4.

3 DIVIDEND _Section 123 of Companies Act, 2013

Introduction

Dividends can be paid out of profits from the current year, profits from prior years, or
both. Let’s say that even if a company has lost money this year, it can still pay
dividends if profits from previous years haven’t been distributed. Additionally,
dividends may be paid out of the profits made in the current year even if the company
has a negative balance in its profit and loss account at the beginning of the current year
and earns a profit in that year, but the profit is insufficient to cover the losses of the
previous year (i.e., the profit and loss account shows a negative balance after accounting
for the profit of the current year).

Also, in case of non-payment of dividends shall be administered by SEBI in the case of

listed public companies and public companies intending to list their securities on any
recognized stock exchange in India.

Meaning of dividend

The dividend is the return on the share capital that shareholders subscribe to and pay to
a company. Section 2(35) of the Companies Act of 2013 defines the term ‘dividend’ as
“dividend includes any interim dividend”. A dividend, according to the dictionary, is a
sum paid to creditors of an insolvent estate or an individual’s share of it as loan interest
or profit. However, in business parlance, a dividend is the portion of the company’s
profit distributed to its members.

There is a very minute difference between an interim dividend and a final dividend.
While a final dividend is a liability for the company and can be enforced once it is
declared by members of the general meeting, a declaration of an interim dividend by the
board does not create a liability and can be cancelled at any time before the interim
dividend is actually paid out. Even if a portion of the interim dividend has been
deposited into a separate bank account, the cancellation can still be performed. The
board has the authority to declare an additional interim dividend, and the interim
dividend is not subject to the approval of the members at the general meeting.

According to clause 81 of Table F of the Companies Act of 2013, the board may,
subject to Section 123, pay interim dividends to members as it deems appropriate in
light of the company’s profit.

However, the Department of Company Affairs issued a position regarding interim

dividends, stating that the general meeting has the authority to approve dividends, and
the board can pay interim dividends if authorised by the articles of association, subject
to the company regularising interim dividends at the general meeting. However, these
are not legally binding.

Declaration of dividend

No specific power has been granted to the companies registered under the act to declare
and pay any dividend. The power to pay dividends is a permanent existing characteristic
in a company that is neither derived from the Companies Act, 2013 nor from the
Memorandum of Association or Articles of Association. However, the manner in which
the dividends are to be declared is regulated by the Articles of Association.

Clause 1 of Section 123 provides sources through which dividends can be declared or
paid by a company. (Discussed in detail below).

Clause 2 of Section 123 provides that in accordance to Schedule II, depreciation shall be
disbursed.

Clause 3 of Section 123 provides that the Board of Directors of a company may declare
an interim dividend from the surplus in the profit and loss account or from profits
generated in the current financial year, provided that it does not exceed the average
dividend declared by the company during the preceding three financial years.

Clause 4 of Section 123 provides that the amount of the dividend must be deposited into
a separate bank account within five days from its declaration.

Clause 5 of Section 123 provides that it must be paid out to the registered shareholder,
and should be given in cash. A bonus issue may be issued if approved, but cash
dividends can also be paid by cheque, or electronic means.

Clause 6 of Section 123 provides that if any provisions of Section 73 and 74 are not
met, then no equity dividend can be declared until full compliance is resumed.

Dividend on preference share

Subject to the availability of distributable profits, a preference share carries a

preferential dividend right in accordance with the term of issue and the articles of
association. The preferential right to a dividend could be granted for a predetermined
sum or a predetermined rate. It could or could not have a cumulative effect.
Prior to any dividend being paid on equity shares, preference shares may carry a fixed
dividend. Shareholders of the class with priority are entitled to their preferential
dividend prior to any dividend paid to shareholders of the other class if there are two or
more classes of preference shares.
However, there are three conditions attached to these dividend rights.

 First, because preference shares are a part of the company’s share capital,
preference dividends can only be paid if the company has made enough money.
 Second, a dividend can only be declared in accordance with the act and the
company’s articles before it is distributed to shareholders.
 Thirdly, a formal declaration ought to have been made.

The preference dividend cannot be treated as a debt by preference shareholders and they
cannot first sue for its payment. However, even if the preference dividend has not been
declared, the preference shareholder can sue for it if the articles stipulate that the
company’s profit will be used to pay the preference dividend.

Dividend on equity share

The rights of the various classes of equity shares must be taken into consideration when
paying dividends on equity shares. After all dividends on preference shares have been
paid, equity shareholders cannot receive dividends on their shares.
The preference dividend is fixed and cannot be increased, regardless of how large the
company’s profits may be, unless the preference shares carry the right to participate in
surplus profits. Even though the equity shareholder ranks second in preference to the
preference shareholders, he enjoys the privilege of a higher dividend.
Therefore, with the exception of the circumstances described above, the equity
shareholders may receive a dividend for the entirety of the company’s remaining profits
following the payment of the preference dividend either immediately or in subsequent
years.

