Electronic copy available at: http://ssrn.com/abstract=2377165

VOLUNTARY WINDING UP IN INDIA

- A COMPARATIVE ANALYSIS

Submitted By: Sumita Patwari

INTRODUCTION

Winding-up of a company is a procedure of allocating the assets and concluding the existence of

a company. It is a process of dissolving a company by collecting its assets, paying off its

liabilities out of the assets of the company or from contributions by its members. If any excess is

left, it is distributed amid the members in accordance with their rights.

In the words of Prof. L.C.B. Gower, Winding-up of a company is the process whereby its life is

ended and its property administered for the benefit of its creditors and members. An

administrator called liquidator is appointed and he takes control of the company, collects its

debts and finally distributes any surplus among the members in accordance with their rights.1

Thus in the words of Pennington, Winding up or liquidation is the process by which the

management of a companys affairs is taken out of its directors hand, its assets are realized by a

liquidator, and its debts and liabilities are discharged out of the proceeds of realization and any

surplus of assets remaining is returned to its members or shareholders. At the end of winding up

the company will have no assets or liabilities, and will therefore be simply a formal step for it to

be dissolved, that is its legal personality as a corporation to be brought to an end.2

A company registered under the Companies Act, 1956 may be wound up in any of the

following modes:3

1. By the Court4 i.e. compulsory winding up;

1 Modern Company Law, 4th Edn., p.789 2 Penningtons Company Law, 5th Edn., p. 839 3 Section 425, Companies Act, 1956 4 Substituted by Tribunal by Companies (Second Amendment) Act, 2002

Electronic copy available at: http://ssrn.com/abstract=2377165

2

2. Voluntary winding up, which may be either: (a) Members voluntary winding up; or (b)

Creditors voluntary winding up;

3. Winding up subject to the supervision of the Court (Section 522 to 527).5

In every winding up, a liquidator or liquidators is or are appointed to administer the property of

the company and he or they must apply the assets of the company, first, in the payment of the

creditors in their proper order, and then, in distributing the residue among the members

according to their rights.

The companies are usually wound up voluntarily as it is an easier process of winding up. It is

different from a compulsory winding up. Winding up order by the Tribunal is not common

because normally the members of the company prefer to wind up the company voluntarily for in

such a case they shall have a voice in its winding up. Further, its creditors are left to settle their

affairs without going to a Court, although they may apply to the Court for directions or orders,

when necessary. The procedure involved in a members' voluntary liquidation, a solvent

liquidation commenced by a shareholders' special resolution with no court involvement and no

stigma attached, as all the company's debts are paid in full. Moreover, a voluntary winding up is

far cheaper, speedier and simpler than a winding up by the Tribunal.6 The power of the Tribunal

to order winding up is exercised only where the winding up is opposed to the interest of the

company or public.

VOLUNTARY WINDING UP UNDER THE COMPANIES ACT, 1956

Part VII Chapter III of the Companies Act, 1956(Sections 484 to 520) extensively deals with

the provisions of voluntary winding up of a company. A company may, voluntarily wind up its

affairs, if it is unable to carry on its business, or if it was formed only for a limited purpose, or if

it is unable to meet its financial obligation, and etc. In case of voluntary winding up, the entire

process is done without the supervision of the Tribunal. When the winding up is complete, the

relevant documents are filed before the Court for obtaining the order of dissolution. A voluntary

winding up may be done by the members as it may be done by the creditors.

5 Omitted by the Companies (Second Amendment) Act, 2002

6 Anne Sharp, Members' solvent liquidation, 2011, Financial Regulation International, F.R.I. 2011, May, 4-6

3

The circumstances under which a company may be wound up voluntarily are:7

(a) when the period fixed for the duration of the company as mentioned in its articles has

expired; or

(b) the event, on the happening of which the articles provide that the company is to be dissolved

has occurred; and

(c) the company passes a special resolution that the company be wound up voluntarily

Thus, a company may be wound up voluntarily on the expiry of the term fixed for duration of the

company or on the occurrence of the event as provided in its articles. In these two cases only an

ordinary resolution may be passed in the general meeting of the company. In British Water Gas

Syndicate v. Notts Derby Water Gas Co. Ltd.,8 held that however prosperous and solvent a

company may be, if the members wish the company to be wound up, they can do so by passing a

special resolution to that effect and no reasons need be given. No articles of the Company can

prevent the exercise of this statutory right. And the right cannot be interfered with by any Court

by means of an injunction or otherwise.

