THE INSTITUTE OF COMPANY SECRETARIES
OF INDIA
AHMEDABAD CHAPTER
MEMBERS VOLUNTARY WINDING UP
UNDER SECTION 484 OF
THE COMPANIES ACT, 1956
Papers prepared and Complied by
Shri D. N. Motwani
Practicing Company Secretary
SMTP 17.09.2008 at 1.45 P.M.
Winding up is a process by which a
company registered under the Companies
Act ceases to be one after the conclusion of
the proceedings and the Company is
removed from the list of Companies kept
by the Registrar of Companies. Till the
passing of the Companies ( Second
Amendment ) Act, 2002, the winding up of
Companies was done by or under the
supervision of the High courts. Now
pursuant to the Second Amendment, 2002
winding up petitions shall be presented to
the National Company Law Tribunal
constituted under section 10 FB of the
Companies Act, 1956.
PART-7
Winding up of Companies
Contains 5 Chapters
Applicable provisions
Sec. 425 to 560.
Chapter 1 Sec. 425 _ 432
Chapter 2 Sec. 433 _ 483
Chapter 3 Sec. 484 _ 521
Chapter 4 Sec. 522 _ 527
Chapter 5 Sec. 528 _ 560
MODES OF WINDING UP
[Section 425 ]
A Company may be wound up :
voluntarily by the concerned
company distinguished as
members’ voluntary winding up
and creditors’ voluntary winding up.
( Section 488)
by the Tribunal under any of the
circumstances as prescribed. (
section 433)
VOLUNTARY WINDING UP – RESOLUTION
[Sections 484 & 485 ]
A Company, which was formed for a particular
duration or event as per its Articles, may wind up
voluntarily after the expiry of the period or
occurrence of the event by passing an ordinary
resolution in a general meeting. Any other
company may wind up voluntarily by passing a
special resolution. Within 14 days of passing of
the resolution, the company shall give notice of
the resolution in the Official Gazette and also in a
news paper circulating in the District where the
registered office of the company is located. If
default is committed in publishing the notice as
above, the company and the officer in default
shall be punishable with fine up to Rs. 500 for
every day during which the default continues.
COMMENCEMENT AND EFFECT OF
WINDING – UP
A voluntary winding up is deemed to have
commenced from the day when the
resolution is passed at the general
meeting. The Company shall cease to
carry on its business from that day except
such business as may be required for the
beneficial to winding up. The corporate
status and the corporate powers of the
Company shall continue until it is
dissolved.
FILING WITH THE
REGISTER OF COMPANIES
DECLARATION OF
SOLVENCY AND
REGISTRATION.
A member’s voluntary winding up is solely
dependent on a declaration to be made at
a meeting of the Board duly verified by an
affidavit to the effect that the Directors
have made a full inquiry into the affairs of
the Company and having done so they
have formed the opinion that the
company has no debts or that the
Company will be able to pay its debts
in full within such period not
exceeding three years from the
commencement of winding up as may
be specified in the declaration. The
rules for the conduct of business of the
tribunal is expected to be issued shortly.
See for the time being Form 149 of the
erstwhile Companies Rules, 1959.
The declaration shall be made by the
Board within five weeks preceding the
date of the general meeting resolution for
winding up of the Company as per section
484. The declaration shall be
accompanied by a copy of the report of
the Auditors of the Company on the profit
and loss account for the period from the
date up to which the last such account
was prepared to a date as latest as
possible before making the declaration.
The statement of the Company’s assets
and liabilities as at that date will also be
covered by the report of the Auditors.
The declaration including the
affidavit and the report of the
Auditors shall be delivered to the
Registrar for registration before the
date of the general meeting for
passing the resolution.
Summing up, the position is as
under:
The Board of Directors shall make
the declaration at a meeting of the
Board and it should be approved by a
majority of the Directors where the
Company has more than two
Directors and by all Directors in
other cases.
The declaration shall be verified by
an affidavit by the Directors on
non- judicial stamp paper as in
Form No. 149 of erstwhile
Companies Rules or in the form
prescribed by the Tribunal.
The declaration shall be made
within five weeks preceding the
date of the general meeting at
which the resolution is proposed to
be passed.
The declaration must specify a date
not exceeding three years from the
commencement of winding up for
payment of debts of the Company
on full.
There shall be attached to the
declaration copy of the report of the
Auditors of the Company as
prescribed.
The declaration, affidavit, the
Report of the Auditors and
Statement of Assets and Liabilities
must be delivered to the Registrar
before the date of the general
meeting.[ Hitherto, relevant Form
No. 149 of Companies ( Court )
Rules].