Sources of dividend

There are three sources of dividend as per Section 123(1):

1. Out of the profits of the company of the present year, after providing for
depreciation.
2. Out of the profits of the company for any previous financial year, after
providing for depreciation.
3. Any received for the payment of dividend from the Central Government or
State Government.

Who is eligible to receive a dividend

A dividend on a share must be paid to the registered shareholder or his bankers. When a
dividend is payable, it must be distributed within 30 days of the declaration
under Section 127 of the Companies Act of 2013.
In accordance with Section 127 provision, dividends are not required to be paid within
30 days in the following circumstances:

 when a shareholder has given the company instructions regarding the

dividend payment but these instructions cannot be followed;
 in cases where the right to receive dividends is in dispute;
 in cases where the dividend has been lawfully adjusted by the company to
offset any shareholder-due amount.

Revocation of dividend

Once declared, a dividend, including an interim dividend, becomes a debt and cannot be
revoked without shareholder approval. A dividend that is declared and distributed to
shareholders cannot be altered by a subsequent resolution.
However, if a dividend was declared fraudulently, the directors would be justified in
withholding the dividend. The directors are personally liable and accountable to the
company if a dividend declared fraudulently is paid.
Directors, shareholders, and auditors are all responsible for improper dividend
payments. In the event that an improper dividend payment results in a loss for the
business, the directors are generally responsible for paying it back. They must
compensate the business for the loss, for example, if they paid dividends out of capital.
On the other hand, if a shareholder knows that a dividend is paid out of capital, he or
she is responsible for covering the company’s loss, and the directors can get back the
dividends. The directors can be prevented from paying an improper and illegal dividend
at the request of any shareholder (Hoole v. Great Western Railway Co. (1867) 3 Ch.)
App. 262)

Exceptions

Depreciation must be provided in accordance with Schedule II in order to calculate the

dividend profit. The Companies Act of 2013 mandates the inclusion of depreciation in
profit calculations. However, the Companies Act of 1956 gave the central government
the authority to allow dividend payments without depreciation.
In addition, the statement of profit and loss account may accept additional depreciation
that is required solely as a result of asset revaluation. Therefore, the Companies Act of
2013 takes depreciation into account, which might be done to safeguard the lender’s
interests.
Before declaring a dividend under the Companies Act of 1956, profits had to be
transferred to the general reserve. However, the first provision to Section 123(1) of the
Companies Act of 2013 states that the company can transfer profits to reserve at
whatever rate it chooses before doing so.
However, despite the fact that it is not required, the board of directors is required
by Section 134 of the Companies Act of 2013 to provide specifics regarding the
amount, if any, that the business intends to carry into its reserve. The board of directors
must also file a director’s responsibility statement in accordance with Sections 135(3)
and 135(5). As a result, even though the board of directors now has the option of putting
the profit into reserves, they will have to use it wisely and in the company’s best
interest.
Therefore, with the exception of requiring depreciation prior to declaring a dividend, the
concept of dividends has been completely liberalised, which has proven to be a
legislative and judicial boon to the business sector.

Case laws

Commissioner Income Tax v. Aatur Holdings P. Ltd. [(2008) 146 Comp Cas 152
(Bom)]

In this case, it was determined that a person is not entitled to the dividend simply
because they may have purchased or received shares. However, the shares must not
have been registered in their names in the company’s books of account. According
to Section 27 of the Securities Contracts (Regulation) Act, 1956, only registered
shareholders are eligible to claim dividends, and the dividends must be paid out by the
company in their names.

N. Kumar v. M. O. Roy, Assistant Director, S.I.F.O [(2007) 80 SCL 55(MAD)]

Fact
In this case, a company declared a dividend on September 19, 1966, but failed to
distribute it within the stipulated time frame. On August 23, 2006, a complaint was filed
against the business and its directors for violating Section 207 of the Companies Act of
1956. Issue
A director argued that because he had resigned prior to the declaration of the dividend,
he could not be blamed for violating Section 207.
 3.2. Capital requirements

