Winding up of Unregistered Companies

375. Winding up of unregistered companies

375(1).

• Any unregistered company can be wound up under the Companies Act, following the prescribed procedure.

• The general winding-up provisions of the Companies Act will apply to such companies.

• However, these provisions apply with specific modifications mentioned in 375(2) to 375(4).

375(2).

• An unregistered company cannot be wound up voluntarily.

• It can only be wound up through the Tribunal.

375(3).

• An unregistered company may be wound up by the Tribunal in the following situations:

  (a)

  1. If the company has already been dissolved.

  2. Has stopped carrying on business, or

  3. Is carrying on business only for the purpose of winding up (just completing remaining formalities).

  (b)

  1. If the company is unable to pay its debts.

  (c)

  1. If the Tribunal decides that it is just and equitable to wind up the company (for example, if there is a deadlock, oppression, or no realistic chance of business continuing).

375(4).

• An unregistered company is considered unable to pay its debts in the following case:

  (a) When a creditor makes a demand:

  1. A creditor to whom the company owes more than ₹1,00,000 sends a written demand.

  2. The demand may be:

     1. delivered at the company’s principal place of business, or

     2. delivered to the secretary, or any director, manager, or chief officer of the company.

  3. After receiving the demand, the company has 3 weeks to:

     1. Pay the amount.

     2. Secure the debt (such as by giving security).

     3. Settle or compromise the debt to the creditor’s satisfaction.

  4. If the company does none of these within 3 weeks, it is legally deemed unable to pay its debts.

  (b) When a member is sued for a company debt:

• A legal case is filed against a member of the unregistered company for a debt owed by the company.

• A written notice of this case is served on the company.

• After receiving the notice, the company has 10 days to do one of the following:

  1. Pay the debt.

  2. Secure it (give security).

  3. Compromise/settle it with the creditor.

  4. Get the case stayed (paused by court order).

  5. Indemnify the member, that is to protect the member by taking responsibility for the claim and covering related costs.

• If the company fails to do any of these within 10 days, it is deemed unable to pay its debts.

• (c) Decree returned unsatisfied

  1. If a court or Tribunal orders the company (or a member representing the company) to pay an amount, authorities will try to enforce that order.

  2. If the authorities cannot recover the money, either fully or partly, the law treats the company as unable to pay its debts.

  3. This inability to satisfy a court-ordered payment is a strong sign of insolvency.

  4. It can become a valid ground for winding up or liquidation of the company.

• (d). Other proof

  1. Even if none of the specific situations (like an unsatisfied decree) occur, the Tribunal can still decide that a company cannot pay its debts.

  2. The Tribunal may examine all relevant evidence, such as financial statements, balance sheets, and other documents.

  3. It will check whether the company’s assets are insufficient to meet its present, future, or contingent liabilities.

  4. If the Tribunal is satisfied from the evidence that the company is financially unable to meet its obligations, it can declare the company unable to pay its debts.

Explanation:

(a). What is not considered a registered company?

• The following are not treated as unregistered companies under this section:

  1. A railway company incorporated under any Indian or UK law.

  2. Any company already registered under the Companies Act, 2013.

  3. Any company registered under earlier Indian companies laws, except where its registered office was in Burma, Aden, or Pakistan before those territories separated from India.

  (b). What is an unregistered company?

• Except for the exclusions already mentioned, the following are treated as unregistered companies under this section:

  1. Partnership firms

  2. LLPs

  3. Societies

  4. Co-operative societies

  5. Associations

  6. Any company with more than seven members at the time a winding-up petition is filed before the Tribunal

• Therefore, if such an entity has more than seven members, it can be wound up under this Part as an unregistered company.

376. Power to wind up foreign companies although dissolved

• A foreign company that has carried on business in India can be wound up in India as an unregistered company.

• This is allowed even if the foreign company has stopped doing business in India.

• It is also allowed even if the foreign company has been dissolved or ceased to exist in the country where it was originally incorporated.

• India can wind up the Indian business of a foreign company even if the foreign entity no longer exists abroad.

377. Provisions of Chapter cumulative

377(1).

• The rules in this Part are in addition to the general winding-up provisions of the Companies Act.

• They do not override or replace the general rules.

• Both sets of provisions must be read and applied together.

• So, when an unregistered company is being wound up:

  1. The general winding-up rules, and

  2. The special rules for unregistered companies, will both apply to the process.

377(2).

• When an unregistered company is being wound up, the Tribunal or Official Liquidator has the same powers as in the case of a registered company.

• They can use all their usual powers, such as:

  1. Summoning and examining persons,

  2. Investigating the company’s affairs,

  3. Collecting, realising, and distributing assets, and more.

• The law ensures they have full authority to wind up an unregistered company effectively and completely.

• An unregistered company is not treated as a full “company” under the Companies Act for all purposes.

• It is treated as a “company” only when it is being wound up, and only to the extent necessary for the winding-up process under this Part.

• This means:

  1. The unregistered company does not become a company incorporated under the Act.

  2. Its status as a “company” applies only for winding-up procedures, and only to the limited extent permitted in this Part.

378. Saving and construction of enactments conferring power to wind up partnership firm, association or company, etc., in certain cases.

• This section makes it clear that nothing in this Part overrides other laws that already provide ways to wind up:

  1. A partnership firm.

  2. An LLP.

  3. A society or co-operative society.

  4. An association.

  5. A company.

• These entities may be wound up as:

  1. A company, or

  2. An unregistered company, under the Companies Act, 1956 or any earlier law that was replaced by the 1956 Act.

• If any existing law already contains rules for winding up such entities, those rules remain valid and continue to operate.

• This Part does not override, cancel, or interfere with those earlier winding-up mechanisms.

• Some older laws may still refer to provisions of:

  1. The Companies Act, 1956.

  2. Laws that were repealed by the 1956 Act.

• Those references should now be read as referring to the corresponding provisions in the Companies Act, 2013, wherever such equivalent provisions exist.

• When an older law mentions a section of the 1956 Act, we must interpret it as pointing to the updated, modern version of that section in the 2013 Act.