Author(s): Sunaina Mondal
Paper Details: Volume 3, Issue 4
Citation: IJLSSS 3(4) 23
Page No: 263 – 267
I. INTRODUCTION
A company which has been fully closed is said to have been wound up. That is the legal procedure of ascertaining the assets of the company and selling them so that the creditors of the company are paid then any remaining money is given to the shareholders of the company and the legal being of the company is put to rest. The Companies Act, 2013 provides the guidelines of both voluntary winding up and forced winding up that substitutes the previous process mentioned in Companies Act, 1956. The side-by-side appearance below takes a close look at how the two types now work under the new law.
II. MEANING AND OVERVIEW
1. VOLUNTARY WINDING UP
Voluntary winding up is initiated by the members or creditors of company when the firm is solvent, i.e. able to cover debts. It is not so formal, and involvement of the court is minimal. In this path, the company would indicate its intentions to end its operation due to attainment of its objectives, bankruptcy, or due to any other problem associated with the company.
2. COMPULSORY WINDING UP
Compulsory winding up sometimes called winding up by the Tribunal is ordered by the National Company Law Tribunal (NCLT) under the circumstances set out in Section 271 of the Companies Act, 2013. This procedure is a more formal and court-initiated process and may be initiated by the creditors, the company or any other party.
III. LEGAL FRAMEWORK
The Companies Act, 2013 (especially Chapters XX [Sections 270–365]) sets out the procedure for winding up a company, but the Insolvency and Bankruptcy Code, 2016 (IBC) now supersedes these provisions when insolvency arises on grounds of inability to pay debts.
IV. GROUNDS FOR WINDING UP
1. GROUNDS FOR VOLUNTARY WINDING UP
Voluntary winding up as provided in the 1956 Companies Act; a special resolution had to be passed under Section 484. Section 59 of the IBC controls the voluntary liquidation after IBC. The requirements that are important are:
- declaration of solvency signed by the directors
- A resolution of shareholders with a mandate of at least 3/4th majority
- Among others, an approval of the creditors.
2. GROUNDS FOR COMPULSORY WINDING UP (SECTION 271)
The NCLT may in its discretion order compulsory winding up in the following circumstance: The shareholders vote to have a special resolution to wind up the company.
- The company has been doing this contravention of sovereignty and integrity of India or public order.
- The company is also not filing financial statements or annual returns in the last five years.
- The Tribunal believes that it is fair and equitable that the company be wound up.
- The company is unable to pay its debts (now governed under IBC).
V. INITIATION AND PROCEDURE
1. VOLUNTARY WINDING UP PROCEDURE (UNDER IBC)
As soon as the company starts the process of voluntary winding up the proposal must be approved during the board meeting.
- A declaration of solvency is filed with the Registrar of Companies (ROC).
- Shareholders pass the resolution with a 3/4th majority, and a professional liquidator is appointed from a list registered with the Insolvency and Bankruptcy Board of India (IBBI).
- The company should also be able to put out general reports and publish the progress on both the ROC and the IBBI.
- Lastly, the liquidator liquidates assets, pays the creditors and returns any excess to that extent to creditors.
The company is finally dissolved, and a final report is filed in NCLT.
2. COMPULSORY WINDING UP PROCEDURE (SECTION 272 TO 282)
To begin with, petition must be presented by either creditors, the company itself, Registrar of Companies or government. Once the National Company Law Tribunal (NCLT) admits the petition, it hears both parties. Subsequently, the Tribunal puts in place a company liquidator. This is followed by the directors filing a statement of affairs that indicates the present position of the company. The other alternative is that the Tribunal establishes the winding-up committee to assist in regulating and monitoring the progress. The Tribunal cannot pass a dissolution order until it has given away all assets.
VI. ROLE OF TRIBUNAL AND REGULATORY AUTHORITIES
The distinction between voluntary and compulsory winding up is remarkable. The NCLT in voluntary winding up mostly functions in the supervision and approval of dissolution. The Tribunal is central in overseeing the matter in compulsory winding up since it dictates the whole process. The Registrar of Companies and the Insolvency and Bankruptcy Board of India (IBBI) still have regulatory oversight in both cases.
VII. COMPARATIVE ANALYSIS
| Criteria | Voluntary Winding Up | Compulsory Winding Up |
| Initiation | By company members or creditors | By Tribunal on petition |
| Control | Company-driven, liquidator appointed by members | Tribunal-driven, liquidator appointed by Tribunal |
| Grounds | Business completion, insolvency, mutual decision | Legal violation, insolvency, fraud, just & equitable grounds |
| Speed | Generally quicker | Comparatively slower |
| Cost | Lower compliance costs | Higher costs due to litigation and court proceedings |
| Tribunal Role | Minimal | Extensive |
| Stakeholder Involvement | Higher internal control | Involves external parties and government authorities |
VIII. IMPACT OF INSOLVENCY AND BANKRUPTCY CODE (IBC), 2016
The Insolvency and Bankruptcy Code (IBC) has transformed the earlier Companies Act provisions, and it now covers voluntary liquidation of solvent companies under Section 59. This supersedes the ancient, inability-to-pay-debt path towards winding up, rationalization of insolvency resolution, and liquidation, overall.
IX. JUDICIAL INTERPRETATION AND CASE LAW
- Madras Petrochem Ltd. v. BIFR (2005): The court held that once a winding-up petition is admitted, all other proceedings against the company must be stayed.
- Meghal Homes Pvt. Ltd. v. Shree Niwas Girni K.K. Samiti (2007): The Supreme Court clarified the powers of the Tribunal to review its own winding-up order in light of subsequent developments.
- Swiss Ribbons Pvt. Ltd. v. Union of India (2019): Though related to IBC, it reiterated the primacy of IBC over earlier company laws.
X. ADVANTAGES AND DISADVANTAGES
VOLUNTARY WINDING UP
Voluntary winding up increases the degree of control to the company, contributes to reduced costs and the process of exiting is quicker. But it can be only used when the company is solvent, and interests of the creditors are not at stake.
Compulsory Winding Up:
Mandatory winding up safeguards the interest of the populace and debt collectors, judicial control, though it takes more time, involves higher costs and possibly leads to more damage in terms of reputational loss.
XI. CONCLUSION
The decision of whether to opt between the voluntary and compulsory winding up is largely influenced by the financial and legal positions of a company. Voluntary winding up especially after the Insolvency and Bankruptcy Code (IBC) came into effect offers a cleaner and faster path for solvent firms that want to close their doors. In contrast, compulsory winding up is necessary in cases of the breach of the law, issues of interest to the larger community, and instances where the insolvency is apparent. Understanding the advantages and weaknesses of each of these mechanisms is a measure that empowers directors, creditors, and regulators to make a confident decision. As the corporate law is constantly updated, the relationship between the Companies Act and the IBC will go on to define the process of winding up in India.
XII. REFERENCES
Report of the Insolvency Law Committee, 2018
Companies Act, 2013
Insolvency and Bankruptcy Code, 2016
Madras Petrochem Ltd. v. BIFR, (2005) 63 SCL 485
Meghal Homes Pvt. Ltd. v. Shree Niwas Girni K.K. Samiti, (2007) 7 SCC 753
Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17
Ministry of Corporate Affairs, Government of India Guidelines