8. Prevention of Oppression and Mismanagement:

Meaning Of Oppression
Oppression is the exercise of authority or power in an unjust manner against the consent
of the other party. In the Black Law Dictionary, the term ‘oppression’ is defined as ‘the
act or an instance of unjustly exercising power.’ It can also be viewed as an act or
instance of oppression and the feeling of being heavily burdened, mentally or
physically, by troubles, adverse conditions, and anxiety.
Application to Tribunal for relief in cases of Oppression
The aggrieved shareholder may approach the National Company Law Tribunal set up
under the Company legislations.
Application against oppression and mismanagement
Earlier under the Companies Act, 1956 section 397 dealt with the application against
oppression and mismanagement. The Companies Act, 2013 lays down the provision to
make an application against the oppression under section 241. The chapter XVI of the
Company Act clearly specifies who can raise a complaint and under which
circumstances a complaint may be raised of oppression and mismanagement.
First let’s consider a situation when a member of the company makes a complaint
regarding the affairs of the company when the affair may seem shady affecting the
interest of the public at large or the company, or when the affairs of the company is
oppressive in nature and against the member making the complaint or any other member
of the company. The member may also make a complaint regarding the material change
in the management or control of the company which may seem to be prejudicial to the
company. The Central government may, by itself, file the oppression and
mismanagement application before the tribunal against a company if it believes that the
affairs of the company are prejudicial in nature.
Who can file an application against Oppression and Mismanagement?
The Provision of Section 244 of Companies Act is also crucial as it describes who has a
right to file such an application. The right is broadly divided between the company and
entitlement to one member, to file on behalf of the other members. In a company, the
right may further be differentiated based upon the companies having a share capital and
companies not having a share capital. The share capital of the member complaining,
may be calculated based upon share capital’s number or its value. When it comes to
number, it should be 100 or 1/10 of the total members and when it comes to the value, it
must be the members holding 1/10th of the share capital value. In companies not
having a share capital, 1/5th of the total members may apply. Coming back to the
entitlement to one member, to file on behalf of the other members, it is posed with only
one precondition that the person doing so must have the consent of others in written
form.

Power of Tribunal: Section 242 of the Companies Act, 2013

The tribunal is the special adjudicatory body brought about to deal with the matters
pertaining to the Companies Act in order to get efficient and immediate relief. Section
242 deals with the powers of the tribunal and the same have been examined and
explained for your kind perusal.
The first power granted upon it by the legislation is to pass an order. Such order may be
passed if it is of the opinion that the affairs of the company have been or are being
conducted in a prejudicial manner. It has been mentioned that the winding up of the
company will not be ordered radically, but it is the oppression and mismanagement
which is aimed to be stopped.
The same provision also confers powers upon the tribunal regarding three issues which
are concerning the 1) shareholders 2) Company and 3) others.
With respect to shareholders, a tribunal may order to purchase shares of members by
other members or by the company.
A tribunal may as well order a reduction of the share capital or even enforce restriction
on transfer of shares because oppression and mismanagement at root cause depends
upon the coagulation of shares at the hands of individual or few members.
Regarding the management of the company which is a crucial part of a company, a
tribunal may terminate or modify agreements made between company and management
or agreement between the company and any other person.
The tribunal in case of management of the company may even remove the Managing
Director, Manager, and Director, the tribunal may recover undue gains made by such
official and also appoint another MD, manager, and director.
In certain cases, the tribunal may appoint a person who shall report to the tribunal
regarding the activities of oppression and mismanagement by the management to curb
such oppression from taking place further.
Lastly, the tribunal has certain other powers such as regulation of the conduct of the
affairs of the company, setting aside the transfers of any property of the company and
the tribunal may even impose costs. The procedural details are that the tribunal has to
send a copy of its order to the registrar and if the order has not been finalised, it may
provide an interim order to the registrar. Pertaining to changes made in MOA
(Memorandum of Association) and AOA (Article of Association) the changed
documents must be submitted to the registrar. The punishment prescribed in abeyance
of the law is set at 1 Lakh to 25 Lakh for a company and 25000 to 1 Lakh for an officer
in default and such officer may also be liable for a term of imprisonment of 6 months.
Oppression of the Minority
The management of a Company is based on the majority rule, but at the same time, the
interests of the minority can’t be completely overlooked. While talking of majority and
minority, we are not talking of numerical majority or minority but of the majority or
minority voting strength. The reason for this distinction is that a small group of
shareholders may hold the majority shareholding whereas the majority of shareholders
may, among them, hold a very small percentage of share capital. Once they acquire
control, the majority can, for all practical purposes, do whatever they want with the
Company with practically no control or supervision, because even if they are questioned
on their acts in the general meeting, they always come out winners because of their
greater voting strength. So, the modern Companies Acts contain a large number of
provisions for the protection of the interests of minorities in companies.

Appeals against the Orders of the Tribunal and variation of the Order of the Tribunal
The Award pronounced by the NCLT (National Company Law Tribunal) may be
appealed before the NCLAT (National Company Law Appellate Tribunal). The
procedure and provision granting such right to appeal is Section 421 and the same is
explained below.
The appeal may be preferred by any person who is aggrieved by the decision of the
tribunal.
No appeal shall be entertained when the decision is given by the tribunal based upon the
consent of the parties.
Appeals must be made within a period of forty-five days from the disputed order passed
by the tribunal and the extension may be given only when sufficient cause for such
delayed filing is brought before the court by such party and such extension shall only be
for another 45 days.
On receiving such appeal, the appellate tribunal must give a reasonable opportunity to
the parties and then pass an order confirming or modifying or setting aside the order
appealed against.

