Winding Up: The Modern Map

In one line

Winding up by the Tribunal on five grounds remains in the Companies Act; voluntary winding up has gone out of it altogether and lives in the Insolvency and Bankruptcy Code as voluntary liquidation; and a company that cannot pay its debts is no longer wound up under the Companies Act at all but goes through the Code.

In exam wording: section 270 applies Part I of Chapter XX to winding up by the Tribunal; section 271 states the five grounds; and section 59 of the Insolvency and Bankruptcy Code, 2016 provides for voluntary liquidation.

Why the law has this at all

The Companies Act, 1956 dealt with every kind of company failure, and it dealt with them slowly. A creditor's winding up petition on the ground of inability to pay debts could take years to reach an order, by which time the assets were worth little.

The Insolvency and Bankruptcy Code, 2016 took that whole subject away, and the reasoning was that a company which cannot pay its debts should first be rescued if it can be, through a time-bound resolution process, and liquidated only if it cannot. That is a different question from the one the Companies Act asks, which is whether a company ought to be brought to an end.

So the Eleventh Schedule to the Code performed a large amputation on 15 November 2016.

• It substituted section 270, which had set out the two modes of winding up, so that it now says only that Part I applies to winding up by the Tribunal.
• It substituted section 271, deleting the ground of inability to pay debts and the whole of the old sub-section (2) defining it.
• It omitted sections 304 to 323, the entire Part on voluntary winding up: the circumstances, the declaration of solvency, the meeting of creditors, the appointment and powers of the liquidator, and the final meeting.

What was left in the Companies Act is winding up for reasons that are not about money: the members' own decision, conduct against the State, fraud, persistent default in filing, and the just and equitable ground.

Some words this chapter uses

Winding up is defined in section 2(94A) as winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016, as applicable. Liquidation is the Code's word for the same process. A corporate person is the Code's expression, wider than a company. The Adjudicating Authority for corporate persons under the Code is the National Company Law Tribunal. Dissolution is the end of the company's existence, which follows the winding up.

The two modes today

Winding up by the Tribunal, under the Companies Act, 2013. Governed by sections 270 to 303 and sections 324 to 365, and dealt with in the chapters that follow this one.