Understanding Compulsory Winding up of a Company

Published On: Jun 24, 2019Last Updated: Oct 14, 20234.4 min read


Winding up of a company is an activity which includes selling all the assets, paying off the creditors and distributing the remaining assets to the shareholders of the company. Going through the procedural aspects, even after the digitization, it is always challenging to start a business/ company. However, it is even more challenging to wind up the same since it enjoys a separate legal identity than its promoters.

Winding up of a company is the process whereby the life of the company has brought to an end. Under winding up, the property of the company are administered for the benefit of its creditors and members.  

Broadly, there are following two modes of winding up of the company:

  1. Compulsory winding up of a company, and  
  2. Voluntary winding up of a company. 

The present article helps the reader to understand the provisions and procedure attached to the compulsory winding up of a company.  

Compulsory Winding up of the Company

When the company, formed and registered under the ordinance, has been ordered to be wind up by the Court or Tribunal the same is known as compulsory winding up of a company.  

Circumstances Under which a Company may be Wind Up by the Tribunal

As per provisions of the Companies Act, 2013, compulsory winding up is possible only under the following circumstances:

  • When the company has passed the special resolution effecting that the company be wound up by the Court or Tribunal.  
  • Has acted against the interest of the sovereignty and integrity of the country.
  • The company has defaulted in filing its financial statement or annual returns for five consecutive financial years. 
  • Tribunal or Court believes that the company is conducting its affairs fraudulently or the formation of the company was for a fraudulent/unlawful purpose. 
  • The Tribunal or Court is of the opinion that it is just and equitable to wind up the company. 

List of Persons who can file Petition to the Tribunal for Winding up of a Company

An application for closure of company shall be made by way of petition, and only the following listed persons are allowed to file such petition:

  1. The company
  2. The creditors
  3. Any contributory or contributors
  4. The registrar
  5. Any person authorized by the Central Government
  6. Any person authorized by the State Government

Other important points

  • It is mandatory for the registrar to obtain prior sanction of the Central Government, before the presentation of the petition for winding up of the company. Further, it is mandatory for the Central Government is to give a reasonable opportunity to the company before granting such sanction to the registrar. 
  • The registrar shall also receive the copy of the petition, and he needs to submit his views to the Tribunal within 60 days of the receipt of the petition.  

Actions which the Tribunal can take on Receipt of the Petition

Provisions of the Companies Act, 2013 also defines the action that would be taken by the Tribunal once the petition for winding up of the company is received.

On receipt of the petition, the tribunal would pass any of the following orders:

  • Dismiss the petition (with or without cost).
  • Make an interim order as it may think fit.
  • Appoint a provisional liquidator of the company till the passing of a winding-up order.
  • Pass an order for winding up of the company (with or without cost); or
  • Pass any other order as it may think fit.  
  • The Tribunal is required to pass an order within a period of 90 days from the date of receipt of the petition.  
  • The Tribunal is required to give notice to the company and give a reasonable opportunity of being heard before appointing a provisional liquidator. 
  • In case the petition, for winding up of the company, has been filed by any person other than the company, then, the Tribunal would direct the company to file its objection, against the petition, along with the statement of affairs within a period of 30 days.
  • The director and other officers of the company are required to file books of accounts of the company (completed and audited up to the date of order) to the liquidator.

Procedure for Compulsory Winding up of a Company

  • The first step is the filing of a petition for winding up of a company, and as already mentioned above, the petition can be filed by only selected categories of person. 
  • The petition, so filed, has to be accompanied by the Statement of Affairs of the Company. 
  • The petition should be advertised in the following manner;
    • The advertisement must be carried out under Form 6. 
    • The advertisement should be in a daily journal at least for 14 days. 
    • The language of the advertisement should be in the regional language of the respective area and in English.
  • The company needs to submit complete audited books of accounts. If the Tribunal finds that the accounts are in order and all the mandatory compliance has been complied with by the company, the Tribunal will pass an order for dissolving/winding up the company. 
  • The registrar will issue a notice, after the order of the tribunal, to the official gazette mentioning that the company is dissolved.  

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CA Poonam Gandhi
About the Author

CA Poonam Gandhi

Chartered Accountant, based at Ahmedabad having vast practice experience of more than 9 years in the field of Indirect Taxation. Currently, working as a 'freelance content writer' and associated with the top most leading sites. Also acting as an educator for the taxation course, 'Certificate on taxation law and GST', for the site https://www.intolegalworld.com/.