COMPANIES ACT, 2013
BACKGROUNDER
CORPORATE
RESTRUCTURING
& INSOLVENCY
SECTION –I COMPROMISE ARRANGEMENT AND MERGERS
INTRODUCTION
Chapter XV (Section 230 to 240) of Companies Act, 2013(the
Act) contains provisions on ‘Compromises, Arrangements and
Amalgamations’, that covers compromise or arrangements, mergers
and amalgamations, Corporate Debt Restructuring, demergers, fast
track mergers for small companies/holding subsidiary companies, cross
border mergers, takeovers, amalgamation of companies in public
interest etc.,. The procedural aspects involved such as format of
application to be made to National Company Law Tribunal (the
Tribunal), form of notice and the procedural aspects involved with
respect to the substantive law are covered under the Rules made under
Chapter XV of the Act. .
The scheme of Chapter XV goes as follows.
1. Section 230-231 deals with compromise or arrangements.
2. Section 232 deals with mergers and amalgamation including
demergers.
3. Section 233 deals with amalgamation of small companies (also
called fast track mergers)
4. Section 234 deals with amalgamation with foreign company
(also called cross border mergers)
5. Section 235 deals acquisition of shares of dissenting
shareholders.
6. Section 236 deals with purchase of minority shareholding.
7. Section 237 deals with power of central government to provide
for amalgamation of companies in public interest.
8. Section 238 deals with registration of offer of schemes involving
transfer of shares.
CORPORATE RESTRUCTURING &
INSOLVENCY
1
2 Corporate Restructuring & Insolvency
9. Section 239 deals with preservation of books and papers of
amalgamated companies.
10. Section 240 deals with liability of officers in respect of offences
committed prior to merger, amalgamation etc.,
COMPROMISE OR ARRANGEMENT WITH MEMBERS OR
CREDITORS (SECTION 230)
• When a compromise or arrangement is proposed—
(a) between a company and its creditors or any class of them; or
(b) between a company and its members or any class of them,
the Tribunal may, on the application of the (i) company or (ii) of any
creditor or(iii) member of the company, or (iv) in the case of a company
which is being wound up, of the liquidator, order a meeting of the
creditors or class of creditors, or of the members or class of members,
as the case may be, to be called, held and conducted in such manner as
the Tribunal directs.
• The application to the tribunal to disclose by affidavit—
(a) all material facts relating to the company, such as the latest
financial position of the company, the latest auditor’s report
on the accounts of the company and the pendency of any
investigation or proceedings against the company;
(b) reduction of share capital of the company, if any, included in
the compromise or arrangement;
(c) any scheme of corporate debt restructuring consented to by
not less than seventy-five per cent. of the secured creditors in
value, including—
(i) a creditor’s responsibility statement in the prescribed form;
(ii) safeguards for the protection of other secured and unsecured
creditors;
(iii) report by the auditor that the fund requirements of the
company after the corporate debt restructuring as approved
shall conform to the liquidity test based upon the estimates
provided to them by the Board;
(iv) where the company proposes to adopt the corporate debt
restructuring guidelines specified by the Reserve Bank of
India, a statement to that effect; and
(v) a valuation report in respect of the shares and the property
Corporate Restructuring & Insolvency 3
and all assets, tangible and intangible, movable and
immovable, of the company by a registered valuer.
• Notice of the meeting called in pursuant to the order of the tribunal
shall be sent to all the creditors or class of creditors and to all the
members or class of members and the debenture-holders of the
company, individually at the address registered with the company
which shall be accompanied by
1. a statement disclosing the details of the compromise or
arrangement,
2. a copy of the valuation report, if any, and
3. explaining their effect on creditors, key managerial personnel,
promoters and non-promoter members, and the debentureholders
and
4. the effect of the compromise or arrangement on any material
interests of the directors of the company or the debenture
trustees, and
5. such other matters as may be prescribed:
Such notice and other documents shall also be placed on the website
of the company, if any, and in case of a listed company, these documents
shall be sent to the Securities and Exchange Board and stock exchange
where the securities of the companies are listed, for placing on their
website and shall also be published in newspapers in such manner as
may be prescribed:
When the notice for the meeting is also issued by way of an
advertisement, it shall indicate the time within which copies of the
compromise or arrangement shall be made available to the concerned
persons free of charge from the registered office of the company.
Procedural aspects relating to notice under Rule 15.3
Rule 15.3 states that the notice of the meeting pursuant to the
order of the Tribunal to be given n Form No. 15.3, and shall be sent
individually specifying therein, inter alia, including
1. details of the order of the Tribunal directing the calling,
convening and conducting of the meeting;
2. details of the company;
3. if the scheme of compromise or arrangement relates to more
than one company, the fact and details of any relationship
4 Corporate Restructuring & Insolvency
subsisting between such companies including holding,
subsidiary or of associate companies;
4. the date of the board meeting at which the scheme was approved
by the Board of directors including the name of the directors
voted in favor of the resolution, voted against the resolution
and not voted/ participated on such resolution;
5. details of the scheme of compromise or arrangement including:
i. parties involved in such compromise or arrangement; ii. in
case of amalgamation or merger, appointed date, share
exchange ratio and other consideration, if any; iii. valuation
report including basis of valuation and fairness opinion of the
registered valuer, if any; iv. details of capital/debt restructuring,
if any; v. rationale for the compromise or arrangement; vi.
benefits of the compromise or arrangement as perceived by the
board of directors to the company, members, creditors and
others; vii. amount due to other unsecured Creditors and the
security available to the creditors thereon;
6. disclosure of nature and extent of interest and effect of
compromise or arrangement on such interest of: (a) key
managerial personnel; (b) directors; (c) promoters; (d) nonpromoter
members; (e) depositors; (f) creditors; (g) debenture
holders; (h) deposit and debenture trustee(s); (i) promoters,
directors, and key managerial personnel of holding company,
subsidiary and associate companies; (j) employees of the
company stating clearly that the changes, if any, in the terms
and conditions of employment are not detrimental to the
interest of the employees;
7. where there is no interest or there is no effect on such interest
of any promoter, director or key managerial personnel, a
statement to the effect that there is no interest or there is no
effect of the scheme of compromise or arrangement on such
interests of such persons;
8. investigation proceedings, if any, pending against the company
or against any promoter, director or key managerial personnel
of such company;
9. details of shareholding of directors, key managerial personnel
and promoters of the company as on the date of making this
statement and change in their shareholding in the last six
months including the date on which and price at which change
took place;
Corporate Restructuring & Insolvency 5
10. details of any No-objection(s), approvals or sanctions, if already
received from the concerned authorities for the compromise or
arrangement;
11. details of the availability of the following documents for
obtaining extract from or for making copies of or for inspection
by the members and creditors, namely:
(a) latest audited financial statements of the company
including consolidated financial statements;
(b) copy of the order of Tribunal in pursuance of which the
meeting is to be convened;
(c) copy of scheme of compromise or arrangement;
(d) contracts or agreements material to the compromise or
arrangement; and
(e) such other information/documents as the Board/
Management believes necessary and relevant for making
decision for / against the scheme;
12. declaration to the effect that the scheme is in the best interests
of the employees, creditors, debenture holders, members
particularly non-promoter members and minority shareholders
of the company, as detailed in the scheme.;
13. Status of approval(s) of regulatory or any other authority(ies),
required, if any in connection with compromise or
arrangement;
14. The notice shall provide for the information required under sub
section (4) of section 230 of the Act.
For the purposes of this rule, disclosure required to be made by a
company shall be made in respect of all the companies which are the
part of the compromise or arrangement.
The notice shall be sent by the chairman appointed for the meeting,
or, if the Tribunal so directs, by the company (or its liquidator), or any
other person as the Tribunal may direct, by post, e-mail or any other
mode as directed by the Tribunal to their last known addresses at least
four weeks before the date fixed for the meeting.
Rule 15.5 states that the notice of the meeting shall be advertised
in such newspapers and in such manner as the Tribunal may direct,
not less than fourteen clear days before the date fixed for the meeting.
The advertisement shall be in Form No. 15.5.
6 Corporate Restructuring & Insolvency
• Notice to provide for voting by themselves or through proxy or
through postal ballot
Subsection (4) of section 230 states that a notice under sub-section
(3) shall provide that the persons to whom the notice is sent may vote
in the meeting either themselves or through proxies or by postal ballot
to the adoption of the compromise or arrangement within one month
from the date of receipt of such notice:
• Who can object to the scheme?
Any objection to the compromise or arrangement shall be made
only by persons holding not less than ten per cent. of the shareholding
or having outstanding debt amounting to not less than five per cent
of the total outstanding debt as per the latest audited financial
statement.
Rule 15.8 states that the consent or objections under sub-section (4)
of section 230 may be conveyed in writing to the Chairperson of the
meeting within a month from the date of the receipt of the notice.
• Notice to be sent to the regulators seeking their representations
Section 230(5) states that a notice under sub-section (3) along
with all the documents in such form as may be prescribed shall also be
sent to the Central Government, the income-tax authorities, the Reserve
Bank of India, the Securities and Exchange Board, the Registrar, the
respective stock exchanges, the Official Liquidator, the Competition
Commission of India established under sub-section (1) of section 7 of
the Competition Act, 2002, if necessary, and such other sectoral
regulators or authorities which are likely to be affected by the
compromise or arrangement and shall require that representations, if
any, to be made by them shall be made within a period of thirty days
from the date of receipt of such notice, failing which, it shall be
presumed that they have no representations to make on the proposals.
Rule 15.4 of Chapter XV states that the notice to the regulators be
made in form 15.4
• Approval and sanction of the scheme
Section 230(6) states that when at a meeting held in pursuance of
sub-section (1), majority of persons representing three-fourths in value
of the creditors, or class of creditors or members or class of members,
as the case may be, voting in person or by proxy or by postal ballot,
agree to any compromise or arrangement and if such compromise or
arrangement is sanctioned by the Tribunal by an order, the same shall
Corporate Restructuring & Insolvency 7
be binding on the company, all the creditors, or class of creditors or
members or class of members, as the case may be, or, in case of a
company being wound up, on the liquidator and the contributories of
the company.
15.9 states that the decisions of the meeting or meetings held in
pursuance of the order of the Tribunal and the manner as prescribed in
section 230 of the Act, on all resolutions shall be ascertained only by
taking a poll while considering the representations of such authorities
as per sub-section (5) thereof and the consents adopting the
arrangement or compromise as received from the eligible persons.
15.10 states that the chairman of the meeting (or where there are
separate meetings, the chairman of each meeting) shall, within the
time fixed by the Tribunal, or where no time has been fixed, within
seven days after the conclusion of the meeting, report the result thereof
to the Tribunal. The report shall state accurately the number of creditors
or class of creditors or the number of members or class of members, as
the case may be, who were present and who voted at the meeting
either in person or by proxy, their individual values and the way they
voted. The report shall be in Form No. 15.6.
• Order of the tribunal sanctioning the scheme to provide for the
Certain matters
An order made by the Tribunal shall provide for all or any of the
following matters, namely:—
(a) where the compromise or arrangement provides for conversion
of preference shares into equity shares, such preference
shareholders shall be given an option to either obtain arrears of
dividend in cash or accept equity shares equal to the value of
the dividend payable;
(b) the protection of any class of creditors;
(c) if the compromise or arrangement results in the variation of
the shareholders’ rights, it shall be given effect to under the
provisions of section 48;
(d) if the compromise or arrangement is agreed to by the creditors
under sub-section (6), any proceedings pending before the Board
for Industrial and Financial Reconstruction established under
section 4 of the Sick Industrial Companies (Special Provisions)
Act, 1985 shall abate;
(e) such other matters including exit offer to dissenting
8 Corporate Restructuring & Insolvency
shareholders, if any, as are in the opinion of the Tribunal
necessary to effectively implement the terms of the compromise
or arrangement:
• Compromise or arrangement is to be in conformity with the
accounting standards
No compromise or arrangement shall be sanctioned by the Tribunal
unless a certificate by the company’s auditor has been filed with the
Tribunal to the effect that the accounting treatment, if any, proposed
in the scheme of compromise or arrangement is in conformity with
the accounting standards prescribed under section 133.
• Order of tribunal to be filed with the Registrar
Section 230(8) states that the order of the Tribunal shall be filed
with the Registrar by the company within a period of thirty days of
the receipt of the order.
• Tribunal may dispense with calling of meeting of creditors
Section 230(9) states that the Tribunal may dispense with calling
of a meeting of creditor or class of creditors where such creditors or
class of creditors, having at least ninety per cent value, agree and
confirm, by way of affidavit, to the scheme of compromise or
arrangement.
• Compromise in respect of buy back is to be in compliance with
section 68
As per Section 230(10), no compromise or arrangement in respect
of any buy-back of securities under this section shall be sanctioned by
the Tribunal unless such buy-back is in accordance with the provisions
of section 68.
• Compromise includes takeover
Section 230(11) states that any compromise or arrangement may
include takeover offer made in such manner as may be prescribed. In
case of listed companies, takeover offer shall be as per the regulations
framed by the Securities and Exchange Board.
• Power of the tribunal to enforce compromise or arrangement
As per section 231(1) when the Tribunal makes an order under
section 230 sanctioning a compromise or an arrangement in respect
of a company, it—
(a) shall have power to supervise the implementation of the
compromise or arrangement; and
Corporate Restructuring & Insolvency 9
(b) may, at the time of making such order or at any time thereafter,
give such directions in regard to any matter or make such
modifications in the compromise or arrangement as it may
consider necessary for the proper implementation of the
compromise or arrangement.
Sub-section (2) states that if the Tribunal is satisfied that the
compromise or arrangement sanctioned under section 230 cannot be
implemented satisfactorily with or without modifications, and the
company is unable to pay its debts as per the scheme, it may make an
order for winding up the company and such an order shall be deemed
to be an order made under section 273.
MERGER AND AMALGAMATION OF COMPANIES
(SECTION 232)
• Tribunal’s power to call meeting of creditors or members, with
respect to merger or amalgamation of companies
Section 232(1) states that when an application is made to the
Tribunal under section 230 for the sanctioning of a compromise or an
arrangement proposed between a company and any such persons as
are mentioned in that section, and it is shown to the Tribunal—
(a) that the compromise or arrangement has been proposed for
the purposes of, or in connection with, a scheme for the
reconstruction of the company or companies involving merger
or the amalgamation of any two or more companies; and
(b) that under the scheme, the whole or any part of the
undertaking, property or liabilities of any company (hereinafter
referred to as the transferor company) is required to be
transferred to another company (hereinafter referred to as the
transferee company), or is proposed to be divided among and
transferred to two or more companies,
the Tribunal may on such application, order a meeting of the creditors
or class of creditors or the members or class of members, as the case
may be, to be called, held and conducted in such manner as the Tribunal
may direct and the provisions of sub-sections (3) to (6) of section 230
shall apply mutatis mutandis.
• Circulation of documents for members/creditors meeting
Section 232(2) states that when an order has been made by the
Tribunal under sub-section (1), merging companies or the companies
in respect of which a division is proposed, shall also be required to
10 Corporate Restructuring & Insolvency
circulate the following for the meeting so ordered by the Tribunal,
namely:—
(a) the draft of the proposed terms of the scheme drawn up and
adopted by the directors of the merging company;
(b) confirmation that a copy of the draft scheme has been filed
with the Registrar;
(c) a report adopted by the directors of the merging companies
explaining effect of compromise on each class of shareholders,
key managerial personnel, promotors and non-promoter
shareholders laying out in particular the share exchange ratio,
specifying any special valuation difficulties;
(d) the report of the expert with regard to valuation, if any;
(e) a supplementary accounting statement if the last annual
accounts of any of the merging company relate to a financial
year ending more than six months before the first meeting of
the company summoned for the purposes of approving the
scheme.
• Sanctioning of scheme by tribunal
Section 232(3) states that the Tribunal, after satisfying itself that
the procedure specified in sub-sections (1) and (2) has been complied
with, may, by order, sanction the compromise or arrangement or by a
subsequent order, make provision for the following matters, namely:—
(a) the transfer to the transferee company of the whole or any
part of the undertaking, property or liabilities of the transferor
company from a date to be determined by the parties unless
the Tribunal, for reasons to be recorded by it in writing, decides
otherwise;
(b) the allotment or appropriation by the transferee company of
any shares, debentures, policies or other like instruments in
the company which, under the compromise or arrangement,
are to be allotted or appropriated by that company to or for
any person:
No transferee company can hold shares in its own name or under
any trust
A transferee company shall not, as a result of the compromise
or arrangement, hold any shares in its own name or in the
name of any trust whether on its behalf or on behalf of any of
Corporate Restructuring & Insolvency 11
its subsidiary or associate companies and any such shares shall
be cancelled or extinguished;
(c) the continuation by or against the transferee company of any
legal proceedings pending by or against any transferor company
on the date of transfer;
(d) dissolution, without winding-up, of any transferor company;
(e) the provision to be made for any persons who, within such
time and in such manner as the Tribunal directs, dissent from
the compromise or arrangement;
(f) where share capital is held by any non-resident shareholder
under the foreign direct investment norms or guidelines specified
by the Central Government or in accordance with any law for
the time being in force, the allotment of shares of the transferee
company to such shareholder shall be in the manner specified
in the order;
(g) the transfer of the employees of the transferor company to the
transferee company;
(h) when the transferor company is a listed company and the
transferee company is an unlisted company,—
(A) the transferee company shall remain an unlisted company
until it becomes a listed company;
(B) if shareholders of the transferor company decide to opt out
of the transferee company, provision shall be made for
payment of the value of shares held by them and other
benefits in accordance with a pre-determined price formula
or after a valuation is made, and the arrangements under
this provision may be made by the Tribunal:
The amount of payment or valuation under this clause for
any share shall not be less than what has been specified by
the Securities and Exchange Board under any regulations
framed by it;
(i) where the transferor company is dissolved, the fee, if any, paid
by the transferor company on its authorised capital shall be
set-off against any fees payable by the transferee company on
its authorised capital subsequent to the amalgamation; and
(j) such incidental, consequential and supplemental matters as
are deemed necessary to secure that the merger or
amalgamation is fully and effectively carried out:
12 Corporate Restructuring & Insolvency
• Auditor’s certificate as to conformity with accounting standard
No compromise or arrangement shall be sanctioned by the Tribunal
unless a certificate by the company’s auditor has been filed with the
Tribunal to the effect that the accounting treatment, if any, proposed
in the scheme of compromise or arrangement is in conformity with
the accounting standards prescribed under section 133.
• Transfer of property or liabilities
Sub-section (4) stares that an order under this section provides for
the transfer of any property or liabilities, then, by virtue of the order,
that property shall be transferred to the transferee company and the
liabilities shall be transferred to and become the liabilities of the
transferee company and any property may, if the order so directs, be
freed from any charge which shall by virtue of the compromise or
arrangement, cease to have effect.
• Certified copy of the order to be filed with the registrar
Section 232(5) states that every company in relation to which
the order is made shall cause a certified copy of the order to be filed
with the Registrar for registration within thirty days of the receipt of
certified copy of the order.
• Effective date of the scheme
Section 232(6) states that the scheme under this section shall
clearly indicate an appointed date from which it shall be effective and
the scheme shall be deemed to be effective from such date and not at a
date subsequent to the appointed date.
• Annual statement certified by CA/CS/CWA to be filed with registrar
every year until the completion of the scheme
Section 232 (7) states that every company in relation to which
the order is made shall, until the completion of the scheme, file a
statement in such form and within such time as may be prescribed
with the Registrar every year duly certified by a chartered accountant
or a cost accountant or a company secretary in practice indicating
whether the scheme is being complied with in accordance with the
orders of the Tribunal or not.
• Punishment
Section 232(8) states that if a transferor company or a transferee
company contravenes the provisions of this section, the transferor
company or the transferee company, as the case may be, shall be
Corporate Restructuring & Insolvency 13
punishable with fine which shall not be less than one lakh rupees but
which may extend to twenty-five lakh rupees and every officer of
such transferor or transferee company who is in default, shall be
punishable with imprisonment for a term which may extend to one
year or with fine which shall not be less than one lakh rupees but
which may extend to three lakh rupees, or with both.
• Compromise or arrangement includes `demerger’
Rule 15.31 of the Rules made under Chapter XV states that For the
purpose of Chapter XV of the Act, `demerger’ in relation to companies
means transfer, pursuant to scheme of arrangement by a ‘demerged
company’ of its one or more undertakings to any ‘resulting company’
in such a manner as provided in section 2(19AA) of the Income Tax
Act, 1961, subject to fulfilling the conditions stipulated in section
2(19AA) of the Income Tax Act and shares have been allotted by the
‘resulting company’ to the share holders of the .demerged company’
against the transfer of assets and liabilities.