Where the required special resolution was passed at a meeting convened by giving a shorter

notice than that required by the Act, but all the members of the company unanimously agreed

thereto, the resolution being intra vires the company, was held valid. In re, Bailey Hay &

Co. Ltd.,9 there were only five shareholders, two of whom held between themselves 50% of the

voting power and they passed the resolution. Shareholders who abstained from voting on the

resolution and allowed it to be passed with knowledge of their power to stop it must be deemed

to have assented to the resolution which, accordingly, was held valid.

In Southern Counties Deposit Bank Limited v. Rider & Kirkwood,10

a notice calling a general

meeting to wind up the company was issued by the authority of a board meeting at which only

two directors were present. The quorum for board meetings was for six years regarded as two

directors, though the resolution altering the quorum from three to two had not been validly

passed. The court refused the application, for declaring the resolution to be invalid saying it

7 Section 484(1), Companies Act, 1956 8 1889 WN 204 9 (1972) 42 Com Cases 442 10 (1895) 11 TLR 563

4

would not interfere for the purpose of forcing companies to conduct their business according to

the strictest rules, where the irregularity complained of can be set right at any moment.

In Indian Trading & Engineering Co. Ltd. Re,11

the Court applied Silkstone Fall Colliery Co.

Re.,12

where the resolution for voluntary winding-up passed by the shareholders was on the basis

of a bad notice and though the shareholders at a subsequent meeting appointing liquidators

waived the requirement of proper notice and confirmed the resolution, it was held that it was

open to the creditors to challenge the appointment of liquidator.

The resolution, when passed, must be advertised within 14 days of the passing of the resolution

in the Official Gazette and also in some newspaper circulating in the district where the registered

office of the company is situated. A default in complying with the above requirements renders

the company and every officer of the company, who is in default, liable to a penalty which may

extend to five hundred rupees for every day during which the default continues. In Bhargava

(S.P.) v. Rameshwar Shastri,13

held that a failure to advertise, may be considered to be an

irregularity and curable, not affecting the validity of winding up. A liquidator of the company is

deemed to an officer of the company for the purposes of the above requirements.14

It was held

in Neptune Assurance Co. Ltd. v. Union of India,15

that in the Companies Act the expression

voluntary winding up, means a winding up by a special resolution of a company to that effect.

Similarly, the expression winding up by the court means winding up by an order of the Court

in accordance with S. 433 of the Companies Act.

A voluntary winding up commences from the date of the passing of the resolution for voluntary

winding up. This is so even when after passing a resolution for voluntary winding up, a petition

is presented for winding up by the Court.16

The date of commencement of winding up is

important for various matters, such as liability of past members, who will not be affected if, on

the date of commencement of winding up, a year had elapsed after they ceased to be members,

fraudulent preference may have become unimpeachable, etc. In Re, West Cumberland Iron Steel

Co.,17

where a voluntary winding up is continued under supervision (section 522), the winding

11 (1910-11) 15 CWN 1047 (Cal) 12 (1875) 1 Ch D 38 13 (1952) 22 Com Cases 106: AIR 1952 MB 3A 14 Section 485, Companies Act, 1956 15 1973 SCR (2) 940 16 Section 486, Companies Act, 1956 17 (1889) 40 Ch D 361

5

up commences not at the date of the presentation of the petition or order for supervision but at

the date of the resolution for voluntary winding up; for the order is only to continue the winding

up.

In Indian States Bank Ltd., Re,18 when the voluntary liquidation is followed by a compulsory

order, the date of commencement of the compulsory liquidation is the date of voluntary

liquidation. Hence a suit filed before commencement of winding up can be continued by the

company and the liquidator need not be brought on record held in National Stores v.

Ramsaran.19

The effect of the voluntary winding up is that the company ceases to carry on its business except

so for as may be required for the beneficial winding up thereof.20

In Rangai Goundan (M.K.),

Re,21

held that a voluntary winding up does not put an end to the corporate existence of the

company. The company exists until it is dissolved. The powers of the directors continue to the

extent to which they are allowed by the liquidator. In Commr. Of Income Tax v. Liquidator,

Ratlam Electric Supply etc. Co. Ltd.22

, it was held that Section 487 does not contemplate the

carrying on business of the company except to the extent necessary for its beneficial winding up.

It does not prohibit a company which is being voluntarily wound up from receiving income from

other sources and interest on securities.

The property of the company becomes a trust property with the passing of the resolution for

winding up for the benefit of creditors and contributories. The principle of the establishment of

trust was stated in General Rolling Stock Co., Joint Discount Company's Claim, Re,23: A duty

and a trust are thus imposed upon the court, to take care that the assets of the company shall be

applied in discharge of its liabilities. What liabilities? All the liabilities of the company existing

at the time when the winding up order was made which gives the right. It appears to me that it

would be most unjust if any other construction were put upon the section.

