Winding Up by the Tribunal: The Petition and the Order

And note clause (f). Only on the sovereignty and integrity ground in section 271(b) may a Government petition.

The contributory's right: section 272(2)

A contributory is entitled to petition notwithstanding:

• that he holds fully paid-up shares;
• that the company may have no assets at all; or
• that there may be no surplus assets left for distribution among the shareholders after the liabilities are satisfied;

and the shares in respect of which he is a contributory, or some of them, must either have been originally allotted to him, or have been held by him and registered in his name for at least six months during the eighteen months immediately before the commencement of the winding up, or have devolved on him through the death of a former holder.

The first three words remove the old objections. A fully paid shareholder has nothing left to contribute, and a company with no surplus gives him nothing; the sub-section says neither matters.

The holding requirement is the real condition. Six months out of the preceding eighteen, unless the shares were originally allotted to him or came to him on a death. It stops a person buying a share in order to present a petition.

The Registrar's petition: section 272(3)

The Registrar may petition on any ground in section 271 except clause (a), the special resolution ground, which is for the company itself.

Two provisos control him. He must obtain the previous sanction of the Central Government; and the Central Government shall not accord sanction unless the company has been given a reasonable opportunity of making representations.

So the company is heard before the petition is even filed, which is unusual and deliberate.

The company's own petition, and the Registrar's views: section 272(4) and (5)

Section 272(4). A petition by the company shall be admitted only if accompanied by a statement of affairs in the prescribed form and manner.

Section 272(5). A copy of the petition shall be filed with the Registrar, who shall submit his views to the Tribunal within sixty days of receiving it.

That is a useful safeguard. The Registrar holds the company's filings and can tell the Tribunal what the petition does not.

What the Tribunal may do: section 273(1)

On receipt of a petition the Tribunal may:

• (a) dismiss it, with or without costs;
• (b) make any interim order as it thinks fit;
• (c) appoint a provisional liquidator of the company till the making of a winding up order;
• (d) make an order for the winding up of the company with or without costs; or
• (e) any other order as it thinks fit.

First proviso: the time limit. An order shall be made within ninety days from the date of presentation of the petition.

Second proviso: notice before a provisional liquidator. Before appointing one, the Tribunal shall give notice to the company and a reasonable opportunity to make its representations, unless for special reasons recorded in writing it thinks fit to dispense with notice.

Third proviso: poverty is no answer. The Tribunal shall not refuse to make a winding up order on the ground only that the assets have been mortgaged for an amount equal to or in excess of those assets, or that the company has no assets.

The third proviso matters more than it looks. A company whose assets are fully charged will yield nothing to unsecured creditors, and the argument that a winding up is therefore futile used to succeed. The proviso answers it: there are reasons to wind a company up besides distributing money.

The alternative remedy: section 273(2)

Where a petition is presented on the ground that it is just and equitable that the company should be wound up, the Tribunal may refuse to make an order of winding up, if it is of the opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing the other remedy.

Both limbs are required. Another remedy must be available, and the petitioners must be acting unreasonably in preferring winding up to it. A petitioner who has a remedy but good reason not to use it does not lose his petition.

The obvious other remedy is section 241, and the two sections read together are a closed loop: section 242(1)(b) lets the Tribunal give relief where winding up is justified but would unfairly prejudice, and section 273(2) lets it refuse winding up where the oppression remedy would serve.

The statement of affairs: section 274

Section 274(1). Where the petition is filed by anyone other than the company, the Tribunal, if satisfied that a prima facie case for winding up is made out, shall by order direct the company to file its objections along with a statement of its affairs within thirty days of the order, in the prescribed form.

First proviso: the Tribunal may allow a further thirty days in a situation of contingency or special circumstances. Second proviso: the Tribunal may direct the petitioner to deposit security for costs as a precondition to issuing directions to the company.

Section 274(2): the sanction for not filing. A company which fails to file the statement of affairs shall forfeit the right to oppose the petition, and the directors and officers found responsible are liable to punishment under sub-section (4).

Forfeiting the right to oppose is a severe consequence, and it is the reason the statement of affairs is not a formality.

Section 274(3): the books. Where a winding up order is made under section 273(1)(d), the directors and other officers shall, within thirty days of the order, submit to the liquidator, at the cost of the company, the books of account completed and audited up to the date of the order, in the manner the Tribunal specifies.