PRELIMINARY ACTION TO
BE TAKEN BY THE
LIQUIDATOR
The Liquidator in a member’s
voluntary winding up will not be able
to exercise the following powers to
proceed with the Winding up unless
the same is approved by a special
resolution of the members of the
Company:
To institute or defend any suit,
prosecution or legal proceeding (civil
or criminal) in the name and on
behalf of the Company.
To carry on the business of the
Company as may be necessary for
the beneficial winding up.
To sell the movable and immovable
property and actionable claims of
the Company in any manner that
may be advantageous
To sell the whole undertaking as a
going concern.
To raise money on the security of
the assets of the Company for the
purpose of winding up.
OTHER POWERS OF THE
LIQUIDATOR
In order to proceed with the
winding up, the liquidator can
exercise the following powers and
duties without the need for any
prior approval.
To settle a list of contributories.
To make calls, if any, on the
contributories.
To do the day to day activities of the
company for the purpose of winding up
and to execute deeds and documents
and to issue receipts.
Where necessary, to inspect the return
and record filed by the company with
the Registrar of Companies, without
payment of any fee.
To prove and claim in the insolvency of
any contributory for monies due to the
company from any contributory.
To draw, accept or endorse bills of
exchange.
To pursue with the estate of a
deceased contributory for any
monies due to the company.
To appoint an agent to do any
business which the liquidator is
unable to do himself.
DUTY OF LIQUIDATOR TO
KEEP THE CONTRIBUTORIES
INFORMED
[ Section 496 ]
Where a members’ voluntary winding up is
continuing for more than a year, the liquidator
shall call a general meeting of the company
at the end of
the first year from the
commencement of winding – up, namely
when the resolution for voluntary winding –
up is passed and at the end of each
succeeding year, latest within three months
of conclusion of the year. The liquidator will
lay before the meeting the progress of the
matters of winding up in the preceding year and
also a statement in the prescribed form in respect
of the position of liquidation. If the annual
meeting cannot be held within three months of
the end of the year, the Central Government has
got power to grant extension. This power has
been delegated to the Regional Director.
STATEMENT OF AFFAIRS AT THE TIME
OF WINDING UP
[ Section 511A / 454 ]
A statement of affairs of the company as
on the date of the commencement of
winding up shall be submitted to the
liquidator duly verified by an affidavit by
one or more persons who are as on the
said date, the Directors, Manager,
Secretary or other Chief Officer of the
Company. The statement shall contain the
following particulars :
the assets of the company, cash balance
in hand and at bank, if any, and the
negotiable securities, if any, held ;
its debts and liabilities
names, residences and occupation of its
creditors, the amount due, whether
secured or unsecured and if secured,
particulars of the securities given,
whether by the company or an officer,
their value and date when given.
Debts due to the company and the
names, residence and occupation of the
debtors and the amount likely to be
realized.
SUBMISSION OF THE
STATEMENT OF AFFAIRS
The statement shall the submitted
within 21 days from the date of
commencement of voluntary
winding up as per section 486
namely when the resolution for
voluntary winding up is passed.
POWER OF THE TRIBUNAL TO
APPOINT OR REMOVE
LIQUIDATOR
[ Section 515 ]
This section has been wholly modified
by the Second Amendment Act,
2002.
Where in a voluntary winding up no Liquidator is
acting, the Tribunal may appoint the Official
Liquidator or any other person as Liquidator. For
sufficient reasons the Tribunal may remove a
Liquidator and appoint the Official Liquidator or
any other person as Liquidator where a Liquidator
is appointed by the Tribunal as mentioned
above, the Liquidator shall within 30 days of his
appointment publish a notice in the Gazette and
also deliver to the Registrar for registration copy
of the notice of his appointment in the form
prescribed. ( Section 516). If the Official
Liquidator is appointed as the Liquidator under
section 516, his remuneration will be fixed by the
Tribunal and shall be credited to the Central
Government.
ANY AGREEMENT WITH CREDITORS
WHEN BINDING ON THE COMPANY
Any arrangement entered in to between a
company being wound up and its creditors
shall be binding on all concerned if :
it is approved by a special resolution of
the Company.
it is also accepted to by three – fourths in
number and value of the creditors.
Any creditor or contributory may prefer an
appeal to the Tribunal against the
arrangement and this appeal shall be
made within three weeks of completion of
the arrangement.
POWER OF THE TRIBUNAL TO
DETERMINE ANY QUESTION
[Section 518 ]
On an application being made by the
Liquidator or creditor or contributory, the
Tribunal may :
determine any question of winding up.
Set aside any order of attachment or
any other order against the estate of the
company.
Accede to the staying of the proceedings
of winding up.
Copy of the order staying the winding
up will be forwarded by the company to
the Registrar of Companies. This section
has been wholly modified.