18 (1934) 4 Com Cases 64: AIR 1934 All 114 19 AIR 1926 Nag 303 20 Section 487, Companies Act, 1956 21 (1942) 12 Com Cases 198: 1972 Mad 702 22 (1982) 52 Comp Cas. 632 23 (1872) 7 Ch App 646 at 648-649: (1861-73) All ER Rep 434 at 435

6

In Knowles v. Scott,24

held that a voluntary winding up does not operate as a stay of any existing

proceedings or prevent the institution of new proceedings. The liquidator is treated as a person in

the position of an agent for the company, performing his duties in accordance with the provisions

of the Act. In Dawsons Banks Ltd. v. Nippon Menkwa Kabu-shiki Kaisha,25

held that the

liquidators are not parties to such suit and it is improper to implead them as defendants. The

change that is brought about by the liquidation in regard to the suit is merely this that in the

conduct of their defence the company would, before liquidation, act through the directors, during

liquidation through the liquidators, and after the stay of liquidation through the directors once

more.

A voluntary winding up does not necessarily operate as a discharge of the companys servants.

In Reigate v. Union Manufacturing Co., (Ramsbottom) Ltd.,26

held that the passing of a

resolution for voluntary winding up does not operate as notice of discharge of the employees of

the company, if the business is continued by the liquidator or the liquidation is only with a view

to reconstruction. In Fowler v. Commercial Timber Co. Ltd.,27

F was appointed managing

director of a company for a period of five years, the company passed a resolution that it could

not by reason of its liabilities continue its business. F voted in favour of this resolution. Held, (a)

the voluntary winding up operated as a wrongful dismissal of F, and (b) the fact that F consented

to the winding up by voting for the resolution did not prevent him from recovering damages.

In Midland Counties District Bank Ltd. v. Attwood,28

held that where the voluntary winding up

is for the purpose of amalgamation or reconstruction, the resolution to wind up voluntarily does

not operate as a notice of discharge to the employees. In Hutton v. West Cork Rly.,29

held that a

company should not, after the commencement of the winding up, give gratuities to directors or

servants and if they are voted, the liquidator should refuse to pay them.

In Dilip Singh T. v. State of T.N.,30

a company closed its undertaking without permission of

labour authority. The company went into voluntary liquidation by passing a special resolution.

The director in question had resigned before the date of the resolution. His resignation was

24(1891) 1 Ch 717 25 AIR 1935 PC 79: (1935) 5 Com Cases 191 at 203 26 (1918) 1 K.B. 593 27 (1930) 2 K.B.1 28 (1905) 1 Ch. 357 29 (1883) 23 Ch D 654 30 (2002) 112 Com Cases 195 (Mad)

7

accepted by the company and all the relevant documents were filed with the ROC. It was held

that the prosecution of such a director for not complying with labour enactments was not

permissible.

There are two kinds of voluntary winding up:31

(i) Members voluntary winding up; and

(ii) Creditors voluntary winding up.

MEMBERS VOLUNTARY WINDING UP

Sections 490 to 498 of the Companies Act, 1956 shall apply in relation to a members voluntary

winding up.32

When the company is solvent and is able to pay its liabilities in full, it need not

consult the creditors or call their meeting. Its directors, or where they are more than two, the

majority of its directors may, at a meeting of the Board, make a declaration of solvency verified

by an affidavit stating that they have made full enquiry into the affairs of the company and that

having done so they have formed an opinion that the company has no debts or that it will be able

to pay its debts in full within such period not exceeding three years from the commencement of

the winding up as may be specified in the declaration. In Collector of Moradabad v. Equity

Insurance Co. Ltd.,33

Section 488 does not require that there should be an affidavit by each of

the directors making the declaration. An affidavit by one director is sufficient. In De Courcy v.

Clement,34

held that while failure to satisfy the conditions under this section makes the

declaration of no effect i.e., a nullity, a mere error or omission, while it may expose the declarant

to the penal consequences, will not prevent the statement from being a statement for the purpose

of satisfying the requirements of the section.

Such a declaration must be made within five weeks immediately preceding the date of the

passing of the resolution for winding up the company and be delivered to the Registrar for

registration before that date. The declaration must embody a statement of the companys assets

and liabilities as at the latest practicable date before the making of the declaration. Any director

making a declaration without having reasonable grounds for the aforesaid opinion, shall be

punishable with imprisonment extending up to six months or with fine extending up to Rs.

31 Section 488(5), Companies Act, 1956 32 Section 489, Companies Act, 1956 33 (1948) 18 Com Cases 309, 317: AIR 1948 Oudh 197 34 (1971) 1 All ER 681: (1971) 41 Com Cases 796 (Ch D)

8

50,000 or with both.35

In Shri Raja Mohan Manucha v. Lakshminath Saigal,36

it was held that

where the declaration of solvency is not made in accordance with the law, the resolution for

winding up and all subsequent proceedings will be null and void.