(2) For the purpose of the compromise in the nature of ‘demerger’
till the Accounting Standards is prescribed for the purpose of ‘demerger’,
the Accounting Treatment shall be in accordance with the conditions
stipulated in section 2(19AA) of the Income Tax Act, 1961 and
(i) in the books of the ‘demerged company’:-
(a) Assets and liabilities shall be transferred at the same value
appearing in the books, without considering any
revaluation or writing off of assets carried out during the
preceding two financial years; and
(b) The difference between the value of assets and liabilities shall
be credited to capital reserve or debited to good will.
(ii) In the books of ‘resulting company’:-
(a) Assets and liabilities of ‘demerged company’ transferred
shall be recorded at the same value appearing in the books
of the ‘demerged company’ without considering any
revaluation or writing off of assets carried out during the
preceding two financial years;
(b) Shares issued shall be credited to the share capital account;
and
(c) The excess or deficit, if any, remaining after recording the
aforesaid entries shall be credited to capital reserve or debited
to good will as the case may be.
14 Corporate Restructuring & Insolvency
A certificate from a Chartered Accountant is to be submitted to
the Tribunal to the effect that both ‘demerged company’ and ‘resulting
company’ have complied with conditions as above and accounting
treatment prescribed in this rule
MERGER AND AMALGAMATION OF CERTAIN COMPANIIES –
FAST TRACK MERGERS
Section 233 prescribes simplified procedure for Merger or
amalgamation of
• two or more small companies or
• between a holding company and its wholly-owned subsidiary
company or
• such other class or classes of companies as may be prescribed;
What is a holding company?
As per Section 2(46) “holding company”, in relation to one or more
other companies, means a company of which such companies are
subsidiary companies;
What is a small company?
As per section 2(85) ‘‘small company’’ means a company, other
than a public company,—
(i) paid-up share capital of which does not exceed fifty lakh rupees
or such higher amount as may be prescribed which shall not
be more than five crore rupees; or
(ii) turnover of which as per its last profit and loss account does
not exceed two crore rupees or such higher amount as may be
prescribed which shall not be more than twenty crore rupees:
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act;
What is a subsidiary company?
As per 2(87) “subsidiary company” or “subsidiary”, in relation to
any other company (that is to say the holding company), means a
company in which the holding company—
(i) controls the composition of the Board of Directors; or
Corporate Restructuring & Insolvency 15
(ii) exercises or controls more than one-half of the total share
capital either at its own or together with one or more of its
subsidiary companies:
Provided that such class or classes of holding companies as may be
prescribed shall not have layers of subsidiaries beyond such numbers
as may be prescribed.
Explanation.—For the purposes of this clause,—
(a) a company shall be deemed to be a subsidiary company of the
holding company even if the control referred to in sub-clause
(i) or sub-clause (ii) is of another subsidiary company of the
holding company;
(b) the composition of a company’s Board of Directors shall be
deemed to be controlled by another company if that other
company by exercise of some power exercisable by it at its
discretion can appoint or remove all or a majority of the
directors;
(c) the expression “company” includes any body corporate;
(d) “layer” in relation to a holding company means its subsidiary
or subsidiaries;
Merger of small companies/holding and subsidiary
companies
Accordingly sub-section (1) of Section 233 states that
notwithstanding the provisions of section 230 and section 232, a
scheme of merger or amalgamation may be entered into between two
or more small companies or between a holding company and its
wholly-owned subsidiary company or such other class or classes of
companies as may be prescribed, subject to the following, namely:—
(a) a notice of the proposed scheme inviting objections or
suggestions, if any, from the Registrar and Official Liquidators
where registered office of the respective companies are situated
or persons affected by the scheme within thirty days is issued
by the transferor company or companies and the transferee
company;
(b) the objections and suggestions received are considered by the
companies in their respective general meetings and the scheme
is approved by the respective members or class of members at a
general meeting holding at least ninety per cent. of the total
number of shares;
16 Corporate Restructuring & Insolvency
(c) each of the companies involved in the merger files a declaration
of solvency, in the prescribed form, with the Registrar of the
place where the registered office of the company is situated;
and
(d) the scheme is approved by majority representing nine-tenths
in value of the creditors or class of creditors of respective
companies indicated in a meeting convened by the company
by giving a notice of twenty-one days along with the scheme
to its creditors for the purpose or otherwise approved in writing.
Rule 15.25 states as follows with respect to section 233(1)
(1) For the purposes of sub-section (1) of section 233, a company
shall be deemed to be “wholly owned subsidiary” only if hundred
per cent of share capital is held by the holding company except
the shares held by the nominee or nominees to ensure that the
number of members of subsidiary company is not reduced
below the statutory limit as provided in section 187.
(2) For the purposes of clause (c) of sub-section (1) of section 233,
the declaration of solvency shall be filed by the each of the
companies involved in a scheme of compromise or arrangement
involving merger in Form No. 15.12 along with such fee as
provided in Annexure ‘B ‘before convening the meeting of
members and creditors for approval of the scheme.
(3) For the purposes of clause (b) and (d) of sub-section (1) of
section 233, the notice of the meeting to the members and
creditors shall be accompanied by
(a) a statement, as far as applicable, referred to in sub-section
(3) of section 230;
(b) the declaration of solvency made in pursuance of clause (c)
of sub-section (1) of section 233;
(c) a copy of the scheme.
Transferee Company to file a copy of scheme approved
Section 233(2) states that the transferee company shall file a copy
of the scheme so approved in the manner as may be prescribed, with
the Central Government, Registrar and the Official Liquidator where
the registered office of the company is situated.
Rule 15.25(4) prescribes the following procedure as to section 233(2)
(4) (a) For the purposes of sub-section (2) of section 233, the
Corporate Restructuring & Insolvency 17
transferee company shall, within seven days after the
conclusion of the meeting(s) of members or class of members
or creditors or class of creditors, file in Form No. 15.13 a
copy of the scheme as approved by the members and
creditors, along with report of the result of each of the
meetings with the Central Government, Registrar of
Companies and the Official Liquidator, of the place where
the registered office of the company is situated.
(b) Copy of the scheme shall be filed with the Registrar of
Companies along with the prescribed fee through the MCA
e-filing system.
(c) Copy of the scheme shall be filed with the Central
Government and Official Liquidator, by sending them
through hand delivery or registered or speed post or through
electronic filing system as may be approved by the Central
Government.
Central Government to issue confirmation order, where
there are no objections or suggestions from registrar or
official liquidator
Section 233(3) states that on the receipt of the scheme, if the
Registrar or the Official Liquidator has no objections or suggestions
to the scheme, the Central Government shall register the same and
issue a confirmation thereof to the companies.
Rule 15.25(5) states as under with respect to section 233(3)
When no objection or comment is received to the scheme from the
Registrar and Official Liquidator or where even after the receipt of
objections or comments of Registrar and Official Liquidator, the Central
Government is of the opinion that the scheme is in the public interest
or in the interest of creditors the Central Government shall issue in
Form No. 15.14, a confirmation order of such scheme of compromise,
or arrangement.
Objections if any by the registrar or official liquidator to
be communicated to the central government
Section 233(4) If the Registrar or Official Liquidator has any
objections or suggestions, he may communicate the same in writing
to the Central Government within a period of thirty days. If no such
communication is made, it shall be presumed that he has no objection
to the scheme.
18 Corporate Restructuring & Insolvency
Application by Central Government to the Tribunal
Section 233(5) states that if the Central Government after receiving
the objections or suggestions or for any reason is of the opinion that
such a scheme is not in public interest or in the interest of the creditors,
it may file an application before the Tribunal within a period of sixty
days of the receipt of the scheme under sub-section (2) stating its
objections and requesting that the Tribunal may consider the scheme
under section 232.
Tribunal’s Action to Central Government’s application
Section 233(6) states that on receipt of an application from the
Central Government or from any person, if the Tribunal, for reasons
to be recorded in writing, is of the opinion that the scheme should be
considered as per the procedure laid down in section 232, the Tribunal
may direct accordingly or it may confirm the scheme by passing such
order as it deems fit:
If the Central Government does not have any objection to the
scheme or it does not file any application under this section before the
Tribunal, it shall be deemed that it has no objection to the scheme.
Registrar having jurisdiction over transferee company has
to be communicated
Section 233(7) states that a copy of the order under sub-section
(6) confirming the scheme shall be communicated to the Registrar
having jurisdiction over the transferee company and the persons
concerned and the Registrar shall register the scheme and issue a
confirmation thereof to the companies and such confirmation shall
be communicated to the Registrars where transferor company or
companies were situated.
As per Rule 15.25(7) states that for the purposes of sub-section (7)
of section 233, the confirmation order of the scheme issued by the
Central Government or tribunal, shall be filed in Form 15.15 along
with the prescribed fee, with registrars having jurisdiction over
transferor and transferee companies respectively.
Effect of registration of the scheme
Section (8) states that the registration of the scheme under subsection
(3) or sub-section (7) shall be deemed to have the effect of
dissolution of the transferor company without process of windingup.
Corporate Restructuring & Insolvency 19
Section 233 (9) states that the registration of the scheme shall
have the following effects, namely:—
(a) transfer of property or liabilities of the transferor company to
the transferee company so that the property becomes the
property of the transferee company and the liabilities become
the liabilities of the transferee company;
(b) the charges, if any, on the property of the transferor company
shall be applicable and enforceable as if the charges were on the
property of the transferee company;
(c) legal proceedings by or against the transferor company pending
before any court of law shall be continued by or against the
transferee company; and
(d) where the scheme provides for purchase of shares held by the
dissenting shareholders or settlement of debt due to dissenting
creditors, such amount, to the extent it is unpaid, shall become
the liability of the transferee company.
Transferee Company not to hold any share in its own
name or trust and all such shares are to be cancelled or
extinguished
Section 233 (10) states that a transferee company shall not on
merger or amalgamation, hold any shares in its own name or in the
name of any trust either on its behalf or on behalf of any of its
subsidiary or associate company and all such shares shall be cancelled
or extinguished on the merger or amalgamation.
Transferee Company to file an application with Registrar
along with the scheme registered
Section 233(11) The transferee company shall file an application
with the Registrar along with the scheme registered, indicating the
revised authorised capital and pay the prescribed fees due on revised
capital. The fee, if any, paid by the transferor company on its authorised
capital prior to its merger or amalgamation with the transferee
company shall be set-off against the fees payable by the transferee
company on its authorised capital enhanced by the merger or
amalgamation.
CROSS BORDER MERGERS
Merger or amalgamation of a Company with a foreign
company
Section 234(2) Subject to the provisions of any other law for the
20 Corporate Restructuring & Insolvency
time being in force, a foreign company, may with the prior approval
of the Reserve Bank of India, merge into a company registered under
this Act or vice versa and the terms and conditions of the scheme of
merger may provide, among other things, for the payment of
consideration to the shareholders of the merging company in cash, or
in Depository Receipts, or partly in cash and partly in Depository
Receipts, as the case may be, as per the scheme to be drawn up for the
purpose.
For the purposes of sub-section (2), the expression “foreign
company” means any company or body corporate incorporated
outside India whether having a place of business in India or not.
Section 234. (1) states that the provisions of this Chapter unless
otherwise provided under any other law for the time being in force,
shall apply mutatis mutandis to schemes of mergers and
amalgamations between companies registered under this Act and
companies incorporated in the jurisdictions of such countries as may
be notified from time to time by the Central Government. The Central
Government may make rules, in consultation with the Reserve Bank
of India, in connection with mergers and amalgamations provided
under this section.
PROVISIONS OF COMPANIES ACT 2013 RELATING TO
MINORITY SHAREHOLDERS AT THE TIME OF
COMPROMISE/ARRANGEMENT
Section 235 of the Companies Act 2013 prescribes the manner of
acquisition of shares of shareholders dissenting from the scheme or
contract approved by the majority shareholders holding not less than
nine tenth in value of the shares, whose transfer is involved. It includes
notice to dissenting shareholders, application to dissenting shareholders
to tribunal, deposit of consideration received by the transferor company
in a separate bank account etc.,
Further Section 236 prescribes the manner of notification by the
acquirer(majority) to the company, offer to minority for burying their
shares, deposit an amount equal to the value of shares to be acquired,
valuation of shares by registered valuer etc.,
Further section 230(7)(e) provides that the order made by the
National Company Law Tribunal may provide for exit offer to
dissenting shareholders, if any as are in the opinion of the tribunal
necessary to effectively implement the terms of the compromise or
arrangement.
Corporate Restructuring & Insolvency 21
Section 232(3)(h)(B)provides exit route for the shareholders of
unlisted transferor company.
POWER OF THE CENTRAL GOVERNMENT TO PROVIDE FOR
AMALGAMATION OF COMPANIES IN PUBLIC INTEREST
Power of Central Government to provide for amalgamation of Companies
Section 237(1) states that when the Central Government is satisfied
that it is essential in the public interest that two or more companies
should amalgamate, the Central Government may, by order notified
in the Official Gazette, provide for the amalgamation of those
companies into a single company with such constitution, with such
property, powers, rights, interests, authorities and privileges, and with
such liabilities, duties and obligations, as may be specified in the order.
Continuation of legal proceedings
Section 237 (2) states that the order under sub-section (1) may
also provide for the continuation by or against the transferee company
of any legal proceedings pending by or against any transferor company
and such consequential, incidental and supplemental provisions as may,
in the opinion of the Central Government, be necessary to give effect
to the amalgamation.
Interest or rights of members, creditors, debenture holders not to be affected
As per Section 237(3), every member or creditor, including a
debenture holder, of each of the transferor companies before the
amalgamation shall have, as nearly as may be, the same interest in or
rights against the transferee company as he had in the company of
which he was originally a member or creditor, and in case the interest
or rights of such member or creditor in or against the transferee
company are less than his interest in or rights against the original
company, he shall be entitled to compensation to that extent, which
shall be assessed by such authority as may be prescribed and every
such assessment shall be published in the Official Gazette, and the
compensation so assessed shall be paid to the member or creditor
concerned by the transferee company.
Appeal to tribunal
As per Section 237 (4) Any person aggrieved by any assessment of
compensation made by the prescribed authority under sub-section (3)
may, within a period of thirty days from the date of publication of
such assessment in the Official Gazette, prefer an appeal to the Tribunal
and thereupon the assessment of the compensation shall be made by
the Tribunal.
22 Corporate Restructuring & Insolvency
Conditions for order under Section 237
As per Section 237 (5) No order shall be made under this section
unless—
(a) a copy of the proposed order has been sent in draft to each of
the companies concerned;
(b) the time for preferring an appeal under sub-section (4) has
expired, or where any such appeal has been preferred, the appeal
has been finally disposed off; and
(c) the Central Government has considered, and made such
modifications, if any, in the draft order as it may deem fit in
the light of suggestions and objections which may be received
by it from any such company within such period as the Central
Government may fix in that behalf, not being less than two
months from the date on which the copy aforesaid is received
by that company, or from any class of shareholders therein, or
from any creditors or any class of creditors thereof.
Copies of order to be laid before each house of parliament
As per Section 237 (6) the copies of every order made under this
section shall, as soon as may be after it has been made, be laid before
each House of Parliament.
Registration of offer of schemes involving transfer of shares
Section 238(1) states that in relation to every offer of a scheme or
contract involving the transfer of shares or any class of shares in the
transferor company to the transferee company under section 235,—
(a) every circular containing such offer and recommendation to
the members of the transferor company by its directors to
accept such offer shall be accompanied by such information
and in such manner as may be prescribed;
(b) every such offer shall contain a statement by or on behalf of
the transferee company, disclosing the steps it has taken to
ensure that necessary cash will be available; and
(c) every such circular shall be presented to the Registrar for
registration and no such circular shall be issued until it is so
registered: Provided that the Registrar may refuse, for reasons
to be recorded in writing, to register any such circular which
does not contain the information required to be given under
clause (a) or which sets out such information in a manner
Corporate Restructuring & Insolvency 23
likely to give a false impression, and communicate such refusal
to the parties within thirty days of the application.
Section 238(2) states that an appeal shall lie to the Tribunal against
an order of the Registrar refusing to register any circular under subsection
(1).
Section 238(3) states that the director who issues a circular which
has not been presented for registration and registered under clause (c)
of sub-section (1), shall be punishable with fine which shall not be less
than twenty-five thousand rupees but which may extend to five lakh
rupees.
Preservation of books and papers of amalgamated company
As per section 239, the books and papers of a company which has
been amalgamated with, or whose shares have been acquired by,
another company under this Chapter shall not be disposed of without
the prior permission of the Central Government and before granting
such permission, that Government may appoint a person to examine
the books and papers or any of them for the purpose of ascertaining
whether they contain any evidence of the commission of an offence in
connection with the promotion or formation, or the management of
the affairs, of the transferor company or its amalgamation or the
acquisition of its shares.
Liability of officers in respect of offences committed prior to amalgamation
As per Section 240, notwithstanding anything in any other law
for the time being in force, the liability in respect of offences committed
under this Act by the officers in default, of the transferor company
prior to its merger, amalgamation or acquisition shall continue after
such merger, amalgamation or acquisition.
SECTION II- REVIVAL AND REHABILITATION OF SICK
COMPANIES
Chapter XIX of Companies Act 2013 (Section 253-269) and the
rules made there under provides for time bound rehabilitation or
liquidation process and winding up is resorted only when the revival is
not feasible.
The provisions of Chapter XIX of Companies Act 2013 inter-alia
includes the following aspect to deal with the challenges in revival of
Sick Companies.
• Provisions of revival and rehabilitation of sick companies to
apply to all companies and not only to an “industrial company.
24 Corporate Restructuring & Insolvency
• Inability to pay debts is be considered as criteria for determining
a sick company. If a company fails to pay debts due to its
secured creditor representing 50% or more of outstanding
amount of debt within 30 days of demand, any secured creditor
may file an application to National Company Law Tribunal(the
tribunal) to declare such company as a “sick company”. The
company may also file an application to the tribunal to declare
it as a sick company on above ground.
• Where the Tribunal is satisfied that a company has become
sick company, it shall after considering all the relevant facts
and circumstances of the case, decide, as soon as may be, by an
order in writing, whether it is practicable for the company to
make the repayment of its debts within a reasonable time.
• On the determination of sickness by the tribunal, the applicant
shall make an application within 60 days of determination,
for measures to be adopted for revival or rehabilitation.
• Where the Tribunal determines the Company as Sick and where
the company has no draft scheme for its revival and
rehabilitation, the Tribunal may direct the Interim
administrator who shall be appointed by Tribunal from a panel
maintained by the Central Govt.
• When the interim administrator submits his report about the
possibility of revival, then company administrator is appointed
who undertakes the approval process by creditors and submits
the same to the tribunal who would sanction the scheme within
60 days of approval by creditors.
• Determination of sickness
Application by Secured Creditors to the Tribunal (Section 253(1))
When on a demand by the secured creditors of a company
representing fifty per cent. or more of its outstanding amount of debt,
the company has failed to pay the debt within a period of thirty days
of the service of the notice of demand or to secure or compound it to
the reasonable satisfaction of the creditors, any secured creditor may
file an application to the Tribunal in the prescribed manner along with
the relevant evidence for such default, non-repayment or failure to
offer security or compound it, for a determination that the company
be declared as a sick company.
Application for stay of proceedings (Section 253(2) and (3))
The secured creditors who has made application to the tribunal
Corporate Restructuring & Insolvency 25
for determination of sickness may make another application to the
Tribunal for the stay of any proceedings for the following:
(a) for winding up of the company, or
(b) for execution, distress or the like against any property and assets
of the company, or for appointment of a receiver in respect
there of;
(c) for enforcement of any security against the company;
The stay order passed by the tribunal would be operative for 120
days.(section253(3))
Application by Central/State Government/Reserve Bank of India/Scheduled
Bank/Public Financial Institution /State Level Institution may make
reference to Tribunal (Section 253(5))
Without prejudice to the provisions of sub-sections (1) to (4) of
Section 253, the Central Government or the Reserve Bank of India or
a State Government or a public financial institution or a State level
institution or a scheduled bank may, if it has sufficient reasons to
believe that any company has become, for the purposes of this Act, a
sick company, make a reference in respect of such company to the
Tribunal for determination of the measures which may be adopted
with respect to such company:
A reference shall not be made as above in respect of any company
by—
(a) the Government of any State unless all or any of the
undertakings belonging to such company are situated in such
State;
(b) a public financial institution or a State level institution or a
scheduled bank unless it has, by reason of any financial
assistance or obligation rendered by it, or undertaken by it,
with respect to such company, an interest in such company.