PUBLIC EXAMINATION OF
PROMOTERS, DIRECTORS ETC.
[Section 519 ]
This section has been entirely changed.
During the course of winding up if the
Liquidator is of opinion that a fraud had
been committed by any person in the
promotion or formation of the company or
by an officer in relation to the company
since its formation, the Liquidator may
make a report to the Tribunal. The
Tribunal after considering the report may
order that the person concerned shall be
publicly examined. In this connection, the
following provisions of sub sections (2)
to (11) of section 478 will also apply :
The Liquidator shall take part in the
examination and employ legal assistance
as may be sanctioned by the Tribunal.
Any creditor or contributory may take
part in the examination either personally
or by Chartered Accountants or
Company Secretaries or Cost
Accountants or legal practitioners
entitled to appear before the Tribunal
under section 10 GD.
The Tribunal may put such questions to
the person as it thinks fit and the person
shall answer all questions on oath.
The person being examined shall be
furnished, at his cost, copy of the
Liquidator’s report and he is free to
employ any of the person listed in
clause (b) above to assist him.
An examination under this provision
may, if the Tribunal directs, be held
before any person or authority
authorized by the Tribunal as per
new sub section (10) of section
478.
ACCEPTANCE OF SHARES FOR
SALE OR PROPERTY
[Section 507 & 494 ]
Where in a members’ voluntary winding up the
Liquidator is authorized by a special resolution of
the company, he may transfer the whole or part
of its business or property to another company (
call the transferee company ) and receive as
consideration the shares, policies or like interest
in the transferee company or he may enter in to
arrangement where by the members of the
transferor company may receive any other
benefit form the transferee company.
SANCTION OF TRIBUNAL OR
COMMITTEE OF INSPECTION
In addition to the approval of the company
in general meeting by special resolution,
the acceptance of shares or other benefit
from the transferee company as
consideration for sale of the property of
the company in voluntary winding up also
seems to require the sanction of the
Tribunal in a members’ voluntary winding
up of the committee of Inspection in a
creditors’ voluntary winding up as
provided in section 507.
RIGHT OF DISSENTIENT
MEMBER
Pursuant to sub section (3 ) of section
494, a member of the transferor company,
who did not vote in favor of the special
resolution, may convey his dissent in
writing to the Liquidator within 7 days of
the passing of the resolution and may
require him to abstain from carrying into
effect the resolution or he may require
him to purchase his interest. In the light
of what is provided in section 507, the
Liquidator shall take such further action as
may be directed by the Tribunal.
FINAL MEETING AND
DISSOLUTION
[Section 497 ]
As soon as the affairs of the company are
wound up, the Liquidator shall take the
following steps :
make an account as to how the winding
up has been conducted and how the
property of the company has been
disposed of .
call a general meeting of the company and
a meeting of the creditors for the purpose
of placing the accounts before the
meetings.
PROCEDURE FOR CALLING THE
MEETINGS
A meeting of the members of the
company will be held.
The meeting shall be called by
advertisement in a news paper
circulating in the district where the
registered office is situate at least
one month before the meeting. The
time, place and object of the meeting
will be specified in the
advertisement. See Forms 155 and
156 which were earlier applicable.
The notice of the meeting shall also be
published in the Official Gazette at least one
month before the meeting.
Within one week after the date of the meeting,
the Liquidator shall send a report to the
Registrar of Companies and Official Liquidator
about the date on which the meeting was held
and send a copy of the account to them.
The quorum for the meeting shall be two
members or creditors, as the case may be.
If the quorum was not present at the meeting,
the Liquidator shall make a return to the
Registrar and Official Liquidator to the effect
that the quorum was not present and that the
meeting was not held.
REPORT BY OFFICIAL LIQUIDATOR
On receipt of the account and return about
the meeting, whether held or not, the
Official Liquidator shall examine the books
and papers of the company and if he finds
that everything is in order, he shall make
a report to Tribunal that the affairs of the
company have not been conducted in a
manner prejudicial to the interests of its
members or to the interests of its
members or to public interest.
The company shall be deemed to be
dissolved from the date of submission of
the report to the Tribunal.
The Registrar, on receiving the account
and the return in respect of the meeting,
shall forthwith register them.
IF LIQUIDATOR IS OF OPINION
THAT COMPANY WILL NOT BE
ABLE TO PAY ITS DEBTS.
If the Liquidator in a members’
voluntary winding up is of the
opinion that the company will not be
able to pay its debts in full, then the
provisions in sections 508 and 509
will apply as if the winding up were a
creditor’ voluntary winding up. In
that case the provisions of sections
496 & 497, explained above, will not
apply.