Procedure for Members Voluntary Winding Up:

The company shall appoint one or more liquidators, in a general meeting, who shall look after

the affair of winding up procedure, and distribution of assets.37

The secretary of a company can

be appointed as liquidator, held in London & Australian Agency Corp. Ltd. Re.,38

so also a

solicitor can be appointed as liquidator. The liquidator so appointed, shall be paid remuneration

for his services, which shall also be fixed in general meeting.39

In R. Gertzenstein Ltd. Re,40

the

remuneration fixed may include the fee for professional services also. But he cannot recover

costs for the services rendered by him as a solicitor over and above the fixed remuneration. In

Globe United Engg. & Foundry Co. Ltd. v. Registrar of Cos.,41

held that the remuneration

cannot be increased in any circumstances whatever. Even the court does not have power to

increase it. In Cf. Re, Mortimers (London) Ltd.,42

held that when the voluntary winding up is

superseded by a compulsory winding up, the Court may review the amount. In Amalgamated

Syndicate Ltd., Re,43

held the remuneration of the voluntary liquidator has to be fixed at the

meeting by the contributories or at a subsequent meeting. If that is not done, an application can

be made to the court for fixing such remuneration as the court thinks just.

The company shall also give notice of appointment of one liquidator to the registrar within ten

days of appointment.44

Once the company has appointed liquidator, the powers of Board of

Directors, Managing Director, and Manager, shall cease to exist.45

The liquidator is generally

given a free hand, to carry out the winding up procedure, in such a manner, as he thinks best in

the interest of creditors, and company. In case, the winding up procedure, takes more than one

35 Section 488, Companies Act, 1956 36 (1963) 33 Comp. Cases 719 37 Section 490 (1), Companies Act, 1956 38 (1873) 29 LT 417: 22 WR 45 39 Section 490 (2), Companies Act, 1956 40 (1936) 3 All ER 341: (1938) 8 Com Cases 53 41 (1974) 44 Com Cases 330 (Del) 42 (1937) 1 Ch 289: (1938) 8 Com Cases 56 43 (1901) 2 Ch 181 44 Section 493, Companies Act, 1956 45 Section 491, Companies Act, 1956

9

year, then liquidator will have to call a general meeting, at the end of each year, and he shall

present, a complete account of the procedure, and position of liquidator.46

In Gerard v. North of

Paris Ltd.,47

held that under the members voluntary winding up there is a presumption, until the

contrary is shown, that all the debts of the company will be paid in full and it must be taken that

the company is solvent when there is no evidence to the contrary.

The liquidator shall take various steps, when affairs of the company are fully wound up. He shall

call a general meeting of the members and lay before it, complete picture of accounts, winding

up procedure and how the properties of company are disposed of. The meeting shall be called by

advertisement, specifying the time, place and object of the meeting. The liquidator shall send to,

the Registrar and official Liquidator copy of account, within one week of the meeting. If from

the report, official liquidator comes to the conclusion, that affairs of the company are not being

carried in manner prejudicial to the interest of its members, or public, then the company shall be

deemed to be dissolved from the date of report to the court. However, if official liquidator comes

to a finding, that affair have been carried in a manner prejudicial to interest of member or public,

then court may direct the liquidator to investigate furthers.48

CREDITORS VOLUNTARY WINDING UP

Where a declaration of solvency of the company is not made and delivered to the Registrar in a

voluntary winding up it is a case of creditors voluntary winding up. A winding up petition is a

perfectly proper remedy for enforcing payment of a just debt. It is the mode of execution which

the Court gives to a creditor against a company unable to pay its debts.49

Sections 500 to 509 of

the Companies Act, 1956 shall apply in relation to a creditors voluntary winding up. Where the

resolution for winding up has been passed, but the Board of Directors are not in a position to

give a declaration on the liability of company to the Registrar, they may call a meeting of

creditors, for the purpose of winding up. It is the duty of Board of Directors, to present a full

statement of companys affairs, and list of creditors along with their dues, before the meeting of

creditors.50

46 Section 496, Companies Act, 1956 47 (1936) 2 All ER 905 48 Section 497, Companies Act, 1956 49 Palmers Company Precedents, Part 11, 1960 Edn., at p. 25 50 Section 500, Companies Act, 1956

10

The procedure laid down in Section 500 and the following sections, in regard to the creditors

winding up of an insolvent company, a company which is not able to pay its debts and

liabilities, is based upon the views expressed by J., in In re, Karamelli and Barnett Ltd.51

Under this procedure the company has to convene a meeting of the creditors to take place

immediately after the meeting of the shareholders, on the same day or the next day; and the

directors have to place a full statement of the position of affairs at the creditors meeting. The

creditors at the meeting have the right to nominate a liquidator and if their nominee is different

from the one nominated by the shareholders, creditors nomination prevails, subject to the power

of interference of the court. Thus, the creditors are given a controlling voice in the winding up of

an insolvent company.

