CONCEPT OF WINDING UP UNDER COMPANY LAW - LAWKARO

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CONCEPT OF WINDING UP UNDER COMPANY LAW - LAWKARO

Winding up refers to the end of a company's life and the administration of its assets for its creditors and members. The winding-up of a business is not the same as the insolvency or bankruptcy of an individual. A company cannot be declared bankrupt, but a solvent company can be. Dissolution is different from winding up. The company can be dissolved only after winding up. "Winding up precedes the dissolution." Part I (Ss. The provisions of Part I (Ss. 271-303) will apply to the winding-up of a company by Tribunal under the Companies Act 2013. [S. 270]

TRIBUNAL MAY LIQUIDATE COMPANY UNDER CERTAIN CIRCUMSTANCES [S. 271]

The court can order the winding down of a company under section 271 at its discretion in the following situations:

1. The Tribunal may order the liquidation of a company that has reached a special resolution.
2. If the company has acted in violation of India's sovereignty and integrity, security of the State, friendly relations with other States, public order or morality.
3. If the Tribunal believes that the affairs or management of the company were conducted fraudulently or that they were formed for fraudulent or illegal purposes, or that persons involved in their formation or management have been guilty of fraud, misfeasance, or misconduct in these connections, it is appropriate that the company is wound up. This clause may be activated through a notification from the Central Government or the Registrar.
4. If the company defaults in filing its financial statements and annual returns with the Registrar for the five preceding financial years.
5. The Tribunal may decide that liquidation of the company is fair and just. The company must have the debt in its current payment, and there should be no bona fide dispute.

This remedy cannot be used to force payment of disputed debts by the Tribunal as a cheap shortcut. This power is discretionary. In Madhusudan Gordhandas & Co v Madhu Woollen Industries Ltd, the Supreme Court noted that the Tribunal could exercise its discretion and consider all relevant factors, including creditors' wishes, the benefit accruing to petitioners and the nature of the debt. Commercial insolvency is when the assets and liabilities are so large that it is reasonable to assume there will not be enough to cover them. Commercial insolvency is when you cannot pay taxes or pay a bill in exchange. Even if assets and liabilities are equal, a company could be declared insolvent if it cannot sell its fixed assets to meet its liabilities.

The State took over the assets of a company. In response to creditors' claims and petitions, the company only stated that it was trying to retrieve the assets. There was no benefit to creditors in the continuation of the company. Even though the company's business was at a halt due to insufficient working capital and the company's knowledge of ship repair, the Bombay High Court refused a winding-up order. It was very helpful for the country.

JUSTAND FAIR

The Tribunal finds it just and fair to wind up the company. The Tribunal has broad discretionary powers to order winding down if appropriate in the circumstances. The Tribunal can either decide to wind up the petition or reject it, considering the interests of creditors, members, employees, and the public. These cases have seen winding-up orders for this reason:

First, if there is a deadlock within the management of the business, this happens when the two main members of a company do not speak the same language. A simple dispute is not enough.

Second, when the company's main objective fails to materialise or the substratum is destroyed. The substratum of a company is considered to have vanished when the main object of incorporation has materially failed or when it becomes impossible for the company to continue its business without sustaining losses, or when the assets and liabilities are not sufficient. This happened when a company that was incorporated to obtain a German patent was unable to do so or when a creditor took the company's assets. Temporary acquisition and difficulty are not the same things.

Third, when the company's business cannot be continued except for losses.

Fourth, if the majority shareholder or principal has adopted an oppressive or squeezing attitude towards the minority, a private company director was dismissed because he refused to consent to a transaction. The court ruled that this was an abuse of power and made it fair and equitable to wind down the company. Ultra vires application and subsequent dissociation among 93% of shareholders and persistent refusal of a managing director of holding meetings or paying dividends were enough to warrant a winding-up order.

Fifth, the place where the company was conceived or brought into being in fraud. The evidence proved that the company did not have adequate records. It was a share-vending company, but it pretended to be acting as an advisor for investors. It advised them to buy shares of American companies that are not freely tradeable. This was considered illegal and against the public interest.

Finally, suppose a court determines that a small private business is, in essence, a partnership or an incorporated quasi-partnership. It can be ordered to wind up if there is an abuse or breach of trust that partners owe each other.

This ground can be used to wind up if a director was removed or if there is a breach of the articles. It was agreed that parity of shares was to be maintained. However, the Tribunal could not exercise its power if a group attempted to take control of the company by increasing its shareholding.

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