Obligation of Company on filing application to tribunal to declare the
company, a sick company
Where an application is made to the tribunal by the secured creditors
or the company itself, as the case may be, ,—
(a) the company shall not dispose of or otherwise enter into any
obligation with regard to, its properties or assets except as
required in the normal course of business;
26 Corporate Restructuring & Insolvency
(b) the Board of Directors shall not take any steps likely to
prejudice the interests of the creditors.
Determination by the Tribunal
The Tribunal shall, within a period of sixty days of the receipt of
an application under sub-section (1) or sub-section (4) (i.e by the
secured creditor or the company on its own), determine whether the
company is a sick company or not:
It may be noted that no such determination shall be made in
respect of an application made by a secured creditor under subsection
(1) of Section 253, unless the company has been given notice of the
application and a reasonable opportunity to reply to the notice within
thirty days of the receipt thereof.
If the Tribunal is satisfied that a company has become a sick
company, the Tribunal shall, after considering all the relevant facts
and circumstances of the case, decide, as soon as may be, by an order
in writing, whether it is practicable for the company to make the
repayment of its debts referred to in sub-section (1) within a reasonable
time.
If the Tribunal deems fit that it is practicable for a sick company
to pay its debts referred to in that sub-section within a reasonable
time, the Tribunal shall, by order in writing and subject to such
restrictions or conditions as may be specified
in the order, give such time to the company as it may deem fit to
make repayment of the debt.
• Application for Revival on determination of Sickness( Section 254)
On the determination of a company as a sick company by the
Tribunal, any secured creditor of that company or the company may
make an application to the Tribunal within sixty days of the
determination of sickness, for the of the measures that may be adopted
with respect to the revival and rehabilitation of such company.
Over riding effect of Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002
1. If the financial assets of the sick company had been acquired
by any securitisation company or reconstruction company
under sub-section (1) of section 5 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002, no such application shall be made without
the consent of securitisation company or reconstruction
company which has acquired such assets.
Corporate Restructuring & Insolvency 27
2. that no reference shall be made under this section if the secured
creditors representing three-fourths in value of the amount
outstanding against financial assistance disbursed to the
borrower have taken measures to recover their secured debt
under sub-section (4) of section 13 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002:
3. In case any reference had been made before the Tribunal and a
scheme for revival and rehabilitation submitted, such reference
shall abate if the secured creditors representing three-fourths
in value of the amount outstanding against financial assistance
disbursed to the borrower have taken measures to recover their
secured debt under sub-section (4) of section 13 of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002:
Application to tribunal with respect to measures for revival is to
be accompanied by draft scheme of revival or rehabilitation in the
prescribed manner, audited financial statement for the immediately
preceding financial year and such other documents as may be
prescribed.
• Appointment of Interim Administrator(Section 256)
When an application for measures for revival or rehabilitation is
received, the tribunal shall not later than seven days from such receipt;
(a) fix a date for hearing not later than ninety days from date of
its receipt;
(b) appoint an interim administrator to convene a meeting of
creditors of the company in accordance with the provisions of
section 257 to be held not later than forty-five days from receipt
of the order of the Tribunal, appointing him to consider whether
on the basis of the particulars and documents furnished with
the application made under section 254, the draft scheme, if
any, filed along with such application or otherwise and any
other material available, it is possible to revive and rehabilitate
the sick company and such other matters, which the interim
administrator may consider necessary for the purpose and to
submit his report to the Tribunal within sixty days from the
date of the order:
If no draft scheme is filed by the company and a declaration has
been made to that effect by the Board of Directors, the Tribunal may
direct the interim administrator to take over the management of the
28 Corporate Restructuring & Insolvency
company and issue such other directions to the interim administrator
as the Tribunal may consider necessary to protect and preserve the
assets of the sick company and for its proper management.
• Meeting of Committee of Creditors (Section 257)
The interim administrator shall appoint a committee of creditors
with such number of members as he may determine, but not exceeding
seven, and as far as possible a representative each of every class of
creditors should be represented in that committee.
The holding of the meeting of the committee of creditors and the
procedure to be followed at such meetings, including the appointment
of its chairperson, shall be decided by the interim administrator.
The interim administrator may direct any promoter, director or
any key managerial personnel to attend any meeting of the committee
of creditors and to furnish such information as may be considered
necessary by the interim administrator.
• Order of the Tribunal for revival or winding up and appointment
of Company Administrator in case of revival(Section 258 & 259)
On the date of hearing fixed by the Tribunal and on consideration
of the report of the interim administrator filed under sub-section (1)
of section 256, if the Tribunal is satisfied that the creditors representing
three-fourths in value of the amount outstanding against the sick
company present and voting have resolved that—
(a) it is not possible to revive and rehabilitate such company, the
Tribunal shall record such opinion and order that the proceedings
for the winding up of the company be initiated; or
(b) by adopting certain measures the sick company may be revived
and rehabilitated, the Tribunal shall appoint a company
administrator for the company and cause such administrator
to prepare a scheme of revival and rehabilitation of the sick
company:
The Tribunal may, if it thinks fit, appoint an interim administrator
as the company administrator.
The interim administrator or the company administrator, as the
case may be, shall be appointed by the Tribunal from a databank
maintained by the Central Government or any institute or agency
authorised by the Central Government in a manner as may be prescribed
consisting of the names of company secretaries, chartered accountants,
cost accountants and such other professionals as may, by notification,
Corporate Restructuring & Insolvency 29
be specified by the Central Government. The terms and conditions of
the appointment of interim and company administrators shall be such
as may be ordered by the Tribunal.(Section 259(1) and (2)
• Takeover of assets or management by Company Administrator
(Section 259(3))
The Tribunal may direct the company administrator to take over
the assets or management of the company and for the purpose of
assisting him in the management of the company, the company
administrator may, with the approval of the Tribunal, engage the
services of suitable expert or experts.
• Scheme of Revival and Rehabilitation(Section 261)
The company administrator shall prepare or cause to be prepared
a scheme of revival and rehabilitation of the sick company after
considering the draft scheme filed along with the application under
section 254.
(2) A scheme prepared in relation to any sick company under subsection
(1) may provide for any one or more of the following measures,
namely:—
(a) the financial reconstruction of the sick company;
(b) the proper management of the sick company by any change
in, or by taking over, the management of such company;
(c) the amalgamation of—
(i) the sick company with any other company; or
(ii) any other company with the sick company;
(d) takeover of the sick company by a solvent company;
(e) the sale or lease of a part or whole of any asset or business of
the sick company;
(f) the rationalisation of managerial personnel, supervisory staff
and workmen in accordance with law;
(g) such other preventive, ameliorative and remedial measures as
may be appropriate;
(h) repayment or rescheduling or restructuring of the debts or
obligations of the sick company to any of its creditors or class
of creditors;
(i) such incidental, consequential or supplemental measures as may
be necessary or expedient in connection with or for the purposes
of the measures specified in clauses (a) to (h).
30 Corporate Restructuring & Insolvency
• Sanction of scheme (Section 262)
Section 262 provides that the scheme for revival and rehabilitation
prepared by the company administrator will be placed before the
separately convened meetings of secured and unsecured creditors of
the sick company within 60 days from the date of his appointment
which shall be extended to 120 days. If the scheme is approved by the
unsecured and secured creditors, the company administrator shall
submit the scheme before the Tribunal for sanctioning the scheme.
If the scheme relates to amalgamation of the sick company with
any other company, such scheme shall, in addition to the approval of
the creditors of the sick company, be laid before the general meeting of
both the companies for approval by their respective shareholders and
no such scheme shall be proceeded with unless it has been approved,
by a special resolution passed by the shareholders of the company.
The scheme shall be examined by the Tribunal and it may also
cause the draft scheme to be published in newspapers, etc., for objections
and suggestions, if any. The Tribunal may also make necessary
modifications in the scheme in the light of suggestions and objections.
On the receipt of the scheme, the Tribunal after satisfying that scheme
had been validity approved pass an order sanctioning such scheme.
The Tribunal may review any sanctioned scheme and may make
such modifications in such scheme as it may deem fit or it may also
direct the company administrator to prepare a fresh scheme.
The sanction accorded by the Tribunal shall be conclusive evidence
and a copy of the sanctioned scheme shall be filed with the Registrar
by the sick company within a period of thirty days from the date of
receipt of a copy thereof.
• Implementation of the scheme(Section 264)
The Tribunal shall, for the purpose of effective implementation of
the scheme, have power to enforce, modify or terminate any contract
or agreement or any obligation pursuant to such agreement or
contract entered into by the company with any other person. The
Tribunal may, if it deems necessary or expedient so to do, by order in
writing, authorise the company administrator appointed under section
259 to implement a sanctioned scheme till its successful
implementation on such terms and conditions as may be specified in
the order and may for that purpose require him to file periodic reports
on the implementation of the sanctioned scheme.
Corporate Restructuring & Insolvency 31
When it is difficult to implement the scheme for any reason or the
scheme fails due to non-implementation of obligations under the
scheme by the parties concerned, the company administrator
authorised to implement the scheme and where there is no such
administrator, the company, the secured creditors, or the transferee
company in a case of amalgamation, may make an application before
the Tribunal for modification of the scheme or to declare the scheme
as failed and that the company may be wound up. The Tribunal shall,
within thirty days of presentation of an application under, pass an
order for modification of the scheme or, as the case may be, declaring
the scheme as failed and pass an order for the winding up of the
company if three-fourths in value of the secured creditors consent to
the modification of the scheme or winding up of the company.
Over residing effect of Securitisation Act
Where an application has been made before the Tribunal for
modification of the scheme sanctioned and such application is pending
before it, such application shall abate, if the secured creditors
representing not less than three-fourths in value of the amount
outstanding against financial assistance disbursed to the sick company
have taken any measures to recover their secured debt under sub-section
(4) of section 13 of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002.
RULES UNDER CHAPTER XIX RELATING TO REVIVAL AND
REHABILITATION OF SICK COMPANIES- HIGH LIGHTS
The rules deals with the aspects such as the prescribed format of
application to the tribunal for declaring the company as sick company,
for stay of proceedings under Section 254, giving notice to debtors
before making application, format of application for revival, format
of order appointing administrator, format of notice of meeting to
creditors and other formats as required under Chapter XIX.
• Every application made to the Tribunal under sub-section (1)
of section 253 by one or more secured creditors of a company,
(hereinafter referred to as ‘Debtor Company’), for determination
whether the debtor company is a sick company, shall be made
in Form A (Prescribed in the Rules). The application can be made
by the secured creditors collectively, wherein they can be
mentioned as ‘secured creditors’ or a single secured creditor on
behalf of others on authorization. It may be noted that the
application for stay of proceedings etc., as specified under Section
254, shall also be made in prescribed for specified in the Rules.
32 Corporate Restructuring & Insolvency
• The application is to be accompanied by the following
1. prescribed fees as specified;
2. copy of the initial demand notice issued by the applicant
upon the debtor company and such notice should be dated
at least ninety days prior to the date of making the
application in the event of non-payment of debt;
3. proof of service of the demand notice upon the debtor
company;
4. any acknowledgement and reply, if any, or correspondence,
if any, received from the debtor company in pursuance of
the demand notice;
5. an up to-date statement of the ledger account of the
respective secured creditors showing the amount receivable
and the amount shown in the demand Notice;
6. copies of the audited financial statements of last five
financial years, if available, of the debtor company;.
7. the authorisation issued by the respective secured creditors
in favour of the creditor acting on authorization for filing
the application and the original authorization issued by
the secured creditor in favour of the signatory of the
application; and
8. any other document which the applicant or applicants may
consider necessary for effective determination of sickness.
• The application to tribunal for declaration as sick company or
with respect to stay of proceedings as specified in Section 253
and Section 254 respectively shall not be made unless a notice
thereof has been issued to the debtor company not less than
fifteen days prior to the making of the application in prescribed
form.
• Every application made to the Tribunal under sub-section (1)
of section 254 by one or more secured creditors of a sick
company, or by the sick company, for determination of
measures that may be adopted with respect to the revival and
rehabilitation of such company shall be made in prescribed
Form F.
• For the purposes of section 256, the notice of meeting of
creditors shall be issued to all creditors in prescribed Form K
Corporate Restructuring & Insolvency 33
and not less than twenty one clear days shall be there between
the date of issue of the notice and the date of the meeting.
• The quorum for a meeting of creditors shall be the presence in
person or by proxy of creditors representing not less than fifty
one percent of value of debts owed by the sick company to the
creditors or creditors representing such other percentage of value
of debts owned by the sick company to that creditors as may
be ordered by the Tribunal and even the presence of single creditor
may be sufficient to form a valid quorum.
• On the date of hearing, if the Tribunal is satisfied that the
creditors representing three-fourth in value of the amount
outstanding against the sick company present and voting
had resolved that it is not possible to revive and rehabilitate
the sick company it may after giving the sick company an
opportunity of being heard, by order direct the winding up
of the sick company or if such requisite majority had resolved
that by adopting certain measures it is possible to revive
and rehabilitate the sick company, it may, by order, appoint
a company administrator directing him to prepare a scheme
of revival and rehabilitation for the sick company. The order
of the Tribunal shall be in Prescribed Form L if the Tribunal
orders the winding up of the sick company and in prescribed
Form M if the Tribunal orders to appoint a company
administrator.
• For the purposes of sub-section (2) of section 262, the company
administrator shall issue a notice in Form O calling separate
meetings of secured and unsecured creditors within sixty days
of his appointment and place the scheme for their approval.
• The quorum for such meetings of creditors shall be the presence
in person or by proxy of creditors representing not less than
three-fourth in value of the amount outstanding against the
sick company, in case of secured creditors and one-fourth in
value in case of unsecured creditors or representing such other
percentage of value of debts owned by the sick company to
that respective class of creditors as may be ordered by the
Tribunal and even the presence of single creditor of that class
may be sufficient to form a valid quorum.
• The company administrator shall make an application in Form
P to the Tribunal for sanctioning the scheme.
34 Corporate Restructuring & Insolvency
SECTION III- WINDING UP
MODES OF WINDING UP
Under Companies Act 2013, the Company may be wound up in
any of the following modes:
1. By National Company Law Tribunal ( the Tribunal);
2. Voluntary winding up
WINDING UP BY THE TRIBUNAL
Grounds on which a Company may be wound up by the Tribunal
A company under Section 271(1) may be wound up by the tribunal
if
(a) if the company is unable to pay its debts;
(b) if the company has, by special resolution, resolved that the
company be wound up by the Tribunal;
(c) if 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;
(d) if the Tribunal has ordered the winding up of the company
under Chapter XIX(I.e Revival and Rehabilitation of Sick
Companies);
(e) if on an application made by the Registrar or any other person
authorized by the Central Government by notification under
this Act, the Tribunal is of the opinion that 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;
(f) if the company has made a default in filing with the Registrar
its financial statements or annual returns for immediately
preceding five consecutive financial years; or
(g) if the Tribunal is of the opinion that it is just and equitable that
the company should be wound up.
Corporate Restructuring & Insolvency 35
Inability to pay debts (Section 271(2)
A company shall be deemed to be unable to pay its debts,—
(a) if a creditor, by assignment or otherwise, to whom the
company is indebted for an amount exceeding one lakh rupees
then due, has served on the company, by causing it to be
delivered at its registered office, by registered post or otherwise,
a demand requiring the company to pay the amount so due
and the company has failed to pay the sum within twentyone
days after the receipt of such demand or to provide adequate
security or re-structure or compound the debt to the reasonable
satisfaction of the creditor;
(b) if any execution or other process issued on a decree or order of
any court or tribunal in favour of a creditor of the company is
returned unsatisfied in whole or in part; or
(c) if it is proved to the satisfaction of the Tribunal that the
company is unable to pay its debts, and, in determining whether
a company is unable to pay its debts, the Tribunal shall take
into account the contingent and prospective liabilities of the
company.
Who may file Petition for the Winding up?
An application for the winding up of a company has to be made
by way of petition to the Court. A petition may be presented under
Section 272 by any of the following persons:
(a) the company; or
(b) any creditor or creditors, including any contingent or
prospective creditor or creditors;
(c) any contributory or contributories;
(d) all or any of the parties specified above in clauses (a), (b), (c)
together
(e) the Registrar;
(f) any person authorised by the Central Government in that
behalf;
(g) by the Central Government or State Government in case falling
under clause (c) of Section 271(1) i.e. Company acing against
the interest of the sovereignty and integrity of India.
36 Corporate Restructuring & Insolvency
Petition by the Company
The company may make a petition through its directors with the
authority of a special resolution passed at a general meeting.
A petition by the Company for winding up before the tribunal will
be admitted only it is accompanied by the statement of affairs,
prescribed in form 4 and shall state the facts upto the date which shall
not be a date more than fifteen days prior to the date of making the
statement. This statement shall be certified by a chartered accountant.
(Section 272(5) read with Rule 5 made under Chapter XX of the
Companies Act 2013)
Every contributory or creditor of the company shall be entitled to
be furnished, by the petitioner or his authorized representative, with a
copy of a petition. The contributory may seek an electronic copy from
the registry of tribunal on payment of prescribed fee. (Rule 5(4) of the
rules made under Chapter XX of the Companies Act 2013.
Petition by Creditor
A creditor or creditors (including any contingent or prospective
creditor) may make petition before the tribunal would make a winding
up order on such petition if the creditor proves that the claims are
undisputed debt.
Contingent or prospective Creditor
Section 272(6) states that before a petition for winding up of a
company presented by a contingent or prospective creditor is admitted,
the leave of the Tribunal shall be obtained for the admission of the
petition and such leave shall not be granted, unless in the opinion of
the Tribunal there is a prima facie case for the winding up of the
company and until such security for costs has been given as the
Tribunal thinks reasonable.
Rule 5(3) of Chapter XX states that a contingent or prospective
creditor is one who is able to prove that he has a bonafide and prima
facie case to establish his claim to the satisfaction of the Tribunal and
his application shall be in accordance with sub-section (6) of section
272 to seek the leave of the Tribunal for the admission of the petition
in Form No. 5. along with the fees as prescribed.
Creditor
The expression “creditors” includes the assignee of debt, a decree
holder, a secured creditor, a debenture holder or the trustee for debenture
holders. But a creditor whose debt is unliquidated cannot apply for
Corporate Restructuring & Insolvency 37
winding up order. A contingent or prospective creditor can present
petition on giving security for costs and showing that a prima facie
case has arisen. A petition by a secured creditor for winding up may
not be allowed by the Court where the security is ample and the petition
is not supported by the other creditors.
In the case of State of Andra Pradesh V Hyderabad Vegetable
Products Co Ltd (1962) 32 Comp. Cases 64(AP), the term creditor as
occurring in Section 439(1) (b) of the 1956 Act(Presently section
272(1)(b))is not limited to one to whom a debt is due at the date of
the petition and who can demand immediate payment. Every person
having a pecuniary claim, whether actual or contingent is a creditor.
As per Section 272(2), a secured creditor, the holder of any
debentures, whether or not any trustee or trustees have been appointed
in respect of such and other like debentures, and the trustee for the
holders of debentures shall be deemed to be creditors.
Petition by Contributory
Who is a Contributory?
Section 2(26) defines “contributory” means a person liable to
contribute towards the assets of the company in the event of its being
wound up. For the purposes of this clause, it is hereby clarified that a
person holding fully paid-up shares in a company shall be considered
as a contributory but shall have no liabilities of a contributory under
the Act whilst retaining rights of such a contributory;
Section 273(2) states that a contributory shall be entitled to present
a petition for the winding up of a company, notwithstanding that he
may be the holder of fully paid-up shares, or that the company may
have no assets at all or may have no surplus assets left for distribution
among the shareholders after the satisfaction of its liabilities, and shares
in respect of which he is a contributory or some of them were either
originally allotted to him or have been held by him, and registered in
his name, for at least six months during the eighteen months
immediately before the commencement of the winding up or have
devolved on him through the death of a former holder.
Petition by Registrar
The Registrar shall be entitled to present a petition for winding up
under sub- section (1) on any of the grounds specified in sub-section
(1) of section 271, except on the grounds specified in clause (b), clause
(d) or clause (g) of that sub-section.
38 Corporate Restructuring & Insolvency
Accordingly the registrar can present a petition on the following
grounds.