Whatever resolution, the company passes in creditor's meeting, shall be given to the Registrar

within ten days of its passing.52

In Re, Eros Films Ltd.,53

held the giving of notices under this

section is analogous to the filing, under the law of insolvency, of a declaration of inability to pay

debts. In Pure Milk Supply Co. Ltd. v. S. Hari Singh,54

held non-compliance with the provisions

of Section 501 renders the directors liable to fine but does not make the proceedings of the

meeting invalid.

The creditors appoint the liquidator, approve the accounts and regulate the winding up

proceedings.55

In Re, Caston Cushioning Ltd.,56

held a liquidator appointed by a resolution of

the members cannot be replaced by one appointed by a majority in value but not in number of

the creditors. In Re, Centrabind Ltd.,57

held where a liquidator is appointed by the members of

the company but the creditors did nothing, the liquidator appointed by the members will not be

disentitled to act as the liquidator of the company. He has locus-standi to take all proceedings.

The creditors may appoint a Committee of Inspection consisting of not more than five creditors

in order to regulate and supervise the winding up proceedings.58

Section 509 deals with the various steps to be taken by the liquidator, when affairs of the

company are fully wound up. This section has the same provisions as that of members voluntary

51 (1917)1 Ch 203 52 Section 501, Companies Act, 1956 53 (1963)1 All ER 383: (1963)33 Com Cases 467 54 AIR 1962 Punj 190: (1962) 32 Com Cases 659 55 Section 502, Companies Act, 1956 56 (1955) 1 All ER 508: (1955) 25 Com Cases 138 57 (1966) 3 All ER 889: (1967) 37 Com Cases 468 (Ch D) 58 Section 503, Companies Act, 1956

11

winding up under Section 497 of the Act. Once the company is fully wound up, and assets of the

company sold or distributed, the proceedings collected are utilized to pay off the liabilities. The

proceedings so collected shall be utilized to pay off the creditors in equal proportion. Thereafter

any money or property left may be distributed among members according to their rights and

interests in the company.59

In Pamarti Venkataswamy v. Kondandarama Bus Transport Ltd.,60

held the shareholders can draw a scheme for distributing the companys assets and business

among themselves, undertaking in turn to pay off the companys debts.

In voluntary winding up it is left to the company, the contributories and the creditors to settle

their affairs without intervention of the Court as far as possible. However, the Act contains

certain provisions which provide a means of access to the Court with a view to speed up the

liquidation proceedings and to overcome the difficulties that may arise in the course of

liquidation. The Court will intervene in the voluntary winding up whenever it is satisfied that

such an intervention will be just and beneficial. In appropriate cases the Court can be approached

for compulsory winding up (Section 440) or winding up being conducted under the supervision

of the Court.61

COMPARATIVE STUDY OF VOLUNTARY WINDING UP LAW UNDER

COMPANIES ACT, 1956 WITH UK LEGISLATION AND COMPANIES

ACT, 2013

The study of insolvency laws have gained importance over the years due to growing cross

borders business ventures. This has made it necessary to be aware of the legislative framework

with regard to corporate insolvency and latest developments in other countries too. The laws

relating to voluntary winding up in India is very much similar to those prevailing in UK. In UK

the insolvency laws are governed by the Insolvency Act, 1986, Insolvency Rules, 1986,

the Company Director Disqualification Act, 1986. The insolvency proceedings governed by this

Act fall under two categories namely, (a) Insolvency proceedings in respect of companies

registered under the Companies Act, 2006 and unregistered companies; (b) Insolvency

proceedings in respect of individuals known as bankruptcy. The Legislative Reform 59 Section 511, Companies Act, 1956 60 (1958) 28 Com Cases 50: AIR 1958 AP 666 61 Section 522, Companies Act, 1956

12

(Insolvency) (Miscellaneous Provisions) Order 2010 and The Insolvency (Amendment) Rules

2010 came into force on 6 April 2010 and made a number of changes in relation to voluntary

liquidations. The amendments generally apply only to cases where the resolution for voluntary

winding up was passed on or after 6 April 2010 (unless it went into liquidation under Paragraph

83 of Schedule B1 to the Act and the preceding administration commenced before 6 April 2010

or was an administration by virtue of an administration order where the application was made

before 6 April 2010).62

Prior to enactment of Insolvency Act, the Bankruptcy Act 1914 did not apply to corporate

insolvency. Corporate insolvency provisions were contained in the Companies Act, 1985.

