The Companies Act 1956 governs and defines the law in relation to conduct of

company affairs in the country. It defines a company, what shall constitute a

company and how it shall be formed and the manner in which the affairs of the
company shall be conducted. The act also provides for rights and duties of the
directors and gives to the company a distinct legal personality.
The Act besides the above mentioned also defines the process by which the
company is put to an end that is the process through which its corporate
existence is ended and it is thereafter finally dissolved. The Companies Act
defines this process as winding up. It is submitted that winding up is different
from dissolution of company and it is winding up that leads to dissolution of
the company. Winding up holds a very important place in company matters as
it is not only a process that leads to end of a company but has in todays time
also emerged as process or a tool in the hands of creditors who can recover
debts and contributory or a shareholder who is of the opinion that the
company is not being run in the interest of the same can seek winding up and
claim their respective shares in most transparent and fair manner. It is
therefore extremely important to understand what is winding up.
Part VII of the Act mentions about winding up. The Act does not define
winding up but the provisions under the above mentioned part tries to describe
the process of winding up and a conclusion can be drawn that, it is process
that leads to bringing an end to the company existence. Winding up is a
process that initiates the process for dissolution of the company and finally
leads to dissolution of the company whereby the company loses its legal
personality and is no longer capable of functioning or being recognized as an
entity.
Section 425 states that winding up can be made by the following two modes:
1. Winding up under supervision of the tribunal or compulsory winding up.
2. Voluntary winding up.

Compulsory winding up is winding up that takes place under the supervision

of the Tribunal whereas Voluntary winding up is winding up takes place upon
the resolution voluntarily passed in the general body meeting by the Board of
Directors and is carried out without any supervision of the Tribunal. The
tribunal mentioned above is Company law Tribunal.
Winding up can be initiated by a company, contributory, Registrar or a creditor
or any person authorised by the central government on this behalf in case any
one of them is of the opinion that company is not in a position to continue its
functioning, or there is oppression of minority shareholders or
mismanagement of the company affairs.

Winding Up Under the Supervision of the Tribunal

Winding up under the supervision of the Tribunal can be initiated by
presenting a petition with respect to the same by:
1. The company upon a special resolution passed for the same by the
Board of Directors.
2. By the creditors of the company in case company is unable to pay the
debts and the creditor apply for the same.
3. By the contributory in case statutory meeting are not held or the
minimum statutory member numbers have reduced that is 7 in case of
public limited company and 2 in case of private limited company.
4. By a person appointed to check that the affairs of the company are not
conducted in a manner to defraud the creditors or other members and is
opinion that affairs are conducted so.
5. By the Registrar with the approval of central government.
6. By the central or the state government in case the company is
functioning against the interest of sovereignty of the country.
This petition can be filed by either of the above mentioned in the following
mentioned circumstance:

1. When the company has, by a Special Resolution (3/4 majority

shareholders) resolve that the company shall be wound up by the
Tribunal.
2. In case there is default in delivering the statutory report to the Registrar
or in holding the statutory meeting.
3. In case the company fails to commence its business within one year of
its incorporation, or suspends its business for a whole year and there is
no intention to carry on the business.
4. If the number of members is reduced below the statutory minimum i.e.
below seven in case of a public company and two in the case of a
private company.
5. If the company is unable to pay its debts.
6. If the tribunal is of the opinion that it is just and equitable that the
company should be wound up. Tribunal may inquire into the revival and
rehabilitation of sick units. If its revival is unlikely, the tribunal can order
its winding up.
7. If the company has made a default in filing with the Registrar its balance
sheet and profit and loss account or annual return for any five
consecutive financial year.
8. if the company has acted against the interests of the sovereignty and
integrity of India, the security of the State, friendly relations with foreign
States, public order, decency or morality.
Upon the filing of the petition by any of above mentioned, the tribunal may
order winding up of the company or may either dismiss the petition. If the
tribunal is satisfied that sufficient reasons exists to order winding up then the
tribunal may order winding up. Upon the said order, the tribunal may send a
notice to the Official liquidator appointed by the government informing about
the same and the Liquidator shall take charge of the company and carry out
the winding up process. The winding up process shall be applicable to all
individuals connected to the company irrespective of the fact whether they had
applied for the same or not and these include contributory, creditors etc.

The company is required to submit all the details ranging from assets,
creditors, liabilities and accounts to the Liquidator and he is required to send a
report regarding the same to the tribunal within six months of receiving the
information.

