Petition for Voluntary Winding up of Companies
A company’s winding up is the process by which its existence is terminated and it is properly managed for the benefit of its shareholders and creditors. In layman’s terms, a winding-up petition is a request to dissolve a business, which is the legal process for doing so. It is a procedure used to stop the existence of a firm. All of a business’s assets and liabilities are realised during company winding up, which means all of the assets are sold and all debts are paid off. Typically, the term “winding up” relates to the procedure of shutting down a particular business. Winding Up means, as appropriate, liquidation under the Insolvency and Bankruptcy Code, 2016, or winding up under this act, as defined in Clause (94-A) of Section 2 of the Companies Act, 2013. According to Halsbury’s Laws of England, “winding-up is defined as a proceeding by which a company is dissolved and in the course of which its assets are collected and realised: and applied in payment of its debts; and when these are satisfied, the remaining amount is applied for returning to its members the sums they have contributed to the company by Articles of the Company.”
Before 1844, there was no definite body of legal regulations that could be described as the law of corporate liquidation in India under British rule. all businesses, Except those who were granted the right to incorporation by statute or charter, settlement deed-type organisations were recognised as larger partnerships. Consequently, the law of partnerships applied to their dissolution. Like partners, a company’s members have limitless responsibility.
Second, there was no adequate process in place for contributors to request mandatory winding up. As a result, it was thought that there was a need for a straightforward process for making the company’s assets accessible for the payment of debts, as well as a way for the members to cease a failed business endeavour and establish a cap on the size of their liabilities.
From 1844 until 1913, different Acts known as the winding up Acts were passed to accomplish these goals. These Acts had a few flaws, namely the fact that no provision was designed to limit the liability of stockholders. While corporate assets served as the main resource for paying obligations, any shortfall may be made up by turning to the members’ private property. No attempt was made to restrict creditors’ rights to impose execution on the shareholders’ personal property.
These flaws were fixed by the 1956 Companies Act. A single winding-up procedure that could be started by any contributor, creditor, or firm itself was introduced with the passage of this Act. The Act also allowed shareholders to only be held liable for the nominal worth of their shares.
The Companies Act, of 2013, was passed asa substitute for the Companies Act, of 1956, which was abolished in 2013.
It is necessary to replace the provisions to stay up with changes in the nation’s economy and the emergence of new business concepts and procedures on a global scale. The 2013 Companies Act improved company governance and simplified the liquidation process. Truth be told, the provisions of the new statute are simply an updated version of those found in the Companies Act of 1956.
The government introduced a new act for a separate time-consuming procedure under the Insolvency and Bankruptcy Code, 2016 in 2016 due to the rise in cases involving companies failing to pay creditors’ money and lengthy procedures, both of which hurt the confidence of shareholders and creditors (hereinafter referred as IBC, 2016), therefore, the winding up provisions of the Companies Act of 2013 read with the IBC of 2016would be dealt with to address the goal of the present research work.
Scope Of The Research
The study focuses in particular on the laws governing winding up in Syria and India, specifically how far these laws govern and control winding up in a setting with widespread bad practices. The winding will be studied by going into great detail about the reasons for winding up specifically with Bankruptcy and Insolvency, the liquidator’s role, and the liquidation process in Syria and India.
Objective Of The Research
The study had two main goals. The first step is to read up on the literature on the backdrop of past corporate closures. The second is to investigate how to control and monitor corporate winding up by the judiciary. The following particular research goals were taken into consideration for the study while keeping the aforementioned general objectives in mind:
- To review the literature on the development, expansion, and history of the company winding up.
- To review and analyse the rules that govern how businesses are dissolved
- To investigate how the courts affect the liquidation of firms
- To look into how these nations’ legal systems affect how companies are dissolved and how that process is evolving.
Provisions For The Winding Up
Petition to Wind Up a Company Filed
First, interested parties should submit a petition for the company’s winding up. On behalf of the business, the petition may be submitted by:
- The Company’s trade creditors
- The business itself
- All types of company contributors
- Any of the previously listed three categories
- A governmental body, such as the federal or state governments
- Companies Registrar
Form WIN 1 or WIN 2 must be used to submit the petition. Such a petition must be filed in three copies. A petition in Form WIN 3 must be accompanied by an affidavit.
Financial Statements for the Company
The company’s statement of affairs must be submitted with the petition by Rule 4 of the Companies (Winding Up) Rules, 2020. The statement of affairs for the company must be submitted using Form WIN 4 by Section 272(4) or Section 274(1). Such data must be current and cannot be older than 30 days. The company’s statement of affairs must be submitted in the duplicate form and include an affidavit. The concurring affidavit must be on Form WIN 5.
Before the hearing date, the petition must be advertised for a total of 14 days. The language of the advertisement must be both English and a regional tongue. The newspaper needs to be distributed in the nation’s territory or state where the corporation has its registered office. The advertisement should be in Form WIN 6 format.
A Provisional Liquidator is appointed.
The tribunal will name a provisional liquidator upon the submission of the petition and the official proof of the affidavit. The notification of the provisional liquidator’s appointment would be given to the corporation by section 273(1)(c). You must complete Form WIN 7 for this. According to the needs of the company, the duties that must be performed by the interim liquidator will be outlined. Such information is provided in Form WIN 8.
To the Provisional Liquidator, send a notice.
A copy of the notification would be sent by the registrar of companies to the official liquidator by section 277(1). The form of Form WIN 9 would be used to send this, along with any other electronic means or by courier or registered mail. Within seven days of the order, this must be delivered.
The corporate liquidator would get the winding up order in the form of Form WIN 11 from the court. This order must include the appropriate modifications in a signed and sealed form. The registrar must deliver this within seven days to the company. It must be in Form WIN 12 and 13 when it is sent to the firm by the registrar.