Kenneth Cork Committee (Insolvency Law Review Committee) recommended spin off and

enactment of Insolvency Act 1985. Thereafter the 1985 Act on the very first day was replaced by

Insolvency Act 1986. It was substantially amended by Insolvency Act 1994. Further the

Enterprise Act 2002 has attempted to fundamentally change approaches to corporate insolvency

regulation in the United Kingdom.63

By endeavouring to improve the administration procedure

first introduced by the Insolvency Act 1986, the legislature has given paramount consideration to

corporate rescue outcomes through the administration procedure, as originally envisaged by the

Cork Committee in its seminal report of 1982.64

Chapters II to V of Part IV of the Insolvency Act, 1986 comprising of Sections 84 to 116

(corresponding sections in the Companies Act, 1956 are Sections 484 to 520) deal with voluntary

winding up.65

The Indian law adopts the provisions of the English law with little or no

difference. Most of the provisions relating to voluntary winding up are same as that of Act of

1986. However, there are few striking differences relating to the power of liquidators and

directors during the winding up procedure.

Like the Companies Act, 1956 there are two types of voluntary winding up under the Insolvency

Act, 1986. Members voluntary winding up is commenced by a resolution of the shareholders

that the company is wound up and that a named licensed insolvency practitioner is appointed the

62 http://www.legislation.gov.uk/ukpga/1986/45/part/IV/chapter/III 63 http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft916.pdf 64 John Tribe Company voluntary arrangements and rescue: a new hope and a Tudor orthodoxy, 2009, Journal of Business Law, J.B.L. 2009, 5, 454-487 65 Palmer's Company Law, 24th Edn., 1987, Vol. 1, Para 89-01A, Pages 1493

13

liquidator.66

If the directors make a statutory declaration of solvency within five weeks prior to

the resolution, the liquidation will proceed as a members voluntary liquidation.67 Otherwise the

process will be a creditors voluntary liquidation and a meeting of creditors must be held within

14 days of the members resolution.68 If the meeting of creditors nominates a practitioner other

than the one nominated by the members as liquidator, the creditors choice will prevail.

On the appointment of a liquidator in a creditors voluntary winding-up, all powers of the

directors cease except so far as are preserved by the creditors committee or the creditors.69 If the

shareholders do not appoint a liquidator, the powers of the directors are not exercisable except so

far as are necessary to secure compliance to convene a meeting of creditors, the production of a

statement of affairs and to protect the assets or dispose of perishable assets. In a voluntary

liquidation, the company must cease to carry on its business except so far as is necessary for its

beneficial winding-up.

There are number of similarities in the two laws however, Section 89 of the Insolvency Act,

1986 clearly mentions a time limit to commence the creditors voluntary winding up. There is no

such exact time frame provided under the corresponding Section 500 of the Companies Act,

1956.

Further, as stated earlier under Section 490 of the Companies Act, 1956 the remuneration cannot

be increased in any circumstances whatever; even the court does not have power to increase it. In

English law, however, by virtue of the rules under the English Insolvency Act, 1986, a voluntary

liquidator can make an application showing that his remuneration is insufficient according to

objective standards. The court then gets an unfettered discretion both as to the amount and the

basis of the increase having regard to all the circumstances and to the criteria set out in the

rules.70

Under the Indian law, the liquidator's remuneration is paid out of the assets of the company. But

where those assets were not sufficient to pay him for his labours, English Court allowed him to

66 Section 84 of the Insolvency Act, 1986 67 Section 89 of the Insolvency Act, 1986 68 Section 98 of the Insolvency Act, 1986 69 Section 91 of the Insolvency Act, 1986

70 Tony Rowse NMC Ltd., Re, (1996) 2 BCLC 225 (Ch D)

14

recover his costs and remuneration out of the trust property which was held by the company on

trust for its investors.71

Section 494 of the Companies Act does not render the liquidator the position of an officer of the

court but, subject to this, his position as regards taking possession of the assets is the same as in

the case of a winding up by the Court. The liquidator should at once take possession of the

books, deeds and documents of the company etc. However, the position of the liquidator is a

stronger one by virtue of Section 246 of the English Act whereby it is provided that a lien or

other right to retain possession of the books, papers or other records of the company is

unenforceable to the extent that its enforcement would deny possession of any books, papers or

other records to the office-holder.

Under Section 502 of the Companies Act, 1956, the creditors are given a preferential right in the

matter of the appointment of a liquidator, with a power to the court to vary the appointment on

application made within seven days, by a director, member or creditor. However, the Insolvency

Act, 1986 restricts the authority of directors to enter into transactions which are binding on the

company where no liquidator is appointed or nominated in a creditors voluntary winding up.72

Part II of Chapter XX (Sections 304 to 323) of the Companies Act, 2013 deals with voluntary

winding up. The provisions of the Act are similar to that of the Act. The only difference is the

provisions are compressed unlike the elaborative sections in the Act. The procedure for

voluntary winding up, powers of liquidator, commencement etc. remains the same with slight or

no difference.

