Winding up by Tribunal - Part 1
Section 270. Winding up by the Tribunal
It states that Section 271 - 303 will apply to all cases where a company is being wound up by a tribunal.
These sections will lay down the rules and procedures for such winding up.
Section 271. Circumstances in which the company may be wound up by the Tribunal
Section 271 lays down the circumstances in which a company may be wound up by the Tribunal under the Companies Act.
(a).
The company itself may decide to be wound up by passing a special resolution in a general meeting.
(b).
The company may be wound up if it has acted against national interests, such as :
Sovereignty and integrity of India, the security of the State, public order, or morality.
(c).
If the Registrar or any authorised person applies and the Tribunal finds that the company was formed or operated fraudulently, unlawfully, or with misconduct, it can order winding up.
(d).
If the company has failed to file its financial statements or annual returns for five consecutive years, the Tribunal may wind it up.
(e).
The Tribunal has the power to order a company to be wound up even if no specific ground is proved.
This can be done when the Tribunal feels it is just and equitable and necessary in the circumstances.
Section 272. Petition for winding up
272(1).
A petition for winding up can be presented to the Tribunal by any of the following:
(a). The company itself.
(b). Any contributory or group of contributories.
(c). Jointly by the company and contributories.
(d). The Registrar of Companies.
(e). Any person authorised by the Central Government.
(f). In cases involving national interest (under Section 271(b)), by the Central or State Government.
272(2).
A contributory (shareholder) is allowed to file a winding-up petition even if all his shares are fully paid, meaning he owes nothing further to the company.
He can also file the petition even if the company has no assets or no surplus left for shareholders after paying debts.
He is eligible to file the petition if he has held the shares for at least 6 months in the last 18 months before the winding-up began.
If the shares were obtained through inheritance, the time-holding requirement does not apply.
272(3).
The Registrar can file a petition under Section 271 but only after obtaining prior approval from the Central Government.
The Government must also give the company a reasonable opportunity to present its case before granting approval.
272(4).
When the company itself files a winding-up petition, it must be accompanied by a statement of affairs, prepared in the prescribed format.
This prescribed format should give all the details of its financial position.
272(5).
A copy of every petition must be filed with the Registrar.
The Registrar must then submit his views on the matter to the Tribunal within sixty days of receiving the petition.
Section 273. Powers of Tribunal
273(1).
After considering the petition, the Tribunal may pass any of the following orders:
(a). Dismiss the petition, either with or without costs.
(b). Make an interim order, if necessary.
(c). Appoint a provisional liquidator to temporarily take charge of the company’s affairs until a final winding-up order is made.
(d). Order the winding up of the company, with or without costs.
(e). Pass any other suitable order it deems fit.
The Tribunal must pass such an order within ninety days from the date the petition was filed.
Before appointing a provisional liquidator, the Tribunal must give notice to the company and an opportunity to present its case, unless there are special reasons recorded in writing to skip this step.
The Tribunal cannot refuse winding up merely because the company’s assets are fully mortgaged or the company has no assets at all.
273(2).
When a winding-up petition is filed on the just and equitable ground, the Tribunal has discretion.
The Tribunal may refuse to order winding up if it finds that the petitioners have another sufficient and effective remedy available under the law.
The Tribunal can also refuse if the petitioners are acting unreasonably by seeking winding up instead of using that alternate remedy (such as oppression and mismanagement proceedings under Sections 241–242).
Section 274. Directions for filing statement of affairs
274(1).
If someone other than the company files a winding-up petition and the Tribunal finds a prima facie (initial) case, the Tribunal will direct the company to file:
Its objections, and
A statement of affairs, within 30 days.
The statement of affairs must be submitted in the prescribed form and manner.
The Tribunal may grant one extra 30-day extension, but only in special circumstances.
Before giving directions to the company, the Tribunal may also ask the petitioner to deposit security for costs, to prevent frivolous or malicious petitions.
274(2).
If the company fails to file its statement of affairs then it loses the right to oppose the winding-up petition.
The directors and officers responsible for such failure will face punishment under 274(4).
274(3).
When the Tribunal passes a winding-up order under Section 273(1)(d), the directors and officers must, within 30 days, submit the company’s audited books of account (up to the date of the order) to the liquidator.
This submission must be done at the company’s expense, as per the Tribunal’s directions.
274(4).
Any director or officer who violates these provisions shall be punishable with imprisonment up to six months, or fine between ₹25,000 and ₹5,00,000, or both.
274(5).
A complaint regarding such violation can be filed before the Special Court by the Registrar, provisional liquidator, Company Liquidator, or any person authorised by the Tribunal.
Section 275. Company Liquidators and their appointments
275(1).