Voluntary Winding Up
Under Voluntary winding up, winding up process is initiated and carried out
without the intervention of the tribunal. It can be initiated by two modes:
1. Members
2. Creditors of the company for any reason.
Generally it is initiated when the company is unable to run or for any other
reason that members choose to wind up the company. It is initiated by passing
ordinary resolution or special resolution. Ordinary resolution is passed by the
Board of directors in case the prescribed period for running the company
prescribed by the articles of Association has ended or objective to run the
company no longer exists.
Special Resolution on the other hand is passed in case the company is unable
to pay the debts then the Board of Directors may decide on winding up the
company and thereby paying off the debts. This is known as Creditors
Voluntary winding up.
1. Member Voluntary Winding Up
The board of Directors of the company shall convene a general body meeting
and declare with an affidavit that the company has no debts and in case they
exists then they are required to make a declaration that the debts shall paid off
within 3 years of commencement of winding up proceeding.
The board of directors shall thereafter appoint Liquidator who shall be given
charge of the company affairs. The remuneration of the Liquidator shall be

fixed and he shall take all the steps required for winding the company affairs.
The directors are required to inform about the appointment of the same to the
Registrar of the companies and they shall cease to function in company
affairs. The liquidator is thereafter required to carry out process and call
meeting of the members of the company informing about the same i.e.
winding up proceedings on timely basis as prescribed by the Act.
Upon complete winding up of company affairs, the liquidator is required to call
a meeting inviting members of the company and informing through an
advertisement in newspaper about the date, the time and objective of the
same. The liquidator is required to present in the meeting about the winding
up procedure followed, the accounts and the manner in which assets were
disposed and send a copy of the same to the Registrar and official Liquidator
after 1 week of the meeting. The official liquidator is if of the opinion that
company is running not in interest of members then it may order dissolution of
the company or may order further investigation. With this, company dissolves
and the name is struck off from the register.
2. Creditor Voluntary Winding Up
Section 500 to 509 of the companies act provides for voluntary winding up by
creditors. Under this winding up, the creditors play a pivotal role in winding up
proceeding and in fact they dominate the proceeding and are instrumental in
winding up proceeding. This winding up proceeding is initiated in case the
company is unable to pay the debts and the board of directors are not in
position to declare the exact liability of the company towards creditors.
The members of the company are first required to propose winding up
resolution and thereafter a notice of the meeting is required to be sent to all
creditors and members of the company. The board of directors are required to
make a list of creditors and send them notice of meeting. This notice can be
either be sent by post and shall also be advertised in the Official Gazette and

also in two newspapers circulating in the place where the registered office of
the company is situated.
The board of directors are required to give a statement regarding the company
affairs and a list of creditors along with list of their claims and dues which shall
be placed before the meeting of creditors. A resolution to winding up the
company shall bepassed and the resolution to the effect at creditors' meeting
shall be filed with Registrar within 10 days of its passing.
Generally in the voluntary winding up by creditors, the creditor shall nominate
a Liquidator and this Liquidator is given the charge to handle winding up affair
and distribution of the proceeds from the assets for fulfilling the liability of the
creditors or any other liability that remains. The creditors may choose to form a
five-member Committee of Inspection to supervise the work of liquidator. The
creditors or the above mentioned committee shall fix the remuneration of
liquidator. Upon the appointment of the Liquidator, the power of Board of
Directors with respect to the company affairs shall cease. The creditors or the
committee may sanction some power to the Board of directors.
The Liquidator shall call meeting for the members and creditors every year in
case winding up continues for than one year or as prescribed by the act
informing about the dealing of the company.
The Liquidator by virtue of section 509 upon the complete winding up of the
company is required to call a general body meeting of all creditors and
members and advertise the same in any leading newspapers indicating about
the date, time and objective of the meeting. The Liquidator is required to
present all the details about the winding up proceedings and accounts of the
company before the creditors.
The Liquidator is required to send an official copy of the same with accounts
copy to Registrar and the official Liquidator as appointed by the government
as the case may be within one week after the meeting. If the official Liquidator

is of the opinion that the affairs of the company are carried out not in interest
of the members then it shall order dissolution of the company. The creditors
liability is paid off and in case a surplus is left then, the members are paid.
This completes the process of winding up and dissolution of the company.
The above mentioned are the modes prescribed by the Companies act for
winding up and after this process of winding up, the company is dissolved and
loses its corporate personality. The above mentioned process also provides a
mechanism through which company can be wound up in case it is not running
properly or to the detriment of any member, creditor or shareholder providing
them with an opportunity to enforce the rights and take active part in affairs of
the company.
In fact the above mentioned procedure has emerged as tool and potent
weapon in the hands of creditors whose debts if in case are not being satisfied
then, by virtue of filing up winding up petition can recover debts.
In conclusion, it can be said that company act has endeavoured to provide an
extremely transparent and easy method of winding up which neither
complicated nor provides an easy mechanism to put an end to a company
keeping in mind interest of all persons who are related to company in any
manner.