8.3. Preventive measures

Prevention of Oppression and Mismanagement

Oppression and Mismanagement of a company portray the affairs that are biased
towards the minority shareholders. The affairs include the prejudicial behaviour on the
public or any member of the company. Chapter XVI of The Companies Act, 2013 states
that if any misconduct happens in the company, then any member can apply to the
Tribunal appealing for the prevention of oppression and mismanagement of the
company. Such an application is for a petition of relief. This article deals with the
procedure for the minority to deal with the prevention of oppression and
mismanagement in a company.
Application to the Tribunal
For the prevention of oppression and mismanagement, a person must apply to the
Tribunal. The application to the Tribunal must require the following:
The company conducts the affairs in a manner causing damages to the public or the
members of the company
The fact which justifies the order of compulsory winding-up stating that it is equitable
and just to close the company
Winding-up of the company would create unfair prejudice on the petitioners
The Company Board of Law takes necessary actions for the following complaints
mentioned above.

Powers of Tribunal
The Tribunal, after receiving the complaint regarding the prevention of oppression and
mismanagement, will make the necessary decisions and lay down orders for the
following:
For regulating the conduct of the company's affairs in future
Purchase of interests and shares by the members of the company or by the company
Reduction in the share capital as a consequence of the purchase of shares and interests
Restrictions on the allotment or transfer of the company's shares
Termination or modification of any agreement between the company and the managing
director, manager or any other director
Removal of the managing director, any of the directors or manager of the company
Setting aside any transfer, payment, execution, delivery of goods or other act relating to
property which is laid by or against the company within three months before the date of
the application. If such an act is laid by or against an individual, the individual will be
deemed in insolvency to be fraudulent
Recovering of the undue gains, this is by the managing director, manager or any director
of the company within the period of appointment
The manner in which the appointment or the removal of the managing director or
manager of the company.

Filing of the Order

The company should file a certified copy of the order of the Tribunal. Moreover, the
company should file the order with the Registrar within 30 days. Moreover, the Tribunal
can make an interim order if they receive an application from any party to the party. The
Tribunal will set the order which is just and equitable for the affairs of the company. If
the Tribunal sets changes in the Memorandum of Association (MoA), then the company
will not have power unless the order provides it. However, the changes in the order of
the MoA will have the same effect as that of the actual MoA of the company. The
company should file the certified copy of the order regarding the changes in the MoA to
the Registration. However, such filing should take place within 30 days of the order.

Penalty
If a company does not oblige to the changes in the MoA, then they have to pay an
amount of Rs.1 lakh. This may extend up to Rs.25 lakhs. Every officer may be
punishable with imprisonment, which may extend up to 6 months. As an alternative,
they might have to pay an amount of Rs.25,000 which may extend up to Rs.1 lakh.
Sometimes the officer has to oblige to both the punishments.
Consequences of termination or modification
The consequences for the modification or the termination of the agreement are the
following:
Any person cannot claim for the damages or the compensation of the loss of the
company. They also do not have the claim to pursue the agreement
If a managing director or the directors are restricted or set aside, then they cannot be
appointed for 5 years from receiving such order. If a managing director or the directors
act according to their position even after the order, then they will have to face
imprisonment for 6 months or a fine of Rs.5 lakhs or with both

Class Action
The members of the depositors of a company can apply to the Tribunal. The application
will be regarding the prejudicial manners of the management and affairs of the
company. They can apply to seek the order for the following:
Restrain the company from committing an ultra virus act
Restrain the company from committing a breach in the provisions of MoA or AoA
Declare the resolution changing the MoA or AoA as void, if the resolution is made by
the misstatement of members or depositors or by suppression of facts. Restrain the
directors and the company from the resolution
Restrain the company from performing something contrary to the provisions of the
Companies Act Prevent the company from taking action that is contradicting the
resolution passed by the members Claim for any compensation or damages or demand
action against or from the company or its directors, the auditors which include the audit
firm and from any advisor, expert or consultant. An action against the company or its
director will be for an unlawful, wrongful or fraudulent act. The action against the
auditor and the audit firm will be for a misleading or improper statement in the auditor's
report. In the case of any action against the audit firm, the firm, as well as the partners,
will be liable. The action against the advisor, expert or consultant for the misleading and
incorrect statement.

Requisite Number of Members or Depositors

Members The requisite number of members shall be according to certain provisions to
apply to the Tribunal. In the case where the share capital of the company is not less than
100 members of the company or not less than that of a certain percentage of the total
number of members, whichever seems to be less. The members who are not holding
lesser than the certain percentage of the share capital. in cases where the company does
not have share capital less than one-fifth of the total members Depositors The requisite
number of depositors shall be according to certain provisions to apply to the Tribunal.
In the case where the share capital of the company is not less than 100 depositors of the
company or not less than that of a certain percentage of the total number of depositors,
whichever seems to be less. The depositors to whom the company owes a certain
percentage of the total company deposits.
Consideration of the Application
The Tribunal considers the application only after taking into consideration certain
things. Tribunal checks on the good faith of the members and also of the depositors.
Any evidence about the involvement of the company. Verify the cause of action for the
member or depositor to pursue the rights to apply. Evidence pertaining that the members
or the depositors do not have a direct, indirect or personal interest in the matters they are
applying. The cause of action which relates to the act or omission which is yet to occur.
The act or omission can have authorisation or ratification by the company before its
occurrence.

