CHAPTER 13

DiviDEnD PRovisions
The Companies Act, 2013 defines the profit of a company which is not retained in the business
and is distributed among the shareholders in proportion to the amount paid up on the shares
held by them.
Dividend refers to that portion of the profits of a company which is allocated to the members of
the company by a formal declaration in the Annual General Meeting of the company.
According to Section 2(35), dividend includes interim dividend also. Dividend implies final
dividend declared at the general meeting of the company.
Legal Provisions regarding Dividend:
1. Source Of Dividend : The dividend should be declared or paid out of:
(a) Current year’s profits of the company (after providing for depreciation) , or
(b) Profits of the previous financial years (after providing for depreciation) as per Schedule II
of the Companies Act, 2013, or
(c) Out of both; or
(d) Money provided by the Central or State Governments for the payment of dividends.
Dividend is not allowed to be paid out of capital.
2. Transfer To Reserves : A company may, before the declaration of any dividend in any financial
year, transfer such percentage of its profits for that financial year (as it may consider
appropriate) to the reserves of the company.
There is no fixed percentage . and also not mandatory to be put to reserves.---as per CO ACT
2013
3. Declaration Of Dividend Out Of Reserves : No dividend shall be declared or paid by a
company from its reserves other than free reserves.
In the event of inadequacy or absence of profits in any year, a company may declare dividend
out of free reserves subject to the fulfillment of certain conditions.
No Company shall declare dividend unless Carried over previous losses and depreciation not
provided in previous year or years are set-off against profit of the company for the current year.
4. Recommendation of the Board : The directors have the sole discretion to recommend or not
to recommend the dividend.
The members in the Annual General Meeting cannot increase the rate of dividend
recommended by the Board of Directors.
They can either approve the same rate or lower it.
5. Declaration Of Final Dividend At The Annual General Meeting : The dividend is usually
declared at the Annual General Meeting.
A company which could not declare dividend at an Annual General Meeting may declare the
same at a subsequent general meeting.
Final dividend cannot be paid twice in the same year.
6. Depositing The Amount Of Dividend Declared Into A Separate Bank Account : The dividend
declared must be deposited in a separate bank account within five days of its declaration and the
same shall be used for the payment of dividend.
7. Dividend To Be Paid In Cash : Dividend shall be paid only in cash, either by cheque or warrant
or through any electronic mode except when adjusted towards paying up unpaid amount on
shares held by the members of the company.
8. Dividend To Be Paid Only To The Registered Shareholders And Beneficial Owners : Dividend
is to be paid only to the registered holder of shares or to his order or to his banker. Dividend
shall be paid in proportion to the amounts paid up on each share.
9. Time Framework For The Payment Of Dividend : Where a dividend which has been declared
at the General Meeting of the shareholders, becomes a debt against he company and, it should
be paid within 30 days from the date of its declaration.
- In case a dividend has been declared by a company but not paid or the warrant in respect
thereof has not been posted, within 30 days from the date of the declaration, to any shareholder
entitled to the payment of the dividend, every director of the company who is knowingly a party
to the default,
shall be punishable with imprisonment for a term which may extend to 2 years
and with a minimum fine of ` 1,000 for every day during which such default continues.
The company shall also be liable to pay simple interest at the rate of 18% per annum during the
period for which such default continues
In the following cases, there would not be any punishment for default:
(i)where the dividend could not be paid by reason of the operation of any law;
(ii)where a shareholder has given directions to the company regarding the payment of the
dividend and it is not possible to comply with those directions;
(iii)where there is a dispute regarding the right to receive the dividend;
(iv)where the dividend has been lawfully adjusted by the company against any sum due to it
from any shareholder; or
(v)where, for any other reason, the failure to pay the dividend or post the warrant within the
period aforesaid was not due to any default on the part of the company. [Section 127]
 Inadequacy Or Absence Of Profits
In the event of inadequacy or absence of profits in any year, a company may declare dividend out
of free reserves subject to the fulfillment of certain conditions.-
✓ The Rate of dividend declared shall not exceed average dividend rate of last 3 years; or
✓ Amount drawn from reserves shall not exceed 10% of sum of paid up capital reserves
✓ The amount so withdrawn in step 2) should be first utilized to setoff current year losses.
✓ The Balance of reserves after such withdrawal shall not fall below 15% of the paid up share
capital.

Dividend from Capital profits

"Capital Profits" mean profits earned out of capital transactions. Sources of capital profits are:
• Profits on sale or revaluation of fixed assets
• Share Premium
• Profits on reissue of forfeited shares
• Capital redemption reserve account
• Profit prior to incorporation Profit on redemption of Debentures
The capital profits cannot be considered as available for distribution as dividend unless;
a. The Articles of Association authorize such a distribution; and
b. The surplus is realized in cash and remains after a valuation of the whole of the assets
and liabilities.

Declaration of Dividend
I. As per Sec. 123(3), a dividend when proposed does not become a debt but only becomes
debt when declared and a shareholder is entitle to sue for recovery of the same after expiry
of the period of 30 days.
II. The board of directors recommend the dividend in the board meeting and later at the annual
general meeting it will be approved and declared for the payment.
III. As per Sec 123(4) - The Amount to be deposited to a separate account once dividend
declared within 5 days from the date of declaration of dividend.
IV. >As per Sec 123(5) - Dividend may be paid by cheque or warrant or in any electronic mode to
the shareholders.
Revocation of Declared Dividend:
Ordinarily, a dividend once declared cannot be revoked, except with the consent of the
shareholders; because a dividend which has been once declared in a General Meeting creates a
debt to the shareholders
So, A dividend including interim dividend once declared becomes a debt and cannot be revoked,
except with the consent of the shareholders.
But where a dividend has been illegally declared, or where due to extra ordinary events
intervening after the declaration, the Board of Directors will be justified in revoking the
declaration of dividend(preferably with the approval of shareholders).
The extra ordinary events may be:
•a fire destroying the company’s property; or
•the outbreak of a war; or
•the imposition of a new heavy tax burden; or
• other cause significantly diminishing the assets of the company.