Section 484 remains intact with the corresponding Section being 304. Section 485 is amended by

Section 307 by increasing the fine to five thousand rupees from five hundred. Section 486 and

487 remain intact with corresponding Sections being 308 and 309 respectively. Section 488 is

amended by Section 305 by adding two more things that the declaration must contain namely,

Cl.305 (2) (b) it contains a declaration that the company is not being wound up to defraud any

person or persons and Cl.305 (2) (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

71 Horris v. Conway, 1989 BCLC 28: (1989) 2 Comp LJ 145, 157 (Ch D) 72 A Company (No 006341 of 1992), Re; B. Ltd. Ex p., (1994) 1 BCLC 225 (Ch D)

15

valuer. Further the punishment under Cl.305 (4) has been enhanced from six months and fifty

thousand rupees to 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.

Sections 490 and 502 have been combined in the same Section and have been amended by

Section 310. Under this earlier the company in general meeting could appoint the liquidator

however now this has to be followed by appointing Company Liquidator from the panel prepared

by the Central Government. Section 500 and 501 has been combined under Section 306 and now

notice of the meeting of the creditors need not be advertised in the Official Gazette and

newspapers. Further the punishment for default is enhanced from ten thousand rupees to 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.

Sections 492 and 506 have been combined in Section 311; however, earlier the company had

power only to fill the vacancies and there was no provision as to removal of Company

Liquidator. The new Section has clear provisions regarding the removal of the Liquidator.

Section 493 has been amended by Section 312 whereby the fine has been reduced to five

hundred rupees from one thousand rupees. Section 491, 503, 512 remains intact with the

corresponding Sections being 313, 314 and 315 respectively.

Sections 496 and 508 have been combined under Section 316 and now the Company Liquidator

shall report quarterly on the progress of winding up of the company. Further the fine has been

enhanced from one thousand rupees to ten lakh rupees. Sections 497 and 509 have been

combined under Section 318 whereby the time limit for sending the copy of final winding up

accounts of the company has been raised to two weeks from one week. Further the fine has also

been enhanced from five thousand to one lakh rupees. Sections 494, 511, 517, 518 and 520

remain intact with the corresponding Sections being 319, 320, 321, 322 and 323 respectively.

16

CONCLUSION

After a clear perusal of the laws and procedures of voluntary winding up under the Companies

Act, 1956 and Insolvency Act, 1986, it can be concluded that these provisions may not be

verbatim copies of each other, yet they are very similar in many aspects. A clear understanding

of the international insolvency laws is important due to rise in cross border business ventures.

Hence from the above discussion we can draw a conclusion that most of the provisions carry

similar meaning however there are few striking differences to be found in the English Law is that

the position of the Liquidator is stronger than that in India. For instance, if there are grievances

regarding his remuneration he can apply to the Court and get his dues or even increase it,

restrictions on directors rights etc.

The Companies Act, 2013 is not that elaborative like the Act. It contains all the provisions of the

Act however, many of the sections are combined under a single Section and certain provisions

have been removed. The most important thing to be noted is that most of the provisions relating

to the punishments have been amended. Where the company or an officer of the company fails to

comply with the said provisions of the Act or Act, the fine amount and the imprisonment term is

enhanced. Further the time limit for submitting reports by liquidator or members to authorities

have also been altered.

It can be concluded that voluntary winding up is preferred because it is easier and speedier. The

members and creditors have a say and control over the proceedings. It is to be noted that winding

up by the Tribunal is approached only if there is a dire need for it, if the proceedings are

detrimental to the interests of the company and public at large

17

BIBLIOGRAPHY

PRIMARY SOURCE

Companies Act, 1956

Insolvency Act, 1986

Companies Act, 2013

SECONDARY SOURCE

Books Referred:

A Ramaiya, Guide to Companies Act, (2010), LexisNexis Butterworths Publications,

17th

Edn.

C.R.Datta, The Company Law, (2008), LexisNexis Butterworths Publications, 6th Edn.

Palmer's Company Law, (1987), Stevens & Sons Ltd. Publications, Vol 1, 24th Edn.

