAILURE TO CALL MEETINGSFAILURE TO CALL MEETINGS

In case the Liquidator fails to call a In case the Liquidator fails to call a general meeting, he shall be general meeting, he shall be punishable with fine up to Rs. punishable with fine up to Rs. 5000.where copy of the account or 5000.where copy of the account or return is not sent to the Registrar return is not sent to the Registrar and Official Liquidator as required in and Official Liquidator as required in sub section (3), the Liquidator shall sub section (3), the Liquidator shall be punishable with fine up to Rs. 500 be punishable with fine up to Rs. 500 for every day during which the for every day during which the default continues.default continues.

STATEMENT OF AFFAIRS AT THE STATEMENT OF AFFAIRS AT THE TIME OF WINDING UPTIME OF WINDING UP

A statement of affairs of the company A statement of affairs of the company as on the date of the commencement as on the date of the commencement of winding up shall be submitted to of winding up shall be submitted to the liquidator duly verified by an the liquidator duly verified by an affidavit by one or more persons who affidavit by one or more persons who are as on the said date, the are as on the said date, the Directors, Management, Secretary or Directors, Management, Secretary or other Chief officer of the company. other Chief officer of the company. The statement shall contain the The statement shall contain the following particulars:following particulars:

a)The assets of the company, cash a)The assets of the company, cash balance in hand and at bank, if any, balance in hand and at bank, if any, and the negotiable securities, if any, and the negotiable securities, if any, held;held;

(b) Its debts and liabilities;(b) Its debts and liabilities;

Names, residences and occupation Names, residences and occupation of its creditors, the amount due, of its creditors, the amount due, whether secured or unsecured and if whether secured or unsecured and if secured, particulars of the securities secured, particulars of the securities given, whether by the company or an given, whether by the company or an officer, their value and date when officer, their value and date when given.given.

Debts due to the company and the Debts due to the company and the names, residence and occupation of names, residence and occupation of the debtors and the amount likely to the debtors and the amount likely to be realized.be realized.

ANY AGREEMENT WITH CREDITORS ANY AGREEMENT WITH CREDITORS WHEN BINDING ON THE COMPANYWHEN BINDING ON THE COMPANY

Any arrangement entered into between a Any arrangement entered into between a Company being would up and its creditors Company being would up and its creditors shall be binding on all concerned if:shall be binding on all concerned if:

It is approved by a special resolution of It is approved by a special resolution of the Company andthe Company andIt is also accepted to by three-fourths in It is also accepted to by three-fourths in number and value of the creditors.number and value of the creditors.Any creditor or contributory may prefer an Any creditor or contributory may prefer an appeal to the tribunal against the appeal to the tribunal against the arrangement and this appeal shall be arrangement and this appeal shall be made within three weeks of completion of made within three weeks of completion of the arrangement.the arrangement.

VOLUNTARY WINDING UP UNDER VOLUNTARY WINDING UP UNDER SECTION 484 OF THE COMPANIES SECTION 484 OF THE COMPANIES

ACT, 1956ACT, 1956

Before five weeks of passing special resolution Before five weeks of passing special resolution the Directors of the Company has to give the Directors of the Company has to give declaration of solvency that company will be able declaration of solvency that company will be able to pay its debts within such period not exceeding to pay its debts within such period not exceeding three years from the commencement of winding three years from the commencement of winding up. Such declaration is to be filled with R.O.C. up. Such declaration is to be filled with R.O.C. before passing of special resolution and shall be before passing of special resolution and shall be accompanied by a copy of the report of the accompanied by a copy of the report of the auditor on profit and loss account and on balance auditor on profit and loss account and on balance sheet of the Company from the last accounting sheet of the Company from the last accounting date till the date of the declaration of solvency. date till the date of the declaration of solvency. Such declaration shall also be accompanied by Such declaration shall also be accompanied by the affidavits of the directors.the affidavits of the directors.

Within 14 days of passing of the special Within 14 days of passing of the special resolution notice to this effect should be resolution notice to this effect should be published in Official Gazette and in local published in Official Gazette and in local news paper. The Company will cease to news paper. The Company will cease to carry on the business from the date of carry on the business from the date of passing of special resolution.passing of special resolution.

Draft of special resolution is as under :Draft of special resolution is as under :

RESOLVED THATRESOLVED THAT pursuant to the pursuant to the provisions of section 484(1)(b), consent of provisions of section 484(1)(b), consent of shareholders be and is hereby given for shareholders be and is hereby given for winding up the Company.winding up the Company.

RESOLVED FURTHER THATRESOLVED FURTHER THAT Shri…………. Shri…………. be and is hereby appointed as Liquidator be and is hereby appointed as Liquidator of the Company for the purpose of of the Company for the purpose of winding up on a remuneration of Rs…… winding up on a remuneration of Rs…… plus out of pocket expenses at actual.plus out of pocket expenses at actual.

RESOLVED FURTHER THATRESOLVED FURTHER THAT Shri………………, the liquidator be and is Shri………………, the liquidator be and is hereby empowered to exercise all powers hereby empowered to exercise all powers as provided in sub – clauses (i) to (iv) of as provided in sub – clauses (i) to (iv) of sub – section (2) of section 457 of the sub – section (2) of section 457 of the Companies Act, 1956. Companies Act, 1956.