Duties of Tribunal
After receiving the application, the Tribunal should give public notice. This should be
regarding the admission of the application, and it should be sent to the members and
also the depositors. Consolidate all the similar applications into a single application.
The members and the depositors have the liberty to choose the lead applicant, and the
Tribunal appoints him. However, it does not allow the application of two class action on
the same cause of action. The company or the member committing the oppressive act is
responsible for the application of the class action. The order of the company is bound to
all the members, depositors, consultant, advisor, expert, auditor including the auditing
firm or any other person relating to it. Any company failing to oblige to the order will
have to pay a fine of Rs.5 lakhs which extends up to Rs.25 lakhs. Every officer may be
punishable with imprisonment, which may extend up to 3 years and also with an amount
of Rs.25,000 which may extend up to Rs.1 lakh. The Tribunal has the power to reject
the application based on a vexatious and frivolous manner. However, the Tribunal
records it in writing. Moreover, the applicant will have to pay an amount of Rs.1 lakh as
a fine to the opponent party.

Section 241_ Application to Tribunal for Relief in Cases of Oppression, etc.

Section 242 _ Powers of the Tribunal Section
243_ The consequence of Termination/ Modification of certain agreements
Section 244 _Right to apply to the Tribunal
Section 245 _Class Action Section 246 Application of some provisions to application
made to the Tribunal under section 241 or section 245

Oppression
Conduct that violates the standards of fair dealing, especially with regard to
shareholders' rights. This can include:
Infringing on members' rights
Pursuing actions detrimental to the company's objectives
Making high-risk decisions
Drawing considerable amounts for personal purposes
Mismanagement
Conducting company affairs in a prejudicial, dishonest, or inept manner. This can
include:
Improper director appointments
Breaches of directorial duties; Any actions intended to defraud the public.

9. Winding Up:
Winding up is a process whereby the assets of a company are realised,
creditors are paid, and its surplus is distributed among the members of the company
in order to finally dissolve it. Now, you must be wondering what is the procedure of
winding up of a company and who does it. Do not worry, the present article will help
resolve all of your queries in this regard. The article explains the procedure of
winding up of a company and the provisions related to it as given under
the Companies Act, 2013. It further deals with the provisions for the establishment of
a tribunal and its power with respect to the winding up of a company.

The process of ending the life of a company by administering its properties for the
benefit of shareholders & creditors of the company is known as winding up of a
company. A company is a corporate body which is an association of people for some
common purpose of carrying on the business and earning profits. A company has to
be incorporated and registered according to the Companies Act 2013. Chief Justice
Marshall defines a company as “a corporation which is an artificial being, invisible,
intangible and exists only in contemplation of law.” A company, being a corporate
body has the following characteristics:

 It has a separate legal entity.

 It is an artificial person.
 It has limited liability.
 It can own separate properties and assets.
 It has a common seal.
 It has perpetual succession.
 It can sue and be sued in its own name.
 In a public company, shares can be transferred freely.

9.1. Winding up and Dissolution of Company.

Particulars Winding up Dissolution

Meaning Winding up means appointing a Dissolution means to
liquidator to sell off the assets, dissolve the company
divide the proceeds among completely. Any further
creditors, and file to the NCLT operations cannot be
for dissolution. done in the company
name.

Process Winding up is one of Dissolution is the end

the method through which the process/result of
dissolution of a winding up and getting
company is carried on. the name stuck off from
the Register of
Companies.

Existence of The legal entity of the company The dissolution of the

Company continues and exists at company brings an end
the commencement and during to its legal entity status.
the winding up process.

Continuation A company can be The company ceases to

of allowed to continue its exist
Business business during the winding up upon its dissolution.
process if it is
required for the
beneficial winding up of
the company.

Moderator Liquidator carries out the The NCLT passes the

process of winding up. order of dissolution.
 Activities Filling of winding up resolution Filing of resolutions,
Included or petition, the appointment of declarations and other
the liquidator, receiving required documents to
declarations, preparation of the NCLT to pass
reports, disclosures to ROC dissolution order
and filing for dissolution to the
NCLT.

Dissolution of a Company
A company ceases to exist as a corporate entity after its dissolution. The company
name is struck off from the Register of Companies, and it shall be published in the
Official Gazette. Dissolution of a company can be brought about in the following
two ways:
Through transferring the company’s undertaking to another company under a
scheme of amalgamation or reconstruction. The order of NCLT will dissolve the
transferor company without being wound up.
Through winding up of the company by realising its assets and paying its liabilities
from the proceeds. After settling the company debts, the remaining amount will be
distributed to the stakeholders, and the NCLT will pass an order of dissolution.
An application to the NCLT winds up a company. Upon satisfaction of the
compliances under the Companies Act, 2013 and consent of the interested parties,
the NCLT passes the dissolution order. The dissolution order upon winding up of a
company has the following implications:
The winding up procedure of the company is completed.
The assets and liabilities are settled and distributed among the stakeholders in the
order of preference.
The company name is struck off from the Register of Companies.
When the company is dissolved under the scheme of amalgamation or
reconstruction, the dissolution order has the following implications:
 The winding up procedure need not be carried out as the company is taken over
under the scheme of reconstruction or amalgamation.
The winding up application need not be made for dissolution, and the transferor
company is dissolved when it amalgamates or is reconstructed.