Section 274(4): punishment. A director or officer in default is punishable with imprisonment up to six months, or with fine of not less than twenty-five thousand rupees extending to five lakh rupees, or with both.

Section 274(5): who may complain. The complaint may be filed before the Special Court by the Registrar, the provisional liquidator, the Company Liquidator or any person authorised by the Tribunal.

Intimation, and the winding up committee: section 277

Section 277(1). Where the Tribunal appoints a provisional liquidator or makes a winding up order, it shall, within a period not exceeding seven days, send intimation to the Company Liquidator or provisional liquidator and to the Registrar.

Section 277(2). On receipt, the Registrar shall endorse it in his records and notify it in the Official Gazette; and for a listed company he shall intimate the stock exchanges where its securities are listed.

Section 277(3): the employees. The winding up order shall be deemed to be a notice of discharge to the officers, employees and workmen of the company, except when the business of the company is continued.

That single sentence is the most important practical effect of the order, and the exception matters: if the liquidator carries on the business, there is no discharge.

Section 277(4): the winding up committee. Within three weeks of the winding up order, the Company Liquidator shall apply to the Tribunal for the constitution of a winding up committee to assist and monitor the liquidation, comprising:

• (i) the Official Liquidator attached to the Tribunal;
• (ii) a nominee of the secured creditors; and
• (iii) a professional nominated by the Tribunal.

Section 277(5): what the committee oversees. The Company Liquidator is its convener, and it assists and monitors: taking over assets; examination of the statement of affairs; recovery of property, cash or other assets including benefits derived from them; review of audit reports and accounts; sale of assets; finalisation of the list of creditors and contributories; compromise, abandonment and settlement of claims; payment of dividends; and any other function the Tribunal directs.

Section 277(6), (7) and (8). The Company Liquidator shall place before the Tribunal a monthly report with the minutes of the committee's meetings, signed by the members present, until the final report is submitted; shall prepare the draft final report for the committee's approval; and shall submit the approved final report to the Tribunal for a dissolution order.

The effect of the order: section 278

The order for the winding up of a company shall operate in favour of all the creditors and all contributories of the company as if it had been made out on the joint petition of creditors and contributories.

One petitioner, everybody's order. This is why a winding up is called a representative proceeding, and why a creditor who did not petition need not petition afterwards.

Stay of suits: section 279

Section 279(1). When a winding up order has been passed or a provisional liquidator has been appointed, no suit or other legal proceeding shall be commenced, or, if pending at the date of the winding up order, shall be proceeded with, by or against the company, except with the leave of the Tribunal and subject to such terms as it imposes.

The proviso: an application for leave shall be disposed of within sixty days.

Section 279(2). The sub-section does not apply to a proceeding pending in appeal before the Supreme Court or a High Court.

Note that the stay bites from the appointment of a provisional liquidator, not only from the winding up order; and that it protects the company both as plaintiff and as defendant, since it covers proceedings by or against it.

The Tribunal's jurisdiction: section 280

Notwithstanding anything in any other law, the Tribunal shall have jurisdiction to entertain or dispose of:

• (a) any suit or proceeding by or against the company;
• (b) any claim made by or against the company, including claims by or against any of its branches in India;
• (c) any application made under section 233;
• (d) any question of priorities or any other question whatsoever, whether of law or facts, including those relating to assets, business, actions, rights, entitlements, privileges, benefits, duties, responsibilities, obligations, or any matter arising out of or in relation to the winding up,

whether the suit, proceeding, claim, question or application arose or was made before or after the winding up order.

The width is deliberate. One forum decides everything about a company being wound up, and it decides it whether the dispute is older than the order or newer.

A worked example

Khopoli Castings Limited has not filed its financial statements or annual returns for six consecutive financial years and has ceased trading. Mr Bhosale, who was allotted two hundred fully paid shares when the company was formed, wants it wound up.

May he petition? Yes. He is a contributory, and by section 272(2) he may petition although his shares are fully paid and although the company has no assets and no surplus for shareholders. His shares were originally allotted to him, so he need not show the six months out of eighteen holding.

On what ground? Section 271(d), default in filing for five immediately preceding consecutive financial years, and, the company having ceased trading with its substratum gone, section 271(e), the just and equitable ground.