PROVISION APPLICABLE PROVISION APPLICABLE TO MODE OF WINDING UPTO MODE OF WINDING UP

OVERRIDING OVERRIDING PREFERENTIAL PAYMENTSPREFERENTIAL PAYMENTS

[ SECTION 529 & 529 A ][ SECTION 529 & 529 A ]

Where a Company being wound up is insolvent, Where a Company being wound up is insolvent, the security of every secured creditor shall be the security of every secured creditor shall be deemed to be subject to a pari passu charge in deemed to be subject to a pari passu charge in favour of the workmen to the extent of the favour of the workmen to the extent of the workmen’s portion therein. A secured creditor, workmen’s portion therein. A secured creditor, who remains outside the winding up, can realize who remains outside the winding up, can realize his security but he will have to share his his security but he will have to share his realization to the extent of the workmen’s dues realization to the extent of the workmen’s dues with the Official Liquidator. In view of this with the Official Liquidator. In view of this provision, unless the secured creditor realizes an provision, unless the secured creditor realizes an amount, by sale of the secured property which is amount, by sale of the secured property which is equal to the secured debt and the dues of the equal to the secured debt and the dues of the workmen called “ workmen’s portion “, the workmen called “ workmen’s portion “, the secured creditor will have to prove for the secured creditor will have to prove for the balance of his debt along with other creditor.balance of his debt along with other creditor.

The debts due to:The debts due to:

workmen andworkmen and

secured creditorssecured creditors

will be paid in priority to all debts. will be paid in priority to all debts. The said debts will also be paid in full The said debts will also be paid in full if the value of the sale proceeds of if the value of the sale proceeds of the security is sufficient. If the sale the security is sufficient. If the sale proceeds are not sufficient, the two proceeds are not sufficient, the two debts shall be paid proportionately.debts shall be paid proportionately.

PREFERENTIAL PAYMENTPREFERENTIAL PAYMENT [SECTION 530] [SECTION 530]

In a winding up the first two preferential In a winding up the first two preferential payments are secured creditors and payments are secured creditors and workmen’s dues. The other preferential workmen’s dues. The other preferential payments, subject to section 529A, are payments, subject to section 529A, are given below :given below :

all revenues, taxes, cesses and rates due all revenues, taxes, cesses and rates due to any State or Central Government or to a to any State or Central Government or to a local authority at the relevant date, local authority at the relevant date, namely the date of appointment of namely the date of appointment of Provisional Liquidator or the date of Provisional Liquidator or the date of winding up order, as the case may be, or winding up order, as the case may be, or the date of passing the resolution in a the date of passing the resolution in a voluntary winding up.voluntary winding up.

all wages or salary of an employeeall wages or salary of an employee (including wages for time or piece – work (including wages for time or piece – work

and salary earned by way of commission) and salary earned by way of commission) due for a period not exceeding four due for a period not exceeding four months within 12 months before the months within 12 months before the relevant date as mentioned above up to relevant date as mentioned above up to an amount of Rs. 20,000 for any one an amount of Rs. 20,000 for any one claimant as per the Notification No. GSR claimant as per the Notification No. GSR 80 (E) dt. 17-2-97 issued by the Central 80 (E) dt. 17-2-97 issued by the Central Government pursuant to sub – section (2).Government pursuant to sub – section (2).

all holidays remuneration accrued to an all holidays remuneration accrued to an employee due on date of winding up employee due on date of winding up order or resolution, as the case may be, as order or resolution, as the case may be, as required to above.required to above.

all dues under the Employee’s State all dues under the Employee’s State Insurance Act, 1948 payable during Insurance Act, 1948 payable during 12 months before the relevant date 12 months before the relevant date as mentioned above.as mentioned above.

all amounts due in respect of all amounts due in respect of Workmen’s Compensation Act, 1923 Workmen’s Compensation Act, 1923 on the date of winding up order.on the date of winding up order.

all sums due to an employee from a all sums due to an employee from a Provident Fund, pension, gratuity or Provident Fund, pension, gratuity or any other fund.any other fund.

OTHER CONDITIONS TO BE OTHER CONDITIONS TO BE METMET1.1.The above debts will be The above debts will be reduced in equal proportion if the reduced in equal proportion if the assets are insufficient to pay assets are insufficient to pay them in full.them in full.2.2.The above debts shall have The above debts shall have priority over the claim of holders priority over the claim of holders of debentures under a floating of debentures under a floating charge and be paid out of such charge and be paid out of such property if the assets available property if the assets available for payment of general creditors for payment of general creditors are insufficient to pay them.are insufficient to pay them.

3.3. The above debts shall be met The above debts shall be met forthwith if the assets are forthwith if the assets are adequate to meet them after adequate to meet them after making provision for costs and making provision for costs and expenses of winding up.expenses of winding up.4.4. If any goods of the company If any goods of the company are distrained ( legal seizure of are distrained ( legal seizure of goods ) by a landlord or other goods ) by a landlord or other person, within 3 months before person, within 3 months before the date of winding up order, the the date of winding up order, the proceeds of sale of such goods proceeds of sale of such goods will be first utilized to pay the will be first utilized to pay the above debts.above debts.