Types of Winding up.

9.2. Winding up by Court.
9.3. Voluntary Winding up

Introduction
Winding Up of a Company means to bring an end to the life of the company. A distinct
feature of a company is Perpetual Succession which means that the longevity of the
company does not depend on its members or their financial status. Even if all the
members of the company go bankrupt or all of them die, the company will not dissolve
on its own unless it is made to dissolve on grounds which are laid out in the act. This
article will go over how the operations of a Company are shut according to the
provisions of the Companies Act.

Types of Winding Up
According to
Section 425 of the Companies Act, 2013 there are 2 kinds of Winding Up. They are:

1. Compulsory Winding Up under the order of the Court

2. Voluntary Winding Up, which itself is of two kinds:
A. Members’ Voluntary Winding Up
B. Creditor’s Voluntary Winding Up

Winding Up by Court

A company may be wound up at an order of the Court. This is also called Compulsory
Winding Up. The cases in which a company may be wound up are given in
Section 433. They are as follows:
Special Resolution
In the event that the organization has, by unique goals, settled that it be ended up by the
court. The court is, be that as it may, not bound to request Winding Up essentially in light
of the fact that the organization has so settled. The power is optional and may not be
practised where twisting up would be against the general population or the organization’s
advantages.
Default in Holding Statutory Meeting
On the off chance that an organization has made a default in conveying the statutory
report to the Registrar or in holding the statutory gathering, it might be requested to be
Wound Up.

Failure to Commence Business or Suspension of Business

In the event that an organization does not initiate its business within a year from its
joining or has suspended its business for an entire year, it might be requested to be
twisted up. Here again, the power is optional and will be practised just when there is a
reasonable sign that there is no aim to carry on business. In the event that the suspension
is acceptably represented and has all the earmarks of being because of brief causes, the
request might be declined.

Reduction in Membership
On the off chance that the quantity of individuals is decreased, on account of an open
organization, underneath seven, and on account of a privately owned business, beneath
two, the organization might be requested to be twisted up.

Inability to Pay Debts

An organization might be requested to be twisted up on the off chance that it is unfit to
pay its obligations. Failure to pay obligations is clarified in Section 434. As indicated by
this area, an organization will be esteemed to be unfit to pay its obligations in the
accompanying three cases:

Statutory Notice
Decreed Debt
Commercial Insolvency
Just and equitable
The final ground on which the court can arrange the ending up of an organization is the
point at which “the court is of the assessment that the organization ought to be twisted
up.” This gives the court a wide optional capacity to request twisting up at whatever point
it seems, by all accounts, to be attractive. The court may give due weight to the
enthusiasm of the organization, its representatives, loan bosses and investors and overall
population ought to likewise be considered. The conditions wherein the courts have in the
past broken down organizations on this ground can be settled into general classifications
as pursues:

Deadlock
Firstly, when there is a deadlock in the management of the company, it is just and
equitable to order winding up. The well-known illustration is
Yenidje Tobacco Co Ltd
. The facts of the case are laid out as follows:

W and R who exchanged independently as cigarette makers consented to amalgamate

their business and shaped a private limited organization of which they were investors and
the main chiefs. They had an equivalent casting of ballot rights and, in this manner, the
articles gave that any contest would be settled by discretion, however, one of them
disagreed from the honour. Both at that point turned out to be hostile to the point that
neither of them would address the other aside from through the secretary. Therefore there
was a finished stop and thus the organization was requested to be twisted up in spite of
the fact that its business was thriving. It must be noticed that the ‘Fair and Equitable’
statement ought not to be conjured in situations where the main trouble is the distinction
of view between the greater part directorate and those speaking to the minority.

Losses
Thirdly, it is viewed as just and fair to wrap up an organization when it can’t carry on
business with the exception of at misfortunes. It will be unnecessary, in reality, for an
organization to carry on business when there is no desire for accomplishing the object of
exchanging at a benefit. Yet, simple anxiety with respect to certain investors that the
benefits of the organization will be squandered and that misfortune rather than increase
will result has been held to be no ground.

Oppression of Minority
It is simple and even-handed to wrap up an organization where the vital investors have
embraced a forceful or onerous or pressing approach towards the minority. The choice of
the Madras High Court in
R. Sabapathi Rao v Sabapathi Press Ltd
, is a representation in point. The court saw that where the executives of an organization
had the option to practice an overwhelming effect on the administration of the
organization and the overseeing chief had the option to outvote the minority of the
investors and hold the benefits of the business between individuals from the family and
there were a few objections that the investors did not get a duplicate of the asset report,
nor was the inspector’s report perused at the general gathering, profits were not
consistently paid and the rate was lessening, that established adequate ground for twisting
up.