1. if the company is unable to pay its debts;
2. if 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. if on an application made by the Registrar or any other person
authorised by the Central Government by notification under
this Act, the Tribunal is of the opinion that 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;
4. if the company has made a default in filing with the Registrar
its financial statements or annual returns for immediately
preceding five consecutive financial years;
The Registrar shall not present a petition on the ground that the
company is unable to pay its debts unless it appears to him either
from the financial condition of the company as disclosed in its balance
sheet or from the report of an inspector appointed under section 210
that the company is unable to pay its debts:
The Registrar shall obtain the previous sanction of the Central
Government to the presentation of a petition: The Central Government
shall not accord its sanction unless the company has been given a
reasonable opportunity of making representations.
Filing a copy of petition with the registrar
A copy of the petition made under this section shall also be filed
with the Registrar and the Registrar shall, without prejudice to any
other provisions, submit his views to the Tribunal within sixty days
of receipt of such petition.
Powers of Tribunal on receipt of petition
According to Section 273, the Tribunal may, on receipt of a petition
for winding up under section 272 pass any of the following orders,
namely:—
(a) dismiss it, with or without costs;
Corporate Restructuring & Insolvency 39
(b) make any interim order as it thinks fit;
(c) appoint a provisional liquidator of the company till the making
of a winding up order;
(d) make an order for the winding up of the company with or
without costs; or
(e) any other order as it thinks fit:
An order under this sub-section shall be made within ninety days
from the date of presentation of the petition.
Before appointing a provisional liquidator under clause (c), the
Tribunal shall give notice to the company and afford a reasonable
opportunity to it to make its representations, if any, unless for special
reasons to be recorded in writing, the Tribunal thinks fit to dispense
with such notice.
The Tribunal shall not refuse to make a winding up order on the
ground only that the assets of the company have been mortgaged for
an amount equal to or in excess of those assets, or that the company
has no assets.
Section 273 (2) states that if a petition is presented on the ground
that it is just and equitable that the company should be wound up,
the Tribunal may refuse to make an order of winding up, if it is of the
opinion that some other remedy is available to the petitioners and
that they are acting unreasonably in seeking to have the company
wound up instead of pursuing the other remedy.
Directions for statement of affairs if the petition is filed
by a person other than a company
Accordingly to Section 274(1) read with the rules made under
Chapter XX, when a petition for winding up is filed before the Tribunal
by any person other than the company, the Tribunal shall, if satisfied
that a prima facie case for winding up of the company is made out,
by an order direct the company to file its objections along with a
statement of its affairs within thirty days of the order in the prescribed
form. The Tribunal may allow a further period of thirty days in a
situation of contingency or special circumstances:
Section 274(2) states that a company, which fails to file the
statement of affairs as referred to in sub-section (1), shall forfeit the
right to oppose the petition and such directors and officers of the
company as found responsible for such non-compliance, shall be liable
for punishment under sub-section (4). As per Section 274(4), if any
40 Corporate Restructuring & Insolvency
director or officer of the company contravenes the provisions of this
section, the director or the officer of the company who is in default
shall be punishable with imprisonment for a term which may extend
to six months or with fine which shall not be less than twenty-five
thousand rupees but which may extend to five lakh rupees, or with
both.
Section 274(3) read with Rules 7(2) of Rules made under Chapter
XX, states that the directors and other officers of the company, in
respect of which an order for winding up is passed by the Tribunal
under clause (d) of sub-section (1) of section 273,(i.e make an order
for the winding up of the company with or without costs) shall, within
a period of thirty days of such order, submit, at the cost of the company,
the books of account of the company completed and audited up to the
date of the order, to such liquidator and in the manner specified by the
Tribunal.
Section 274(5) states that the complaint may be filed in this behalf
before the Special Court by Registrar, provisional liquidator, Company
Liquidator or any person authorised by the Tribunal.
Appointment of Company Liquidators
Section 275(1) States that, for the purposes of winding up of a
company by the Tribunal, the Tribunal at the time of the passing of
the order of winding up, shall appoint an Official Liquidator or a
liquidator from the panel maintained under sub-section (2) as the
Company Liquidator.
Section 275(2) states that the provisional liquidator or the
Company Liquidator, as the case may be, shall be appointed from a
panel maintained by the Central Government consisting of the names
of chartered accountants, advocates, company secretaries, cost
accountants or firms or bodies corporate having such chartered
accountants, advocates, company secretaries, cost accountants and
such other professionals as may be notified by the Central Government
or from a firm or a body corporate of persons having a combination
of such professionals as may be prescribed and having at least ten
years’ experience in company matters.
Section 275 (3) states that if a provisional liquidator is appointed
by the Tribunal, the Tribunal may limit and restrict his powers by the
order appointing him or it or by a subsequent order, but otherwise he
shall have the same powers as a liquidator.
Section 275 (4) enables the Central Government may remove the
Corporate Restructuring & Insolvency 41
name of any person or firm or body corporate from the panel
maintained under sub-section (2) on the grounds of misconduct, fraud,
misfeasance, breach of duties or professional incompetence. However,
the Central Government before removing him or it from the panel
shall give him or it a reasonable opportunity of being heard.
As per Section 275 (5) the terms and conditions of appointment
of a provisional liquidator or Company Liquidator and the fee payable
to him or it shall be specified by the Tribunal on the basis of task
required to be performed, experience, qualification of such liquidator
and size of the company.
As per Section 275 (6) On appointment as provisional liquidator
or Company Liquidator, as the case may be, such liquidator shall file a
declaration within seven days from the date of appointment in the
prescribed form disclosing conflict of interest or lack of independence
in respect of his appointment, if any, with the Tribunal and such
obligation shall continue throughout the term of his appointment.
As per Section 275 (7) while passing a winding up order, the Tribunal
may appoint a provisional liquidator, if any, appointed under clause
(c) of sub-section (1) of section 273, as the Company Liquidator for
the conduct of the proceedings for the winding up of the company.
Rule 6(2) of Rules under Chapter XX states that the rules relating
to company liquidators shall apply to provisional liquidators, so far
as applicable, subject to such variations as the tribunal may direct in
each case.
Removal and replacement of liquidator
As per Section 276 (1) The Tribunal may, on a reasonable cause
being shown and for reasons to be recorded in writing, remove the
provisional liquidator or the Company Liquidator, as the case may be,
as liquidator of the company on any of the following grounds,
namely:—
• misconduct;
• fraud or misfeasance;
• professional incompetence or failure to exercise due care and
diligence in
• performance of the powers and functions;
• inability to act as provisional liquidator or as the case may be,
Company
42 Corporate Restructuring & Insolvency
• Liquidator;
• conflict of interest or lack of independence during the term of
his appointment that would justify removal.
As per Section 276 (2) in the event of death, resignation or removal
of the provisional liquidator or as the case may be, Company
Liquidator, the Tribunal may transfer the work assigned to him or it
to another Company Liquidator for reasons to be recorded in writing.
As per Section 276 (3) if the Tribunal is of the opinion that any
liquidator is responsible for causing any loss or damage to the company
due to fraud or misfeasance or failure to exercise due care and diligence
in the performance of his or its powers and functions, the Tribunal
may recover or cause to be recovered such loss or damage from the
liquidator and pass such other orders as it may think fit.
As per Section 276 (4) The Tribunal shall, before passing any order
under this section, provide a reasonable opportunity of being heard to
the provisional liquidator or, as the case may be, Company Liquidator.
Order of winding up/order of appointment of liquidator
to be communicated to the company liquidator and the
registrar
Section 277 (1) states that Where the Tribunal makes an order for
appointment of provisional liquidator or for the winding up of a
company, it shall, within a period not exceeding seven days from the
date of passing of the order, cause intimation thereof to be sent to the
Company Liquidator or provisional liquidator, as the case may be,
and the Registrar.
Advertisement of Winding up order
As per Rule 7(3) of winding up rules 2013,
(i) At the time of making the winding-up order, or at any time
thereafter, the Tribunal shall give directions as to the
advertisement of the order and the persons, if any, on whom
the order shall be served and the persons, if any, to whom notice
shall be given of the further proceedings in the liquidation, and
such further directions as may be necessary.
(ii) Save as otherwise ordered by the Tribunal, every order for the
winding-up of a company by the Tribunal, shall within fourteen
days of the date of making the order, be advertised by the
petitioner in English and Vernacular language in one issue of a
newspaper in the English language and a newspaper in the
Corporate Restructuring & Insolvency 43
principal regional language respectively circulating in the State
or the Union Territory concerned and shall be served by the
petitioner upon such person, if any, and in such manner as the
Tribunal may direct including publication on the website of
the Tribunal if any or MCA 21 portal.
Registrar’s action on receipt of order of winding up or
order appointing company liquidator
Section 277 (2) states that On receipt of the copy of order of
appointment of provisional liquidator or winding up order, the Registrar
shall make an endorsement to that effect in his records relating to the
company and notify in the Official Gazette that such an order has
been made and in the case of a listed company, the Registrar shall
intimate about such appointment or order, as the case may be, to the
stock exchange or exchanges where the securities of the company are
listed.
Winding up order shall be deemed to be a notice
Section 277 (3) states that the winding up order shall be deemed
to be a notice of discharge to the officers, employees and workmen of
the company, except when the business of the company is continued.
Constitution of winding up committee
Section 277 (4) states that within three 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 and monitor the progress of liquidation proceedings by the
Company Liquidator in carrying out the function as provided in subsection
(5) and such winding up committee shall comprise of the
following persons, namely:—
(i) Official Liquidator attached to the Tribunal;
(ii) nominee of secured creditors; and
(iii) a professional nominated by the Tribunal.
Functions of winding up committee
Section 277(5) states that the Company Liquidator shall be the
convener of the meetings of the winding up committee which shall
assist and monitor the liquidation proceedings in following areas of
liquidation functions, namely:—
(a) taking over assets;
(b) examination of the statement of affairs;
44 Corporate Restructuring & Insolvency
(c) recovery of property, cash or any other assets of the company
including
(d) benefits derived therefrom;
(e) review of audit reports and accounts of the company;
(f) sale of assets;
(g) finalisation of list of creditors and contributories;
(h) compromise, abandonment and settlement of claims;
(i) payment of dividends, if any; and
(j) any other function, as the Tribunal may direct from time to
time.
Report and minutes of the meeting of the winding up
committee
As per section 277(6) the Company Liquidator shall place before
the Tribunal a report along with minutes of the meetings of the
committee on monthly basis duly signed by the members present in
the meeting for consideration till the final report for dissolution of the
company is submitted before the Tribunal.
As per 277 (7), the Company Liquidator shall prepare the draft
final report for consideration and approval of the winding up
committee. As per 277 (8), the final report so approved by the winding
up committee shall be submitted by the Company Liquidator before
the Tribunal for passing of a dissolution order in respect of the company.
Effect of Winding up order
Section 278 states that the order for the winding up of a company
shall operate in favour of all the creditors and all contributories of the
company as if it had been made out on the joint petition of creditors
and contributories.
Stay of suits, etc., on winding up order.
As per section 279. (1) When a winding up order has been passed
or a provisional liquidator has been appointed, no suit or other legal
proceeding shall be commenced, or if pending at the date of the winding
up order, shall be proceeded with, by or against the company, except
with the leave of the Tribunal and subject to such terms as the Tribunal
may impose. Any application to the Tribunal seeking leave under this
section shall be disposed of by the Tribunal within sixty days. Section
Corporate Restructuring & Insolvency 45
279 (2) states that nothing in sub-section (1) shall apply to any
proceeding pending in appeal before the Supreme Court or a High Court.
Jurisdiction of Tribunal
As per Section 280, The Tribunal shall, notwithstanding anything
contained in any other law for the time being in force, have jurisdiction
to entertain, or dispose of,—
(a) any suit or proceeding by or against the company;
(b) any claim made by or against the company, including claims
by or against any of its branches in India;
(c) any application made under section 233;
(d) any scheme submitted under section 262;
(e) any question of priorities or any other question whatsoever,
whether of law or facts, including those relating to assets,
business, actions, rights, entitlements, privileges, benefits, duties,
responsibilities, obligations or in any matter arising out of, or
in relation to winding up of the company, whether such suit
or proceeding has been instituted, or is instituted, or such claim
or question has arisen or arises or such application has been
made or is made or such scheme has been submitted, or is
submitted, before or after the order for the winding up of the
company is made.
Report by Company liquidator
Section 281(1) states that when the Tribunal has made a winding
up order or appointed a Company Liquidator, such liquidator shall,
within sixty days from the order, submit to the Tribunal, a report
containing the following particulars, namely:—
(a) the nature and details of the assets of the company including
their location and value, stating separately the cash balance in
hand and in the bank, if any, and the negotiable securities, if
any, held by the company. The valuation of the assets shall be
obtained from registered valuers for this purpose;
(b) amount of capital issued, subscribed and paid-up;
(c) the existing and contingent liabilities of the company including
names, addresses and occupations of its creditors, stating
separately the amount of secured and unsecured debts, and in
the case of secured debts, particulars of the securities given,
46 Corporate Restructuring & Insolvency
whether by the company or an officer thereof, their value and
the dates on which they were given;
(d) the debts due to the company and the names, addresses and
occupations of the persons from whom they are due and the
amount likely to be realised on account thereof;
(e) guarantees, if any, extended by the company;
(f) list of contributories and dues, if any, payable by them and
details of any unpaid call;
(g) details of trade marks and intellectual properties, if any, owned
by the company;
(h) details of subsisting contracts, joint ventures and
collaborations, if any;
(i) details of holding and subsidiary companies, if any;
(j) details of legal cases filed by or against the company; and
(k) any other information which the Tribunal may direct or the
Company Liquidator may consider necessary to include.
Section 281 (2) states that the Company Liquidator shall include
in his report the manner in which the company was promoted or
formed and whether in his opinion any fraud has been committed by
any person in its promotion or formation or by any officer of the
company in relation to the company since the formation thereof and
any other matters which, in his opinion, it is desirable to bring to the
notice of the Tribunal.
As per Section 281 (3) , the Company Liquidator shall also make a
report on the viability of the business of the company or the steps
which, in his opinion, are necessary for maximising the value of the
assets of the company.
As per Section 281 (4), the Company Liquidator may also, if he
thinks fit, make any further report or reports.
As per Section 281 (5), any person describing himself in writing to
be a creditor or a contributory of the company shall be entitled by
himself or by his agent at all reasonable times to inspect the report
submitted in accordance with this section and take copies thereof or
extracts there from on payment of the prescribed fees.
Directions by the Tribunal on receipt of winding up order
Section 282. (1) states that the Tribunal shall, on consideration of
the report of the Company Liquidator, fix a time limit within which
the entire proceedings shall be completed and the company be dissolved.
Corporate Restructuring & Insolvency 47
The Tribunal may, if it is of the opinion, at any stage of the proceedings,
or on examination of the reports submitted to it by the Company
Liquidator and after hearing the Company Liquidator, creditors or
contributories or any other interested person, that it will not be
advantageous or economical to continue the proceedings, revise the
time limit within which the entire proceedings shall be completed and
the company be dissolved.
Section 282(2) states that the Tribunal may, on examination of
the reports submitted to it by the Company Liquidator and after
hearing the Company Liquidator, creditors or contributories or any
other interested person, order sale of the company as a going concern
or its assets or part thereof. The Tribunal may, where it considers fit,
appoint a sale committee comprising such creditors, promoters and
officers of the company as the Tribunal may decide to assist the
Company Liquidator in sale under this sub-section.
Section 282(3) states that when a report is received from the
Company Liquidator or the Central Government or any person that a
fraud has been committed in respect of the company, the Tribunal
shall, without prejudice to the process of winding up, order for
investigation under section 210, and on consideration of the report of
such investigation it may pass order and give directions under sections
339 to 342 or direct the Company Liquidator to file a criminal
complaint against persons who were involved in the commission of
fraud.
Section 283(4) states that the Tribunal may order for taking such
steps and measures, as may be necessary, to protect, preserve or enhance
the value of the assets of the company.
Custody of Company’s properties
According to Section 283. (1) when a winding up order has been
made or where a provisional liquidator has been appointed, the
Company Liquidator or the provisional liquidator, as the case may be,
shall, on the order of the Tribunal, forthwith take into his or its custody
or control all the property, effects and actionable claims to which the
company is or appears to be entitled to and take such steps and
measures, as may be necessary, to protect and preserve the propertiesof
the company.
According Section 283(2, ), all the property and effects of the
company shall be deemed to be in the custody of the Tribunal from the
date of the order for the winding up of the company, notwithstanding
to anything contained in sub-section (1).
48 Corporate Restructuring & Insolvency
According to Section 283(3) on an application by the Company
Liquidator or otherwise, the Tribunal may, at any time after the making
of a winding up order, require any contributory for the time being on
the list of contributories, and any trustee, receiver, banker, agent, officer
or other employee of the company, to pay, deliver, surrender or transfer
forthwith, or within such time as the Tribunal directs, to the Company
Liquidator, any money, property or books and papers in his custody
or under his control to which the company is or appears to be entitled.
Settlement of list of contributories
Section 285 (1) states that as soon as, may be after the passing of
a winding up order by the Tribunal, the Tribunal shall settle a list of
contributories, cause rectification of register of members in all cases
where rectification is required in pursuance of this Act and shall cause
the assets of the company to be applied for the discharge of its liability.
If it appears to the Tribunal that it would not be necessary to make
calls on or adjust the rights of contributories, the Tribunal may dispense
with the settlement of a list of contributories. Sub-section(2) of section
285, states that in settling the list of contributories, the Tribunal shall
distinguish between those who are contributories in their own right
and those who are contributories as being representatives of, or liable
for the debts of, others.
Rule 10 of Companies (Winding up Rules) 2013 states that
• For the purposes of sub-section (1) of section 285, unless the
Tribunal dispenses with the settlement of a list of contributories,
the Company Liquidator shall prepare and file in the Tribunal
not later than twenty one days after the date of the winding
up order a provisional list of contributories in Form No. 18.
• The Company Liquidator shall obtain date from the Tribunal
for settlement of the list of contributories and shall give notice
of the date appointed to every person included in such list.
Such notice shall be in Form No. 19, and shall be sent by
Registered AD or other recognized modes of service as per section
20 of the Act for acknowledgment to every person included in
the list so as to reach him in the ordinary course of post not
less than fourteen days before the date fixed for the settlement.
• An affidavit in Form No. 20 relating to the dispatch of notice,
shall be filed in the Tribunal not later than two days before the
date fixed for the settlement of the list.
• On the date appointed for the settlement of the list, the Tribunal
Corporate Restructuring & Insolvency 49
shall hear any person who objects to being settled as a
contributory or as a contributory in such character or for such
number of shares as is mentioned in the list, and after such
hearing, shall finally settle the list in accordance with subsection
(1) of section 285. The list when settled shall be certified
by the Tribunal under its seal and shall be in Form No. 21.
• Upon the settlement of the list of contributories, the Company
Liquidator shall forthwith give notice to every person placed
on the list of contributories as finally settled, stating in what
character and for what number of shares he has been placed
on the list, what amount has been called up and what amount
paid up in respect of such shares and in the notice he shall
inform such person that any application for the removal of his
name from the list or for a variation of the list, must be made
to the Tribunal within fifteen days from the date of service on
the contributory of such notice. Such notice shall be in Form
No. 22, and shall be sent to each person settled on the list by
Registered AD or other recognized modes of service as per section
20 of the Act for acknowledgment at the address mentioned in
the list as settled.
• An affidavit of service relating to the despatch of the notices to
the contributories under this Rule shall be filed in the Tribunal
within seven days of the settlement of the list of contributories
by the Tribunal. Such affidavit shall be in Form No. 23.
Section 285 (2) states that in settling the list of contributories, the
Tribunal shall distinguish between those who are contributories in their
own right and those who are contributories as being representatives
of, or liable for the debts of, others.
Section 285 (3) states that while settling the list of contributories,
the Tribunal shall include every person, who is or has been a member,
who shall be liable to contribute to the assets of the company an
amount sufficient for payment of the debts and liabilities and the costs,
charges and expenses of winding up, and for the adjustment of the
rights of the contributories among themselves, subject to the following
conditions, namely:—
(a) a person who has been a member shall not be liable to contribute
if he has ceased to be a member for the preceding one year or
more before the commencement of the winding up;
(b) a person who has been a member shall not be liable to contribute
50 Corporate Restructuring & Insolvency
in respect of any debt or liability of the company contracted
after he ceased to be a member;
(c) no person who has been a member shall be liable to contribute
unless it appears to the Tribunal that the present members are
unable to satisfy the contributions required to be made by them
in pursuance of this Act;
(d) in the case of a company limited by shares, no contribution
shall be required from any person, who is or has been a member
exceeding the amount, if any, unpaid on the shares in respect
of which he is liable as such member;
(e) in the case of a company limited by guarantee, no contribution
shall be required from any person, who is or has been a member
exceeding the amount undertaken to be contributed by him to
the assets of the company in the event of its being wound up
but if the company has a share capital, such member shall be
liable to contribute to the extent of any sum unpaid on any
shares held by him as if the company were a company limited
by shares.