Payment of Dividend:
• Sec 123(5)- Dividend in respect of a share has to be paid to the registered shareholders or to
his order or to his bankers.
• Sec 123- Company close the register of members or fix a record date of which 7 days notice
should be given by publication of advertisement in two newspapers - one English and other in
the local language where the registered office of the company situated.
• Sec 123 - Dividend has to be distributed within 30 days of the declaration.
For this purpose a 'dividend warrant' is posted within 30 days will be deemed to be
payment of dividend irrespective of the fact whether it has been enchased or not.

Dividend Unclaimed (Section 124)

1. According to Section 124(1), where, after the declaration of the dividend, it has not been
claimed within 30 days from the date of the declaration by any shareholder entitled to the
payment of the dividend,
the company shall, within 7 days from the date of expiry of the said period of
30 days, transfer the total amount of dividend which remains unpaid or unclaimed to a
special account called the Unpaid Dividend Account.
- For this purpose, the company has to open Unpaid Dividend Account in scheduled bank.
- In case of delay, the company would have to pay interest @12% p.a.

2. According to Section 124(2), If with in ninety days there is no claiming of the dividend then
we should prepare statement containing names, addresses and unpaid dividend amount and
it should be kept in company website or any Govt approved website.
3. According to Section 124(3), Any default of transferring amount to the Unpaid Dividend
Account, the company from the date of default, shall pay an interest rate of 12% P.A.
4. According to Section 124(7), In case the Company fails to comply any of the requirements of
this section, it will be punishable with a fine not less than five lakh but may extend to twenty
five lakh for each officer involved in the default.

Investor Education and Protection Fund (Section 125)

Under Section 124, if the amount remains unpaid or unclaimed for seven years period from the
date of transfer to the "Unclaimed Dividend Account" then the amount should be transferred to
a fund which was established by the Central Govt. as per the provisions of Section 125 called as
"Investor Education and Protection Fund"
Section 125 of the Companies Act, 2013 provides the rules for the establishment of Investor
Education and Protection Fund (called Fund in short).
Main Sources of The FUND :
1. the amount in the Unpaid Dividend Account of companies transferred to the Fund under
Section 124(5);
2. the application money received by companies for allotment for any securities and due for
refund;
3. the amount given by the Central Government by way of grants
4. donations given to the Fund by the Central Government, State Governments, companies
or any other institution for the purposes of the Fund;
5. matured deposits with companies other than banking companies;
6. matured debentures with companies;

Utilisation of IEPF :
The Fund can be utilised for:
(a) the refund in respect of unclaimed dividends, matured deposits, matured debentures, the
application money due for refund and interest thereon;
(b) promotion of investor’s education, awareness and protection;
(c) distribution of any disgorged amount among eligible and identifiable applicants for shares
or debentures, shareholders, debentureholders or depositors who have suffered losses
due to wrong actions by any person
(in accordance with the orders made by the Court which had ordered disgorgement);
(d) reimbursement of legal expenses incurred in pursuing class action suits under Section 37
and 245 by members, debentureholders or depositors as may be sanctioned by the
Tribunal; and
(e) any other purpose incidental thereto.
 Interim Dividend
➢ Section 2(35) provides that dividend includes any ‘Interim Dividend’. In this way, interim
dividend has been legally recognized as a part of final dividend.
➢ A dividend declared in between two Annual General Meetings of the company by the Board
of Directors is known as ‘Interim Dividend’.
➢ Interim dividend can be given out of the surplus of Profit and Loss A/C or out of Profits od
current financial year.
The provisions regarding interim dividend are as follows:
1. Interim dividend can be given out of the surplus of Profit and Loss A/C or out of Profits od
current financial year.
2. In case of loss during the current financial year up to the end of the quarter immediately
preceding the date of declaration of interim dividend, such interim dividend shall not be
declared at a rate higher than the average dividends declared by the company during the
immediately preceding 3 financial years.
3. The amount of interim dividend shall also be deposited in a separate bank account within 5
days from the date of declaration.
4. The amount of interim dividend so deposited shall be used only for paying the interim
dividend.
5. The provisions which apply to the payment of final dividend, also apply to any interim
dividend
6. The payment of interim dividend does not require the approval of the General Meeting since
members have no say in the matter of such dividends
Declared Dividend Not Paid Within 30 Days.
Where a dividend which has been declared at the General Meeting of the shareholders, becomes a debt against
he company and, it should be paid within 30 days from the date of its declaration.
- In case a dividend has been declared by a company but not paid or the warrant in respect thereof has not been
posted, within 30 days from the date of the declaration, to any shareholder entitled to the payment of the
dividend, every director of the company who is knowingly a party to the default,
shall be punishable with imprisonment for a term which may extend to 2 years and with a
minimum fine of ` 1,000 for every day during which such default continues.
The company shall also be liable to pay simple interest at the rate of 18% per annum during the period for which
such default continues
In the following cases, there would not be any punishment for default:

(i)where the dividend could not be paid by reason of the operation of any law;

(ii)where a shareholder has given directions to the company regarding the payment of the dividend and it is not possible to
comply with those directions;

(iii)where there is a dispute regarding the right to receive the dividend;

(iv)where the dividend has been lawfully adjusted by the company against any sum due to it from any shareholder; or

(v)where, for any other reason, the failure to pay the dividend or post the warrant within the period aforesaid was not due
to any default on the part of the company. [Section 127]
 CHAPTER 14
BooKs oF ACCoUnTs
As per Section 2(13) of the Companies Act, 2013, “Books of accounts” include records
maintained in respect of:
(a) all sums of money received and expended by the company and the matters in respect of
which the receipt and expenditure take place;
(b) all purchases and sale of goods and services by the company;
(c) the assets and liabilities of the company; and
(d) in the case of such class of companies engaged in production of such goods or providing
such services as may be specified under Section 148, such particulars relating to utilization
of material or labour or other items of cost as may be prescribed
➢ Every Company shall Prepare & Keep Books of accounts and Other Relevant Books & Papers
and Financial Statements of Every financial year in True & Fair manner in their Registered
office Including that of Branch Office or Offices, if any.
➢ Books of accounts should be able to explain the transactions effected both at registered office
& its branches.