SETTLEMENT OF PREFERENTIAL SETTLEMENT OF PREFERENTIAL CLAIMS MENTIONED ABOVECLAIMS MENTIONED ABOVE

The provisions of section 530 will be The provisions of section 530 will be subject to the provisions of section subject to the provisions of section 529A. In other words unless there is a 529A. In other words unless there is a surplus available after meeting the surplus available after meeting the debts under section 529A, the other debts under section 529A, the other preferential creditors covered by preferential creditors covered by section 530 will not get anything _ See section 530 will not get anything _ See Giovanola Binny Ltd. ( In Liquidation ) Giovanola Binny Ltd. ( In Liquidation ) In re : (1990) 67 comp. Cas. 441 In re : (1990) 67 comp. Cas. 441 ( Ker).( Ker).

REVENUES, TAXES, CESSES AND REVENUES, TAXES, CESSES AND RATES DUERATES DUE

[ Clause (a) of section 530 (1) ][ Clause (a) of section 530 (1) ]

The above items must have become The above items must have become due during 12 months before the due during 12 months before the relevant date.relevant date.

It must be shown that the revenues It must be shown that the revenues etc., payable has become due and etc., payable has become due and payable within 12 months before the payable within 12 months before the relevant date. The three conditions to relevant date. The three conditions to be satisfied are :be satisfied are :

the debt of the kind mentioned in the debt of the kind mentioned in clause (a) must be outstanding on clause (a) must be outstanding on the relevant date ;the relevant date ;

the debt must have become due, in the debt must have become due, in the sense, it must have been the sense, it must have been incurred at any time within 12 incurred at any time within 12 months before the relevant date ; months before the relevant date ; andand

the debt must have become payable the debt must have become payable at any time within 12 months before at any time within 12 months before the relevant date.the relevant date.

SECTION 178 OF THE INCOME – TAX ACT, SECTION 178 OF THE INCOME – TAX ACT, 1961 OVERRIDES THE PROVISIONS IN 1961 OVERRIDES THE PROVISIONS IN SECTION 530 (1) (a)SECTION 530 (1) (a)

Section 178 of the Income – Tax Act, 1961 Section 178 of the Income – Tax Act, 1961 requires every liquidator to give notice of his requires every liquidator to give notice of his appointment to the Assessing Officer within 30 appointment to the Assessing Officer within 30 days of his appointment. The Assessing Officer, days of his appointment. The Assessing Officer, after making necessary enquiries, shall notify to after making necessary enquiries, shall notify to the Liquidator within three months of the receipt the Liquidator within three months of the receipt of notice of appointment of the liquidator the of notice of appointment of the liquidator the amount which in his opinion would be sufficient to amount which in his opinion would be sufficient to provide for income – tax which is then payable or provide for income – tax which is then payable or likely thereafter to become payable by the likely thereafter to become payable by the company. Sub – section (6) also provides that the company. Sub – section (6) also provides that the provisions of the said section 178 shall have provisions of the said section 178 shall have effect notwithstanding anything to the contrary effect notwithstanding anything to the contrary contained in any other law for the time being in contained in any other law for the time being in force.force.

SECTION 179 OF THE INCOME TAX SECTION 179 OF THE INCOME TAX ACT LIABILITY OF DIRECTOR IN CASE ACT LIABILITY OF DIRECTOR IN CASE OF WINDING UP:OF WINDING UP:

THIS SECTION OVERRIDES ALL THE PROVISIONS OF THIS SECTION OVERRIDES ALL THE PROVISIONS OF COMPANIES ACT 1956, IN RESPECT OF WINDING UP COMPANIES ACT 1956, IN RESPECT OF WINDING UP OF COMPANY AND IMPOSES PERSONAL LIABILITY OF COMPANY AND IMPOSES PERSONAL LIABILITY ON DIRECTOR IN CASE OF PRIVATE COMPANY IN ON DIRECTOR IN CASE OF PRIVATE COMPANY IN RESPECT OF ANY TAX LIABILITY OF PRIVATE RESPECT OF ANY TAX LIABILITY OF PRIVATE COMPANY FOR PREVIOUS YEAR IN CASE OF COMPANY FOR PREVIOUS YEAR IN CASE OF INABILITY OF PRIVATE COMPANY TO CLEAR THE INABILITY OF PRIVATE COMPANY TO CLEAR THE INCOME TAX DUES. INCOME TAX DUES.

IN CASE OF CONVERSION OF PRIVATE COMPANY IN CASE OF CONVERSION OF PRIVATE COMPANY INTO PUBLIC COMPANY THE AFORESAID LIABILITY INTO PUBLIC COMPANY THE AFORESAID LIABILITY CONTINUES TILL THE COMPANY WAS PRIVATE CONTINUES TILL THE COMPANY WAS PRIVATE COMPANY .COMPANY .