Constitution of Advisory Committee
Tribunal may direct constitution of advisory committee while passing
winding up order
Section 287 (1) states that the Tribunal may, while passing an
order of winding up of a company, direct that there shall be, an advisory
committee to advise the Company Liquidator and to report to the
Tribunal on such matters as the Tribunal may direct.
Members of Advisory committee
Section 287 (2) states that the advisory committee appointed by
the Tribunal shall consist of not more than twelve members, being
creditors and contributories of the company or such other persons in
such proportion as the Tribunal may, keeping in view the circumstances
of the company under liquidation, direct.
Meeting of creditors and contributories to identify the members of advisory
committee
Section 287 (3) states that The Company Liquidator shall convene
a meeting of creditors and contributories, as ascertained from the
books and documents, of the company within thirty days from the
date of order of winding up for enabling the Tribunal to determine the
persons who may be members of the advisory committee.
Corporate Restructuring & Insolvency 51
Advisory Committee may inspect the books of account and other documents
Section 287 (4) states that the advisory committee shall have the
right to inspect the books of account and other documents, assets and
properties of the company under liquidation at a reasonable time.
Procedure for convening the meeting
(5) The provisions relating to the convening of the meetings, the
procedure to be followed thereat and other matters relating to conduct
of business by the advisory committee shall be such as may be
prescribed.
Rule 11(6) of Companies (Winding up) Rules 2013 states the
following procedure to be followed in this regard.
(i) The advisory committee shall meet at such times as it may
from time to time appoint and the Company liquidator or any
member of the committee may also call a meeting of the
committee as and when he thinks necessary.
(ii) The quorum for a meeting of the advisory committee shall be
one third of the total number of the members, or two, whichever
is higher.
(iii) The advisory committee may act by a majority of its members
present at a meeting, but shall not act unless a quorum is
present.
(iv) A member of the advisory committee may resign by notice in
writing signed by him and delivered to the Company Liquidator.
(v) If a member of the advisory committee is adjudged an insolvent,
or compounds or arranges with his creditors, or is absent from
five consecutive meetings of the committee without the leave
of those members who, together with himself, represent the
creditors or contributories, as the case may be, his office shall
become vacant.
(vi) A member of the advisory committee except the Official
Liquidator or his nominee appointed as committee member may
be removed at a meeting of creditors if he represents creditors,
or at a meeting of contributories if he represents contributories,
by an ordinary resolution of which seven days’ notice has been
given, stating the object of the meeting.
Company Liquidator to chair the meeting of advisory committee
Section 287 (6) states that the meeting of advisory committee
shall be chaired by the Company Liquidator.
52 Corporate Restructuring & Insolvency
Submission of periodic reports to the tribunal
Section 288. (1) requires the Company Liquidator to make make
periodical reports to the Tribunal and in any case make a report at the
end of each quarter with respect to the progress of the winding up of
the company in such form and manner as may be prescribed.
Subsection (2) states that the Tribunal may, on an application by the
Company Liquidator, review the orders made by it and make such
modifications as it thinks fit.
Application for stay of winding up –powers of Tribunal
As per 289. (1) The Tribunal may, at any time after making a
winding up order, on an application of promoter, shareholders or
creditors or any other interested person, if satisfied, make an order
that it is just and fair that an opportunity to revive and rehabilitate
the company be provided staying the proceedings for such time but
not exceeding one hundred and eighty days and on such terms and
conditions as it thinks fit. An order under this sub-section shall be
made by the Tribunal only when the application is accompanied with
a scheme for rehabilitation.
As per sub-section (2) The Tribunal may, while passing the order
under sub-section (1), require the applicant to furnish such security
as to costs as it considers fit.
As per sub-section (3) if an order under sub-section (1) is passed
by the Tribunal, the provisions of Chapter XIX shall be followed in
respect of the consideration and sanction of the scheme of revival of
the company.
As per sub-section (4) Without prejudice to the provisions of subsection
(1), the Tribunal may at any time after making a winding up
order, on an application of the Company Liquidator, make an order
staying the winding up proceedings or any part thereof, for such time
and on such terms and conditions as it thinks fit.
As per sub-section (5) The Tribunal may, before making an order,
under this section, require the Company Liquidator to furnish to it a
report with respect to any facts or matters which are in his opinion
relevant to the application.
As per sub-section (6) A copy of every order made under this section
shall forthwith be forwarded by the Company Liquidator to the
Registrar who shall make an endorsement of the order in his books
and records relating to the company.
Corporate Restructuring & Insolvency 53
Rule 16 of Companies (Winding up) Rules 2013 states that the
order by the tribunal staying winding up proceedings shall be filed
with the Registrar of Companies within 15 days of passing such order.
Powers and duties of liquidator
290. (1) states thatsSubject to directions by the Tribunal, if any, in
this regard, the Company Liquidator, in a winding up of a company
by the Tribunal, shall have the power—
(a) to carry on the business of the company so far as may be
necessary for the beneficial winding up of the company;
(b) to do all acts and to execute, in the name and on behalf of the
company, all deeds, receipts and other documents, and for that
purpose, to use, when necessary, the company’s seal;
(c) to sell the immovable and movable property and actionable
claims of the company by public auction or private contract,
with power to transfer such property to any person or body
corporate, or to sell the same in parcels;
(d) to sell the whole of the undertaking of the company as a going
concern;
(e) to raise any money required on the security of the assets of the
company;
(f) to institute or defend any suit, prosecution or other legal
proceeding, civil or criminal, in the name and on behalf of the
company;
(g) to invite and settle claim of creditors, employees or any other
claimant and distribute sale proceeds in accordance with
priorities established under this Act;
(h) to inspect the records and returns of the company on the files
of the Registrar or any other authority;
(i) to prove rank and claim in the insolvency of any contributory
for any balance against his estate, and to receive dividends in
the insolvency, in respect of that balance, as a separate debt
due from the insolvent, and rateably with the other separate
creditors;
(j) to draw, accept, make and endorse any negotiable instruments
including cheque, bill of exchange, hundi or promissory note
in the name and on behalf of the company, with the same effect
with respect to the liability of the company as if such
54 Corporate Restructuring & Insolvency
instruments had been drawn, accepted, made or endorsed by
or on behalf of the company in the course of its business;
(k) to take out, in his official name, letters of administration to
any deceased contributory, and to do in his official name any
other act necessary for obtaining payment of any money due
from a contributory or his estate which cannot be conveniently
done in the name of the company, and in all such cases, the
money due shall, for the purpose of enabling the Company
Liquidator to take out the letters of administration or recover
the money, be deemed to be due to the Company Liquidator
himself;
(l) to obtain any professional assistance from any person or
appoint any professional, in discharge of his duties, obligations
and responsibilities and for protection of the assets of the
company, appoint an agent to do any business which the
Company Liquidator is unable to do himself;
(m) to take all such actions, steps, or to sign, execute and verify
any paper, deed, document, application, petition, affidavit, bond
or instrument as may be necessary,—
– for winding up of the company;
– for distribution of assets;
– in discharge of his duties and obligations and functions as
Company Liquidator; and
(n) to apply to the Tribunal for such orders or directions as may be
necessary for the winding up of the company.
Sub-section (2) states that the exercise of powers by the Company
Liquidator under sub-section (1) shall be subject to the overall control
of the Tribunal.
Sub-section (3) states that notwithstanding the provisions of subsection
(1), the Company Liquidator shall perform such other duties
as the Tribunal may specify in this behalf.
Provision for professional assistance to Company
Liquidator
As per 291 (1) The Company Liquidator may, with the sanction
of the Tribunal, appoint one or more chartered accountants or company
secretaries or cost accountants or legal practitioners or such other
professionals on such terms and conditions, as may be necessary, to
Corporate Restructuring & Insolvency 55
assist him in the performance of his duties and functions under this
Act. Sub-section (2) states that any person appointed under this section
shall disclose forthwith to the Tribunal in the prescribed form any
conflict of interest or lack of independence in respect of his appointment.
Exercise and control of company liquidators’powers
Section 292. (1) states that subject to the provisions of this Act,
the Company Liquidator shall, in the administration of the assets of
the company and the distribution thereof among its creditors, have
regard to any directions which may be given by the resolution of the
creditors or contributories at any general meeting or by the advisory
committee.
As per sub-section (2) any directions given by the creditors or
contributories at any general meeting shall, in case of conflict, be
deemed to override any directions given by the advisory committee.
As per sub-section (3) The Company Liquidator—
(a) may summon meetings of the creditors or contributories,
whenever he thinks fit, for the purpose of ascertaining their
wishes; and
(b) shall summon such meetings at such times, as the creditors or
contributories, as the case may be, may, by resolution, direct,
or whenever requested in writing to do so by not less than onetenth
in value of the creditors or contributories, as the case
may be.
(4) Any person aggrieved by any act or decision of the Company
Liquidator may apply to the Tribunal, and the Tribunal may confirm,
reverse or modify the act or decision complained of and make such
further order as it thinks just and proper in the circumstances.
Register of Books to be maintained by the Company
Liquidator.
For the purpose of sub-section (1) of Section 293 and sub-section
(1) of section 294, the company liquidator shall maintain the following
books, so far as may be applicable, in respect of the company under
winding up. This is prescribed under rule 20 of Companies (Winding
up Rules) 2013.
• Register of Liquidations in Form No. 41-A.
• Central Cash Book in Form No.41-B
• Company’s Cash Book in Form No. 41-C.
56 Corporate Restructuring & Insolvency
• General Ledger in Form No. 41-D.
• Cashier’s Cash Book in Form No. 41-E
• Bank Ledger in Form No. 41-F.
• Register of Assets in Form No. 41-G
• Securities and Investment Register in Form No. 41-H.
• Register of Book Debts and Outstandings in Form No. 41-I.
• Tenants Ledger in Form No. 41-J.
• Suits Register in Form No. 41-K.
• Decree Register in Form No. 41-L.
• Sales Register in Form No. 41-M.
• Register of Claims and Dividends in Form No. 41-N.
• Contributories Ledger in Form No. 41-O.
• Dividends Paid Register in Form No. 41-P.
• Commission Register in Form No. 41-Q.
• Suspense Register in Form No. 41-R.
• Documents Register in Form No. 41-S.
• Books Register in Form No. 41-T.
• Register of unpaid dividends and undistributed assets, deposited
into the Company Liquidation Dividend and Undistributed
Assets Account in a scheduled bank, in Form No. 41-U and
• A Record Book for each company in which shall be entered all
minutes of proceedings and the resolutions passed at any
meeting of the creditors or contributories or of the Advisory
Committee, the substance of all orders passed by the Court in
the liquidation proceedings, and all such matters other than
matters of account as may be necessary to furnish a correct
view of the administration of the company’s affairs.
Filing of Half-yearly accounts with the Tribunal
Section 294(2) states that the Company Liquidator shall, at such
times as may be prescribed but not less than twice in each year during
his tenure of office, present to the Tribunal an account of the receipts
and payments as such liquidator in the prescribed form in duplicate,
Corporate Restructuring & Insolvency 57
which shall be verified by a declaration in such form and manner as
may be prescribed.
Rule 21 of the Companies (winding up ) Rules, 2013 states that for
the purpose of sub-section (2) of section 294, unless otherwise ordered
by the Tribunal, the Company Liquidator shall file his accounts in the
Tribunal twice a year. Such accounts shall be made up to the 31st of
March and 30th of September every year, the account for the period
ending 31st March being filed not later than the 30th of June following,
and account for the period ending 30th September, not later than the
31st of December following. The account shall be a statement of receipts
and payments in Form No. 42 and shall be prepared in accordance
with the instructions contained therein. Three copies thereof shall be
filed, and the account shall be verified by an affidavit of the Company
Liquidator in Form No.43. The final account shall be inForm No. 44.
If the Company Liquidator has not during the period of account
received or paid any sum of money on account of the assets of the
company, he shall file an affidavit of no receipts or payments on the
date on which he shall have to file his accounts for the period. As soon
as the accounts are filed, the Registrar of Tribunal shall forward to the
auditor one copy thereof within 15 days for purposes of audit with a
requisition in Form No. 45 requesting that the accounts may be audited
and a certificate of audit submitted to the Tribunal not later than one
month from the date of receipt of the copy of the account as required
under subsection (4) of section 294. However, the accounts need not
be got audited where the transaction during the period is for rupees
five thousand or less.
Audit of company liquidator’s accounts
Section 294(3) states that the Tribunal shall cause the accounts to
be audited in such manner as it thinks fit, and for the purpose of the
audit, the Company Liquidator shall furnish to the Tribunal with such
vouchers and information as the Tribunal may require, and the Tribunal
may, at any time, require the production of, and inspect, any books of
account kept by the Company Liquidator.
Section 294(4) states that when the accounts of the company
have been audited, one copy thereof shall be filed by the Company
Liquidator with the Tribunal, and the other copy shall be delivered to
the Registrar which shall be open to inspection by any creditor,
contributory or person interested.
Rule 21(5) of Companies (Winding up Rules) 2013 states that the
accounts shall be audited by one or more Chartered Accountants
appointed by the Tribunal. The audit shall be a complete check of the
58 Corporate Restructuring & Insolvency
accounts of the Company Liquidator. The Company Liquidator shall
produce before the auditor all his books and vouchers for the purposes
of the audit, and shall give the auditor all such explanations,
information and assistance as may be required of him in respect of the
accounts.
Rule 21(6) state that after the audit of the accounts of the Company
Liquidator filed in Tribunal, the auditor shall forward to the Registrar
a certificate of audit relating to the account with his observations
and comments, if any, on the account, together with a copy thereof
and shall forward another copy to the Company Liquidator in
accordance with sub-section (4) of section 294. The Registrar shall file
the original certificate with the records and forward the copy to the
Registrar of Companies together with a copy of the account to which
it relates.
Rules 21(8) states that for the purposes of sub-section (4) of section
294, any creditor or contributory or person interested shall be entitled
to inspect the accounts and the auditor’s certificate in the office of the
Registrar of Companies on payment of such fee and to obtain a copy
thereof on payment of prescribed fees.
Section 294(6) states that (6) the Company Liquidator shall cause
the accounts when audited, or a summary thereof, to be printed, and
shall send a printed copy of the accounts or summary thereof by post
to every creditor and every contributory.
Section 294(5) states that where an account referred to in subsection
(4) relates to a Government company, the Company Liquidator
shall forward a copy thereof—
(a) to the Central Government, if that Government is a member of
the Government company; or
(b) to any State Government, if that Government is a member of
the Government company; or
(c) to the Central Government and any State Government, if both
the Governments are members of the Government company.
Rule 21(9) states that, upon the audit of the account, the Registrar
of Tribunal shall place the statement of account and the auditor’s
certificate before the Bench for its consideration and orders.
Payment of debt by the Contributory and the extent of
set off
As per Section 295. (1) the Tribunal may, at any time after passing
Corporate Restructuring & Insolvency 59
of a winding up order, pass an order requiring any contributory for
the time being on the list of contributories to pay, in the manner directed
by the order, any money due to the company, from him or from the
estate of the person whom he represents, exclusive of any money
payable by him or the estate by virtue of any call in pursuance of this
Act.
According to sub-section (2) the Tribunal, in making an order,
under sub-section (1), may,—
(a) in the case of an unlimited company, allow to the contributory,
by way of setoff, any money due to him or to the estate which
he represents, from the company, on any independent dealing
or contract with the company, but not any money due to him
as a member of the company in respect of any dividend or profit;
and
(b) in the case of a limited company, allow to any director or
manager whose liability is unlimited, or to his estate, such setoff.
As per subsection(3) in the case of any company, whether limited
or unlimited, when all the creditors have been paid in full, any money
due on any account whatever to a contributory from the company
may be allowed to him by way of set-off against any subsequent call.
Power of the Tribunal to make calls/Distribution of surplus
As per Section 296, the Tribunal may, at any time after the passing
of a winding up order, and either before or after it has ascertained the
sufficiency of the assets of the company,—
(a) make calls on all or any of the contributories for the time being
on the list of the contributories, to the extent of their liability,
for payment of any money which the Tribunal considers
necessary to satisfy the debts and liabilities of the company,
and the costs, charges and expenses of winding up, and for the
adjustment of the rights of the contributories among
themselves; and
(b) make an order for payment of any calls so made.
As per section 297 the Tribunal shall adjust the rights of the
contributories among themselves and distribute any surplus among
the persons entitled thereto.
60 Corporate Restructuring & Insolvency
Power to summon persons suspected of having property
of company, etc.
As per 299 (1) The Tribunal may, at any time after the appointment
of a provisional liquidator or the passing of a winding up order,
summon before it any officer of the company or person known or
suspected to have in his possession any property or books or papers, of
the company, or known or suspected to be indebted to the company,
or any person whom the Tribunal thinks to be capable of giving
information concerning the promotion, formation, trade, dealings,
property, books or papers, or affairs of the company.
As per 299 (2) The Tribunal may examine any officer or person so
summoned on oath concerning the matters aforesaid, either by word
of mouth or on written interrogatories or on affidavit and may, in the
first case, reduce his answers to writing and require him to sign them.
As per 299 (3) The Tribunal may require any officer or person so
summoned to produce any books and papers relating to the company
in his custody or power, but, where he claims any lien on books or
papers produced by him, the production shall be without prejudice to
such lien, and the Tribunal shall have power to determine all questions
relating to that lien.
As per 299 (4) The Tribunal may direct the liquidator to file before
it a report in respect of debt or property of the company in possession
of other persons.
As per 299 (5) If the Tribunal finds that—
(a) a person is indebted to the company, the Tribunal may order
him to pay to the provisional liquidator or, as the case may be,
the liquidator at such time and in such manner as the Tribunal
may consider just, the amount in which he is indebted, or any
part thereof, either in full discharge of the whole amount or
not, as the Tribunal thinks fit, with or without costs of the
examination;
(b) a person is in possession of any property belonging to the
company, the Tribunal may order him to deliver to the
provisional liquidator or, as the case may be, the liquidator,
that property or any part thereof, at such time, in such manner
and on such terms as the Tribunal may consider just.
As per 299 (6) If any officer or person so summoned fails to appear
before the Tribunal at the time appointed without a reasonable cause,
the Tribunal may impose an appropriate cost.
Corporate Restructuring & Insolvency 61
As per 299 (7) Every order made under sub-section (5) shall be
executed in the same manner as decrees for the payment of money or
for the delivery of property under the Code of Civil Procedure, 1908.
As per 299 (8) Any person making any payment or delivery in
pursuance of an order made under sub-section (5) shall by such
payment or delivery be, unless otherwise directed by such order,
discharged from all liability whatsoever in respect of such debt or
property.
Draft Rules under Winding up Chapter of Companies Act,
2013
An application for the examination of a person under section 299
may be made ex-parte, provided that where the application is made
by any person other than the Company Liquidator, notice of the
application shall be given to the Company Liquidator. The application
shall be in Form No. 46 and, where the application is by the Company
Liquidator, it shall be accompanied by a statement signed by him setting
forth the facts on which the application is based. Where the application
is made by a person other than the Company Liquidator, the
application shall be supported by an affidavit of the applicant setting
forth the matters in respect of which the examination is sought and
the grounds, relied on in support of the application.
The summons issued in pursuance of the order shall be in Form No.
47 and shall be served by Registered AD or other recognized modes of
service as per section 20 of the Act on the person to be examined not less
than seven days before the date fixed for the examination. The Tribunal
at its discretion may give a reasonable sum towards expenses to such
person for appearing before the Tribunal, if it deems to be justifiable.
The Company Liquidator shall have the conduct of an examination
under section 299, provided that the Tribunal may, if for any reasons
it thinks fit to do so, entrust the conduct of the examination to any
contributory or creditors. Where the conduct of the examination is
entrusted to any person other than the Company Liquidator, the
Company Liquidator shall nevertheless be entitled to be present at the
examination in person or by authorised representative, and may take
notes of the examination for his own use and put such questions to
the person examined as the Tribunal may allow.
Save as aforesaid, no person shall be entitled to take part in an
examination under section 299 except the Company Liquidator and
his authorised representative, but any person examined shall be entitled
to have the assistance of his authorised representative, who may re62
Corporate Restructuring & Insolvency
examine the witness. The Tribunal may permit, if it thinks fit, any
creditor or contributory to attend the examination subject to such
conditions as it may impose. Notes of the examination may be
permitted to be taken by the witness or any person on his behalf on
his giving an undertaking to the Tribunal that such notes shall be
used only for the purpose of the re-examination of the witness. On the
conclusion of the examination, the notes shall, unless otherwise
directed, be handed over to the Tribunal for destruction.