PETITION FOR WINDING UP BY
TRIBUNAL IN A VOLUNTARY
WINDING UP
[Section 440 & 441 ]
Section 440 & 441 have been
substituted by new sections as per
The second Amendment Act, 2002.
Pursuant to Section 440 , where a
company is being wound up
voluntarily, a petition for its winding
up by the Tribunal may be presented
by :
any person authorized to do so under
section 439. This has been
explained in another chapter.
The Official Liquidator.
The Tribunal may pass a winding up
order on the petition if it is satisfied
that the voluntary winding up,
already commenced, cannot be
continued taking in to account the
interests of the creditors or
contributories or both.
COMMENCEMENT OF WINDING UP
Where in a voluntary winding up a
resolution has already been passed, the
Tribunal may agree that the winding up
shall be deemed to have commenced on
the passing of the resolution even when a
petition is presented under section 440.
But where the Tribunal feels otherwise on
proof of fraud or some mistake, the
Tribunal may order that the winding up
shall be deemed to commence at the time
of presentation of petition for winding up
under section 440.
If the official liquidator, however, makes a
report that the affairs of the company
have been conducted in a manner
prejudicial to the interests of members
or to public interest, the Tribunal may by
order direct the Official Liquidator to make
a further investigation of the affairs of the
company. The Tribunal, on receipt of the
report of the Official Liquidator on further
investigation, may order that the company
may stand dissolved or may make such
other order depending on the nature of
the further report of the Official Liquidator.
LIABILITY OF LIQUIDATOR FOR
FAILURE TO CALL MEETINGS
In case the Liquidator fails to call a
general meeting, he shall be
punishable with fine up to Rs.
5000.where copy of the account or
return is not sent to the Registrar
and Official Liquidator as required in
sub section (3), the Liquidator shall
be punishable with fine up to Rs. 500
for every day during which the
default continues.
STATEMENT OF AFFAIRS AT THE
TIME OF WINDING UP
A statement of affairs of the
company as on the date of the
commencement of winding up shall
be submitted to the liquidator duly
verified by an affidavit by one or
more persons who are as on the said
date, the Directors, Management,
Secretary or other Chief officer of the
company. The statement shall
contain the following particulars:
a)The assets of the company, cash
balance in hand and at bank, if any,
and the negotiable securities, if any,
held;
(b) Its debts and liabilities;
Names, residences and occupation
of its creditors, the amount due,
whether secured or unsecured and if
secured, particulars of the securities
given, whether by the company or an
officer, their value and date when
given.
Debts due to the company and the
names, residence and occupation of
the debtors and the amount likely to
be realized.
ANY AGREEMENT WITH CREDITORS
WHEN BINDING ON THE COMPANY
Any arrangement entered into between a
Company being would up and its creditors
shall be binding on all concerned if:
It is approved by a special resolution of
the Company and
It is also accepted to by three-fourths in
number and value of the creditors.
Any creditor or contributory may prefer an
appeal to the tribunal against the
arrangement and this appeal shall be
made within three weeks of completion of
the arrangement.
VOLUNTARY WINDING UP UNDER
SECTION 484 OF THE COMPANIES
ACT, 1956
Before five weeks of passing special resolution
the Directors of the Company has to give
declaration of solvency that company will be able
to pay its debts within such period not exceeding
three years from the commencement of winding
up. Such declaration is to be filled with R.O.C.
before passing of special resolution and shall be
accompanied by a copy of the report of the
auditor on profit and loss account and on balance
sheet of the Company from the last accounting
date till the date of the declaration of solvency.
Such declaration shall also be accompanied by
the affidavits of the directors.
Within 14 days of passing of the special
resolution notice to this effect should be
published in Official Gazette and in local
news paper. The Company will cease to
carry on the business from the date of
passing of special resolution.
Draft of special resolution is as under :
RESOLVED THAT pursuant to the
provisions of section 484(1)(b), consent
of shareholders be and is hereby given for
winding up the Company.
RESOLVED FURTHER THAT Shri………….
be and is hereby appointed as Liquidator
of the Company for the purpose of
winding up on a remuneration of Rs……
plus out of pocket expenses at actual.
RESOLVED FURTHER THAT
Shri………………, the liquidator be and is
hereby empowered to exercise all powers
as provided in sub – clauses (i) to (iv) of
sub – section (2) of section 457 of the
Companies Act, 1956.
PROVISION APPLICABLE TO
MODE OF WINDING UP
OVERRIDING PREFERENTIAL
PAYMENTS
[ SECTION 529 & 529 A ]
Where a Company being wound up is 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. A secured creditor,
who remains outside the winding up, can realize
his security but he will have to share his
realization to the extent of the workmen’s dues
with the Official Liquidator. In view of this
provision, unless the secured creditor realizes an
amount, by sale of the secured property which is
equal to the secured debt and the dues of the
workmen called “ workmen’s portion “, the
secured creditor will have to prove for the
balance of his debt along with other creditor.
