The winding up of a company in India is a legal process by which the operations of a company are brought to an end, its assets are disposed of, and its liabilities are settled. This ultimately leads to the dissolution of the company as a legal entity. The primary laws governing winding up in India are the Companies Act, 2013, and the Insolvency and Bankruptcy Code, 2016 (IBC).

There are broadly two main modes of winding up a company:

1. Voluntary Winding Up (Voluntary Liquidation): Initiated by the company/shareholders themselves.

2. Compulsory Winding Up (by Tribunal): Ordered by the National Company Law Tribunal (NCLT).

3. Strike Off by Registrar (Fast Track Exit): A simpler process for defunct companies.

Let's explore each process in detail:

I. Voluntary Winding Up (Voluntary Liquidation)

This process is initiated by the company's members (shareholders) when they decide to cease operations and dissolve the company. It is now largely governed by the Insolvency and Bankruptcy Code, 2016 (IBC), specifically for solvent companies that can pay their debts in full.

Key Steps for Voluntary Liquidation (under IBC, 2016)

1. Declaration of Solvency:

   • A majority of the directors must make a declaration (accompanied by an affidavit) stating that:

     • They have made a full inquiry into the affairs of the company.

     • They are of the opinion that the company has no debts, or that it will be able to pay its debts in full from the proceeds of assets to be sold in the voluntary liquidation.

     • The company is not being wound up to defraud any person.

   • This declaration must be made within four weeks preceding the date of the special resolution for voluntary liquidation.

   • It must be accompanied by:

     • A statement of assets and liabilities of the company, as on the latest practicable date.

     • An auditor's report on the accounts of the company for the period since the date of the last financial statement up to the date of the declaration.

     • A valuation report, if any assets are subject to valuation.

2. Members' (Shareholders') Special Resolution:

   • Within four weeks of the declaration of solvency, the members must pass a Special Resolution (approval of three-fourths of the members present and voting) for voluntary liquidation.

   • The resolution must also approve the appointment of an Insolvency Professional as the Liquidator and fix their remuneration.

3. Creditors' Approval (If Debts Exist):

   • If the company has debts, the resolution for voluntary liquidation (and the appointment of the liquidator) must also be approved by creditors representing two-thirds in value of the total debt of the company within seven days of the members' resolution. If creditors do not approve, the company cannot proceed with voluntary liquidation under this section.

4. Filing of Resolutions with RoC:

   • File the resolution for voluntary liquidation with the Registrar of Companies (RoC) in Form MGT-14 within 30 days of passing the resolution.

   • File the declaration of solvency and other accompanying documents with the RoC (and the Insolvency and Bankruptcy Board of India - IBBI, as applicable).

5. Public Announcement by Liquidator:

   • The appointed Liquidator must make a public announcement of the liquidation process in two newspapers (one English and one vernacular, widely circulated in the district of the company's registered office) and on the website of the IBBI within 5 days of their appointment. This invites claims from creditors.

6. Verification of Claims:

   • The Liquidator receives and verifies claims from creditors, employees, shareholders, and other stakeholders within a specified period (e.g., 30 days from public announcement).

7. Realization of Assets & Settlement of Liabilities:

   • The Liquidator takes control of the company's assets, realizes them (sells them), and settles all debts and liabilities in the order of priority prescribed by the IBC.

   • A bank account in the name of the company "in voluntary liquidation" is opened to manage funds.

8. Distribution of Proceeds:

   • After paying off all debts and liquidation costs, any remaining surplus is distributed among the shareholders according to their rights in the Articles of Association.

9. Liquidator's Final Report:

   • Once the affairs of the company are completely wound up, the Liquidator prepares a final report detailing how the liquidation has been conducted, how the property has been disposed of, and a statement of accounts for the liquidation. This report is presented to the members.

10. Application for Dissolution to NCLT:

    • The Liquidator applies to the National Company Law Tribunal (NCLT) for the dissolution of the company, submitting the final report and audited accounts.

11. NCLT Order for Dissolution:

    • If the NCLT is satisfied that the liquidation process has been conducted in accordance with the law, it passes an order for the dissolution of the company.

12. Filing of Order with RoC:

    • The Liquidator files a copy of the NCLT's dissolution order with the RoC in Form INC-28 (or other relevant forms).

    • The RoC then publishes a notice in the Official Gazette, stating that the company is dissolved, and its name is removed from the Register.

II. Compulsory Winding Up (by Tribunal)

The National Company Law Tribunal (NCLT) can order the winding up of a company under Section 271 of the Companies Act, 2013, on the following grounds:

1. Special Resolution: If the company has, by special resolution, resolved that the company be wound up by the Tribunal.

2. Acted Against Interest of Sovereignty/Integrity of India: 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. Default in Financial Filings: If the company has made a default in filing with the Registrar its annual returns or financial statements for five consecutive financial years.

4. Inability to Pay Debts: If the company is unable to pay its debts. (This is the most common ground).

5. Just and Equitable: If the Tribunal is of the opinion that it is just and equitable that the company should be wound up.

Key Steps for Compulsory Winding Up

1. Petition for Winding Up:

   • A petition for winding up can be filed with the NCLT by the company itself, any creditor(s) (including secured creditors), any contributory (shareholder), the Registrar, or any person authorized by the Central Government.

2. Tribunal's Decision & Winding-Up Order:

   • The NCLT hears the petition. If it finds sufficient grounds, it passes a winding-up order. The date of presentation of the petition is considered the commencement of winding up.