IN CASE OF CONVERSION OF PRIVATE COMPANY IN CASE OF CONVERSION OF PRIVATE COMPANY INTO PUBLIC COMPANY THE AFORESAID LIABILITY INTO PUBLIC COMPANY THE AFORESAID LIABILITY CONTINUES TILL THE COMPANY WAS PRIVATE CONTINUES TILL THE COMPANY WAS PRIVATE COMPANY .COMPANY .

SECTION 46 OF THE INCOME TAX ACT PROVIDES SECTION 46 OF THE INCOME TAX ACT PROVIDES EXEMPTION IN RESPECT OF CAPITAL GAIN ON EXEMPTION IN RESPECT OF CAPITAL GAIN ON DISTRIBUTION OF ASSETS BY COMPANY IN DISTRIBUTION OF ASSETS BY COMPANY IN LIQUIDATION OVERRIDING THE PROVISION OF LIQUIDATION OVERRIDING THE PROVISION OF SECTION 45 OF THE I.T ACT. 1961. HOWEVER, SECTION 45 OF THE I.T ACT. 1961. HOWEVER, ANY MONEY OR OTHER ASSET RECEIVED BY THE ANY MONEY OR OTHER ASSET RECEIVED BY THE SHAREHOLDER OF THE COMPANY THE VALUE OF SHAREHOLDER OF THE COMPANY THE VALUE OF WHICH EXCEEDS THE DISTRIBUTABLE PROFIT AS WHICH EXCEEDS THE DISTRIBUTABLE PROFIT AS DEFINED IN SUB CLAUSE C OF CLAUSE 22 OF DEFINED IN SUB CLAUSE C OF CLAUSE 22 OF SECTION OF 2 OF I.T. ACT. 1961 THEN THE SECTION OF 2 OF I.T. ACT. 1961 THEN THE EXCESS AMOUNT WOULD BE LIABLE TO CAPITAL EXCESS AMOUNT WOULD BE LIABLE TO CAPITAL GAIN AS CALCULATED U/S 48 OF I.T. ACT. 1961.GAIN AS CALCULATED U/S 48 OF I.T. ACT. 1961.

SECTION 2 (22)(c) OF I.T. ACT 1961 SECTION 2 (22)(c) OF I.T. ACT 1961 STATES THAT DIVIDEND INCLUDES STATES THAT DIVIDEND INCLUDES ANY DISTRIBUTION TO THE ANY DISTRIBUTION TO THE SHAREHOLDER WHICH IS SHAREHOLDER WHICH IS ATTRIBUTABLE TO ACCUMULATED ATTRIBUTABLE TO ACCUMULATED PROFITS BEFORE LIQUIDATION PROFITS BEFORE LIQUIDATION WHETHER CAPITALIZED OR NOT. WHETHER CAPITALIZED OR NOT.

ILLUSTRATIONS OF CERTAIN ILLUSTRATIONS OF CERTAIN AMOUNTS WHICH ARE NOT AMOUNTS WHICH ARE NOT

PREFERENTIALPREFERENTIAL

The following amounts due have been The following amounts due have been held not entitled to priority :held not entitled to priority :

(a) Loans advances by a State (a) Loans advances by a State Government under State Aid to Government under State Aid to Industries Act.Industries Act.

(b) Guarantee commission due to a (b) Guarantee commission due to a State Government for guaranteeing State Government for guaranteeing loan advanced to the company.loan advanced to the company.

(c) Debts due to a State Government (c) Debts due to a State Government in respect of trading activity was not in respect of trading activity was not considered for priority.considered for priority.

(d) Arrears of rent due to government.(d) Arrears of rent due to government.

(e) Ex – gratia payments are not (e) Ex – gratia payments are not entitled to priority.entitled to priority.

(f) Sums payable after the (f) Sums payable after the closure of the business as closure of the business as compensation was not compensation was not considered “ wages”.considered “ wages”.

(g) Taxes etc. due outside the (g) Taxes etc. due outside the period stated in section 530(1) period stated in section 530(1) (a) are not entitled to priority (a) are not entitled to priority and must rank as unsecured and must rank as unsecured creditors.creditors.

ILLUSTRATIONS OF ILLUSTRATIONS OF SOME PREFERENTIAL SOME PREFERENTIAL PAYMENTSPAYMENTS(a) Retrenchment compensation (a) Retrenchment compensation falling within the definition “ falling within the definition “ wages” is preferential payment.wages” is preferential payment.

(b) Sums due to an employee (b) Sums due to an employee from provident fund, pension from provident fund, pension fund and gratuity fund are fund and gratuity fund are preferential paymentspreferential payments

(c ) Section 530(4) creates a right of (c ) Section 530(4) creates a right of priority to creditor whose advance is priority to creditor whose advance is utilized for the payment of wages or utilized for the payment of wages or holiday remuneration to an employee holiday remuneration to an employee subject to the condition that if the said subject to the condition that if the said amount is not paid, the employee or legal amount is not paid, the employee or legal representative would have been entitled to representative would have been entitled to a right of priority himself – Mysore Spun a right of priority himself – Mysore Spun Silk Mills Ltd. (1964) 34 Comp. Cas. 1005 Silk Mills Ltd. (1964) 34 Comp. Cas. 1005 ( Mys)( Mys)

(d) Bonus would seem to come under (d) Bonus would seem to come under wages for preferential payment.wages for preferential payment.