When the Tribunal passes a winding-up order, it must also appoint a Company Liquidator to carry out the winding-up process.
The Tribunal may appoint either:
The Official Liquidator, or
A professional liquidator chosen from a panel of approved liquidators maintained under 275(2).
275(2).
The provisional liquidator or Company Liquidator shall be appointed by the Tribunal from among insolvency professionals registered under the Insolvency and Bankruptcy Code, 2016 (IBC).
275(3)
When the Tribunal appoints a provisional liquidator, it may limit or restrict his powers through the appointment order or by any later order.
However, unless restricted, a provisional liquidator enjoys the same powers as a full liquidator.
275(4). Omitted
275(5).
The Tribunal decides the terms and conditions of the Company Liquidator’s appointment.
The fees payable to the liquidator are also fixed by the Tribunal.
While fixing these, the Tribunal considers:
The nature and complexity of the work involved.
The experience and qualifications of the liquidator.
The size and scale of the company being wound up.
275(6).
Once appointed, every Company Liquidator must file a declaration with the Tribunal within 7 days.
This declaration must disclose whether the liquidator has any conflict of interest or lacks independence in handling the winding up.
The obligation is ongoing and the liquidator must continue to disclose any conflict that arises at any time during the entire period of his appointment.
275(7).
Sometimes, before passing the final winding-up order, the Tribunal appoints a provisional liquidator under Section 273(1)(c).
After the winding-up order is made, the Tribunal may choose to confirm the same person as the Company Liquidator.
This allows the provisional liquidator to continue the process without interruption.
Section 276. Removal and replacement of liquidator
276(1).
The Tribunal has the power to remove a liquidator if reasonable cause is shown and reasons are recorded in writing.
A liquidator may be removed on grounds such as :
(a). Misconduct.
(b). Fraud or misfeasance.
(c). Professional incompetence or failure to perform duties with due care and diligence.
(d). Inability to continue acting as liquidator.
(e). Conflict of interest or lack of independence that affects his impartiality during his appointment.
276(2).
If a liquidator dies, resigns, or is removed, the Tribunal may transfer the work assigned to another Company Liquidator, recording the reasons for doing so.
276(3).
If the Tribunal finds that a liquidator has caused loss or damage to the company due to fraud, negligence, or lack of due care, it may recover the loss from the liquidator and issue such further orders as it deems appropriate.
276(4).
Before making any such order under this section, the Tribunal must give the liquidator a fair opportunity to be heard, ensuring due process and natural justice.
Section 277. Intimation to Company Liquidator, provisional liquidator and Registrar
277(1).
When the Tribunal passes an order to appoint a provisional liquidator or an order for winding up the company, it must notify certain authorities.
This intimation must be sent within 7 days from the date of the order.
The Tribunal must inform:
The Company Liquidator or provisional liquidator (whichever is relevant), and
The Registrar of Companies (ROC).
277(2).
After the Registrar receives the intimation from the Tribunal, he must formally record the order in the official records of the company.
The Registrar must then publish the order in the Official Gazette, making it publicly known.
If the company is a listed company, the Registrar must also inform the stock exchange(s) where the company’s securities are listed or traded.
277(3).
A winding up order automatically acts as a notice of discharge to the company’s officers, employees, and workmen, unless the company’s business is continued.
277(4).
Within three weeks of the winding-up order, the Company Liquidator must file an application before the Tribunal.
The purpose of the application is to request the constitution of a Winding Up Committee.
This committee’s role is to assist and monitor the liquidation process.
The Winding Up Committee consists of:
The Official Liquidator attached to the Tribunal,
A nominee of the secured creditors, and
A professional (such as a CA, CS, CMA, or insolvency professional) nominated by the Tribunal.
277(5).
The Company Liquidator acts as the convener of the committee, which helps oversee and monitor key liquidation functions such as:
Taking control of assets.
Examining the company’s statement of affairs
Recovering money or property.
Reviewing audits and accounts.
Selling assets.
Preparing the list of creditors and contributories.
Settling claims and paying dividends.
Performing any other function directed by the Tribunal.
277(6).
The Company Liquidator must submit a monthly report to the Tribunal.
The report should be submitted along with minutes of the committee meetings, until the final dissolution report is ready.
277(7).
The draft final report must first be reviewed and approved by the winding up committee.
277(8).
Once approved, the final report is submitted to the Tribunal, which may then pass the dissolution order formally ending the company’s existence.
278. Effect of winding up ord
A winding-up order made by the Tribunal is not for the advantage of only the person who filed the petition.
The order is legally treated as being passed for the benefit of all creditors and all contributories of the company.
So the winding-up process aims to protect and settle the rights of everyone who has a financial interest in the company.