3. Appointment of Provisional Liquidator/Liquidator:

   • Upon passing the winding-up order, the Tribunal appoints an Official Liquidator (or Provisional Liquidator) to oversee the winding-up process.

4. Public Announcement:

   • The Liquidator makes a public announcement and calls for claims from creditors and other stakeholders.

5. Taking Custody of Assets:

   • The Liquidator takes control of all assets, books, and records of the company.

6. Investigation & Realization of Assets:

   • The Liquidator investigates the affairs of the company, realizes its assets, and collects any outstanding dues.

7. Settlement of Claims & Distribution:

   • The Liquidator scrutinizes claims, settles the debts of the company, and distributes any remaining proceeds according to the prescribed order of priority (secured creditors, workmen's dues, other creditors, preference shareholders, equity shareholders).

8. Final Report to Tribunal:

   • Once the liquidation is complete, the Liquidator submits a final report to the NCLT.

9. Dissolution Order:

   • If satisfied, the NCLT passes a final order dissolving the company.

10. Filing with RoC:

    • A copy of the NCLT's dissolution order is filed with the RoC. The RoC then removes the company's name from the register.

Role of Liquidator (in both Voluntary & Compulsory)

The Liquidator (Insolvency Professional for voluntary, Official Liquidator for compulsory) is a crucial figure responsible for:

• Taking custody of all assets and records of the company.

• Realizing (selling) the assets of the company in a fair and transparent manner.

• Inviting, verifying, and settling claims from creditors.

• Distributing any surplus to shareholders (in solvent liquidation).

• Maintaining proper accounts of the liquidation process.

• Filing periodic and final reports with the relevant authorities (IBBI, NCLT, RoC).

• Ensuring compliance with all legal provisions during the winding-up.

III. Strike Off of Company (Fast Track Exit - FTE)

This is a simpler, faster, and less expensive process for defunct companies that are not carrying on any business activity. It's governed by Section 248 of the Companies Act, 2013, read with the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016.

Eligibility Criteria (key points):

• The company has not commenced business since its incorporation OR has not carried on any business or operation for a period of two immediately preceding financial years.

• The company has no assets and no liabilities as of the date of application.

• No prosecution is pending against the company.

• The company has filed all its due returns (Form AOC-4 and Form MGT-7/7A) up to the end of the financial year in which it ceased business operations.

• No deposits are outstanding.

• No loans are outstanding.

• No outstanding statutory dues to the government or other authorities.

Key Steps for Strike Off

1. Cessation of Business Operations & Closing Bank Accounts:

   • Ensure the company has completely ceased all business activities.

   • Close all bank accounts opened in the name of the company and obtain a bank closure letter.

2. Settle All Liabilities:

   • Ensure there are absolutely no outstanding debts or liabilities.

3. File Overdue Returns (if any):

   • File all pending Form AOC-4 (Financial Statements) and Form MGT-7/7A (Annual Return) up to the financial year in which the company ceased its operations.

4. Board Meeting:

   • Pass a Board Resolution approving the striking off of the company's name and authorizing a director to make the application.

5. Shareholders' Consent (Special Resolution/Consent Letter):

   • Obtain consent of members holding at least 75% of the paid-up share capital by way of a Special Resolution or a written consent letter.

6. Affidavits from Directors:

   • All directors must individually sign affidavits stating that:

     • The company has not commenced business or has ceased business from a specific date.

     • The company has no assets and no liabilities.

     • They undertake to indemnify any person for any losses, claims, or liabilities that may arise after the striking off of the company's name.

7. Indemnity Bond:

   • An Indemnity Bond (Form STK-3) must be executed by all directors, jointly and severally, indemnifying the Registrar against any losses, claims, or liabilities after the company's name is struck off.

8. Statement of Accounts (Certified by CA):

   • Prepare a Statement of Accounts of the company showing NIL assets and NIL liabilities. This statement must be certified by a practicing Chartered Accountant and should not be older than 30 days from the date of filing the application.

9. Latest Income Tax Return (ITR) Acknowledgment:

   • Attach a copy of the acknowledgment of the latest Income Tax Return filed by the company (if applicable).

10. File Form STK-2:

    • File Form STK-2 (Application by company to ROC for removing its name from the Register of companies) with the RoC.

    • Attachments:

      • Board Resolution.

      • Consent of shareholders (Special Resolution or consent letters).

      • Affidavits from all directors.

      • Indemnity Bond (STK-3).

      • CA-certified Statement of Accounts (NIL assets and liabilities).

      • Copy of the latest ITR acknowledgment (if filed).

      • Bank account closure letter(s).

      • Copy of MOA & AOA.

11. ROC Processing & Public Notice:

    • The RoC reviews the application. If satisfied, it will publish a public notice on the MCA website and in the Official Gazette (Form STK-5 or STK-6), inviting objections from the public within 30 days.

12. Final Strike-Off:

    • If no objections are received, or if the objections are resolved, the Registrar strikes the name of the company off the Register and publishes a notice in the Official Gazette (Form STK-7). The company ceases to exist from the date of this notice.

Key Considerations for Winding Up

• Complexity: Winding up, especially compulsory winding up or voluntary liquidation under IBC, is a complex legal process.

• Professional Assistance: It is highly advisable to engage a Company Secretary, Chartered Accountant, or an Insolvency Professional to navigate the entire winding-up process due to the intricate legal and procedural requirements.

• Penalties: Non-compliance with the winding-up procedures or timelines can lead to severe penalties for the company and its directors.

• Creditors' Rights: Throughout the winding-up process, the rights of creditors are paramount, and their claims must be settled in accordance with the law.