FRADULENT FRADULENT PREFERENCEPREFERENCE [ Section 531 ][ Section 531 ]

The following acts of a company The following acts of a company within six months before the within six months before the presentation of winding up petition presentation of winding up petition or the passing of a resolution in the or the passing of a resolution in the case of voluntary winding up be case of voluntary winding up be deemed to be fraudulent preference deemed to be fraudulent preference of its creditors and they will be invalidof its creditors and they will be invalid

Transfer of property, movable Transfer of property, movable or immovableor immovable

Delivery of goods.Delivery of goods.

Payment, execution or other Payment, execution or other act relating to property.act relating to property.

AVOIDANCE OF AVOIDANCE OF VOLUNTARY VOLUNTARY

TRANSFERTRANSFER

[ Section [ Section 531 – A ]531 – A ]

Any transfer of property of a company, Any transfer of property of a company, movable or immovable or any delivery of movable or immovable or any delivery of goods made not in the ordinary course of goods made not in the ordinary course of business or for valuable consideration business or for valuable consideration within one year before the presentation of within one year before the presentation of winding up petition or the passing of a winding up petition or the passing of a resolution shall be void and ineffective.resolution shall be void and ineffective.

An application for setting aside a transfer An application for setting aside a transfer will be allowed by the court if it is proved will be allowed by the court if it is proved that there was inadequate consideration that there was inadequate consideration and there was lack of good faith.and there was lack of good faith.

LIQUIDATOR’S DISCRETION TO MOVE LIQUIDATOR’S DISCRETION TO MOVE THE TRIBUNAL TO ANNUAL THE THE TRIBUNAL TO ANNUAL THE TRANSFERTRANSFER

It is provided in the section 531 – A that It is provided in the section 531 – A that any transaction which is hit by the section any transaction which is hit by the section shall be void against the liquidator. It is shall be void against the liquidator. It is left to the Liquidator to move the Tribunal left to the Liquidator to move the Tribunal to avoid the contract. When the Liquidator to avoid the contract. When the Liquidator does not choose to take action for does not choose to take action for avoiding the transfer, it is not open for any avoiding the transfer, it is not open for any other person to move the court – See in other person to move the court – See in this Connection K.N.Narayana Iyer V. CIT this Connection K.N.Narayana Iyer V. CIT (1993) 78 Comp. Cas. 156 ( Ker ).(1993) 78 Comp. Cas. 156 ( Ker ).

INTERVAL OF TIME INTERVAL OF TIME BETWEEN BETWEEN

PRESENTATION OF PRESENTATION OF PETITION ( SECTION PETITION ( SECTION

441) RESOLUTION OF 441) RESOLUTION OF MEMBERS ( SECTION MEMBERS ( SECTION

486 ) AND WINDING 486 ) AND WINDING UP ORDERUP ORDER

In a voluntary winding up, in terms of section In a voluntary winding up, in terms of section 491 the powers of the Board of Directors shall 491 the powers of the Board of Directors shall cease on the appointment of a Liquidator. On the cease on the appointment of a Liquidator. On the other hand, in terms of section 445, in winding other hand, in terms of section 445, in winding up by the Tribunal the powers of the Board shall up by the Tribunal the powers of the Board shall cease from the date of communication of the cease from the date of communication of the order of winding up by the Tribunal. There will order of winding up by the Tribunal. There will thus be some interval of time in winding up by thus be some interval of time in winding up by Tribunal between presentation of petition for Tribunal between presentation of petition for winding up and the issue of winding up order or winding up and the issue of winding up order or the appointment of Liquidator. Only during such the appointment of Liquidator. Only during such interval will the Board of Directors be in a interval will the Board of Directors be in a position to exercise power of management in the position to exercise power of management in the company. Section 536 seeks to provide that the company. Section 536 seeks to provide that the action taken by the Board of Directors during the action taken by the Board of Directors during the above interval of time will be void unless the above interval of time will be void unless the sanction of the Liquidator ( in voluntary winding sanction of the Liquidator ( in voluntary winding up ) or the sanction of the Tribunal is taken.up ) or the sanction of the Tribunal is taken.

Lease of part of property of the Lease of part of property of the company after petition of winding up company after petition of winding up is filed.is filed.In Kanchan Kumar Dhar, Official Liquidator In Kanchan Kumar Dhar, Official Liquidator V. Dr. L. M. Visarai (1986) 60 Com. Cas. V. Dr. L. M. Visarai (1986) 60 Com. Cas. 746 ( Bom ), the Director of the Company 746 ( Bom ), the Director of the Company granted lease of building owned by the granted lease of building owned by the company after winding up petition is company after winding up petition is presented. This was not specifically presented. This was not specifically disclosed to the Official Liquidator when he disclosed to the Official Liquidator when he was appointed although he was accepting was appointed although he was accepting the rent even after winding up order was the rent even after winding up order was issued. The court held that the transaction issued. The court held that the transaction was entered in to after commencement of was entered in to after commencement of winding up proceedings and it was void winding up proceedings and it was void and that the acceptance of rent cannot and that the acceptance of rent cannot validate the transaction.validate the transaction.