Articles Referred:

John Tribe Company voluntary arrangements and rescue: a new hope and a Tudor

orthodoxy, 2009, Journal of Business Law, J.B.L. 2009, 5, 454-487

Anne Sharp, Members' solvent liquidation, 2011, Financial Regulation International,

F.R.I. 2011, May, 4-6

Websites visited:

http://www.legislation.gov.uk/ukpga/1986/45/part/IV/chapter/III (UK Govt)

http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft916.pdf (Office of Fair

Trading)

http://www.jstor.org/stable/1327367

http://www.companyliquidator.gov.in/winding_up_3.html# (Ministry of Corporate

Affairs)

http://login.westlawindia.com/maf/wlin/app/document?&srguid=ia744d06500000140cea

3f1666e0d1b7f&docguid=IE092A561D37B11E08093A488213A42B9&hitguid=IE092A

561D37B11E08093A488213A42B9&rank=2490&spos=2490&epos=2490&td=2891&cr

umb-action=append&context=45&resolvein=true

18

LIST OF CASES British Water Gas Syndicate v. Notts Derby Water Gas Co. Ltd.; 1889 WN 204

Bailey Hay & Co. Ltd., Re; (1972) 42 Com Cases 442

Southern Counties Deposit Bank Limited v. Rider & Kirkwood; (1895) 11 TLR 563

Indian Trading & Engineering Co. Ltd. Re; (1910-11) 15 CWN 1047 (Cal)

Silkstone Fall Colliery Co. Re.; (1875) 1 Ch D 38

Bhargava (S.P.) v. Rameshwar Shastri; (1952) 22 Com Cases 106: AIR 1952 MB 3A

Neptune Assurance Co. Ltd. v. Union of India; 1973 SCR (2) 940

West Cumberland Iron Steel Co., Re; (1889) 40 Ch D 361

Indian States Bank Ltd., Re; (1934) 4 Com Cases 64: AIR 1934 All 114

National Stores v. Ramsaran; AIR 1926 Nag 303

Rangai Goundan (M.K.), Re; (1942) 12 Com Cases 198: 1972 Mad 702

Commr. Of Income Tax v. Liquidator, Ratlam Electric Supply etc. Co. Ltd.; (1982) 52

Comp Cas. 632

Joint Discount Company's Claim, Re; (1872) 7 Ch App 646 at 648-649: (1861-73) All

ER Rep 434 at 435

Knowles v. Scott; (1891) 1 Ch 717

Dawsons Banks Ltd. v. Nippon Menkwa Kabu-shiki Kaisha; AIR 1935 PC 79: (1935)

5 Com Cases 191 at 203

Reigate v. Union Manufacturing Co., (Ramsbottom) Ltd.; (1918) 1 K.B. 593

Fowler v. Commercial Timber Co. Ltd.; (1930) 2 K.B.1

Midland Counties District Bank Ltd. v. Attwood; (1905) 1 Ch. 357

Hutton v. West Cork Rly.; (1883) 23 Ch D 654

Dilip Singh T. v. State of T.N.; (2002) 112 Com Cases 195 (Mad)

Collector of Moradabad v. Equity Insurance Co. Ltd.; (1948) 18 Com Cases 309, 317:

AIR 1948 Oudh 197

De Courcy v. Clement; (1971) 1 All ER 681: (1971) 41 Com Cases 796 (Ch D)

Shri Raja Mohan Manucha v. Lakshminath Saigal; (1963) 33 Comp. Cases 719

London & Australian Agency Corp. Ltd., Re; (1873) 29 LT 417: 22 WR 45

R. Gertzenstein Ltd., Re; (1936) 3 All ER 341: (1938) 8 Com Cases 53

19

Globe United Engg. & Foundry Co. Ltd. v. Registrar of Cos.; (1974) 44 Com Cases

330 (Del)

Cf. Re, Mortimers (London) Ltd.; (1937) 1 Ch 289: (1938) 8 Com Cases 56

Amalgamated Syndicate Ltd., Re; (1901) 2 Ch 181

Gerard v. North of Paris Ltd.; (1936) 2 All ER 905

Karamelli and Barnett Ltd., Re; (1917)1 Ch 203

Eros Films Ltd., Re, 1 (1963)1 All ER 383: (1963)33 Com Cases 467

Pure Milk Supply Co. Ltd. v. S. Hari Singh; AIR 1962 Punj 190: (1962) 32 Com Cases

659

Re, Caston Cushioning Ltd.; (1955) 1 All ER 508: (1955) 25 Com Cases 138

Re, Centrabind Ltd.; (1966) 3 All ER 889: (1967) 37 Com Cases 468 (Ch D)

Pamarti Venkataswamy v. Kondandarama Bus Transport Ltd.; (1958) 28 Com Cases

50: AIR 1958 AP 666

Tony Rowse NMC Ltd., Re, (1996) 2 BCLC 225 (Ch D)

Horris v. Conway, 1989 BCLC 28: (1989) 2 Comp LJ 145, 157 (Ch D)