Section 279. Stay of suits on winding up order
279(1).
Once the Tribunal passes a winding up order or appoints a provisional liquidator then:
No one can start or continue any lawsuit or legal proceeding against the company without permission (leave) from the Tribunal.
If someone wants to continue or start a case, they must apply to the Tribunal for permission, and the Tribunal must decide on that application within 60 days.
279(2).
However, this restriction does not apply to cases that are already pending in appeal before the Supreme Court or a High Court and those can continue as usual.
Section 280. Jurisdiction of Tribunal
The Tribunal has the power to handle and decide the following:
(a). Any suit or legal proceeding filed by or against the company.
(b). Any claim made by or against the company, including those made by or against its branches in India.
(c). Any application made under Section 233, which relates to mergers or amalgamations of certain companies.
(d).This covers any issue or dispute, whether it relates to a matter of law or fact.
It includes questions about the company’s:
Assets (property, money, belongings),
Business (operations, contracts, transactions),
Rights and duties,
Obligations and liabilities,
Privileges, and
Priority of claims (who gets paid first).
It also includes any matter connected with or arising out of the winding-up process.
Section 281. Submission of report by Company Liquidator
281(1).
Within 60 days of the Tribunal’s order for winding up (or appointment as liquidator), the Company Liquidator must submit a comprehensive report to the Tribunal.
This report should include the following details:
(a) Assets of the company:
Their nature, location, and value, including separate details of cash, bank balances, and negotiable securities.
The assets must be valued by registered valuers.
(b) Company’s capital:
How much capital is issued, subscribed, and paid-up.
(c). Liabilities
Details of existing and contingent liabilities, with names and addresses of creditors, distinguishing between secured and unsecured debts.
For secured debts, he must mention the security details, value, and date when it was given.
(d) Debts due to the company
Who owes money to the company, their details, and how much can be realistically recovered.
(e) Guarantees
Any guarantees issued by the company.
(f) Contributories
The List of shareholders (contributories), the amount due from them, and details of unpaid calls.
(g) Intellectual property
The Details of trademarks or other IP owned by the company.
(h) Contracts and joint ventures
The details of all ongoing contracts, joint ventures, or collaborations.
(i) Group structure
details of holding or subsidiary companies.
(j) Legal proceedings
The list of cases filed by or against the company.
(k) Other information
Any other information the Tribunal asks for or the Liquidator thinks necessary.
281(2).
The Company Liquidator must report on:
How the company was formed or promoted &
Whether any fraud or wrongdoing occurred during promotion or by any officer afterward.
He must also highlight any other matter he feels should be brought to the Tribunal’s attention.
281(3).
The Liquidator must give his opinion on:
Whether the company’s business is still viable &
What steps are needed to maximise the value of the company’s assets.
281(4).
If necessary, the Liquidator may submit additional reports after the first one.
281(5).
Any creditor or contributory (shareholder) can, either personally or through an agent, inspect the report at reasonable times by making a written request.
Section 282. Directions of Tribunal on report of Company Liquidator
282(1).
After reviewing the Company Liquidator’s report, the Tribunal must set a specific time frame within which:
The winding-up process must be completed &
The company must be dissolved.
During the process, if the Tribunal later finds that based on further reports or developments that:
Continuing the winding-up is not economical, or
It is not beneficial to proceed in the same manner, then the Tribunal may change or extend the time limit.
282(2).
After reviewing the Company Liquidator’s reports and hearing all concerned parties the Tribunal may order the sale of the entire company as a going concern.
Alternatively, the Tribunal may order the sale of all or part of the company’s assets.
Selling as a going concern means selling the business while it is still running, which usually results in a higher value than selling assets separately.
The Tribunal may also appoint a Sale Committee to support the Company Liquidator in the sale process.
This Sale Committee can include:
Creditors.
Promoters.
Company officers, as the Tribunal thinks appropriate.
282(3).
If the Tribunal receives a report from the Company Liquidator, the Central Government, or any other person stating that fraud has been committed in relation to the company, the Tribunal must act immediately.
Without stopping or delaying the winding-up process, the Tribunal will:
Order an investigation under Section 210 of the Companies Act, 2013 &
After reviewing the investigation report, the Tribunal may:
Pass orders or directions under Sections 339 to 342 &
Direct the Company Liquidator to file a criminal complaint against those involved in the fraud.
282(4).
The Tribunal may order any measures necessary to protect, preserve, or enhance the value of the company’s assets.
This could include safeguarding properties, preventing illegal transfers, maintaining machinery, or taking steps to ensure the best possible recovery value.
282(5).
Finally, the Tribunal has broad powers to issue any other orders or directions it thinks appropriate for the effective conduct of winding-up proceedings.