Arbitration award made after Arbitration award made after presentation of winding up presentation of winding up petition held voidpetition held voidThe arbitration proceedings started The arbitration proceedings started when the winding up proceedings when the winding up proceedings had not formerly started. The had not formerly started. The arbitration award was made when arbitration award was made when the company was ordered to be the company was ordered to be wound up. It was held that the award wound up. It was held that the award was not valid – Durga Das Nayyar V. was not valid – Durga Das Nayyar V. Bombay Thread Mills Co. Ltd., Bombay Thread Mills Co. Ltd., ( 1957) 27 Comp. Cas. 556 ( Punj).( 1957) 27 Comp. Cas. 556 ( Punj).

Court has power to validate Court has power to validate transactions hit by section transactions hit by section 536(2)536(2)

Even when a property of the Even when a property of the company was sold after a petition for company was sold after a petition for winding up was presented, the court winding up was presented, the court on application revalidated the sale – on application revalidated the sale – J. Sen Gupta ( p.) Ltd., In re : (1962) J. Sen Gupta ( p.) Ltd., In re : (1962) 32 Comp. Cas. 876 ( Cal ). See also 32 Comp. Cas. 876 ( Cal ). See also Aryodaya Spg. & Wvg. Co. Ltd., In Aryodaya Spg. & Wvg. Co. Ltd., In re / Simka Engg. Co., In re : (1986) re / Simka Engg. Co., In re : (1986) 60 Comp. Cas. 897 ( Guj.).60 Comp. Cas. 897 ( Guj.).

CONNOTATION OF PROMOTERS CONNOTATION OF PROMOTERS OR OFFICER COVERED BY OR OFFICER COVERED BY SECTION 543SECTION 543

A person who originates the scheme for A person who originates the scheme for the formation of a company, has the the formation of a company, has the Memorandum and Articles prepared Memorandum and Articles prepared executed and registered, finds the first executed and registered, finds the first Directors and places initial capital is a Directors and places initial capital is a promoter in the fullest sense. He controls promoter in the fullest sense. He controls the formation and future of the company the formation and future of the company and it is this control which lies at the root and it is this control which lies at the root of the fiduciary relation to the promoter of of the fiduciary relation to the promoter of the company. the company.

On the other hand, a share broker On the other hand, a share broker has nothing to do with the has nothing to do with the management of the company. management of the company. Therefore, to classify him as an ‘ Therefore, to classify him as an ‘ officer of the company’ within the officer of the company’ within the meaning of the section would be meaning of the section would be putting too great a strain on the putting too great a strain on the wording of the section – Official wording of the section – Official Liquidator, National Live Stock Liquidator, National Live Stock Registration Bank Ltd. V. Velu Registration Bank Ltd. V. Velu Mudaliar ( 1938) 8 Com. Cas. 7 Mudaliar ( 1938) 8 Com. Cas. 7 ( Mad).( Mad).

ALL DIRECTORS ARE ALL DIRECTORS ARE COLLECTIVELY COLLECTIVELY RESPONSIBLE. MOST RESPONSIBLE. MOST OF THEM CANNOT OF THEM CANNOT PLEAD THAT A PLEAD THAT A DOMINANT DOMINANT DIRECTOR CALLED DIRECTOR CALLED THE SHOTSTHE SHOTS

The Directors are the trustees of the The Directors are the trustees of the company and they should act like prudent company and they should act like prudent men. In a case they allowed one Director men. In a case they allowed one Director to deal with the funds of the company as to deal with the funds of the company as he pleased with the result that huge loss he pleased with the result that huge loss was caused to the company. It was held was caused to the company. It was held that their responsibility was collective. that their responsibility was collective. Had they exercised their rights and Had they exercised their rights and asserted, things would have been asserted, things would have been different. As such they could not disown different. As such they could not disown their responsibility jointly or severally. The their responsibility jointly or severally. The Directors were accordingly, held liable to Directors were accordingly, held liable to compensate the company – F. & C. Osler compensate the company – F. & C. Osler

( India) Ltd., In re : ( 1978) 48 Comp. Cas. ( India) Ltd., In re : ( 1978) 48 Comp. Cas. 698 ( Cal).698 ( Cal).

Period of limitation of five Period of limitation of five years in sub section (2) may years in sub section (2) may be extended by one more be extended by one more yearyear

As a result of section 458 A, the As a result of section 458 A, the period of 5 years prescribed in period of 5 years prescribed in section 543 may be extended by one section 543 may be extended by one more year.more year.

LIQUIDATOR MAY FINALISE LIQUIDATOR MAY FINALISE MATTERS IN WINDING UPMATTERS IN WINDING UP

With the sanction of the Tribunal With the sanction of the Tribunal in a winding up by Tribunal or in a winding up by Tribunal or with the sanction of the general with the sanction of the general meeting of company in a meeting of company in a voluntary winding up, the voluntary winding up, the Liquidator is authorized to take Liquidator is authorized to take action as underaction as under

Pay any classes of creditors in Pay any classes of creditors in full.full.