The debts due to:
workmen and
secured creditors
will be paid in priority to all debts.
The said debts will also be paid in full
if the value of the sale proceeds of
the security is sufficient. If the sale
proceeds are not sufficient, the two
debts shall be paid proportionately.
PREFERENTIAL PAYMENT
[SECTION 530]
In a winding up the first two preferential
payments are secured creditors and
workmen’s dues. The other preferential
payments, subject to section 529A, are
given below :
all revenues, taxes, cesses and rates due
to any State or Central Government or to
a local authority at the relevant date,
namely the date of appointment of
Provisional Liquidator or the date of
winding up order, as the case may be, or
the date of passing the resolution in a
voluntary winding up.
all wages or salary of an employee
(including wages for time or piece – work
and salary earned by way of commission)
due for a period not exceeding four
months within 12 months before the
relevant date as mentioned above up to
an amount of Rs. 20,000 for any one
claimant as per the Notification No. GSR
80 (E) dt. 17-2-97 issued by the Central
Government pursuant to sub – section
(2).
all holidays remuneration accrued to an
employee due on date of winding up
order or resolution, as the case may be,
as required to above.
all dues under the Employee’s State
Insurance Act, 1948 payable during
12 months before the relevant date
as mentioned above.
all amounts due in respect of
Workmen’s Compensation Act, 1923
on the date of winding up order.
all sums due to an employee from a
Provident Fund, pension, gratuity or
any other fund.
OTHER CONDITIONS TO BE
MET
1.The above debts will be
reduced in equal proportion if
the assets are insufficient to pay
them in full.
2.The above debts shall have
priority over the claim of holders
of debentures under a floating
charge and be paid out of such
property if the assets available
for payment of general creditors
are insufficient to pay them.
3. The above debts shall be met
forthwith if the assets are
adequate to meet them after
making provision for costs and
expenses of winding up.
4. If any goods of the company
are distrained ( legal seizure of
goods ) by a landlord or other
person, within 3 months before
the date of winding up order,
the proceeds of sale of such
goods will be first utilized to pay
the above debts.
SETTLEMENT OF PREFERENTIAL
CLAIMS MENTIONED ABOVE
The provisions of section 530 will be
subject to the provisions of section
529A. In other words unless there is a
surplus available after meeting the
debts under section 529A, the other
preferential creditors covered by
section 530 will not get anything _
See Giovanola Binny Ltd. ( In
Liquidation ) In re : (1990) 67 comp.
Cas. 441 ( Ker).
REVENUES, TAXES, CESSES AND
RATES DUE
[ Clause (a) of section 530 (1) ]
The above items must have become
due during 12 months before the
relevant date.
It must be shown that the revenues
etc., payable has become due and
payable within 12 months before the
relevant date. The three conditions to
be satisfied are :
the debt of the kind mentioned in
clause (a) must be outstanding on
the relevant date ;
the debt must have become due, in
the sense, it must have been
incurred at any time within 12
months before the relevant date ;
and
the debt must have become payable
at any time within 12 months before
the relevant date.
SECTION 178 OF THE INCOME – TAX ACT,
1961 OVERRIDES THE PROVISIONS IN
SECTION 530 (1) (a)
Section 178 of the Income – Tax Act, 1961
requires every liquidator to give notice of his
appointment to the Assessing Officer within 30
days of his appointment. The Assessing Officer,
after making necessary enquiries, shall notify to
the Liquidator within three months of the receipt
of notice of appointment of the liquidator the
amount which in his opinion would be sufficient
to provide for income – tax which is then
payable or likely thereafter to become payable by
the company. Sub – section (6) also provides that
the provisions of the said section 178 shall have
effect notwithstanding anything to the contrary
contained in any other law for the time being in
force.
SECTION 179 OF THE INCOME TAX
ACT LIABILITY OF DIRECTOR IN CASE
OF WINDING UP:
THIS SECTION OVERRIDES ALL THE PROVISIONS
OF COMPANIES ACT 1956, IN RESPECT OF
WINDING UP OF COMPANY AND IMPOSES
PERSONAL LIABILITY ON DIRECTOR IN CASE OF
PRIVATE COMPANY IN RESPECT OF ANY TAX
LIABILITY OF PRIVATE COMPANY FOR PREVIOUS
YEAR IN CASE OF INABILITY OF PRIVATE
COMPANY TO CLEAR THE INCOME TAX DUES.