The notes of the deposition of a person examined under section
299 shall be signed by such person and shall be lodged in the office of
the Registrar. But the notes shall not be open for the inspection of any
creditor, contributory or other person, except the Company Liquidator,
nor shall a copy thereof or extract therefrom be supplied to any person
other than the Company Liquidator, save upon orders of Tribunal. The
Tribunal may from time to time give such general or special directions
as it shall think expedient as to the custody and inspection of such
notes and the furnishing of copies thereof or extracts therefrom.
Power to order examination
As per Section 300 (1) When an order has been made for the
winding up of a company by the Tribunal, and the Company Liquidator
has made a report to the Tribunal under this Act, stating that in his
opinion a fraud has been committed by any person in the promotion,
formation, business or conduct of affairs of the company since its
formation, the Tribunal may, after considering the report, direct that
such person or officer shall attend before the Tribunal on a day
appointed by it for that purpose, and be examined as to the promotion
or formation or the conduct of the business of the company or as to
his conduct and dealings as an officer thereof.
As per Section 300 (2) the Company Liquidator shall take part in
the examination, and for that purpose he or it may, if specially
authorised by the Tribunal in that behalf, employ such legal assistance
as may be sanctioned by the Tribunal.
As per Section 300 (3) the person shall be examined on oath and
shall answer all such questions as the Tribunal may put, or allow to
be put, to him.
As per Section 300 (4) A person ordered to be examined under this
section—
(a) shall, before his examination, be furnished at his own cost with
a copy of the report of the Company Liquidator; and
Corporate Restructuring & Insolvency 63
(b) may at his own cost employ chartered accountants or company
secretaries or cost accountants or legal practitioners entitled
to appear before the Tribunal under section 432, who shall be
at liberty to put to him such questions as the Tribunal may
consider just for the purpose of enabling him to explain or
qualify any answers given by him.
As per Section 300 (5) If any such person applies to the Tribunal to
be exculpated from any charges made or suggested against him, it
shall be the duty of the Company Liquidator to appear on the hearing
of such application and call the attention of the Tribunal to any matters
which appear to the Company Liquidator to be relevant.
As per Section 300 (6) If the Tribunal, after considering any evidence
given or hearing witnesses called by the Company Liquidator, allows
the application made under sub-section (5), the Tribunal may order
payment to the applicant of such costs as it may think fit.
As per Section 300 (7) Notes of the examination shall be taken
down in writing, and shall be read over to or by, and signed by, the
person examined, a copy be supplied to him and may thereafter be
used in evidence against him, and shall be open to inspection by any
creditor or contributory at all reasonable times.
Rule 22 of Companies (Winding up) Rules 2013
Where an order is made for the examination of any person or
persons under section 300, the examination shall be held before the
Bench. The Bench may direct that the whole or any part of the
examination of any such person or persons be held before any of the
officers mentioned in sub-section (9) of the said section as may be
mentioned in the order. If the date of the examination has not been
fixed by the order, the Company Liquidator shall take an appointment
from the Bench, or officer before whom the examination is to be held
as to the date of the examination. The order directing a public
examination shall be in Form No. 48. The Bench may, if it thinks fit,
either in the order for examination or by any subsequent order, give
directions as to the specific matters on which such person is to be
examined.
Not less than seven clear days before the date fixed for the
examination, the Company Liquidator shall give notice thereof to the
creditors and contributories of the company of advertisement in Form
No. 49 in such newspapers as the Bench shall direct, and shall within
the same period, serve, either personally or by Registered AD or other
recognized modes of service as per section 20 of the Act, on the person
64 Corporate Restructuring & Insolvency
or persons to be examined, a notice in Form No. 50 of the date and
hour fixed for the examination and the officer before whom it is to be
held, together with a copy of the order directing the examination.
Where a public examination is adjourned, it shall not be necessary to
advertise the adjournment or serve notice thereof unless otherwise
ordered.
The copy of the notes of every public examination shall, after being
signed as required by sub-section (7) of section 300, form part of the
records of winding-up. The Company Liquidator, the person examined
and any creditor or contributory of the company shall be entitled to
obtain a copy thereof from the Tribunal on payment of charges
prescribed. If any person who has been directed by the Tribunal to
attend for examination under section 299 or section 300 fails to attend
at the time and place appointed for holding or proceeding with the
same and no reasonable cause is shown by him for such failure, suitable
costs may be imposed on him.
Dissolution
As per 302 (1) When the affairs of a company have been completely
wound up, the Company Liquidator shall make an application to the
Tribunal for dissolution of such company.
As per 302 (2) The Tribunal shall on an application filed by the
Company Liquidator under sub-section (1) or when the Tribunal is of
the opinion that it is just and reasonable in the circumstances of the
case that an order for the dissolution of the company should be made,
make an order that the company be dissolved from the date of the
order, and the company shall be dissolved accordingly.
As per 302 (3) A copy of the order shall, within thirty days from
the date thereof, be forwarded by the Company Liquidator to the
Registrar who shall record in the register relating to the company a
minute of the dissolution of the company.
As per 302 (4) If the Company Liquidator makes a default in
forwarding a copy of the order within the period specified in sub-section
(3), the Company Liquidator shall be punishable with fine which may
extend to five thousand rupees for every day during which the default
continues
VOLUNTARY WINDING UP
Circumstances in which a company may be wound up voluntarily
As per Section 304(1), a company may be wound up voluntarily,—
Corporate Restructuring & Insolvency 65
(a) if the company in general meeting passes a resolution requiring
the company to be wound up voluntarily as a result of the
expiry of the period for its duration, if any, fixed by its articles
or on the occurrence of any event in respect of which the articles
provide that the company should be dissolved; or
(b) if the company passes a special resolution that the company be
wound up voluntarily.
Declaration of Solvency
The declaration to be made by the director or directors or in case
the company has more than two directors, by the majority of directors
of a company under sub-section (1) of section 305 read with rule 24
of Companies (Winding up) Rules 2013 shall be in Form No. 51 and
such a declaration has to be made at a meeting of the Board, make a
declaration verified by an affidavit to the effect that they have made a
full inquiry into the affairs of the company and they have formed an
opinion that the company has no debt or whether it will be able to
pay its debts in full from the proceeds of assets sold in voluntary
winding up.
A declaration made under Section 305(1) shall have no effect for
the purposes of this Act, unless—
(a) it is made within five weeks immediately preceding the date of
the passing of the resolution for winding up the company and
it is delivered to the Registrar for registration before that date;
(b) it contains a declaration that the company is not being wound
up to defraud any person or persons;
(c) it is accompanied by a copy of the report of the auditors of the
company prepared in accordance with the provisions of this
Act, on the profit and loss account of the company for the
period commencing from the date up to which the last such
account was prepared and ending with the latest practicable
date immediately before the making of the declaration and the
balance sheet of the company made out as on that date which
would also contain a statement of the assets and liabilities of
the company on that date; and
(d) where there are any assets of the company, it is accompanied
by a report of the valuation of the assets of the company
prepared by a registered valuer
Section 305(4) states that when the company is wound up in
66 Corporate Restructuring & Insolvency
pursuance of a resolution passed within a period of five weeks after
the making of the declaration, but its debts are not paid or provided
for in full, it shall be presumed, until the contrary is shown, that the
director or directors did not have reasonable grounds for his or their
opinion under sub-section (1).
Section 305(5) states that any director of a company making a
declaration under this section without having reasonable grounds for
the opinion that the company will be able to pay its debts in full from
the proceeds of assets sold in voluntary winding up shall be punishable
with imprisonment for a term which shall not be less than three years
but which may extend to five years or with fine which shall not be
less than fifty thousand rupees but which may extend to three lakh
rupees, or with both.
Meeting of Creditors
As per Section 306. (1) the company shall along with the calling
of meeting of the company at which the resolution for the voluntary
winding up is to be proposed, cause a meeting of its creditors either on
the same day or on the next day and shall cause a notice of such
meeting to be sent by registered post to the creditors with the notice of
the meeting of the company under section 304.
Sub-section (2) requires the Board of Directors of the company
to—
(a) cause to be presented a full statement of the position of the
affairs of the company together with a list of creditors of the
company, if any, copy of declaration under section 305 and
the estimated amount of the claims before such meeting; and
(b) appoint one of the directors to preside at the meeting.
Sub-section(3) states that when two-thirds in value of creditors
of the company are of the opinion that—
(a) it is in the interest of all parties that the company be wound
up voluntarily, the company shall be wound up voluntarily;
or
(b) the company may not be able to pay for its debts in full from
the proceeds of assets sold in voluntary winding up and pass a
resolution that it shall be in the interest of all parties if the
company is wound up by the Tribunal, the company shall
within fourteen days thereafter file an application before the
Tribunal.
Corporate Restructuring & Insolvency 67
As per sub-section (4) the notice of any resolution passed at a
meeting of creditors in pursuance of this section shall be given by the
company to the Registrar within ten days of the passing thereof.
As per sub-section (5) if a company contravenes the provisions of
this section, the company shall be punishable with fine which shall
not be less than fifty thousand rupees but which may extend to two
lakh rupees and the director of the company who is in default shall be
punishable with imprisonment for a term which may extend to six
months or with fine which shall not be less than fifty thousand rupees
but which may extend to two lakh rupees, or with both.
Publication of resolution of creditors
As per Section 307. (1) when a company has passed a resolution
for voluntary winding up and a resolution under sub-section (3) of
section 306 is passed, it shall within fourteen days of the passing of
the resolution give notice of the resolution by advertisement in the
Official Gazette and also in a newspaper which is in circulation in the
district where the registered office or the principal office of the company
is situate.Sub-section (2) states that if a company contravenes the
provisions of sub-section (1), the company and every officer of the
company who is in default shall be punishable with fine which may
extend to five thousand rupees for every day during which such default
continues.
When does voluntary winding up commence?
As per Section 308 voluntary winding up shall be deemed to
commence on the date of passing of the resolution for voluntary
winding up under section 304.ie special resolution or resolution on
the expiry of period fixed by its articles or on occurrence of any event
in respect of which the articles provide that the company should be
dissolved.
What is the effect of commencement of voluntary winding up?
As per Section 309 In the case of a voluntary winding up, the
company shall from the commencement of the winding up cease to
carry on its business except as far as required for the beneficial winding
up of its business. However, the Corporate state and corporate powers
of the company shall continue until it is dissolved.
Appointment of Company Liquidator
As per 310. (1) the company in its general meeting, where a
resolution of voluntary winding up is passed, shall appoint a Company
68 Corporate Restructuring & Insolvency
Liquidator from the panel prepared by the Central Government for the
purpose of winding up its affairs and distributing the assets of the
company and recommend the fee to be paid to the Company
Liquidator.
As per sub-section (2) when the creditors have passed a resolution
for winding up the company under sub-section (3) of section 306, the
appointment of the Company Liquidator under this section shall be
effective only after it is approved by the majority of creditors in value
of the company: When such creditors do not approve the appointment
of such Company Liquidator, creditors shall appoint another Company
Liquidator.
As per sub-section (3) The creditors while approving the
appointment of Company Liquidator appointed by the company or
appointing the Company Liquidator of their own choice, as the case
may be, pass suitable resolution with regard to the fee of the Company
Liquidator.
As per Sub-section (4) On appointment as Company Liquidator,
such liquidator shall file a declaration in the prescribed form within
seven days of the date of appointment disclosing conflict of interest or
lack of independence in respect of his appointment, if any, with the
company and the creditors and such obligation shall continue
throughout the term of his or its appointment.
Power to remove and fill the vacancy of company
liquidator
According to Section 311(1) a Company Liquidator appointed
under section 310 may be removed by the company where his
appointment has been made by the company and, by the creditors,
where the appointment is approved or made by such creditors.
Sub-section (2) states that when a Company Liquidator is sought
to be removed under this section, he shall be given a notice in writing
stating the grounds of removal from his office by the company or the
creditors, as the case may be.
Sub-section (3) states that when three-fourth members of the
company or three-fourth of creditors in value, as the case may be,
after consideration of the reply, if any, filed by the Company Liquidator,
in their meeting decide to remove the Company Liquidator, he shall
vacate his office.
Sub-section(4) states that if a vacancy occurs by death, resignation,
removal or otherwise in the office of any Company Liquidator
Corporate Restructuring & Insolvency 69
appointed under section 310, the company or the creditors, as the
case may be, fill the vacancy in the manner specified in that section.
Rule 25 states the following regarding vacation of office
of company liquidator
Rule 25(4) states that a Company Liquidator against whom an
order of insolvency is made shall there by vacate his office, and for the
purposes of the Act and the Rules, shall be deemed to have been removed.
Further, a Company Liquidator who is found guilty of professional or
other misconduct under the respective laws governing the profession
to which he belongs, shall vacate his office, and for the purposes of the
application of the Act and the Rules, he shall be deemed to have been
removed.
Rule 25(5) states that a Company Liquidator appointed by the
members or creditors who desires to resign from his office, shall
summon a meeting of the members or creditors, as the case may be,
to submit his resignation and shall submit an account of his acts and
dealings as liquidator and a statement as to the position of the
liquidation during his tenure and all the relevant documents including
books of accounts. The expenses of summoning the meeting shall be
part of the expenses of the liquidation. The company shall give the
notice of intimation of resignation to the Registrar of Companies in
Form No. 57within ten days of such meeting with filing fees as
prescribed.
Notice of Appointment of Company Liquidator to be given
to the Registrar
According to Section 312(1) of the Company shall give notice to
the Registrar of the appointment of a Company Liquidator along with
the name and particulars of the Company Liquidator, of every vacancy
occurring in the office of Company Liquidator, and of the name of the
Company Liquidator appointed to fill every such vacancy within ten
days of such appointment or the occurrence of such vacancy.
Rule 25(2) of Companies Winding up Rules 2013 states that for
the purposes of sub- section (1) of section 312, the notice of
appointment of the Company Liquidator, of every vacancy occurring
in the office of the Company Liquidator and of the name of the
Company Liquidator appointed to fill every such vacancy shall be given
to the Registrar of Companies within ten days thereof in Form No.
56.with filing fees as prescribed.
Sub-section (2) states that if a company contravenes the provisions
70 Corporate Restructuring & Insolvency
of sub-section (1), the company and every officer of the company
who is in default shall be punishable with fine which may extend to
five hundred rupees for every day during which such default continues.
Powers of the Board shall cease on the appointment of
Company Liquidator
According to Section 313, on the appointment of a Company
Liquidator, all the powers of the Board of Directors and of the managing
or whole-time directors and manager, if any, shall cease, except for the
purpose of giving notice of such appointment of the Company
Liquidator to the Registrar.
Powers and duties of liquidator in voluntary winding up
Section 314 deals with the powers and duties of liquidator in
voluntary winding up. Accordingly, the powers and duties are as
follows.
(1) The Company Liquidator shall perform such functions and
discharge such duties as may be determined from time to time
by the company or the creditors, as the case may be.
(2) The Company Liquidator shall settle the list of contributories,
which shall be prima facie evidence of the liability of the persons
named therein to be contributories.
(3) The Company Liquidator shall call general meetings of the
company for the purpose of obtaining the sanction of the
company by ordinary or special resolution, as the case may
require, or for any other purpose he may consider necessary.
(4) The Company Liquidator shall maintain regular and proper
books of account in such form and in such manner as may be
prescribed and the members and creditors and any officer
authorised by the Central Government may inspect such books
of account.
(5) The Company Liquidator shall prepare quarterly statement of
accounts in such form and manner as may be prescribed and
file such statement of accounts duly audited within thirty days
from the close of each quarter with the Registrar, failing which
the Company Liquidator shall be punishable with fine which
may extend to five thousand rupees for every day during which
the failure continues.
(6) The Company Liquidator shall pay the debts of the company
and shall adjust the rights of the contributories among
themselves.
Corporate Restructuring & Insolvency 71
(7) The Company Liquidator shall observe due care and diligence
in the discharge of his duties.
If the Company Liquidator fails to comply with the provisions of
this section except sub-section (5) he shall be punishable with fine
which may extend to ten lakh rupees.
Rule 25(3) of Companies (Winding up) Rules 2013 states that the
Company Liquidator not to accept any gift, commission,
remuneration or pecuniary or other benefit and restriction on purchase
of goods. A Company Liquidator shall not, under any circumstances
whatsoever, make any arrangement for, or accept from any authorised
representative, auctioneer or any other person connected with company
of which he is the liquidator, or employed in or in connection with the
winding-up of the company, any gift, commission, remuneration, or
pecuniary or other benefit whatsoever beyond the remuneration to
which he is entitled as liquidator under the Act and the Rules, nor shall
he make any arrangement for giving up, or give up any part of such
remuneration to any such person.Where the Company Liquidator
carries on the business of the company, he shall not, purchase goods
for carrying on of such business from any person which would result
in any direct or indirect benefit out of the transaction.
Rule 25(6) states that for the purpose of sub-section (4) of section
314, the Company Liquidator shall keep proper books of account as
provided in rule 20 so far as may be applicable . In addition to the
books of account, the Company Liquidator shall keep a record book
in which he shall enter minutes of all the proceedings and resolutions
passed at any meeting of the creditors or members or of the Committees,
particulars of all his transactions and negotiations in relation to the
winding-up and all such matters other than matters of account as
may be necessary to furnish a correct view of the administration of
the company’s affairs. He shall also keep a book showing the dates at
which all notices to creditors and shareholders were sent out and
posted. The person who despatched the notices shall initial the entries
in the book relating thereto.
Rule 25(7) states that for the purposes of sub-section (5) of section
314, the quarterly statement of accounts to be filed with the Registrar
of Companies shall be made in Form No. 58.Such statement of accounts
shall be audited by an auditor appointed by the company in general
meeting if the Company Liquidator is appointed in general meeting or
by the creditors if the Company Liquidator is appointed by the creditors
and the fee of the auditor so appointed, shall be determined by the
members or creditors as the case may be.
72 Corporate Restructuring & Insolvency
Appointment of Committees
Section 315 states that when there are no creditors of a company,
such company in its general meeting and, where a meeting of creditors
is held under section 306, such creditors, as the case may be, may
appoint such committees as considered appropriate to supervise the
voluntary liquidation and assist the Company Liquidator in
discharging his or its functions.
Company liquidator to send the progress on winding up
Section 316 (1) states that the Company Liquidator shall report
quarterly on the progress of winding up of the company in such form
and in such manner as may be prescribed to the members and creditors
and shall also call a meeting of the members and the creditors as and
when necessary but at least one meeting each of creditors and members
in every quarter and apprise them of the progress of the winding up of
the company in such form and in such manner as may be prescribed.
(2) If the Company Liquidator fails to comply with the provisions of
sub-section (1), he shall be punishable, in respect of each such failure,
with fine which may extend to ten lakh rupees.
Report of Company Liquidator to Tribunal for
examination of persons
Section 317(1) states that when the Company Liquidator is of the
opinion that a fraud has been committed by any person in respect of
the company, he shall immediately make a report to the Tribunal and
the Tribunal shall, without prejudice to the process of winding up,
order for investigation under section 210 and on consideration of the
report of such investigation, the Tribunal may pass such order and
give such directions under this Chapter as it may consider necessary
including the direction that such person shall attend before the Tribunal
on a day appointed by it for that purpose and be examined as to the
promotion or formation or the conduct of the business of the company
or as to his conduct and dealings as officer thereof or otherwise.
Sub-section (2) the provisions of section 300(ie power to order
examination of promoters, directors etc.,) shall mutatis mutandis
apply in relation to any examination directed under sub-section (1).
Final Meeting and dissolution
Section 318. (1) states that as soon as the affairs of a company
are fully wound up, the Company Liquidator shall prepare a report of
the winding up showing that the property and assets of the company
have been disposed of and its debt fully discharged or discharged to the
Corporate Restructuring & Insolvency 73
satisfaction of the creditors and thereafter call a general meeting of
the company for the purpose of laying the final winding up accounts
before it and giving any explanation there for.
Sub-section (2) states that the meeting referred to in sub-section
(1) shall be called by the Company Liquidator in such form and manner
as may be prescribed.
Sub-section(3) states that if the majority of the members of the
company after considering the report of the Company Liquidator are
satisfied that the company shall be wound up, they may pass a
resolution for its dissolution.
As required under sub-section(4) Within two weeks after the
meeting, the Company Liquidator shall—
(a) send to the Registrar— (i) a copy of the final winding up
accounts of the company and shall make a return in respect of
each meeting and of the date thereof; and (ii) copies of the
resolutions passed in the meetings; and
(b) file an application along with his report under sub-section (1)
in such manner as may be prescribed along with the books
and papers of the company relating to the winding up, before
the Tribunal for passing an order of dissolution of the company.