Provisions Relating To BOOKS OF ACCOUNTS

1. Place of keeping Books of Accounts - Section 128 requires that every company shall keep
proper books of accounts at its registered office.
However, these books may be kept at such other place in India as the Board of Directors
considers fit.
- In that case, within 7 days of the decision, a notice in writing indicating full address has to
be given to the Registrar of Companies.
A Company cannot place Its Books Of Accounts outside India

2. Form of maintaining books of accounts - The Companies Act, 2013 permits the companies
to maintain books of accounts and other books and papers in electronic mode.
If a company is keeping its Books of Accounts in Electronic form , then it shall :
a. It should Remain accessible in India so as to be usable for subsequent reference.
b. It should be Retained in the format in which originally generated, sent or received; or
which shall present accurately the information generated, sent or received; Complete &
Unaltered
c. Information from Branch Offices should be Unaltered and in Legible Form
d. Proper system for Storage, Retrieval, Display, Printout (rsdp)
e. Backup of the Books of accounts should be kept in servers physically located in India
Company shall intimate to ROC on annual basis at the time of filing of FS , the -
- Name of Service Provider
- Internet Protocol Address of Service Provider
- Location of Service Provider
- In case books of accounts and other books & papers maintained on cloud, such address as
provided by Service Provider.

3. Books of Accounts of Branches –

a. Proper Books of Accounts relating to transactions effected at branch office in India or
outside India shall be kept at that branch office.
b. Proper summarised returns periodically must be sent by branch office to the company at
its registered office. (or other place as decided by BOD)

4. System of Accounting- The books of accounts should be Prepared on the accrual basis and
according to the double entry system of accounting.

5. Inspection of Books of Accounts- Section 128 provides that any director can inspect the
Books of Accounts and other books and papers of the company during business hours.

In case of financial information maintained outside India, copies of such financial information
shall be maintained & produced for inspection by any director subject to conditions prescribed
under Companies (Accounts) Rules, 2014 which provides that:

• Summarised returns of such books shall be sent to registered office at quarterly intervals.
• In case director requires any other financial information maintained outside India, he
shall furnish a request to the company setting out full details of financial information
sought & period for which such information is sought.
• Company shall produce such information to director within 15 days of the date of receipt
of written request.
• Financial information so required shall be sought for by director himself and not by or
through his power of attorney holder or agent or representative
➢ Inspection of the Books of accounts in respect of a subsidiary of the company shall be done
only by the person authorized in this behalf by a resolution of BOD.
➢ The officers and other employees of the company shall give to the person making such
inspection all assistance in connection with the inspection which the company may
reasonably be expected to give.
6. Period of maintaining of Books of Accounts - The books of accounts together with the
vouchers relevant to entry in such books, relating to period of at least 8 financial years
immediately preceding the current year shall be preserved in good order.
- Where the Company had been in existence for less than 8 years, it shall maintain the books for
all such years.
In case an investigation has been ordered, the Central Government shall have power to ask the
company to keep the books of accounts for a period longer than eight financial years.

7. Persons responsible for keeping the Books of Accounts - The persons responsible for the
maintenance of books of accounts are -
✓ Managing Director
✓ Whole-Time Director in charge of
✓ Chief Financial Officer;
✓ Any other person of the company charged by the Board with duty of complying with
provisions of Section 128.
Punishment of Contravention - In case the these persons of the company fail to take reasonable
steps to secure compliance of this section they shall, in respect of each offence, be punishable
with
- imprisonment for a term which may extend to 1 year or
- with fine which shall not be less than Rs. 5,000 but which may extend to Rs. 5 lakhs
- or both.

FINANCIAL STATEMENTS
According to Provisions of the Companies Act, 2013, the term financial statements in relation to
a company includes.
(i) a balance sheet as at the end of the financial year;
(ii) a profit and loss account, (or in the case of a company carrying on any activity not for
profit, an income and expenditure account) for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note
The financial statement, with respect to One Person Company, Small company and Dormant
company, may not include the cash flow statement

The provisions relating to financial statement are as follows [Section 129]:

1. The financial statement shall give
- a true and fair view of the state of affairs of the company or companies,
- comply with the accounting standards notified under Section 133 and
- shall be in the form or forms as may be provided for different class or classes of
companies in Schedule III.
This provision does not apply to any insurance or banking company or any company engaged in
the generation or supply of electricity, or to any other class of company for which a form of
financial statement has been specified in or under the Act governing such class of company.
2. At every annual general meeting of a company, the Board of Directors of the company shall
lay before such meeting its financial statement for the financial year.
3. Where a company has one or more subsidiaries, it shall prepare a consolidated financial
statement of the company and of all the subsidiaries in the same form and manner as that of
its own (which shall also be laid before the annual general meeting of the
company along with the laying of its financial statement).
- The company shall also attach along with its financial statement, a separate statement
containing the salient features of the financial statement of its subsidiary or subsidiaries
in such form as may be prescribed.
4. Where the financial statement of a company does not comply with the accounting standards,
the company shall
- disclose in its financial statements and the deviation from the accounting standards,
- the reasons for such deviation and
- the financial effects arising out of such deviation.

