Consequences Of Winding Up Of Companies 2f4d6q

SVKM’S NMIMS SCHOOL OF LAW

A SYNOPSIS SUBMITTED ON CONSEQUENCES OF WINDING UP

IN COMPLIANCE TO PARTIAL FULFILLMENT OF THE MARKING SCHEME, FOR TRIMESTER IX OF 2017, IN THE SUBJECT OF COMPANY LAW- II SUBMITTED TO FACULTY: PROF. SOURAV SAHA

FOR EVALUATION SUBMITTED BY: KESHAV MAHESHWARI (A038) ANUSHKA SACHAN (A050) B.B.A LL.B (HONS.) Page | 1

1. INTRODUCTION: Winding up or liquidation of a company represents the last stage in its life. It means a proceeding by which a company is dissolved. The assets of the company are disposed of, the debts are paid off out of the realised assets (or from contributions from its ), and the surplus, if any, is then distributed among the in proportion to their holdings in the company. The two ‘winding up’ and ‘liquidation’ are used interchangeably. Winding up of a company is a process whereby its life is ended and its property istered for the benefit of its creditors and . An , called liquidator, is appointed and he takes control of the company collects its assets, pays its debts and finally distributes any surplus among the in accordance with their rights. Prior to November 15, 2016, the term “winding-up” was neither defined under the companies act, 1956 nor under the companies act, 2013. Section 255 of the insolvency and Bankruptcy Code, 2016 has been notified with the effect from November 15, 2016 and by virtue of section 255, the 2013 Act stands amended in accordance with schedule XI of the code. The aforesaid schedule XI now defines the term “winding-up” by introducing a new section 2(94a) to the 2013 Act as “winding up under this Act or liquidation under the insolvency and Bankruptcy code 2016. On a bare reading of the definition, it shall be safe to conclude that winding up proceedings will now be governed by the provisions of 2013 act include removal provisions of ‘voluntary winding up’ and winding up on the ground of ‘inability to pay debts’ from the 2013 Act as the proceedings relating to these new find place under the Code.1The process naturally has several consequences and effect on shareholders, and stakeholders of the company which is dealt with in depth throughout the course of the paper. An attempt has been made to incorporate the change brought about in the winding up procedures and its effects by the amendment in the companies act.2

2. RESEARCH PROBLEM: Liquidation is the process where a firm’s assets and liabilities are terminated, realized and subsequently distributed. In many cases, the firm ceases to exist. of the firm sometimes voluntarily initiate the liquidation process. Other times it is compelled by a creditor’s petition to the courts for failure to uphold contractual payments. Since we believe 1

Available at http://thewire.in/86871/insolvency-and-bankruptcy-code/ Available at http://lawrato.com/indian-kanoon/corporate-law/winding-up-of-company-under-companies-act2013-634 2

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in Going Concern Assumption, as we want our business to flourish more & more, but at some point of time due to several reasons one has to close down his business and that stage is known as winding up of a company. 2.1 RESEARCH QUESTIONS: 

What are the new provisions of winding up of a company as per Companies Act 2013 and Insolvency and Bankruptcy Code, 2016?

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What are the consequences of winding up on various stakeholders?

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What are the landmark judgments on winding up of a company?

3. RESEARCH METHODOLOGY: 3.1 AIMS AND OBJECTIVE: The aims and objectives of this paper is to understand the consequences of the winding up procedure which affect the shareholders, and stakeholders differently. The paper further enunciates the winding up legal position under Companies Act 2013, vis-a-vis Insolvency and Bankruptcy Code, 2016. 3.2 SCOPE AND LIMITATIONS: The scope of this project is to analyse the provisions of winding up related to its consequences given in Companies Act 2013 and Insolvency and Bankruptcy Code, 2016. The method of research adopted in this research paper is the ‘Doctrinal’ method of research. The researcher has adopted secondary source of data collection for this project. The research is limited to books, websites and articles. Material has been collected through data given by the Ministry of Corporate Affairs, Government of India. 3.3 HYPOTHESIS: 

A director owes fiduciary duties towards the company, individual shareholders, creditors or fellow directors in the event of winding up.

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With the advent of Bankruptcy and Insolvency code 2016, the interest of stakeholders has been upgraded.

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The company courts have majorly been active in protecting the rights of the stakeholders.

3.4 TENTATIVE CHAPTERISATION: The project deals with the following chapters: Page | 3

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Chapter I: Introduction, it analyses the meaning of winding up of companies with special focus on the newly amended Companies act 2013 and Bankruptcy code 2016.

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Chapter II: Legal Framework, it analyses the provisions related to winding up of companies mentioned in the various legislations.

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Chapter III: Case Analysis, the paper also attempts to interpret the various landmark judgments of the Company Courts in matters related to winding up.

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Chapter IV: Conclusion, it critically examines the status quo of the law in the country, i.e. how well it is implemented and whether there are any lacunas.

4. LITERATURE REVIEW: “The National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) have been constituted by Central Government with effect from 1 June, 2016. This would effectively dissolve the Company Law Board (CLB) as constituted under the Companies Act, 1956 from the same day. The NCLT will start functioning with eleven Benches –two at New Delhi and one each at Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai. The Principal Bench of the NCLT will be at New Delhi.”3 As everybody knows, Company Law is very complicated and at the same time very interesting too. Both Company Law Board and the Company Court discharge its responsibilities commendably when they entertain company disputes or company petitions. Interpretation of provisions of Companies Act, 1956 and applying the legal provisions to the facts before the adjudicatory forum will be a challenging job. Company Court will look to the interests of the shareholders though they are not before the Court and will look into the interests of the creditors despite the fact that they could not get an opportunity to represent before Court in a Company Petition. This move is expected to provide some respite to the High courts and district courts which are overburdened with a large number of pending cases. According to available data, as of 2015, the high courts had over 3.87 million pending cases and district courts have to grapple with a pendency of over 20 million cases. However, practitioners estimate the actual impact of the transfer of cases to be much less.

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Viddhi Madhan Chadda et al., Handbook on Company Law Tribunal and National Company Law Appellate Tribunal 200-297 (1st Edition 2016)

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