The Registrar's route. The Registrar could also petition under clause (d), but he must first obtain the previous sanction of the Central Government, which shall not be given unless the company has had a reasonable opportunity of making representations: section 272(3).

The statement of affairs. The petition being by a person other than the company, the Tribunal, if satisfied that a prima facie case is made out, orders the company to file objections and a statement of affairs within thirty days, extendable by another thirty in a contingency; and it may require Mr Bhosale to deposit security for costs: section 274(1).

The company does nothing. It files no statement of affairs. It forfeits the right to oppose the petition, and the directors and officers responsible are liable to imprisonment up to six months or fine of twenty-five thousand to five lakh rupees or both, on a complaint before the Special Court by the Registrar, the provisional liquidator, the Company Liquidator or a person the Tribunal authorises: section 274(2), (4) and (5).

A provisional liquidator. Assets are being removed from the factory. The Tribunal may appoint a provisional liquidator under section 273(1)(c), but must first give the company notice and a reasonable opportunity to make representations, unless for special reasons recorded in writing it dispenses with notice. On these facts, assets disappearing overnight, those special reasons exist.

The objection that the exercise is pointless. The company's assets are mortgaged to a bank for more than they are worth. The Tribunal shall not refuse a winding up order on that ground alone, nor on the ground that the company has no assets: third proviso to section 273(1).

The time limit. The Tribunal must make its order within ninety days from the presentation of the petition: first proviso to section 273(1).

A different case. Suppose the petition had been by two shareholders on the just and equitable ground alone, complaining of exclusion from management, and they could equally have applied under section 241. The Tribunal may refuse the winding up order if it thinks another remedy is available to them and that they are acting unreasonably in preferring winding up: section 273(2). Both limbs must be satisfied.

The order is made. Within seven days, the Tribunal sends intimation to the Company Liquidator and the Registrar, who endorses it in his records and notifies the Official Gazette, and, for a listed company, informs the stock exchanges: section 277(1) and (2).

The staff. The order is deemed notice of discharge to the officers, employees and workmen, unless the business is continued: section 277(3).

The committee. Within three weeks the Company Liquidator applies for a winding up committee of the Official Liquidator attached to the Tribunal, a nominee of the secured creditors and a professional nominated by the Tribunal; he convenes it, it oversees the taking over of assets, the statement of affairs, recovery, audit reports, sale of assets, the list of creditors and contributories, settlement of claims and payment of dividends, and he places monthly reports and minutes before the Tribunal until he submits the final report approved by the committee for a dissolution order: section 277(4) to (8).

The books. The directors must, within thirty days of the order and at the company's cost, hand the liquidator the books of account completed and audited to the date of the order: section 274(3).

Everybody's order. Although only Mr Bhosale petitioned, the order operates in favour of all creditors and contributories as if made on their joint petition: section 278.

A pending suit. A supplier's suit against the company is pending in the City Civil Court. It cannot be proceeded with except with the leave of the Tribunal, and the leave application must be disposed of within sixty days: section 279. Had the matter been in appeal before the High Court or the Supreme Court, the stay would not apply.

Where everything else goes. Any suit or claim by or against the company, including claims by or against its branches in India, any section 233 application, and any question of priorities or any other question of law or fact relating to the winding up, are all for the Tribunal, whether they arose before or after the order: section 280.

Distinctions that carry marks

What this does NOT mean

It does not mean a creditor may petition. He is not in the list in section 272(1), because the ground on which creditors petitioned was removed in 2016.

It does not mean a fully paid shareholder cannot petition. Section 272(2) says he may, and that the absence of assets or of surplus is no answer.

It does not mean every contributory qualifies. Unless the shares were originally allotted to him or devolved on a death, they must have been held and registered in his name for at least six months during the eighteen months before the commencement of the winding up.

It does not mean the Tribunal must wind up a company on the just and equitable ground. It may refuse where another remedy is available and the petitioners are acting unreasonably in not pursuing it.

It does not mean a company with no assets escapes winding up. The third proviso to section 273(1) forbids refusing an order on that ground only.

It does not mean the winding up order dismisses everybody. It is deemed notice of discharge except when the business of the company is continued.