➢ Penalty for Contravention of the Provisions of Section 129.

In case of non compliance of any provision of Section 129 the managing director, the whole time
director in charge of finance, the Chief Financial Officer or any other person charged by the
Board with the duty of complying with the requirements of this section and in the absence of
any of the officers mentioned above, all the directors shall be punishable with
- imprisonment for a term which may extend to 1 year or
- with fine which shall not be less than ` 50,000 but which may extend to ` 5 lakhs
- or with both

Authentication of Financial Statements- The financial statements, including consolidated

financial statement, if any, shall be approved by the Board of Directors before they are signed on
behalf of the Board by the following:
➢ The Chairperson of the Co. where he is authorized by the Board; or
➢ Two directors, out of which one shall be MD; and
➢ The CEO, if he is a director in the Co.
➢ The CFO, wherever he is appointed; and
➢ The CS of the Company, wherever he is appointed.
In the case of One Person Company the FS can be signed only by one director, for submission to
the auditor for his report thereon.
The Auditors’ report shall be attached to every financial statement.

Filing of Financial Statements etc. with the Registrar.

As per Section 137 a copy of the financial statements including consolidated financial
statements, if any, along with all the documents which are required to be attached to such
financial statements, duly adopted at the Annual General Meeting of the company, shall be filed
with the Registrar within 30 days of Annual General Meeting.

BOARD’S REPORT OR DIRECTORS’ REPORT

1. The Board's Report shall be prepared based on the standalone FS of the Co. and the report
shall contain a separate section wherein a report on the performance and financial position
of each of the Subsidiaries, Associates & Joint Venture Companies included in CFS is
presented.
2. In case of OPC, the report of BOD to be attached to FS shall mean a report containing
explanations or comments by the Board on every qualification, reservation or adverse remark
or disclaimer made by the auditor in his report.
3. The Board's Report shall be signed by its chairperson of the Company if he is authorized by
the Board, and where he is not so authorized, it shall be signed by at least 2 directors, one of
whom shall be a Managing Director, or by the director where there is one director.
4. If a Company contravenes any provisions of this Section, the Company shall be punishable
with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 25,00,000.
➢ Every officer of the Co. who is in default shall be punishable with: Imprisonment for a term
which may extend to 3 years; or Fine, not less than Rs. 50,000 but which may extend to Rs.
5,00,000; or Both with imprisonment & fine.

Director’s Responsibility Statement

The Board’s Report is required to include a “Directors’ Responsibility Statement”. It States –
1. In the preparation of the annual accounts, the applicable accounting standards had been
followed along with proper explanation relating to material departures;
2. the directors had selected such accounting policies and applied them consistently and
made judgements and estimates that are reasonable and prudent so as to give a true and
fair view of the state of affairs of the company
(at the end of the financial year and of the profit and loss of the company for that period;
3. the directors had taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of this Act (for safeguarding the
assets of the company and for preventing and detecting fraud and other irregularities);
 4. the directors had prepared the annual accounts on a going concern basis; and
5. in the case of a listed company, the directors had laid down internal financial controls to
be followed by the company and that such internal financial controls are adequate and
were operating effectively.

WHO ARE ENTITLED FOR AUDITED FINANCIAL STATEMENT

1. A Copy of Financial Statements , which are to be laid before a Co. in its Annual General
Meeting, shall be sent to the following:
• Every member of the Co.
• Every trustee for the debenture-holder of any debentures issued by the Co., and
• To all persons other than such member or trustee, being the person so entitled.
2. Consolidated Financial Statements , if any, Auditor's Report and every other document
required by law to be annexed or attached to FS shall be annexed with the Financial Statements
3. These FS shall be sent in not less than 21 days before the date of meeting.
4. In case of a Listed Company
• These provisions shall be deemed to be complied with, if the copies of documents are
made available for inspection at its registered office during working hours for a period
of 21 days before the date of meeting.
• Along with it, a statement containing the salient features of such documents in Form
AOC-3 or copies of the documents, as the Company may seem fit, is sent to every
member and every trustee for debenture holders.
• The statement is to be sent not less than 21 days before the date of meeting unless the
shareholders ask for full financial statements.
5. A Company shall also allow every member or trustee of the debenture holders to inspect the
audited Financial Statements at its registered office during business hours.

MANNER OF CIRCULATION OF FINANCIAL STATEMENTS

1. In case of all Listed Companies and such Public Companies having Net Worth of more than
Rs. 1 Crore and turnover of more than Rs. 10 Crores, the Financial Statements may be sent:
• By electronic mode to such members whose shareholding is in dematerialized format;
• Otherwise, to such members who have positively consented in writing for receiving by
electronic mode; and
• By dispatch of physical copies through any recognized mode of delivery.
2. A Listed Company shall also place its Financial Statements including CFS (if any), and all other
documents required to be attached, on its website, which is maintained by or on behalf of
the Company.
SUBSIDIARY COMPANIES
Every Company having a subsidiary or subsidiaries shall:
1. Place separate Audited accounts in respect of each of its subsidiary on its website, if any;
2. Provide a copy of separate audited financial statements in respect of each of its subsidiary, to
any shareholder of the Company who asks for it.
3. If any default is made in complying with the provisions of this Section, the Company shall be
liable to a penalty of Rs. 25,000 and Every officer of the Co. who is in default shall be liable to a
penalty of Rs. 5,000.