IN CASE OF CONVERSION OF PRIVATE COMPANY
INTO PUBLIC COMPANY THE AFORESAID LIABILITY
CONTINUES TILL THE COMPANY WAS PRIVATE
COMPANY .
IN CASE OF CONVERSION OF PRIVATE COMPANY
INTO PUBLIC COMPANY THE AFORESAID
LIABILITY CONTINUES TILL THE COMPANY WAS
PRIVATE COMPANY .
SECTION 46 OF THE INCOME TAX ACT PROVIDES
EXEMPTION IN RESPECT OF CAPITAL GAIN ON
DISTRIBUTION OF ASSETS BY COMPANY IN
LIQUIDATION OVERRIDING THE PROVISION OF
SECTION 45 OF THE I.T ACT. 1961. HOWEVER,
ANY MONEY OR OTHER ASSET RECEIVED BY THE
SHAREHOLDER OF THE COMPANY THE VALUE OF
WHICH EXCEEDS THE DISTRIBUTABLE PROFIT
AS DEFINED IN SUB CLAUSE C OF CLAUSE 22 OF
SECTION OF 2 OF I.T. ACT. 1961 THEN THE
EXCESS AMOUNT WOULD BE LIABLE TO CAPITAL
GAIN AS CALCULATED U/S 48 OF I.T. ACT. 1961.
SECTION 2 (22)(c) OF I.T. ACT 1961
STATES THAT DIVIDEND INCLUDES
ANY DISTRIBUTION TO THE
SHAREHOLDER WHICH IS
ATTRIBUTABLE TO ACCUMULATED
PROFITS BEFORE LIQUIDATION
WHETHER CAPITALIZED OR NOT.
ILLUSTRATIONS OF CERTAIN
AMOUNTS WHICH ARE NOT
PREFERENTIAL
The following amounts due have
been held not entitled to priority :
(a) Loans advances by a State
Government under State Aid to
Industries Act.
(b) Guarantee commission due to a
State Government for guaranteeing
loan advanced to the company.
(c) Debts due to a State Government
in respect of trading activity was not
considered for priority.
(d) Arrears of rent due to
government.
(e) Ex – gratia payments are not
entitled to priority.
(f) Sums payable after the
closure of the business as
compensation was not
considered “ wages”.
(g) Taxes etc. due outside the
period stated in section 530(1)
(a) are not entitled to priority
and must rank as unsecured
creditors.
ILLUSTRATIONS OF SOME
PREFERENTIAL PAYMENTS
(a) Retrenchment compensation
falling within the definition “
wages” is preferential payment.
(b) Sums due to an employee
from provident fund, pension
fund and gratuity fund are
preferential payments
(c ) Section 530(4) creates a right of
priority to creditor whose advance is
utilized for the payment of wages or
holiday remuneration to an employee
subject to the condition that if the said
amount is not paid, the employee or legal
representative would have been entitled to
a right of priority himself – Mysore Spun
Silk Mills Ltd. (1964) 34 Comp. Cas. 1005
( Mys)
(d) Bonus would seem to come under
wages for preferential payment.
FRADULENT PREFERENCE
[ Section 531 ]
The following acts of a company
within six months before the
presentation of winding up petition
or the passing of a resolution in the
case of voluntary winding up be
deemed to be fraudulent preference
of its creditors and they will be
invalid
Transfer of property, movable
or immovable
Delivery of goods.
Payment, execution or other
act relating to property.
AVOIDANCE OF
VOLUNTARY
TRANSFER
[ Section 531 – A ]
Any transfer of property of a company,
movable or immovable or any delivery of
goods made not in the ordinary course of
business or for valuable consideration
within one year before the presentation of
winding up petition or the passing of a
resolution shall be void and ineffective.
An application for setting aside a transfer
will be allowed by the court if it is proved
that there was inadequate consideration
and there was lack of good faith.
LIQUIDATOR’S DISCRETION TO MOVE
THE TRIBUNAL TO ANNUAL THE
TRANSFER
It is provided in the section 531 – A that
any transaction which is hit by the section
shall be void against the liquidator. It is
left to the Liquidator to move the Tribunal
to avoid the contract. When the Liquidator
does not choose to take action for
avoiding the transfer, it is not open for any
other person to move the court – See in
this Connection K.N.Narayana Iyer V. CIT
(1993) 78 Comp. Cas. 156 ( Ker ).