As per sub-section(5) If the Tribunal is satisfied, after considering
the report of the Company Liquidator that the process of winding up
has been just and fair, the Tribunal shall pass an order dissolving the
company within sixty days of the receipt of the application under
sub-section (4).
As per sub-section(6) the Company Liquidator shall file a copy of
the order under sub-section (5) with the Registrar within thirty days.
As per sub-section (7) the Registrar, on receiving the copy of the
order passed by the Tribunal under sub- section (5), shall forthwith
publish a notice in the Official Gazette that the company is dissolved.
As per sub-section (8) if the Company Liquidator fails to comply
with the provisions of this section, he shall be punishable with fine
which may extend to one lakh rupees.
As per rule 25(12) of Company(Winding up) Rules 2013, the
Company Liquidator/ Voluntary Liquidator shall lay report before a
general meeting of the company under sub-section (1) of section 318
of the Act. Rule 25(13) states that for the purposes of sub-section (2)
of section 318, the notice convening the final meeting of the company
74 Corporate Restructuring & Insolvency
in a voluntary winding-up, shall be in Form No. 60. The Account of
the winding-up to be laid by the liquidator before the said meeting
shall be in Form 61. Rule 25(14) states that for the purposes of clause
(b) of sub-section (4) of section 318, the Company Liquidator/
Voluntary Liquidator shall apply to the Tribunal and the Registrar, if
on preliminary scrutiny finds the application to be in order, shall fix a
date for the consideration thereof by the Bench, and notify the date on
the notice board of the Tribunal and to the Company Liquidator. The
Company Liquidator shall attend such consideration of the application
or report or final account, as the case may be, and shall give the Bench
such further explanation or information with reference to the matters
contained therein as the Bench may require. Rule 25 (15) states that
any creditor or contributory of a company which is being wound-up
shall be entitled to inspect any of the reports, statements made under
sections 316 and 318 on payment of such fee, and to obtain a copy
thereof or extract therefrom on payment of the charges at such rate
as may be prescribed
Power of Company liquidator to accept shares ec as
consideration if the transferor company is in the course
of being wound up
According to section 319. (1) when a company (the transferor
company) is proposed to be, or is in the course of being, wound up
voluntarily and the whole or any part of its business or property is
proposed to be transferred or sold to another company (the transferee
company), the Company Liquidator of the transferor company may,
with the sanction of a special resolution of the company conferring
on him either a general authority or an authority in respect of any
particular arrangement,—
(a) receive, by way of compensation wholly or in part for the
transfer or sale of shares, policies, or other like interest in the
transferee company, for distribution among the members of
the transferor company; or
(b) enter into any other arrangement whereby the members of
the transferor company may, in lieu of receiving cash, shares,
policies or other like interest or in addition thereto, participate
in the profits of, or receive any other benefit from, the transferee
company: Provided that no such arrangement shall be entered
into without the consent of the secured creditors.
Sub-section (2) states that any transfer, sale or other arrangement
in pursuance of this section shall be binding on the members of the
transferor company.
Corporate Restructuring & Insolvency 75
As per sub-section (3) any member of the transferor company who
did not vote in favour of the special resolution and expresses his dissent
therefrom in writing addressed to the Company Liquidator, and left at
the registered office of the company within seven days after the passing
of the resolution, may require the liquidator either—
(a) to abstain from carrying the resolution into effect; or
(b) to purchase his interest at a price to be determined by agreement
or the registered valuer.
Sub-section (4) states that if the Company Liquidator elects to
purchase the member’s interest, the purchase money, raised by him in
such manner as may be determined by a special resolution, shall be
paid before the company is dissolved.
Distribution of the property of the company
As per section 320, subject to the provisions of this Act as to
overriding preferential payments under section 326, the assets of a
company shall, on its winding up, be applied in satisfaction of its
liabilities pari passu and, subject to such application, shall, unless the
articles otherwise provide, be distributed among the members according
to their rights and interests in the company.
Arrangement when binding on Company and Creditors
As per section 321(1) any arrangement other than the arrangement
referred to in section 319 entered into between the company which is
about to be, or is in the course of being wound up and its creditors
shall be binding on the company and on the creditors if it is sanctioned
by a special resolution of the company and acceded to by the creditors
who hold three-fourths in value of the total amount due to all the
creditors of the company. As per sub-section (2) Any creditor or
contributory may, within three weeks from the completion of the
arrangement, apply to the Tribunal and the Tribunal may thereupon
amend, vary, confirm or set aside the arrangement.
Apply to tribunal to determine questions arising in the
course of winding up
As per section 322. (1) The Company Liquidator or any
contributory or creditor may apply to the Tribunal—
(a) to determine any question arising in the course of the winding
up of a company; or
(b) to exercise as respects the enforcing of calls, the staying of
76 Corporate Restructuring & Insolvency
proceedings or any other matter, all or any of the powers which
the Tribunal might exercise if the company were being wound
up by the Tribunal.
Sub-section (2) states that the Company Liquidator or any creditor
or contributory may apply to the Tribunal for an order setting aside
any attachment, distress or execution put into force against the estate
or effects of the company after the commencement of the winding up.
As per sub-section (3) the Tribunal, if satisfied on an application
under sub-section (1) or sub-section (2) that the determination of the
question or the required exercise of power or the order applied for will
be just and fair, may allow the application on such terms and
conditions as it thinks fit or may make such other order on the
application as it thinks fit.
Sub-section (4) requires a copy of an order staying the proceedings
in the winding up, made under this section, to be forthwith forwarded
by the company, or otherwise as may be prescribed, to the Registrar,
who shall make a minute of the order in his books relating to the
company.
Cost of Voluntary winding up
323. All costs, charges and expenses properly incurred in the
winding up, including the fee of the Company Liquidator, shall, subject
to the rights of secured creditors, if any, be payable out of the assets of
the company in priority to all other claims.
PROVISIONS APPLICABLE TO EVERY MODE OF WINDING
UP
The provisions applicable to every mode of winding up are
comprehensively stated in Sections 324 to 365 of the Act and these
apply to every mode of winding up whether it be a voluntary winding
up and winding up by tribunal.
These sections broadly cover the following aspects.
• Application of insolvency rules in case of winding up of insolvent
companies
• Overriding preferential payments
• Preferential payments
• Fraudulent preference and rights & liabilities of persons
fraudulently preferred
• Effect of floating charge
Corporate Restructuring & Insolvency 77
• Disclaimer of onerous property
• Offences, penalties and liabilities of different persons including
officers, directors of the company
• Appointment of official liquidator
• Summary procedure for liquidation
• Order for dissolution etc.,
Application of Insolvency Rules in Winding Up of Insolvent
Companies
As per Section 325,(1)in the winding up of an insolvent company,
the same rules shall prevail and be observed with regard to—
(a) debts provable;
(b) the valuation of annuities and future and contingent liabilities;
and
(c) the respective rights of secured and unsecured creditors, as are
in force for the time being under the law of insolvency with
respect to the estates of persons adjudged insolvent:
The security of every secured creditor shall be deemed to be subject
to a pari passu charge in favour of the workmen to the extent of the
workmen’s portion therein, and, where a secured creditor, instead of
relinquishing his security and proving his debts, opts to realise his
security,—
(i) the liquidator shall be entitled to represent the workmen and
enforce such charge;
(ii) any amount realised by the liquidator by way of enforcement
of such charge shall be applied rateably for the discharge of
workmen’s dues; and
(iii) so much of the debts due to such secured creditor as could not
be realised by him or the amount of the workmen’s portion in
his security, whichever is less, shall rank pari passu with the
workmen’s dues for the purposes of section 326.
Overriding preferential payments
Section 326 (1) Notwithstanding anything contained in this Act
or any other law for the time being in force, in the winding up of a
company,— (a) workmen’s dues; and (b) debts due to secured creditors
to the extent such debts rank under clause (iii) of the proviso to sub78
Corporate Restructuring & Insolvency
section (1) of section 325 pari passu with such dues, shall be paid in
priority to all other debts:
In case of the winding up of a company, the sums towards wages
or salary referred to in sub-clause (i) of clause (b) of sub-section (3) of
section 325, which are payable for a period of two years preceding
the winding up order or such other period as may be prescribed, shall
be paid in priority to all other debts (including debts due to secured
creditors), within a period of thirty days of sale of assets and shall be
subject to such charge over the security of secured creditors as may be
prescribed.
Sub-section (2)states that the debts payable under the proviso to
sub-section (1) shall be paid in full before any payment is made to
secured creditors and thereafter debts payable under that sub-section
shall be paid in full, unless the assets are insufficient to meet them, in
which case they shall abate in equal proportions
Preferential payments
As per Section 327(1) in a winding up, subject to the provisions of
section 326(i.e overriding preferential payments), the following shall
be paid in priority to all other debts,—
(a) all revenues, taxes, cesses and rates due from the company to
the Central Government or a State Government or to a local
authority at the relevant date, and having become due and
payable within the twelve months immediately before that
date;
(b) all wages or salary including wages payable for time or piece
work and salary earned wholly or in part by way of
commission of any employee in respect of services rendered to
the company and due for a period not exceeding four months
within the twelve months immediately before the relevant date,
subject to the condition that the amount payable under this
clause to any workman shall not exceed such amount as may
be notified;
(c) all accrued holiday remuneration becoming payable to any
employee, or in the case of his death, to any other person
claiming under him, on the termination of his employment
before, or by the winding up order, or, as the case may be, the
dissolution of the company;
(d) unless the company is being wound up voluntarily merely for
the purposes of reconstruction or amalgamation with another
Corporate Restructuring & Insolvency 79
company, all amount due in respect of contributions payable
during the period of twelve months immediately before the
relevant date by the company as the employer of persons under
the Employees’ State Insurance Act, 1948 or any other law for
the time being in force;
(e) unless the company has, at the commencement of winding
up, under such a contract with any insurer as is mentioned in
section 14 of the Workmen’s Compensation Act, 1923, rights
capable of being transferred to and vested in the workmen, all
amount due in respect of any compensation or liability for
compensation under the said Act in respect of the death or
disablement of any employee of the company: when any
compensation under the said Act is a weekly payment, the
amount payable under this clause shall be taken to be the
amount of the lump sum for which such weekly payment
could, if redeemable, be redeemed, if the employer has made an
application under that Act;
(f) all sums due to any employee from the provident fund, the
pension fund, the gratuity fund or any other fund for the
welfare of the employees, maintained by the company; and
(g) the expenses of any investigation held in pursuance of sections
213 and 216, in so far as they are payable by the company.
Sun-section(2) states that when any payment has been made to
any employee of a company on account of wages or salary or accrued
holiday remuneration, himself or, in the case of his death, to any other
person claiming through him, out of money advanced by some person
for that purpose, the person by whom the money was advanced shall,
in a winding up, have a right of priority in respect of the money so
advanced and paid-up to the amount by which the sum in respect of
which the employee or other person in his right would have been entitled
to priority in the winding up has been reduced by reason of the payment
having been made.
As per sub-section (3) the debts enumerated in this section shall—
(a) rank equally among themselves and be paid in full, unless the
assets are insufficient to meet them, in which case they shall
abate in equal proportions; and
(b) so far as the assets of the company available for payment to
general creditors are insufficient to meet them, have priority
over the claims of holders of debentures under any floating
80 Corporate Restructuring & Insolvency
charge created by the company, and be paid accordingly out of
any property comprised in or subject to that charge.
Sub-section (4) states that subject to the retention of such sums
as may be necessary for the costs and expenses of the winding up, the
debts under this section shall be discharged forthwith so far as the
assets are sufficient to meet them, and in the case of the debts to
which priority is given under clause (d) of sub-section (1), formal
proof thereof shall not be required except in so far as may be otherwise
prescribed.
Sub-section (5) states that in the event of a landlord or other person
distraining or having distrained on any goods or effects of the company
within three months immediately before the date of a winding up
order, the debts to which priority is given under this section shall be a
first charge on the goods or effects so distrained on or the proceeds of
the sale thereof: Provided that, in respect of any money paid under
any such charge, the landlord or other person shall have the same
rights of priority as the person to whom the payment is made.
(6) Any remuneration in respect of a period of holiday or of absence
from work on medical grounds through sickness or other good cause
shall be deemed to be wages in respect of services rendered to the
company during that period.
For the purpose of Section 327
“Accrued holiday remuneration” includes, in relation to any person,
all sums which, by virtue either of his contract of employment or of
any enactment including any order made or direction given thereunder,
are payable on account of the remuneration which would, in the
ordinary course, have become payable to him in respect of a period of
holiday, had his employment with the company continued until he
became entitled to be allowed the holiday;
“Employee” does not include a workman; and
“Relevant date” means—
• in the case of a company being wound up by the Tribunal, the
date of appointment or first appointment of a provisional
liquidator, or if no such appointment was made, the date of
the winding up order, unless, in either case, the company had
commenced to be wound up voluntarily before that date; and
• in any other case, the date of the passing of the resolution for
the voluntary winding up of the company.
Corporate Restructuring & Insolvency 81
Fraudulent Preference
Section 328(1) states that when a company has given preference
to a person who is one of the creditors of the company or a surety or
guarantor for any of the debts or other liabilities of the company, and
the company does anything or suffers anything done which has the
effect of putting that person into a position which, in the event of the
company going into liquidation, will be better than the position he
would have been in if that thing had not been done prior to six months
of making winding up application, the Tribunal, if satisfied that, such
transaction is a fraudulent preference may order as it may think fit
for restoring the position to what it would have been if the company
had not given that preference.
Sub-section (2) states that if the Tribunal is satisfied that there is a
preference transfer of property, movable or immovable, or any delivery
of goods, payment, execution made, taken or done by or against a
company within six months before making winding up application,
the Tribunal may order as it may think fit and may declare such
transaction invalid and restore the position.
Liabilities and rights of certain persons fraudulently
preferred
Section 331(1) states that when a company is being wound up
and anything made, taken or done after the commencement of this
Act is invalid under section 328 as a fraudulent preference of a person
interested in property mortgaged or charged to secure the company’s
debt, then, without prejudice to any rights or liabilities arising, apart
from this provision, the person preferred shall be subject to the same
liabilities, and shall have the same rights, as if he had undertaken to be
personally liable as a surety for the debt, to the extent of the mortgage
or charge on the property or the value of his interest, whichever is less.
As per sub-section (2), the value of the interest of the person preferred
under sub-section (1) shall be determined as at the date of the
transaction constituting the fraudulent preference, as if the interest
were free of all encumbrances other than those to which the mortgage
or charge for the debt of the company was then subject.
Sub-section (3) states that on an application made to the Tribunal
with respect to any payment on the ground that the payment was a
fraudulent preference of a surety or guarantor, the Tribunal shall have
jurisdiction to determine any questions with respect to the payment
arising between the person to whom the payment was made and the
surety or guarantor and to grant relief in respect thereof,
82 Corporate Restructuring & Insolvency
notwithstanding that it is not necessary so to do for the purposes of
the winding up, and for that purpose, may give leave to bring in the
surety or guarantor as a third party as in the case of a suit for the
recovery of the sum paid.
Sub-section(4)states that the provisions of sub-section (3) shall
apply mutatis mutandis in relation to transactions other than
payment of money.
Effect of floating charge
As per section 332, when a company is being wound up, a floating
charge on the undertaking or property of the company created within
the twelve months immediately preceding the commencement of the
winding up, shall, unless it is proved that the company immediately
after the creation of the charge was solvent, be invalid, except for the
amount of any cash paid to the company at the time of, or subsequent
to the creation of, and in consideration for, the charge, together with
interest on that amount at the rate of five per cent. per annum or
such other rate as may be notified by the Central Government in this
behalf.
Offences by officers of companies in liquidation
For the purposes of Section 336, the expression “officer” includes
any person in accordance with whose directions or instructions the
directors of the company have been accustomed to act.
Section 336(1) states that if any person, who is or has been an
officer of a company which, at the time of the commission of the
alleged offence, is being wound up, whether by the Tribunal or
voluntarily, or which is subsequently ordered to be wound up by the
Tribunal or which subsequently passes a resolution for voluntary
winding up,—
(a) does not, to the best of his knowledge and belief, fully and truly
disclose to the Company Liquidator all the property, movable
and immovable, of the company, and how and to whom and
for what consideration and when the company disposed of any
part thereof, except such part as has been disposed of in the
ordinary course of the business of the company;
(b) does not deliver up to the Company Liquidator, or as he directs,
all such part of the movable and immovable property of the
company as is in his custody or under his control and which
he is required by law to deliver up;
Corporate Restructuring & Insolvency 83
(c) does not deliver up to the Company Liquidator, or as he directs,
all such books and papers of the company as are in his custody
or under his control and which he is required by law to deliver
up;
(d) within the twelve months immediately before the
commencement of the winding up or at any time thereafter,—
(i) conceals any part of the property of the company to the
value of one thousand rupees or more, or conceals any debt
due to or from the company;
(ii) fraudulently removes any part of the property of the
company to the value of one thousand rupees or more;
(iii) conceals, destroys, mutilates or falsifies, or is privy to the
concealment, destruction, mutilation or falsification of, any
book or paper affecting or relating to, the property or affairs
of the company;
(iv) makes, or is privy to the making of, any false entry in any
book or paper affecting or relating to, the property or affairs
of the company;
(v) fraudulently parts with, alters or makes any omission in,
or is privy to the fraudulent parting with, altering or
making of any omission in, any book or paper affecting or
relating to the property or affairs of the company;
(vi) by any false representation or other fraud, obtains on credit,
for or on behalf of the company, any property which the
company does not subsequently pay for;
(vii) under the false pretence that the company is carrying on
its business, obtains on credit, for or on behalf of the
company, any property which the company does not
subsequently pay for; or
(viii) pawns, pledges or disposes of any property of the company
which has been obtained on credit and has not been paid
for, unless such pawning, pledging or disposing of the
property is in the ordinary course of business of the
company;
(e) makes any material omission in any statement relating to the
affairs of the company;
(f) knowing or believing that a false debt has been proved by any
person under the winding up, fails for a period of one month to
inform the Company Liquidator thereof;
84 Corporate Restructuring & Insolvency
(g) after the commencement of the winding up, prevents the
production of any book or paper affecting or relating to the
property or affairs of the company;
(h) after the commencement of the winding up or at any meeting
of the creditors of the company within the twelve months next
before the commencement of the winding up, attempts to
account for any part of the property of the company by
fictitious losses or expenses; or
(i) is guilty of any false representation or fraud for the purpose of
obtaining the consent of the creditors of the company or any
of them, to an agreement with reference to the affairs of the
company or to the winding up,
he shall be punishable with imprisonment for a term which shall not
be less than three years but which may extend to five years and with
fine which shall not be less than one lakh rupees but which may extend
to three lakh rupees: Provided that it shall be a good defence if the
accused proves that he had no intent to defraud or to conceal the true
state of affairs of the company or to defeat the law.
Sub-section(2) states that when any person pawns, pledges or
disposes of any property in circumstances which amount to an offence
under sub-clause (viii) of clause (d) of sub-section (1), every person
who takes in pawn or pledge or otherwise receives the property,
knowing it to be pawned, pledged, or disposed of in such circumstances
as aforesaid, shall be punishable with imprisonment for a term which
shall not be less than three years but which may extend to five years
and with fine which shall not be less than three lakh rupees but which
may extend to five lakh rupees.
Power of tribunal to assess damages against delinquent
directors etc
Section 340.(1) states that if in the course of winding up of a
company, it appears that any person who has taken part in the
promotion or formation of the company, or any person, who is or
has been a director, manager, Company Liquidator or officer of the
company—
(a) has misapplied, or retained, or become liable or accountable for,
any money or property of the company; or
(b) has been guilty of any misfeasance or breach of trust in relation
to the company, the Tribunal may, on the application of the
Official Liquidator, or the Company Liquidator, or of any
Corporate Restructuring & Insolvency 85
creditor or contributory, made within the period specified in
that behalf in sub-section (2), inquire into the conduct of the
person, director, manager, Company Liquidator or officer
aforesaid, and order him to repay or restore the money or
property or any part thereof respectively, with interest at such
rate as the Tribunal considers just and proper, or to contribute
such sum to the assets of the company by way of
compensation in respect of the misapplication, retainer,
misfeasance or breach of trust, as the Tribunal considers just
and proper.