Filing of Financial Statements

1. A copy of Financial Statements, including Consolidated Financial Statements if any, along
with all the documents which are required to be attached to such FS under this Act, duly
adopted at the AGM, shall be filed with ROC within 30 days of the date of AGM.
2. If FS are not adopted:
- Unadopted FS along with required documents shall be filed with registrar within 30
days of AGM.
- Register shall take them as provisional till FS are filed after adoption.
3. In case of OPC , it shall file a copy of FS duly adopted by its member, along with all required
documents within 180 days from the closure of FY.
4. In case of a company having subsidiaries , the company shall attach the A/cs of its
subsidiary/subsidiaries which have been incorporated outside India and have not
established their place of business in India, along with its FS.

5. In case the AGM not held, The FS along with documents required to be attached, duly
signed along with the statement of facts & reasons for not holding AGM, shall be filed with
Registrar within 30 days from the last date on which AGM should have been held.

6. Company shall be punishable with fine of Rs. 1,000 for each day during which failure
continues, but shall not exceed Rs. 10 Lacs.
MD & CFO, if any, and in their absence, any other director who is charged by the Board
with the responsibility of complying with this Section, and in the absence of such director,
all directors of the Co. shall be punishable with:
- Imprisonment for a term which may extend to 6 months, or
- Fine, not less than Rs. 1 Lac, but which may extend to Rs. 5 Lacs
- Both with imprisonment & fine.
 CHAPTER 16
ConCEPT & MoDEs oF WinDinG UP
Winding up or liquidation is the process by which the management of a company’s affairs is
taken out of its directors’ hands, its assets are realised by a liquidator, and its debts are paid out
of the proceeds of realisation.
➢ If any balance remains in the hands of the liquidator, it is divided among the members of the
company in accordance with their rights under the Articles.
➢ Since a company is an artificial legal person, its life shall be brought to an end by a process of
law.
“Winding up of a company is the process whereby its life is ended and its property administered for the benefit of its
creditors and members. An administrator, called a liquidator, is appointed and he takes control of the company, collects its
assets, pays its debts and finally distributes any surplus among the members in accordance with their rights.”

DISSOLUTION means putting an end to the existence of the company.

On dissolution, the company ceases to exist.
Its name is struck off by the Registrar from the Register of Companies.
This fact is published in the Official Gazette.
Distinction between Winding up and Dissolution:
—Winding up of a company precedes its dissolution.
—Winding up is the first step and Dissolution is the last or final step in the entire process which
drops the curtain over a company’s life, i.e., brings its life to an end.
—Creditors of the company can prove their debts during the winding up proceedings but not
after dissolution.
—Winding up involves realisation of the various assets of the company and distribution of the
proceedings amongst creditors and if there is a surplus, then even also amongst members.
Dissolution is the last step which actually announces that all these formalities are over.
—After winding up, the legal entity of the company remains but after dissolution, it comes to an
end.

MODES OF WINDING UP

1. Voluntary Winding Up
2. Compulsory Winding Up By Tribunal
 VOLUNTARY WINDING UP
Under IBC, 2016
A Company that intends to liquidate itself voluntarily and has not committed any default on any
debt to any person may initiate voluntary liquidation proceedings.
- A Company may choose to be wound up voluntarily under several circumstances including
winding up as a result of expiry of period of operation fixed in its Articles of Association
or occurrence of an event provided in its Articles of Association for its dissolution
Conditions for Voluntary Winding up:
1. A declaration from majority of the directors of the company verified by an affidavit stating
that:
a) They have made a full inquiry into the affairs of the company and they have formed an
opinion that either the company has no debt or that it will be able to pay its debts in full
from the proceeds of assets to be sold in the voluntary liquidation; and
b) The company is not being liquidated to defraud any person.

2. The declaration shall be accompanied with the following documents:

a) Audited financial statements and record of business operations of the company for the
previous two years or for the period since its incorporation, whichever is later;
b) A report of the valuation of the assets of the company prepared by a Registered Valuer.

Procedure Of Voluntary Winding Up Under IBC 2016:

Step-1: Submission of declaration(s) to ROC, stating that the company will be able to pay its dues
and is not being liquidated to defraud any person.
Step-2: Passing of special resolution for approving the proposal of voluntary liquidation and
appointment of liquidator, within 4 weeks of the aforesaid declaration(s).
If a company owes debts, approval of two-third majority Creditors would also be required.
Step-3: Public announcement inviting claims of all stakeholders, within 5 days of such Approval,
in newspaper as well as on website of the company.
Step-4: Intimation to the ROC and the Board (Insolvency and Bankruptcy Board of India) about
the Approval, within 7 days of such Approval.

Step-5: Preparation of preliminary report by the liquidator about the capital structure, estimates
of assets and liabilities, proposed plan of action etc., and submission of the same to the
company within 45 days of such Approval.
Step-6: Verification of claims, within 30 days form the last date for receipt of claims and
preparation of list of stakeholders, within 45 days from the last date for receipt of claims.
Step-7: Opening of a bank account in the name of the corporate person followed by the words
‘in voluntary liquidation’, in a scheduled bank, for the receipt of all moneys due to the corporate
person.
Step-8: Sale of assets, recovery of monies due to corporate person, realization of uncalled capital
or unpaid capital contribution.
Step-9: Distribution of the proceeds from realization within 6 months from the receipt of the
amount to the stakeholders.
Step-10: Submission of final report by the liquidator to the company, ROC and the Board and
application to the National Company Law Tribunal (NCLT) for the dissolution.
Step-11: Submission of NCLT order regarding the dissolution, to the concerned ROC within 14
days of the receipt of order.