Fraudulent Purpose
It is simple and fair to wrap up an organization on the off chance that it has been
imagined and delivered in misrepresentation or for an illicit reason.

Voluntary Winding Up

A company may be wound up voluntarily in the following two ways, as discussed

below:

By Ordinary Resolution
An organization might be twisted up willfully by passing an ordinary resolution when the
period, assuming any, fixed for the span of the organization by the articles, has lapsed.
Also, when the occasion, assuming any, has happened, on the event of which the articles
give that the organization is to be broken down, the organization may, by passing a
normal goal with that impact, start its willful twisting up.

By Special Resolution
A company may at any time pass a special resolution providing that the company be
wound up voluntarily. Winding Up commences at the time when the resolution is passed.
Within fourteen days of the passing of the resolution, the company shall give notice of
the resolution by advertisement in the Official Gazette and also in some newspaper
circulating in the district of the registered office of the company. The corporate state and
powers of the company shall continue until the company is dissolved, but it shall stop its
business, except so far as may be necessary for beneficial winding up.

As discussed earlier in the article, Voluntary Winding Up is of two kinds:

1. Members’ Voluntary Winding Up;

2. Creditor’s Voluntary Winding Up
If a Declaration of Solvency is made in accordance with the provisions of the Act, it will
be a Members’ Voluntary Winding Up and if it is not made, it becomes the Creditors’
Voluntary Winding Up. The declaration has to be made by a majority of the directors at
the meeting of the board and verified by an affidavit. They have to declare that they have
made a full inquiry into the affairs of the company and have formed the opinion that the
company has no debts or that it will be able to pay its debts in full within a certain period,
not exceeding three years, from the commencement of winding up.

The declaration, to be effective, must be made within the five weeks immediately before
the date of the resolution and should be delivered to the Registrar for registration before
that date. It should also be accompanied by a copy of the report of the auditors on the
profit and loss account and the balance sheet of the company prepared up to the date of
the declaration and should embody a statement of the company’s assets and liabilities as
at that date.

There is a penalty for making the declarations without having reasonable grounds for the
opinion that the company will be able to pay its debts within the specified period. If the
company fails to pay the debts within that period, it will be presumed that reasonable
grounds for making the declaration did not exist. The liquidator should forthwith call a
meeting of the creditors because the winding up has then to proceed as if it were
Creditors’ Winding Up.

Final Meeting and Dissolution

When the affairs of the company are fully wound up, the liquidator makes an account of
the winding up showing how the winding up has been conducted and the property of the
company disposed of. He then calls a general meeting of the company for the purpose of
laying before it the accounts of winding up. The meeting is to be called by advertisement
in the Official Gazette and a local newspaper specifying the time, place and object of the
meeting. Within a week after the meeting, the liquidator sends a copy of the accounts and
a return of the meeting to the Registrar and the Official Liquidator.

If no quorum was present at the meeting, he makes a return stating the fact. The
Registrar, on receipt of the accounts and the return, registers the documents. The Official
Liquidator, to whom also a copy of the accounts and return is sent, is required to make a
scrutiny of the books and papers of the company. The liquidator of the company and it’s
past and present officers are under a duty to give the Official Liquidator all reasonable
facility for the purpose. The Official Liquidator reports to the Tribunal, the result of his
scrutiny. If the report shows that the affairs of the company were not conducted in a
manner prejudicial to the interest of its members or to the public interest, then from the
date of the submission of the report to the Tribunal, the company shall be deemed to be
dissolved. If the report reveals that the affairs were conducted in a manner prejudicial to
the interests of the members or to the public interest, the court shall direct the Official
Liquidator to make further investigations into the affairs of the company. The court may
invest him with such powers as may be necessary for the purpose. When the court
receives the report on further investigation, it may declare that the company stands
dissolved or make such order as the circumstances discovered by the report may warrant.

Conclusion
A company can be wound up for a lot of reasons but Winding Up of a Company is not as
simple as closing the shutters of its headquarters or not turning up to work. Winding Up
is an even more cumbersome process than the Incorporation itself.
 9.4. Process of Winding up
The company must follow the process as per the winding-up rules. It helps avoid any
related penalties for non-compliance. Read below for details on the process of winding up
of a company in detail.
Step 1: Filing Of The Winding-Up Petition
A winding-up petition is the first step. An interested party must file the same. The petition
should have the grounds. Also, it must detail the company and winding-up order. Below
are some interested parties who can file this petition.

o Company trade creditors

o Any contributors to the company
o The company itself
o An authorized person (or body) by the central or state government
o The company registrar