Sub-(2) states that an application under sub-section (1) shall be
made within five years from the date of the winding up order, or of the
first appointment of the Company Liquidator in the winding up, or of
the misapplication, retainer, misfeasance or breach of trust, as the case
may be, whichever is longer. (3) This section shall apply,
notwithstanding that the matter is one for which the person concerned
may be criminally liable.
Prosecution of delinquent officers and members of
company
Section 342 (1) states that if it appears to the Tribunal in the course
of a winding up by the Tribunal, that any person, who is or has been
an officer, or any member, of the company has been guilty of any
offence in relation to the company, the Tribunal may, either on the
application of any person interested in the winding up or suo motu,
direct the liquidator to prosecute the offender or to refer the matter to
the Registrar
Sub-section(2) further states that if it appears to the Company
Liquidator in the course of a voluntary winding up that any person,
who is or has been an officer, or any member, of the company has been
guilty of any offence in relation to the company under this Act, he
shall forthwith report the matter to the Registrar and shall furnish to
him such information and give to him such access to and facilities for
inspecting and taking copies of any books and papers, being
information or books and papers in the possession or under the control
of the Company Liquidator and relating to the matter in question, as
the Registrar may require.
Sub-section(3) states that when any report is made under subsection
(2) to the Registrar,—
(a) if he thinks fit, he may apply to the Central Government for
an order to make further inquiry into the affairs of the
86 Corporate Restructuring & Insolvency
company by any person designated by him and for conferring
on such person all the powers of investigation as are provided
under this Act;
(b) if he considers that the case is one in which a prosecution ought
to be instituted, he shall report the matter to the Central
Government, and that Government may, after taking such legal
advice as it thinks fit, direct the Registrar to institute
prosecution: Provided that no report shall be made by the
Registrar under this clause without first giving the accused
person a reasonable opportunity of making a statement in
writing to the Registrar and of being heard thereon.
Sub-section(4) states that if it appears to the Tribunal in the course
of a voluntary winding up that any person, who is or has been an
officer, or any member, of the company has been guilty as aforesaid,
and that no report with respect to the matter has been made by the
Company Liquidator to the Registrar under sub-section (2), the Tribunal
may, on the application of any person interested in the winding up or
suo motu, direct the Company Liquidator to make such a report, and
on a report being made, the provisions of this section shall have effect
as though the report had been made in pursuance of the provisions of
sub-section (2).
Sub-section(5) states that when any prosecution is instituted under
this section, it shall be the duty of the liquidator and of every person,
who is or has been an officer and agent of the company to give all
assistance in connection with the prosecution which he is reasonably
able to give. Explanation.—For the purposes of this sub-section, the
expression “agent”, in relation to a company, shall include any banker
or legal adviser of the company and any person employed by the
company as auditor.
Sub-section(6) states that if a person fails or neglects to give
assistance required by sub-section (5), he shall be liable to pay fine
which shall not be less than twenty-five thousand rupees but which
may extend to one lakh rupees.
Disposal of books and papers of the company
Section 347(1) states that when the affairs of a company have
been completely wound up and it is about to be dissolved, its books
and papers and those of the Company Liquidator may be disposed of
as follows:—
(a) in the case of winding up by the Tribunal, in such manner as
the Tribunal directs; and
Corporate Restructuring & Insolvency 87
(b) in the case of voluntary winding up, in such manner as the
company by special resolution with the prior approval of the
creditors direct.
Sub-section (2) states that after the expiry of five years from the
dissolution of the company, no responsibility shall devolve on the
company, the Company Liquidator, or any person to whom the
custody of the books and papers has been entrusted, by reason of any
book or paper not being forthcoming to any person claiming to be
interested therein.
As per sub-section(3) The Central Government may, by rules,—
(a) prevent for such period as it thinks proper the destruction of
the books and papers of a company which has been wound up
and of its Company Liquidator; and
(b) enable any creditor or contributory of the company to make
representations to the Central Government in respect of the
matters specified in clause (a) and to appeal to the Tribunal
from any order which may be made by the Central Government
in the matter.
As per sub-section (4) if any person acts in contravention of any
rule framed or an order made under sub-section (3), he shall be
punishable with imprisonment for a term which may extend to six
months or with fine which may extend to fifty thousand rupees, or
with both.
Information as to pending liqidations
Section 348(1) states that if the winding up of a company is not
concluded within one year after its commencement, the Company
Liquidator shall, unless he is exempted from so doing either wholly or
in part by the Central Government, within two months of the expiry
of such year and thereafter until the winding up is concluded, at
intervals of not more than one year or at such shorter intervals, if
any, as may be prescribed, file a statement in such form containing
such particulars as may be prescribed, duly audited, by a person
qualified to act as auditor of the company, with respect to the
proceedings in, and position of, the liquidation,—
(a) in the case of a winding up by the Tribunal, with the Tribunal;
and
(b) in the case of a voluntary winding up, with the Registrar:
However, (Audit of company liquidators’ account under winding
88 Corporate Restructuring & Insolvency
up by tribunal) no such audit as is referred to in this sub-section shall
be necessary where the provisions of section 294 apply.
Rule 31 of companies (winding up) Rules 2013 states that the
winding-up of a company shall, for the purposes of section 348, be
deemed to be concluded-
(i) in the case of a company wound-up by order of the Tribunal,
at the date on which the order dissolving the company has
been reported by the Company Liquidator to the Registrar of
Companies;
(ii) in the case of a company wound-up voluntarily, at the date of
the dissolution of the company, unless any fund or assets of
the company remaining unclaimed or undistributed in the
hands or under the control of the Company Liquidator, shall
be distributed or paid into the Company Liquidation Dividend
and Undistributed Assets Account as provided in section 352
of the Act.
OFFICIAL LIQUIDATORS
Appointment of official liquidator
Section 359(1) the Central Government may appoint as many
Official Liquidators, Joint, Deputy or Assistant Official Liquidators as
it may consider necessary to discharge the functions of the Official
Liquidator. Sub-section (2) states that the liquidators appointed under
sub-section (1) shall be whole-time officers of the Central Government.
Powers and functions of official liquidators
Section 360(1) states that the Official Liquidator shall exercise such
powers and perform such duties as the Central Government may
prescribe.
Sub-section(2) states that without prejudice to the provisions of
sub-section (1), the Official Liquidator may—
(a) exercise all or any of the powers as may be exercised by a
Company Liquidator under the provisions of this Act; and
(b) conduct inquiries or investigations, if directed by the Tribunal
or the Central Government, in respect of matters arising out of
winding up proceedings.
Rule 35(2) of Companies (Winding up) Rules 2013 (2) states that
for the purpose of sub section (1) of section 360, the Official Liquidator
shall exercise following powers and perform following duties:
• For winding up of the company by the Tribunal, the Tribunal
Corporate Restructuring & Insolvency 89
at the time of passing an order of winding up, may appoint
Official Liquidator as Company Liquidator, who shall exercise
all powers as may be exercised by the Liquidator in the winding
up proceedings.
• The Tribunal may also by an order appoint official liquidator
as Provisional Liquidator for the purpose of winding up.
• Official Liquidator shall continue as the Company Liquidator
or provisional liquidator for all such cases of winding up of
companies, pending before District Court or High Court
immediately before the date of transfer to the Tribunal as per
clause (c) of sub-section (1) of Section 434 of the Act.
• To supervise the functions of any Company Liquidator or
Provisional Liquidator appointed from the panel, if directed by
Tribunal or Central Government.
• To advice or guide the Company Liquidator or Provisional
Liquidator appointed from the panel on any reference made to
him by such Liquidator.
• Official Liquidator shall conduct enquires or investigations, if
directed by the Tribunal or Central Government in respect of
matters arising out of winding up proceedings including all
such cases where the company liquidator is appointed from
the panel.
• To submit report to the Tribunal on any such matter including
on the report for dissolution of the company filed by Company
Liquidator appointed from the panel, on winding up by the
Tribunal or Voluntary Winding up.
• The Official Liquidator shall maintain a panel of Security Agency
with the approval of Tribunal and of professionals including
Valuers, Chartered Accountants, Company Secretaries, Cost
Accountants and Advocates to represent and assist the Official
Liquidator in the winding up process and proceeding related to
winding up petitions and applications before the Tribunal and
the Central Government.
• Any such powers and duties as may be directed by the Tribunal
or Central Government from time to time.
Summary procedure for liquidation
Section 361(1) states that when the company to be wound up
under this Chapter, —
(i) has assets of book value not exceeding one crore rupees; and
90 Corporate Restructuring & Insolvency
(ii) belongs to such class or classes of companies as may be
prescribed, the Central Government may order it to be wound
up by summary procedure provided under this Part.
Sub section (2) states that when an order under sub-section
(1) is made, the Central Government shall appoint the Official
Liquidator as the liquidator of the company.
Sub-section (3) states that the Official Liquidator shall
forthwith take into his custody or control all assets, effects
and actionable claims to which the company is or appears to
be entitled.
As per sub-section(4) the Official Liquidator shall, within thirty
days of his appointment, submit a report to the Central
Government in such manner and form, as may be prescribed,
including a report whether in his opinion, any fraud has been
committed in promotion, formation or management of the
affairs of the company or not.
Sub-section (5) states that on receipt of the report under subsection
(4), if the Central Government is satisfied that any
fraud has been committed by the promoters, directors or any
other officer of the company, it may direct further investigation
into the affairs of the company and that a report shall be
submitted within such time as may be specified.
Sub-section (6) states that after considering the investigation
report under sub-section (5), the Central Government may
order that winding up may be proceeded under Part I of this
Chapter or under the provision of this Part.
Rule 39 of Companies Winding up Rules 2013 states the following aspects
as to the summary procedure for winding up.
(1) Application under Section 361 for Summary Procedure of
Winding-Up- For the purpose of clause (ii) of sub section (1) of
section 361 of the Act, the classes of company shall be as
follows: (a) One Person Company, or (b) Small Company.
(2) Application for winding up (i) Application for winding up by
the Company shall be in Form- A with such variations as may
be necessary and in any other case it shall be in Form-B with
such variations as may be necessary.
(ii) The applicant shall, not less than one month before filing
any application in Form A or B as the case may be publish a
Corporate Restructuring & Insolvency 91
general notice, at least once, in a daily newspaper published in
English and in the principal language of the State or the Union
Territory in which the registered office of the company is
situated, clearly indicating the substance of the application and
stating that any person whose interest is likely to be affected
by the proposed application and may intimate to the Central
Government (Regional Director) within twenty-one days of
the date of publication of that notice, the nature of interest
and grounds of opposition, if any.
(3) Application by the Company. Subject to section 271 and 272
of the Act, in case the application is made by the company: (i)
The company shall not less than one month before filing
application, serve on each debenture-holder and creditor of the
company by registered post or speed post, individual notice
indicating the substance of the application and stating that if
his interst is likely to be affected by the proposed applicationand
may intimate to the Central Government (Regional Director)
within twenty-one days of the date of publication of that
notice, the nature of interest and grounds of opposition, if any.
(ii) The application shall contain: (a) a list stating the name
and address of the creditors and debenture holders and the
amount due to each of them up to the latest practicable date
preceding the date of filing of the application which shall not
precede the date of filing the application by more than thirty
days indicating whether the secured or unsecured creditors and
details of the property mortgaged or hypothecated to such
secured creditors, if any. (b) A director of the company shall file
an affidavit to the effect that they have made the full enquiry
into the affairs of the company and, having done so, have
formed the opinion that the list referred above is correct, and
the estimated values as given in the list of debt or claims payable
on a contingency or not ascertained are proper estimates of
the values of such debt and claims included in the list and the
same are borne out by the books and records of the company
and that there are no other debts, or claims against, the
company to their knowledge. (c) The company shall prove
the publication of the notice and service of notice to each of
the debenture holder or creditor by an affidavit. (d) Copy of
the audited financial statements for the preceding financial year;
(e) Statement of Affairsin Form 4 made up tothe latest
practicable date preceding the date of filing of the application
which shall not precede the date of filing the application by
92 Corporate Restructuring & Insolvency
more than 30 days; and (f) Copy of the resolution of the Board
of Directors authorizing Board to submit the application; and
(g) copy of the special resolution of the company in terms of
clause (b) of sub-section (1) of section 271 of the Act
(4) Subject to section 271 and 272 of the Act in any other case,
the application shall be accompanied by an affidavit to prove
the publication of the notice, copy of the latest audited financial
statements available in the MCA 21 portal, copy of the charge
documents available in the MCA 21 portal and an affidavit to
prove the service of notice to the secured creditors whose names
are available in the charge documents in the manner provided
in clause (i) of sub-rule (3).
(5) Objections to the application. (i) Any person intending to oppose
the application shall within twenty-one days from the date of
service of publication of the notice, as the case may be, deliver,
or cause to be delivered, or send by registered post or speed post,
the objections supported by an affidavit, in original, to the
Central Government and shall also serve a copy of the objections
on the applicant and the company at its registered office if the
objector is not the company.
(ii) Where an application for winding up is filed by a person
other than the company : – (a) the objection, if any, by the
company shall be accompanied with the statement of affairs
in Form 4 (b) The Central Government if satisfied that a prima
facie case for winding up of the company is made out, direct
the company to file its objections along with a statement of its
affairs in Form 4 within thirty days of the direction. (c) A
company which fails to file statement of affairs, shall forfeit
the right to oppose the application and such directors and
officers of the company as found responsible for such non
compliance, shall be liable for punishment under sub section
(4) of section 274 of the Act.
(6) Affidavit in support. Every application shall be accompanied
by an affidavit verifying the same and shall be drawn up in the
first person and shall state the full name, age, occupation and
complete residential address of the deponent and shall be signed
by the deponent and sworn before an oath commissioner.
(7) Documents may be attested by the party or the authorized
representative or the advocate. Where the application is filed
by the authorized representative, Memorandum of Appearance
shall be appended to the application as in Form C.
Corporate Restructuring & Insolvency 93
(8) Admission of application and directions – Upon the filing of
the application, it shall be listed before the Central Government
for admission and consideration of objections received, if any.
(9) Consideration and disposal- The Central Government may upon
considering the application, in case where there are no
objections, wherever applicable, statement of affairs have been
received, and found that the company can be would up through
summary procedures, may allow the application and pass a
winding up order; in any other case may either dismiss the
application or may issue notice to the company or the objector
to file a reply or issue any other direction deemed fit and proper.
(10) Reply of the notice: The objector or the company as the case
may be within a period of thirty days from the receipt of notice
file a reply to the application for winding up.
(11) Order: Upon considering the application and the reply, if the
central government is of the view that;
A. the grounds for winding up are made out and no further
evidence is required it shall pass an order winding up the
company;
B. the grounds for winding up are not made out it shall dismiss
the application;
C. the adjudication of the application involves complex issues
of facts and law or the Central Government is of the opinion
that summary procedures under the Part IV of Chapter XX
is not possible, the Central Government shall return the
application, where after, the applicant shall be at liberty to
approach the Tribunal.
Sale of assets and recovery of debts due to company
Section 362 (1) states that the Official Liquidator shall
expeditiously dispose of all the assets whether movable or immovable
within sixty days of his appointment.
Sub-section (2) states that the Official Liquidator shall serve a
notice within thirty days of his appointment calling upon the debtors
of the company or the contributories, as the case may be, to deposit
within thirty days with him the amount payable to the company.
As per sub-section(3) when any debtor does not deposit the amount
under sub-section (2), the Central Government may, on an application
made to it by the Official Liquidator, pass such orders as it thinks fit.
94 Corporate Restructuring & Insolvency
Sub-section (4) requires the amount recovered under this section
by the Official Liquidator to be deposited in accordance with the
provisions of section 349.
Settlement of claims of creditors by official liquidator
As per section 363(1), the Official Liquidator within thirty days of
his appointment shall call upon the creditors of the company to prove
their claims in such manner as may be prescribed, within thirty days
of the receipt of such call. As per sub-section (2) The Official Liquidator
shall prepare a list of claims of creditors in such manner as may be
prescribed and each creditor shall be communicated of the claims
accepted or rejected along with reasons to be recorded in writing.
Appeal by creditor
As per 364 (1), any creditor aggrieved by the decision of the Official
Liquidator under section 363 may file an appeal before the Central
Government within thirty days of such decision.
Sub-section (2) states that the Central Government may after
calling the report from the Official Liquidator either dismiss the appeal
or modify the decision of the Official Liquidator.
Sub-section (3) states that the Official Liquidator shall make
payment to the creditors whose claims have been accepted. (4) The
Central Government may, at any stage during settlement of claims, if
considers necessary, refer the matter to the Tribunal for necessary
orders.
Order of dissolution of company
Section 365 (1) states that the Official Liquidator shall, if he is
satisfied that the company is finally wound up, submit a final report
to— (i) the Central Government, in case no reference was made to the
Tribunal under sub-section (4) of section 364; and (ii) in any other
case, the Central Government and the Tribunal.
As per sub-section (2) the Central Government, or as the case may
be, the Tribunal on receipt of such report shall order that the company
be dissolved. (3) Where an order is made under sub-section (2), the
Registrar shall strike off the name of the company from the register of
companies and publish a notification to this effect.
Corporate Restructuring & Insolvency 95
SECTION IV – ROLE OF INSOLVENCY PROFESSIONALS
The Companies Act 2013 provides for regulation of insolvency,
including rehabilitation, winding up and liquidation of companies in
time bound manner. It incorporates international best practices based
on models suggested by the United Nations Commission on
International Trade Law (UNCITRAL). The powers and jurisdiction of
Company Law Board, Board of Industrial and Financial
Reconstruction and High Court in this regard, is being exercised by
National Company Law Tribunal and appellate tribunal. The purpose
of creation of the Tribunal is to avoid multiplicity of litigation before
various courts or quasi-judicial bodies or forums regarding revival or
rehabilitation or merger and amalgamation, and winding up of
companies. NCLT will have-
— The power to consider revival and rehabilitation of companies–
a mandate presently entrusted to BIFR under SICA.
— The jurisdiction and power relating to winding up of companies
presently vested in the High Court. The winding up proceeding
pending in High Courts shall stand transferred to the Tribunal.
— The jurisdiction and power exercised by the Company Law
Board under the 1956 Act. The Company Law Board will stand
abolished.
The Act also provides for larger role for professionals like Company
Secretaries to act as interim administrator/Company administrator
and Company liquidators in the process of revival and rehabilitation
of Sick Companies (Chapter XIX); Winding up of Companies (Chapter
XX)
Specific provisions of Companies act, dealing with the role
of Insolvency practitioners.
• Appointment of interim administrator/Company Administrator
in the process of revival/restructuring
The interim administrator or the company administrator, as the
case may be, shall be appointed by the Tribunal from a databank
maintained by the Central Government or any institute or agency
authorised by the Central Government in a manner as may be prescribed
consisting of the names of company secretaries, chartered accountants,
cost accountants and such other professionals as may, by notification,
be specified by the Central Government. The terms and conditions of
the appointment of interim and company administrators shall be such
as may be ordered by the Tribunal.(Section 259(1) and (2))
96 Corporate Restructuring & Insolvency
• Appointment of provisional liquidator or company liquidator
Section 275(2) states that the provisional liquidator or the
Company Liquidator, as the case may be, shall be appointed from a
panel maintained by the Central Government consisting of the names
of chartered accountants, advocates, company secretaries, cost
accountants or firms or bodies corporate having such chartered
accountants, advocates, company secretaries, cost accountants and
such other professionals as may be notified by the Central Government
or from a firm or a body corporate of persons having a combination
of such professionals as may be prescribed and having at least ten
years’ experience in company matters.
• Company liquidator may appoint professionals to assist him
As per 291 (1) The Company Liquidator may, with the sanction
of the Tribunal, appoint one or more chartered accountants or company
secretaries or cost accountants or legal practitioners or such other
professionals on such terms and conditions, as may be necessary, to
assist him in the performance of his duties and functions under this
Act.
• To appear before the Tribunal
As per Section 300 (4) A person ordered to be examined under this
section—
(a) shall, before his examination, be furnished at his own cost with
a copy of the report of the Company Liquidator; and
(b) may at his own cost employ chartered accountants or company
secretaries or cost accountants or legal practitioners entitled
to appear before the Tribunal under section 432, who shall be
at liberty to put to him such questions as the Tribunal may
consider just for the purpose of enabling him to explain or
qualify any answers given by him.
• Professionals to assist official liquidators
Rule 35(2) of Companies (Winding up ) Rules 2013, states that the
Official Liquidator shall maintain a panel of Security Agency with the
approval of Tribunal and of professionals including Valuers, Chartered
Accountants, Company Secretaries, Cost Accountants and Advocates
to represent and assist the Official Liquidator in the winding up process
and proceeding related to winding up petitions and applications before
the Tribunal and the Central Government.