Make any compromise or Make any compromise or arrangement with creditors or arrangement with creditors or persons claiming to be persons claiming to be creditors.creditors.

Compromise any call or debt Compromise any call or debt from a contributory.from a contributory.

The power at (ii) above exercised by the The power at (ii) above exercised by the Liquidator in Voluntary Winding up is Liquidator in Voluntary Winding up is appealable to the Tribunal by any appealable to the Tribunal by any aggrieved person. See also Rules 270 & aggrieved person. See also Rules 270 & 271 of erstwhile Rules for information.271 of erstwhile Rules for information.

In this connection it may be noted that in a In this connection it may be noted that in a creditor’s voluntary winding up, in terms creditor’s voluntary winding up, in terms of section 517, the compromise or of section 517, the compromise or arrangement with its creditors shall have arrangement with its creditors shall have to be sanctioned not only by a special to be sanctioned not only by a special resolution referred to in section 546 but resolution referred to in section 546 but also acceded to by three – fourths in also acceded to by three – fourths in number and value of the creditors.number and value of the creditors.

DISSOLUTION OF A DISSOLUTION OF A COMPANYCOMPANY

It has already been stated that It has already been stated that pursuant to section 481, when the pursuant to section 481, when the affairs of a company have been affairs of a company have been wound up by order of the Tribunal, wound up by order of the Tribunal, the Tribunal shall make an order that the Tribunal shall make an order that the company be dissolved. The the company be dissolved. The liquidator shall forward a copy of the liquidator shall forward a copy of the order to the Registrar.order to the Registrar.

In a voluntary winding up, in terms of In a voluntary winding up, in terms of sections 497 and 509 when the sections 497 and 509 when the Official Liquidator makes a report to Official Liquidator makes a report to the Tribunal that the affairs of the the Tribunal that the affairs of the company have not been conducted company have not been conducted in a manner prejudicial to the in a manner prejudicial to the interests of its members or to public interests of its members or to public interest, the company shall be interest, the company shall be deemed to be dissolved form the deemed to be dissolved form the date of the said report to the date of the said report to the Tribunal.Tribunal.

MINIMUM PERIOD FOR MINIMUM PERIOD FOR KEEPING THE BOOKSKEEPING THE BOOKS

The power of the Tribunal, the The power of the Tribunal, the company in general meeting or company in general meeting or the committee of Inspection / the committee of Inspection / Creditors referred to above will Creditors referred to above will be subject to the condition that be subject to the condition that the books and papers will be the books and papers will be kept in good order for a period of kept in good order for a period of not less than five years from the not less than five years from the dissolution of the company.dissolution of the company.

Pursuant to rule 15 of the Companies Pursuant to rule 15 of the Companies ( Central Government’s ) General Rules and ( Central Government’s ) General Rules and Forms, 1956, any creditor or contributory or Forms, 1956, any creditor or contributory or the Liquidator of a company wound up may the Liquidator of a company wound up may make a representation to the Central make a representation to the Central Government if it is desired that all or any of Government if it is desired that all or any of the books and papers may be destroyed the books and papers may be destroyed earlier that five years. After considering the earlier that five years. After considering the matter and after giving opportunity to all matter and after giving opportunity to all concerned, the Central Government may concerned, the Central Government may direct in writing that the period of five years direct in writing that the period of five years may be or need not be reduced. Please also may be or need not be reduced. Please also see the said rule in respect of the provision see the said rule in respect of the provision for appeal in this regard.for appeal in this regard.

VOLUNTARY WINDING UPVOLUNTARY WINDING UP

The statement referred to above The statement referred to above prepared by the Liquidator prepared by the Liquidator audited in respect of a company audited in respect of a company being wound up will have to be being wound up will have to be filed with the Registrar of filed with the Registrar of Companies.Companies.

DUTY OF THE LIQUIDATOR TO DUTY OF THE LIQUIDATOR TO MAKE RETURNS ETC.MAKE RETURNS ETC. [ SECTION 556 ][ SECTION 556 ]

The duty of the Liquidator under The duty of the Liquidator under various sections to file returns or various sections to file returns or other documents with the Tribunal or other documents with the Tribunal or the Registrar or to others in respect the Registrar or to others in respect of a company being wound up for of a company being wound up for which he is Liquidator has been which he is Liquidator has been explained against each such section. explained against each such section.

Section 556, which generally refers to Section 556, which generally refers to the duty of the Liquidator, provides the duty of the Liquidator, provides that where he makes a default and that where he makes a default and fails to make good, the default within fails to make good, the default within 14 days after service of a notice to 14 days after service of a notice to him, any contributory or creditor or him, any contributory or creditor or the Registrar may make an the Registrar may make an application to the Tribunal and the application to the Tribunal and the Tribunal may direct the Liquidator to Tribunal may direct the Liquidator to make good the default within the make good the default within the time specified.time specified.