Understanding what is a Going Concern
A company is a going concern when it is alive and functioning, not shut down or liquidated.
It continues running its day-to-day business.
Employees, customers, and operations are still active.
It can generate revenue.
It can be sold as a functioning business rather than just a collection of assets.
When a company is sold as a going concern, the buyer purchases the business as a whole, including:
Assets.
Employees.
Licenses.
Goodwill.
Ongoing contracts.
This usually leads to a higher value compared to selling only individual assets.
Section 283. Custody of company’s properties
283(1).
Once the Tribunal passes an order for winding up or appoints a provisional liquidator, that liquidator must immediately take into his custody or control:
All property.
Effects (assets, possessions, and belongings).
Actionable claims (legal rights to recover money or property) to which the company is entitled or appears to be entitled.
The liquidator must also take all necessary steps to protect and preserve those properties.
The necessary steps could include securing company premises, preventing unauthorized use, or maintaining valuable assets.
Essentially, the liquidator becomes responsible for gathering and safeguarding everything the company owns or has rights over.
283(2).
Once a winding-up order is passed, all property and assets of the company are legally treated as being under the custody and control of the Tribunal.
This is true even if the assets are still physically held by someone else (like directors, employees, or third parties).
No one is allowed to sell, transfer, dispose of, or interfere with the company’s property without the Tribunal’s approval.
283(3).
After a winding-up order is passed, the Tribunal can issue directions requiring anyone holding the company’s assets or documents to hand them over to the Company Liquidator.
This power applies to a wide range of persons, including:
Contributories (shareholders who may have to contribute)
Trustees
Receivers
Bankers
Agents
Officers and employees of the company
The Tribunal may order them to:
Pay money.
Deliver assets.
Surrender documents.
Transfer books or property either immediately or within a time fixed by the Tribunal.
284. Promoters, directors to cooperate with Company Liquidator
284(1).
The following persons are legally required to fully cooperate with the Company Liquidator:
Promoters (those who formed the company).
Directors.
Officers.
Employees, whether currently working or previously employed.
They must provide the liquidator with:
All information needed.
Relevant documents and records.
Access to books, accounts, and property.
Any other assistance necessary to carry out liquidation duties.
This cooperation is essential for:
Realising and selling assets.
Settling debts.
Preparing complete accounts.
Closing the company properly.
284(2).
If any promoter, director, officer, or employee refuses or fails to cooperate with the Company Liquidator, the liquidator can seek the Tribunal’s intervention.
The liquidator may file an application before the Tribunal asking for necessary directions.
The Tribunal can then issue orders compelling that person to:
Provide information.
Produce documents.
Offer required assistance.
284(3).
Once the Tribunal receives the liquidator’s application, it can issue an order directing the uncooperative person to:
Follow the instructions of the Company Liquidator, and
Provide full cooperation in performing his functions and duties.
Failure to comply with such an order can lead to further legal action or penalties, as it amounts to disobeying the Tribunal’s directive.
285. Settlement of list of contributories and application of assets
285(1).
Once a winding up order has been passed, the Tribunal must:
Prepare a list of contributories (Members liable to contribute to the company’s assets).
Rectify the register of members wherever needed.
Ensure that the company’s assets are used to pay off its liabilities.
Normally, the Tribunal prepares a list of contributories (members liable to contribute) during winding up.
But if the Tribunal decides that no unpaid money needs to be collected from the members, then it may skip (dispense with) preparing this list.
So , the Tribunal first identifies who owes money to the company and then ensures all assets are applied properly to settle debts.
285(2).
When preparing the list of contributories, the Tribunal must clearly separate contributories into two groups:
Contributories in their own right: Members who are personally liable.
Contributories representing others: Such as legal heirs of deceased members or persons liable on someone else’s behalf.
This separation helps the Tribunal identify who is personally responsible and who is responsible as a representative.
285(3).
The Tribunal must include every current or past member who is liable to contribute towards:
Payment of the company’s debts and liabilities.
Costs and expenses of winding up.
Adjustment of mutual rights among contributories.
But this liability is subject to the following conditions:
(a). A person who ceased to be a member one year or more before the start of winding up is not liable.
(b). A former member is not liable for any debt or liability incurred after he ceased to be a member.
(c). A former member cannot be called upon to contribute unless the present members cannot meet the required contribution.
(d). In a company limited by shares, no member (past or present) can be required to pay more than the unpaid amount on their shares.
(e). In a company limited by guarantee, no member can be asked to pay more than the amount he undertook to contribute at the time of winding up.
However, if such a company also has share capital, the member must additionally pay any unpaid amount on his shares, just like a shareholder in a company
limited by shares.