The form WIN 1 or WIN 2 are used for this petition and is to be submitted in triplicate. An
affidavit in WIN 3 form is necessary for the petition submission.
Step 2: Statement Of Affairs Of The Company
The petition in the process of winding up of a company includes an affairs statement. It
includes details about company financials. The assets and liabilities are mentioned (often
at liquidation value). It helps better understand how much the company owes. The format
in the WIN 4 form details the statement of affairs submission as per Sections 272 (4) and
274 (1).
This statement must be in duplicate and have the latest information. It cannot be older
than thirty days. An affidavit must accompany this statement as per the form WIN 5. The
Company Rules (winding up) of 2020 and Rule 4 detail this process.
Step 3: Advertisement
The petition in the format of form WIN 6 must be advertised. It must be done before 14
days of the petition hearing. The advertisement has to be in English and the region's
vernacular languages. This advertisement paper should have circulation in the company's
state or UT.
This step allows informing the interested parties. They can make claims or provide any
helpful information.
Step 4: Appointment of Provisional Liquidator
The company liquidator plays an essential part. They oversee the sales, creditor claims,
and distribution. The tribunal appoints the provisional liquidator for the company. It is
after the petition submission. This appointment should be notified to the company.
Section 273 (1)(c) details this process in form WIN 7. The liquidator will have varying
responsibilities. It depends on the business and the process of winding up of a company.
These responsibilities are detailed as per the form WIN 8.
Step 5: Send Notice To The Provisional Liquidator
The appointed liquidator must be informed of the duties. The notice should be sent to the
official liquidator within seven days. It must be in the form WIN 9 format. Post or
electronic methods are applicable for sending this notice copy. The registrar of companies
must send this notice in Section 277 (1).
Step 6: Winding-Up Order
The winding-up order is sent to the liquidator in the form WIN 11 order. The form WIN 12
and 13 is used for sending the same to the company. The registrar is required to send
these orders. Also, this order should contain the relevant details and variations. It should
be signed as well as sealed. These orders must be sent out in seven days by the registrar.
Step 7: Custody Of Company Property
The Process of winding up of a company leads to the liquidator's responsibilities. They take
custody of the company's property, like assets and documents. It also includes claims and
company books. These books detail company transactions and financials. The liquidator is
required to submit a report. This report shall contain company property details. It. It is due
for submission within sixty days to the tribunal. It helps keep a record of the property.
Also, the report can help revisit the process. It ensures that the liquidator acts impartial.
Step 8: Affairs Of The Company
When a company ends, its business affairs need to be sorted out. This includes money it
owes, things it needs to do, and any deals it has in progress. The person in charge of
ending the company, the liquidator, decides if everything is handled. If so, they ask a court
to end the company. Then they give this order to the registrar. The registrar must get the
order within thirty days of the court's decision.
Step Dissolution Of The Company
The company dissolution results from the process of winding up of a company. This step
leads to the end of the corporate entity. The tribunal shall examine the order and
company affairs. If the details are relevant, it can pass the dissolution order. This order
shall be sent within sixty days after application receipt.
 Documents Necessary For The Winding-Up Process

The company must present relevant documents for the process of winding up of a
company. It helps verify details and approve the winding-up. Also, these records help keep
track of the process.

o Incorporation certificate: The company's incorporation certification details the formation.

It is a legal license for the same.
o Memorandum of Association: The MOA includes the company's purpose. It is necessary
for the process of winding up of a company.
o Articles of Association: The AOA includes the company's operations and guidelines.
o Bank account closure: The company must submit a certificate that shows bank account
closures.
o Board resolution: The board resolution details the decision of the company board. A copy
of this is required for the process of winding up of a company as it states that all the
members have eventually agreed for the winding up process.
o Resolution of creditors: The company's three-fourths of creditors must agree to winding
up. A copy of this resolution is necessary.
o Statement of accounts: The company's accounts statement is necessary. It details the
process of winding up a company's finances.
o Petition forms: The petition forms are necessary for the process of winding up of a
company. It must submit the WIN 1 and WIN 2 forms for winding up.
o Statement of affairs: The company statement includes any pending obligations or
payments. It is necessary for submission in form WIN 4.
o Concurrence affidavit: The company shall have a concurrence affidavit. It is for the
statement of affairs. It must be in form WIN 5 format.
o Advertisement: The advertisement proof is necessary for winding up a company. It
has to be in the format of form WIN 6.
o Liquidator appointment: The provisional liquidator appointment is necessary. It
initiates the process of winding up of a company. It has to be in the form WIN 7
and 8.
o Form STK-2: This form is necessary to fasten up the process of winding up a
company. It is for dormant or defunct companies.

The process of winding up a company involves the following steps:

 Filing a petition: A petition for winding up the company is filed by an
interested party, such as the company or its creditors. The petition must
include a statement of affairs that details the company's financial position.
 Appointment of a liquidator: A tribunal appoints an official liquidator to
oversee the process. The liquidator takes control of the company's assets,
conducts investigations and valuations, and assumes responsibility for the
company's affairs.
 Cessation of business activities: The company stops its regular business
operations.
 Asset liquidation: The company's assets are collected and sold.
 Debt settlement: The proceeds from the sale of assets are used to pay off
creditors.
 Distribution of remaining assets: Any remaining assets are distributed
among the shareholders.
 Dissolution: The company is officially dissolved and ceases to exist.