Consequences of Voluntary Winding up-

1. Cease to carry on Business- The company shall cease to carry on its business on the
appointment of a liquidator except for its beneficial winding up.
2. Limit on Directors’ Liability- The most important difference between voluntary winding up
and other means of closure is that the liabilities of a Director shall not continue post the
dissolution of the company, except in the cases of fraud, misrepresentation, etc.
3. Board Continues to Exist - The powers of the Board of Directors shall not cease and shall
continue without hampering the independence of the liquidator
4. Winding up a private process - It is a private process run by the third party (the liquidator),
wherein the liquidation has to make sure that each stakeholder is paid and is satisfied with their
settlement

5. Verification of Claims and list of Stakeholders - The liquidator shall collect, collate and verify
all claims and has to prepare a list of stakeholders.
6. Realisation and Distribution of Assets - The liquidator shall create a liquidation estate; then
realise and distribute all the assets of the company

7. Application of Dissolution to National Company Law Tribunal - The liquidator shall make an
application for the dissolution to the adjudicating authority, i.e., National Company Law Tribunal
(NCLT), along with the final report.
8. Date of Dissolution - The corporate shall be wound up from the date of the dissolution order
passed by the National Company Law Tribunal (NCLT).
 Declaration of SOLVENCY
The Declaration of Solvency is an important document in the members’ voluntary winding up.
The declaration must be made in the meeting of the Board of Directors.

(A) It Should Be Made By A Majority Of The Directors And Certified By An Affidavit

Majority of Directors shall state in Declaration of Solvency that they have made a full inquiry into
the affairs of the company and they have formed an opinion that either the company has no
debt or that it will be able to pay its debts in full from the proceeds of assets to be sold in the
voluntary liquidation; and the company is not being liquidated to defraud any person.
(B) Affidavit Should Be Accompanied By
a) Audited Financial Statements of past two years
b) Records of Business Operations of past two years
c) Report by the Registered Valuer about the valuation of the assets of the Company (if any)
d) Latest Financial Position of the Company, if any
(C) Special Resolution
Within four weeks of making a Declaration of Solvency, there shall be a special resolution of the
members of the company in a general meeting ,
requiring the company to be liquidated voluntarily
and appointing an insolvency professional to act as the liquidator.

COMPULSORY WINDING UP
Compulsory winding up refers to the process where a company is forced to shut down by an
order of the National Company Law Tribunal (NCLT) due to specific legal reasons.
This happens when a company:
- Fails to pay debts or becomes insolvent.
- Engages in fraudulent activities or violates laws.
- Acts against public interest or national security.
- Fails to file financial statements for a long time.
- Is unable to continue business operations.
COMPULSORY WINDING UP BY TRIBUNAL : The circumstances of compulsory winding up by the
Tribunal are as follows -
1. The company has, by special resolution, resolved that the company be wound up by the
Tribunal;
2. The company has acted against the interests of the sovereignty and integrity of India, the
security of the State, friendly relations with foreign States, public order, decency or morality;
 3. The company has made a default in filing with the Registrar its financial statements or
annual returns for immediately preceding five consecutive financial years;
4. The affairs of the company have been conducted in a fraudulent manner or the company
was formed for fraudulent and unlawful purpose or the persons concerned in the formation
or management of its affairs have been guilty of fraud, misfeasance or misconduct in
connection therewith and that it is proper that the company be wound up;
5. If the Tribunal is of the opinion that it is just and equitable that the company should be
wound up. The Tribunal has very wide discretionary powers under this clause. What is just
and equitable depends on the fact of each case.

Some Of The Instances Of Just And Equitable Grounds Are As Follows:

• DEADLOCK IN MANAGEMENT : Where there is a complete deadlock in the management

of the company, the company may be ordered to be wound up on just and equitable
grounds. For instance, when directors are not on speaking terms or are bitterly hostile to
each other.
- A company cannot be ordered to be wound up if there is difference in view of the majority
directors and minority directors.
• LOSS OF SUBSTRATUM : If the company has failed to materialise its objects for which it
was formed or objects become impossible to be carried out, its substratum is gone and
the company may be ordered to be wound up on just and equitable grounds.
• LOSSES : Where the business of the company cannot be carried on except at a loss, the
Tribunal may order for the winding up of the company.
• OPPRESSION OF MINORITY : Where the majority of shareholders is exercising oppression
on the minority, the company may be wound up by the Tribunal on just and equitable
grounds.
• ILLEGALITY OF OBJECTS AND FRAUD : Where the company was formed to carry out
fraudulent or illegal business or when the business of the company becomes illegal
because of a change in law, the Tribunal may order the company to be wound up on just
and equitable grounds.
- For example- if the object of the company is to conduct lottery business in Delhi it would be
an illegal business.
• BUBBLE COMPANY : Where the company does not carry on any business nor does it own
any property, i.e., it is a mere ‘bubble’ company, it may be wound up by the ‘Tribunal’s
order.
- Such companies are also called fly-by-night companies

CONSEQUENCES/EFFECTS OF THE WINDING UP (Section 277)

a) The Tribunal within a period of 7 days from the date of passing of the order , shall send the
intimation to the Company Liquidator and the Registrar.
b) The Registrar shall, then, notify in the Official Gazatte that such an order has been made.
 - In case of a listed company, the Registrar shall intimate about such order to the stock
exchange or exchanges where the securities of the company are listed.
c) The winding up order shall be deemed to be the notice of discharge to the officers,
employees and workmen of the company (except when company’s business is continued for
the purpose of beneficial realisation of the assets of the company).
d) The Powers of the Board of Directors get Terminated and now vests in the Company
Liquidator.
e) Within 3 weeks from the date of passing of winding up order, the Company Liquidator shall
make an application to the Tribunal for constitution of a winding up committee (to assist the
Company Liquidator and monitor the progress of liquidation proceedings).
f) The Company Liquidator shall place before the Tribunal a report along with minutes of the
meetings of the committee every month.
- The report shall be signed by the members present in the meeting for consideration till the
final report for dissolution of the company is submitted before the Tribunal.
g) The Company Liquidator shall prepare the draft final report and present it before the winding
up committee for consideration and approval

WHO ARE ENTITLED TO FILE A PETITION TO THE TRIBUNAL FOR THE WINDING UP
OF A COMPANY -
Petition means an application to the Tribunal for winding up. As per Section 272, petition for
winding up of the company by the Tribunal can be presented by any of the following:

1. Petition By The Company - A company can file petition with the Tribunal for winding up when
members of the company pass a special resolution and resolve that the company be wound up
by the Tribunal.
A petition to the Tribunal can also be made by the company when directors find the company to
be insolvent due to circumstances which ought to be investigated by the Tribunal.
A petition presented by the company for winding up before the Tribunal shall be admitted only if
accompanied by a statement of affairs in such form and in such manner as may be prescribed.