MEETINGS OF MEETINGS OF CONTRIBUTORIES OR CONTRIBUTORIES OR

CREDITORSCREDITORS [SECTION 557 ] [SECTION 557 ]

Some provisions of the Act which require a Some provisions of the Act which require a liquidator to call a general meeting of the liquidator to call a general meeting of the company or a meeting of the creditors are company or a meeting of the creditors are those in sections 496, 508 and 512. Section those in sections 496, 508 and 512. Section 460 also provides that the Liquidator shall 460 also provides that the Liquidator shall have regard to any direction which may be have regard to any direction which may be given by resolution by a meeting of given by resolution by a meeting of creditors or general meeting of the creditors or general meeting of the company or by the Committee of company or by the Committee of Inspection ( Section 464 and 503). Inspection ( Section 464 and 503).

In addition to above provisions, in In addition to above provisions, in terms of section 557 in all matters terms of section 557 in all matters regarding winding up, the Tribunal regarding winding up, the Tribunal may take in to account the wishes of may take in to account the wishes of contributories and creditors and for contributories and creditors and for ascertaining their wishes the Tribunal ascertaining their wishes the Tribunal may direct such meetings to be may direct such meetings to be called and held and may appoint a called and held and may appoint a person as Chairman for such person as Chairman for such meetings. The value of the debt due meetings. The value of the debt due to the creditors and the number of to the creditors and the number of votes that may be cast by each votes that may be cast by each contributory will be taken in to the contributory will be taken in to the account by the Tribunal.account by the Tribunal.

POWER OF COMPANY TO POWER OF COMPANY TO DECLARE DISSOLUTION VOIDDECLARE DISSOLUTION VOID

[ SECTION 559 ] [ SECTION 559 ] Section 559 gives power to the Section 559 gives power to the

Tribunal to declare that a company Tribunal to declare that a company dissolved under Part VII dealing with dissolved under Part VII dealing with winding up of companies is void. This winding up of companies is void. This shall be done within two years of the shall be done within two years of the date of dissolution. This power of date of dissolution. This power of the Tribunal also extends to orders the Tribunal also extends to orders under section 394, under part VI of under section 394, under part VI of the Act. the Act.

The application for this purpose The application for this purpose may be made to the Tribunal by may be made to the Tribunal by the Liquidator or by any other the Liquidator or by any other person who appears to the person who appears to the Tribunal to be interested in the Tribunal to be interested in the matter.matter.

The period of two years is for The period of two years is for making the application to the making the application to the Tribunal and the Tribunal may Tribunal and the Tribunal may pass orders at any time pass orders at any time thereafter.thereafter.

Bombay Stamp Act, 1958 has defined Bombay Stamp Act, 1958 has defined the term conveyance in Section 2(g). the term conveyance in Section 2(g). Pursuant to sub section (iv) the Pursuant to sub section (iv) the conveyance includes the order of conveyance includes the order of High court under section 394 of the High court under section 394 of the Companies Act, 1956 which deals Companies Act, 1956 which deals with reconstruction/ Amalgamation with reconstruction/ Amalgamation etc. The defination is specific. It does etc. The defination is specific. It does not cover the order/ report under not cover the order/ report under section 497 of the Companies Act section 497 of the Companies Act which relates to Winding up.which relates to Winding up.

Section 53 of the Gujarat Value Added Tax Section 53 of the Gujarat Value Added Tax Act, 2003 has casted responsibility on Act, 2003 has casted responsibility on Liquidator of the Company under Liquidator of the Company under Liquidation. Accordingly within 30 days of Liquidation. Accordingly within 30 days of his appointment as Liquidator he has to his appointment as Liquidator he has to give intimation of his appointment to the give intimation of his appointment to the Commissioner. Within 3 Months of from Commissioner. Within 3 Months of from the date of receipt of the intimation about the date of receipt of the intimation about the appointment, the commissioner after the appointment, the commissioner after due inquiry inform the liquidator about the due inquiry inform the liquidator about the Amount of Out standing tax, Interest or Amount of Out standing tax, Interest or penalty payable by the Company.penalty payable by the Company.

In case of Private Company if the In case of Private Company if the aforesaid amount is not recoverable aforesaid amount is not recoverable than every Director of the Company than every Director of the Company who was the Director of the who was the Director of the Company at any time during the Company at any time during the period for which Tax is due shall be period for which Tax is due shall be jointly and severally liable for the jointly and severally liable for the outstanding due unless the outstanding due unless the Commissioner is satisfied that such Commissioner is satisfied that such non- recoveries is not attributable to non- recoveries is not attributable to any gross neglect, misfeasance or any gross neglect, misfeasance or breach of duty on his part in relation breach of duty on his part in relation to the affairs of the Company.to the affairs of the Company.

With Best WishesWith Best Wishes

D.N. Motwani & Co.D.N. Motwani & Co.COMPANY SECRETARIESCOMPANY SECRETARIESB-212 Nandan Apartment, B-212 Nandan Apartment, B/H ISRO, Ramdevnagar,B/H ISRO, Ramdevnagar,Satellite Road, Satellite Road, Ahmedabad – 380 015. Ahmedabad – 380 015. Mobile No. 9327023666Mobile No. 9327023666Office Ph. No.: 079- 40025664Office Ph. No.: 079- 40025664E-Mail: dnmotwanicsp@yahoo.co.inE-Mail: dnmotwanicsp@yahoo.co.in