Quick revision

• 272(1): petitioners are the company, any contributory or contributories, both together, the Registrar, a person authorised by the Central Government, and, on the section 271(b) ground, the Central or a State Government.
• 272(2): a contributory may petition though his shares are fully paid, the company has no assets, or there is no surplus; his shares must have been originally allotted to him, held and registered in his name for at least six months of the eighteen months before commencement, or have devolved on a death.
• 272(3) to (5): the Registrar may petition on any ground except clause (a), with the Central Government's previous sanction, not given unless the company has a reasonable opportunity to represent; a company's petition needs a statement of affairs; a copy goes to the Registrar, who submits his views within sixty days.
• 273(1): the Tribunal may dismiss with or without costs, make an interim order, appoint a provisional liquidator, make a winding up order, or any other order; within ninety days of presentation; notice to the company before appointing a provisional liquidator unless dispensed with for special reasons recorded in writing; and no refusal merely because the assets are fully mortgaged or there are none.
• 273(2): on the just and equitable ground the Tribunal may refuse if another remedy is available and the petitioners are acting unreasonably in not pursuing it.
• 274: on a prima facie case, the company files objections and a statement of affairs within thirty days, extendable by thirty; the petitioner may be required to deposit security for costs; failure forfeits the right to oppose and exposes the responsible directors and officers to imprisonment up to six months or fine of twenty-five thousand to five lakh rupees or both, on a complaint to the Special Court by the Registrar, provisional liquidator, Company Liquidator or a person authorised by the Tribunal; and the books of account, completed and audited to the date of the order, go to the liquidator within thirty days at the company's cost.
• 277: intimation within seven days to the liquidator and the Registrar; the Registrar endorses, notifies the Official Gazette and informs the stock exchanges for a listed company; the order is deemed notice of discharge to officers, employees and workmen unless the business is continued; within three weeks the Company Liquidator applies for a winding up committee of the Official Liquidator, a secured creditors' nominee and a professional nominated by the Tribunal, which oversees nine listed functions; monthly reports with signed minutes; and the final report approved by the committee goes to the Tribunal for a dissolution order.
• 278: the order operates in favour of all creditors and contributories as if made on their joint petition.
• 279: after a winding up order or the appointment of a provisional liquidator, no suit or proceeding by or against the company may be begun or continued without the Tribunal's leave, applications for which are disposed of within sixty days; appeals pending before the Supreme Court or a High Court are excepted.
• 280: the Tribunal has jurisdiction, notwithstanding any other law, over suits and proceedings by or against the company, claims including those of its Indian branches, applications under section 233, and questions of priorities or any other question of law or fact relating to the winding up, whenever they arose.

Test yourself

1. Who may present a winding up petition? The company; any contributory or contributories; all or any of them together; the Registrar; any person authorised by the Central Government; and, in a case falling under section 271(b), the Central Government or a State Government: section 272(1).

2. When may a contributory petition? Notwithstanding that he holds fully paid-up shares, or that the company has no assets or no surplus assets for shareholders; provided the shares were originally allotted to him, or have been held by him and registered in his name for at least six months during the eighteen months immediately before the commencement of the winding up, or have devolved on him through the death of a former holder: section 272(2).

3. What orders may the Tribunal make on the petition, and within what time? It may dismiss the petition with or without costs, make any interim order, appoint a provisional liquidator, make a winding up order with or without costs, or any other order it thinks fit; and the order shall be made within ninety days from the date of presentation of the petition: section 273(1).

4. What is the consequence of not filing a statement of affairs? The company forfeits the right to oppose the petition, and the directors and officers found responsible are liable to imprisonment up to six months, or fine of not less than twenty-five thousand rupees extending to five lakh rupees, or both: section 274(2) and (4).

5. What is the effect of the winding up order on employees and on pending suits? It is deemed to be a notice of discharge to the officers, employees and workmen, except when the business of the company is continued: section 277(3). And no suit or other legal proceeding may be commenced or proceeded with by or against the company except with the leave of the Tribunal, applications for which must be disposed of within sixty days; appeals pending before the Supreme Court or a High Court are excepted: section 279.

6. Who sits on the winding up committee? The Official Liquidator attached to the Tribunal, a nominee of the secured creditors, and a professional nominated by the Tribunal, with the Company Liquidator as convener; the application to constitute it is made within three weeks of the winding up order: section 277(4) and (5).