INTERVAL OF TIME
BETWEEN PRESENTATION
OF PETITION ( SECTION 441)
RESOLUTION OF MEMBERS
( SECTION 486 ) AND
WINDING UP ORDER
In a voluntary winding up, in terms of section
491 the powers of the Board of Directors shall
cease on the appointment of a Liquidator. On the
other hand, in terms of section 445, in winding
up by the Tribunal the powers of the Board shall
cease from the date of communication of the
order of winding up by the Tribunal. There will
thus be some interval of time in winding up by
Tribunal between presentation of petition for
winding up and the issue of winding up order or
the appointment of Liquidator. Only during such
interval will the Board of Directors be in a
position to exercise power of management in the
company. Section 536 seeks to provide that the
action taken by the Board of Directors during the
above interval of time will be void unless the
sanction of the Liquidator ( in voluntary winding
up ) or the sanction of the Tribunal is taken.
 Lease of part of property of the
company after petition of winding up
is filed.
In Kanchan Kumar Dhar, Official Liquidator
V. Dr. L. M. Visarai (1986) 60 Com. Cas.
746 ( Bom ), the Director of the Company
granted lease of building owned by the
company after winding up petition is
presented. This was not specifically
disclosed to the Official Liquidator when he
was appointed although he was accepting
the rent even after winding up order was
issued. The court held that the transaction
was entered in to after commencement of
winding up proceedings and it was void
and that the acceptance of rent cannot
validate the transaction.
 Arbitration award made after
presentation of winding up
petition held void
The arbitration proceedings started
when the winding up proceedings
had not formerly started. The
arbitration award was made when
the company was ordered to be
wound up. It was held that the
award was not valid – Durga Das
Nayyar V. Bombay Thread Mills Co.
Ltd., ( 1957) 27 Comp. Cas. 556 (
Punj).
 Court has power to validate
transactions hit by section
536(2)
Even when a property of the
company was sold after a petition for
winding up was presented, the court
on application revalidated the sale –
J. Sen Gupta ( p.) Ltd., In re :
(1962) 32 Comp. Cas. 876 ( Cal ).
See also Aryodaya Spg. & Wvg. Co.
Ltd., In re / Simka Engg. Co., In re :
(1986) 60 Comp. Cas. 897 ( Guj.).
CONNOTATION OF PROMOTERS
OR OFFICER COVERED BY
SECTION 543
A person who originates the scheme for
the formation of a company, has the
Memorandum and Articles prepared
executed and registered, finds the first
Directors and places initial capital is a
promoter in the fullest sense. He controls
the formation and future of the company
and it is this control which lies at the root
of the fiduciary relation to the promoter of
the company.
On the other hand, a share broker
has nothing to do with the
management of the company.
Therefore, to classify him as an ‘
officer of the company’ within the
meaning of the section would be
putting too great a strain on the
wording of the section – Official
Liquidator, National Live Stock
Registration Bank Ltd. V. Velu
Mudaliar ( 1938) 8 Com. Cas. 7 (
Mad).
ALL DIRECTORS ARE
COLLECTIVELY
RESPONSIBLE. MOST OF
THEM CANNOT PLEAD
THAT A DOMINANT
DIRECTOR CALLED THE
SHOTS
The Directors are the trustees of the
company and they should act like prudent
men. In a case they allowed one Director
to deal with the funds of the company as
he pleased with the result that huge loss
was caused to the company. It was held
that their responsibility was collective.
Had they exercised their rights and
asserted, things would have been
different. As such they could not disown
their responsibility jointly or severally. The
Directors were accordingly, held liable to
compensate the company – F. & C. Osler
( India) Ltd., In re : ( 1978) 48 Comp.
Cas. 698 ( Cal).
Period of limitation of five
years in sub section (2) may
be extended by one more
year
As a result of section 458 A, the
period of 5 years prescribed in
section 543 may be extended by one
more year.
LIQUIDATOR MAY FINALISE
MATTERS IN WINDING UP
With the sanction of the Tribunal
in a winding up by Tribunal or
with the sanction of the general
meeting of company in a
voluntary winding up, the
Liquidator is authorized to take
action as under
Pay any classes of creditors in
full.
Make any compromise or
arrangement with creditors or
persons claiming to be
creditors.
Compromise any call or debt
from a contributory.
The power at (ii) above exercised by the
Liquidator in Voluntary Winding up is
appealable to the Tribunal by any
aggrieved person. See also Rules 270 &
271 of erstwhile Rules for information.
In this connection it may be noted that in
a creditor’s voluntary winding up, in terms
of section 517, the compromise or
arrangement with its creditors shall have
to be sanctioned not only by a special
resolution referred to in section 546 but
also acceded to by three – fourths in
number and value of the creditors.
DISSOLUTION OF A
COMPANY
It has already been stated that
pursuant to section 481, when the
affairs of a company have been
wound up by order of the Tribunal,
the Tribunal shall make an order that
the company be dissolved. The
liquidator shall forward a copy of the
order to the Registrar.