2. Petition By Any Creditor Or Creditors - Any creditor or creditors of the company may make a
petition to the Tribunal for winding up of the company on the ground that the company is not
able to pay its debts.

The term creditor includes:

(i) a secured creditor
(ii) a debentureholder and
(iii) trustee for the holders of debentures.
➢ A contingent or prospective creditor can also file a petition for the winding up of the company if prior
consent of the Tribunal has been obtained.
The Tribunal would give the consent when:
(i) it is of the opinion that there is a prima-facie case for winding up of the company; and
(ii) a security for costs as the Tribunal thinks reasonable has been given by the petitioner i.e., creditor.

3. Petition By Contributory Or Contributories - A contributory is a person who is liable to

contribute towards the assets of a company in case of its winding up.
The holder of fully paid-up shares is also a contributory because he has the right to share in the
surplus, if any, in a winding up.
➢ A contributory can present a winding up petition if:
(i)he is an original allottee of the shares; or
(ii)he has held his shares for any 6 out of the previous 18 months; or
(iii) the shares have devolved upon him through the death of a former holder.
➢ A contributory can make petition to the Tribunal on any ground for company’s winding up
except No. 1 (inability to pay debts) and No. 2 (passing of a special resolution by the
company).

4. Petition By All Or Any Of The Above Parties - A petition for the winding up may be presented
by the company, creditor/creditors or the contributory/contributories jointly.

5. Petition By The Registrar - The Registrar can present a petition for winding up only with the
previous sanction of the Central Government.
The Central Government shall not accord its sanction unless the company has been given a
reasonable opportunity of making representations.
The Registrar can make petition to the Tribunal only on the following grounds.
✓ When the company is unable to pay its debts.
✓ When the company has acted against the national interest.
✓ When the affairs of the company are being conducted in a fraudulent manner.
✓ When the company has made a default in filing financial statements or annual returns for
immediately preceding 5 consecutive years.

6. Petition By Any Person Authorised By The Central Government - The Central Government
may also authorise a person to present a petition on its behalf.
For example - if from the reports of the inspectors appointed by the Central Government to
investigate the affairs of a company, it appears that the business of the company has been
conducted for fraudulent or unlawful purpose, it may allow a person, usually the Registrar, to file
a petition for the winding up of the company.

7. Petition By Central Or State Government - If the company has acted against the sovereignty,
integrity or security of India or the State, or against public order, decency or morality,
the Central Government or the State Government can file a petition for the
company’s winding up.
 CHAPTER 17
MisCELLAnEoUs PRovisions

Online filing/E-filing of Documents

- E-filing is a key feature of the MCA-21 project of Ministry of Corporate affairs.
- The major benefits of e-filing are the ease of interaction with all citizens and almost a
paperless environment.
- The notified new e-forms may be filed through electronic media or through any other
computer readable media under the Companies Act
Features of this system
1. The filing of forms (e-forms) with ROC can be done from one’s home or office through the
internet. There is no need to visit the ROC’s office for filing various documents.
2. The payment of filing fees can also be made over the internet through credit card/internet
banking without queuing up at the banks.
3. The filing will be valid only when filing fee is paid.
4. Pre-scrutiny of filled-up forms is done in the portals before final submission.
5. Many of these e-forms require certification by CA/CWA/CS (in whole time practice).
Certification must be done by signing digitally.
6. DIN (Directors Identification Number) is compulsory for all directors.
7. Every signatory of e-form must obtain DSC (Digital Signature Certificate).

Process of E-Filing
1. Download a blank e-form from the MCA-21 portal.
2. Fill up the e-form offline using software that is free and widely available.
3. Optionally carry out electronic pre-security in which the system will verify whether the
form has been completed in all respects.
4. The form has to be digitally signed by one or more signatories.
5. Submit the e-form for processing to the MCA-21 portal.
6. Make necessary payments to complete the transaction either at an authorised bank
branch or through internet banking.

Advantages of e-filing:
1. Advantages to Corporates and Professionals -
a. Documents can be filed without visiting the ROC office.
b. There is no need to stand in long queues for filing documents or paying filing fees.
c. Filing will be open on a 24×7 basis. This affords one the flexibility to do this work at one’s
convenience.
 d. Pre-scrutiny of forms filed will be done in the portal itself at the point of filing. So, once
the form is filed, a need to interact with ROC personnel to rectify deficiencies in the filings
will be minimised to a great extent.
e. Filing fees can be paid from the comforts of one’s office/home using credit card/internet
banking.

2. Advantages to the public- To the public, the portal offers inspection of documents filed by
companies on a 24×7 basis from the comforts of one’s home/ office.

3. Advantages to the Government -

a. Better utilisation of existing staff and limited space resources.
b. The DIN (which is compulsory for all existing and prospective directors to obtain) will help
enforce accountability of directors.
c. Time and energy spent in accepting documents, filing them, corresponding with
companies will be drastically reduced and channelised towards taking action against
errant corporates.