Possession of Property
The corporate liquidator would take possession of all the assets and paperwork. The liquidator has the authority to seize all of the company’s records, litigable claims, and books. The tribunal must receive a report from the company liquidator within 60 days after the ruling.
Activities of the business
The company liquidator would submit a request to the tribunal for the company’s dissolution if the company’s affairs were to be wound up. This decision would only be made if the company liquidator believed it to be fair and appropriate for closing a business. A copy of the order will be sent to the registrar after it has been passed to wind up a corporation. This is to be done within 30 days of the company’s order being wound up.
Closing the business
If the tribunal determines that the accounts are accurate, it will issue a dissolution or business dissolution order. Within 60 days of receiving the application, this must happen.
All information about the petitioner and the company that is being wound up must be included in this section. Personal information about the petitioner must also be given. This section shall clearly state the registration number, registered office address, name of the partners and their contact information, capital structure (i.e., the amount of authorised capital, issued capital, and subscribed capital), and other pertinent information connected to the firm. The company’s supporters and their information must be made very obvious. It is necessary to identify the stock exchange or exchanges where the company is listed.
The issue in Re Prudential Capital Markets v. Unknown concerned any attachment, distress, or execution carried out without the court’s permission against the company’s estate or effects after the start of the winding-up process, as well as any other actions that might have been taken. After such commencement, any of the company’s properties or effects were sold off without the court’s permission. According to the court, such a transfer would be invalid because the court considers a company’s winding up to have started at the time the petition for winding up was presented. As a result, any transaction that took place after the petition for winding up was presented by the court would still be subject to the requirement that the transfer has been made with good faith and without knowledge of the lawsuit’s filing. Therefore, the court must begin the winding-up process as soon as the lawsuit is presented to protect the interests of the creditors.
In GT Swami v. Good luck Agencies, the court approved the revocation of the winding-up order and restored the business’s status after taking into account the fact that the real firm had been wound up due to a name-related mistake.
It was decided in Re Pioneer Bank Ltd., that the court is under absolutely no duty to grant a petition just because it has been filed.
In Narendra BahudurTondon v. Shankar Lal, the court held that it could order any disposal of property, filing of legal claims, transfer of shares, or change in the status of the members to be valid. However, such disposition, transfer, or amendment will be invalid unless the Court orders it to be.
It was noted that the name of New Era Manufacturing Co. Ltd. In the case of New Era Manufacturing Co. Ltd. was provisional. Although he is provisionally appointed under Section 290, he has the same powers and, to the extent that these powers imply duties, the same duties as a liquidator in a Winding up. The title “liquidator” is merely a convenient one.
We observe the vast commercial activity around the world in the era of globalisation. Border barriers are no longer present, and national regulations have become less stringent than they were in the past thanks in particular to investment treaties between countries to permit unrestricted trade between nations. Even though such laissez-faire is good for the nation’s economy, it also has its flaws.
Investors’ interests in the corporation are protected by treaties, but even if they did, there would be no effective means of implementing them because there aren’t any enforcement bodies for awards in the country.
Using the cases of White Line Industries in 2012 and Vodafone in 2002 as examples, there hasn’t been any action to enforce awards in decades, which repeatedly calls for the creation of appropriate penal provisions for the enforcement of awards to protect investors, creditors, and government rights.
As a result, the Indian Companies Act, 2013, allows for the company to be wound up by the court if it discovers that it consistently delays making payments that are due, required by decrees or orders, or that the firm is unable to make to its contributors within a reasonable amount of time. Its authority extends to the national boundary, and section 271 of the 2013 Companies Act gives it the right to close any business operating on Indian soil for the reasons listed in section 433 of the 1956 Companies Act.
The researcher here would like to discuss several significant frauds in India that required the court to order their compulsory winding up. To approach the Indian courts’ practice within the conditions outlined in section 271 of the 2013 Companies Act.
When talking about corporate scandals, the major US scandal of ENRON599 frequently comes to mind. In this case, the directors Kenneth L. Lay and Jeffery K. Skilling, both former and current, were found personally responsible for the company’s debt for defrauding the company’s shareholders and creditors. The ERON incident was a significant fraud that involved members’ criminal participation; as a result, the authorities involved received the most severe punishment in US history, including incarceration and a heavy fine.
Conclusion And Suggestion
- The researcher would like to suggest that although there have been countless laws enacted regarding corporate governance in India, the likelihood of dissolution by court order has been rising. So, Indian Instead of passing substantive laws for corporate entities, the government in India needs to enact punitive corporate laws in addition to the Indian Penal Code, of 1860.
- Due to its technicalities, company law has developed into a specialised field in India, but this has other negative effects because it severs links between the company’s manager and its legal operations. Therefore, simpler and easier laws are required, so that even non-legal people can run businesses effectively and legally without entirely relying on attorneys.
- The researcher would like to propose that, there should be judicial conciliation provisions in place after the company has been designated as being in liquidation under the IBC, 2016. Combining their desires to resolve the dispute outside of court, would ensure the interests of the company and the creditors.
- Indian law should include a provision for the Union of Creditors, which places direct control over the liquidation under bankruptcy in the hands of the creditors by contract. This enables the creditors to collaborate with the liquidator in carrying out the task of liquidation effectively.
The Companies Act of 2013 outlines the specific duties and authority that the liquidator must exercise. Before the winding up proceedings, there should be a contract that specifies the specific and vivid work that the liquidator will undertake during the liquidation task. The reason for this is that each company has a unique nature, and some require the performance of specific tasks that may not be covered by the Companies Act of 2013 or the appointment decision. Therefore, a specific contract would enable the liquidator to carry out their duties effectively without requesting the tribunal’s approval at every turn.