In a voluntary winding up, in terms
of sections 497 and 509 when the
Official Liquidator makes a report to
the Tribunal that the affairs of the
company have not been conducted in
a manner prejudicial to the interests
of its members or to public interest,
the company shall be deemed to be
dissolved form the date of the said
report to the Tribunal.
MINIMUM PERIOD FOR
KEEPING THE BOOKS
The power of the Tribunal, the
company in general meeting or
the committee of Inspection /
Creditors referred to above will
be subject to the condition that
the books and papers will be
kept in good order for a period of
not less than five years from the
dissolution of the company.
Pursuant to rule 15 of the Companies (
Central Government’s ) General Rules and
Forms, 1956, any creditor or contributory
or the Liquidator of a company wound up
may make a representation to the Central
Government if it is desired that all or any
of the books and papers may be destroyed
earlier that five years. After considering
the matter and after giving opportunity to
all concerned, the Central Government
may direct in writing that the period of
five years may be or need not be reduced.
Please also see the said rule in respect of
the provision for appeal in this regard.
VOLUNTARY WINDING UP
The statement referred to above
prepared by the Liquidator
audited in respect of a company
being wound up will have to be
filed with the Registrar of
Companies.
DUTY OF THE LIQUIDATOR TO
MAKE RETURNS ETC.
[ SECTION 556 ]
The duty of the Liquidator under
various sections to file returns or
other documents with the Tribunal or
the Registrar or to others in respect
of a company being wound up for
which he is Liquidator has been
explained against each such section.
Section 556, which generally refers
to the duty of the Liquidator,
provides that where he makes a
default and fails to make good, the
default within 14 days after service
of a notice to him, any contributory
or creditor or the Registrar may
make an application to the Tribunal
and the Tribunal may direct the
Liquidator to make good the default
within the time specified.
MEETINGS OF CONTRIBUTORIES OR
CREDITORS
[SECTION 557 ]
Some provisions of the Act which require
a liquidator to call a general meeting of
the company or a meeting of the creditors
are those in sections 496, 508 and 512.
Section 460 also provides that the
Liquidator shall have regard to any
direction which may be given by resolution
by a meeting of creditors or general
meeting of the company or by the
Committee of Inspection ( Section 464
and 503).
In addition to above provisions, in
terms of section 557 in all matters
regarding winding up, the Tribunal
may take in to account the wishes of
contributories and creditors and for
ascertaining their wishes the Tribunal
may direct such meetings to be
called and held and may appoint a
person as Chairman for such
meetings. The value of the debt due
to the creditors and the number of
votes that may be cast by each
contributory will be taken in to the
account by the Tribunal.
POWER OF COMPANY TO DECLARE
DISSOLUTION VOID
[ SECTION 559 ]
Section 559 gives power to the
Tribunal to declare that a company
dissolved under Part VII dealing with
winding up of companies is void. This
shall be done within two years of the
date of dissolution. This power of
the Tribunal also extends to orders
under section 394, under part VI of
the Act.
The application for this purpose
may be made to the Tribunal by
the Liquidator or by any other
person who appears to the
Tribunal to be interested in the
matter.
The period of two years is for
making the application to the
Tribunal and the Tribunal may
pass orders at any time
thereafter.
Bombay Stamp Act, 1958 has defined
the term conveyance in Section 2(g).
Pursuant to sub section (iv) the
conveyance includes the order of
High court under section 394 of the
Companies Act, 1956 which deals
with reconstruction/ Amalgamation
etc. The defination is specific. It does
not cover the order/ report under
section 497 of the Companies Act
which relates to Winding up.
Section 53 of the Gujarat Value Added Tax
Act, 2003 has casted responsibility on
Liquidator of the Company under
Liquidation. Accordingly within 30 days of
his appointment as Liquidator he has to
give intimation of his appointment to the
Commissioner. Within 3 Months of from
the date of receipt of the intimation about
the appointment, the commissioner after
due inquiry inform the liquidator about the
Amount of Out standing tax, Interest or
penalty payable by the Company.
In case of Private Company if the
aforesaid amount is not recoverable
than every Director of the Company
who was the Director of the
Company at any time during the
period for which Tax is due shall be
jointly and severally liable for the
outstanding due unless the
Commissioner is satisfied that such
non- recoveries is not attributable to
any gross neglect, misfeasance or
breach of duty on his part in relation
to the affairs of the Company.
With Best Wishes
D.N. Motwani & Co.
COMPANY SECRETARIES
B-212 Nandan Apartment,
B/H ISRO, Ramdevnagar,
Satellite Road,
Ahmedabad – 380 015.
Mobile No. 9327023666
Office Ph. No.: 079- 40025664
E-Mail: dnmotwanicsp@yahoo.co.in