4. Advantages to financial institutions.

They have the facility of easy registration and verification of charges from anywhere in the
country. Services available under the MCA-21 Project:
(i)Registration and incorporation of new companies.
(ii) Filing of various returns and statutory documents under the Companies Act.
(iii) Securing copies of public documents like Memorandum of Association, Articles of
Association etc.
(iv)Registration and verification of charges.
(v) Inspection of public documents.
(vi)Building up a centralized database repository of Corporates operating in India.
(vii)Total transparency through e-governance.
(viii)Timely redressal of investor grievances.

National Company Law Tribunal

The National Company Law Tribunal (NCLT) is a special court in India that handles cases related to
companies. It was set up under the Companies Act, 2013, and started working in 2016.
It works like a judge for companies, making sure businesses follow the law properly.
Functions of NCLT
- Handles company disputes (problems between business owners or shareholders).
- Solves financial issues of struggling companies.
- Approves mergers (when two companies combine).
- Protects shareholders’ rights (ensures fair treatment).
- Deals with fraud cases inside companies.

1. Composition Of The Tribunal - The Tribunal shall consist of a President and such number of
judicial and technical members as the Central Government may deem necessary, to be
appointed by it.
The President of the NCLT shall be a person who is or has been a judge of a High Court for 5 years.

2. Benches Of The Tribunal - The powers of the Tribunal will be exercised by the Benches,
constituted by the President of the Tribunal.
Every order of the Bench would be deemed to be the order or act of the Tribunal.
There would be a Principal Bench at New Delhi presided over by the President of the Tribunal.
Ordinarily, every Bench of the Tribunal would consist of two members, out of whom one shall be
a judicial Member and another shall be a Technical Member.
3. Order Of The Tribunal - The Tribunal may, after giving the parties to any proceedings before it,
a reasonable opportunity of being heard, pass such orders therein as it thinks fit.
Efforts shall be made by the Tribunal for the disposal of the proceedings within 3 months from
the date of commencement of the proceedings.
The Tribunal shall have power to review its own orders.
4. Appeal Against The Orders Of The Tribunal - An aggrieved person may file an appeal against
any decision or order of the Tribunal before the “National Company Law Appellate Tribunal”.
The appeal should be filed within 45 days from the date on which a copy of the Tribunal’s order
is received by the appellant.
5. Appeal To Supreme Court - Any person who is aggrieved by any decision or order of the
National Company Law Appellate Tribunal may file an appeal to the Supreme Court within a
period of 60 days from the date of communication thereof, on any question of law.

Procedure before Tribunal and Appellate Tribunal

1. The Tribunal and Appellate Tribunal have powers similar to a civil court under the Code of Civil
Procedure, 1908. These powers are:

a. Calling People for Hearings – They can summon individuals and question them under oath.
b. Checking Documents – They can ask for important documents and investigate records.
c. Taking Evidence – They can accept written statements (affidavits) as proof.
d. Requesting Official Records – They can demand public records from government offices.
 e. Sending Investigators – They can appoint experts to examine cases.
f. Making Decisions – If someone does not show up, they can give judgment without them (ex-parte
decision).
g. Reopening Cases – They can cancel previous decisions if needed.
h. Other Legal Powers – They can handle additional matters as prescribed by law.

2. Any order made by the Tribunal or the Appellate Tribunal may be enforced by that Tribunal in
the same manner as if it were a decree made by a court in a suit pending therein.
3. All cases handled by the Tribunal and Appellate Tribunal are treated as judicial proceedings,
just like cases in regular courts. This means that any statements, evidence, or actions taken
during these proceedings must follow strict legal rules.
- According to Sections 193 and 228 of the Indian Penal Code (IPC), giving false evidence or
misbehaving in court can lead to punishment.
- Additionally, Section 196 of IPC ensures that the Tribunal’s decisions carry legal weight, just like
those made by civil courts.
Civil court not to have jurisdiction. No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any
matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for
the time being in force and no injunction shall be granted by any court or other authority in respect of any action taken or
to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force.

SPECIAL COURTS (Section435)

The Central Government may establish or designate as many Special Courts as may be necessary
for the purpose of providing speedy trial of offences punishable under this Act with
imprisonment of two years or more by notification.
A Special Court shall consist of—
(a) a single judge holding office as Session Judge or Additional Session Judge, in case of offences
punishable under this Act with imprisonment of two years or more; and
(b) a Metropolitan Magistrate or a Judicial Magistrate of the First Class, in the case of other
offences,
who shall be appointed by the Central Government with the concurrence of the Chief
Justice of the High Court within whose jurisdiction the judge to be appointed is working.

Offences Triable By Special Courts (Section 436):

1. All offences (specified under Section 435(1) of the Companies Act, 2013) shall be triable by
the Special court for the area in which registered office of the company in relation to which
the offence is committed.
2. When a person accused of, or suspected of commission of an offence under this Act is
forwarded, a Judicial Magistrate may authorise the detention of that person for 15 days or
an Executive Magistrate for 7 days.
3. The Special Court has the same powers as a Magistrate. This means it can decide whether
to keep an accused person in custody or release them, just like a Magistrate. It ensures that
legal procedures are followed properly in company-related cases.
4. The Special Court can start legal proceedings based on a police report or a complaint,
without waiting for the accused to be formally sent for trial. This helps in faster action on
corporate offences.
5. When trying an offence under this Act, a Special Court may also try an offence under the
Code of Criminal Procedure, 1973 in a same trial
6. The Special Court may try in a summary way any offence under this Act which is punishable
with imprisonment for a term not exceeding 3 years.
- In case of summary trial, a sentence of imprisonment for a term exceeding 1 year shall not
be passed.
- Where the Special Court thinks it undesirable to try the case summarily, the Special Court
shall record an order to that effect and thereafter recall any witness or witnesses who
have been examined and proceed to hear or rehear in regular trial