Published on July 29th, 2016 | by Guest


The legal process of liquidation of a company in India

A company can wind up their business for many reasons like bankruptcy, loss, decline of the promoters and shut down of the business. The tribunal or the shareholders or the creditors can voluntarily initiate the winding up of the company. The moment when a business slows down, they have to follow fast and efficient procedures to wind up the business and start a new one. The winding up of a company also proves that the economic resource of the country and the humans frequently re-channelized to a well organized use and proportionally increase the productivity of the country’s economy.

When the business development increases and grows in the market, there are chances for it to become unviable because of bad business judgment, poor management and fraudulent act, but with more managerial capabilities there are chances for restoring the productivity of the business without any trauma.

Company Liquidation

The process by which a company is offering a legal death and the property is governed for its creditors and members is called Winding up. According to the Indian government, there is even an Act amended for the Winding up process. The Act 1956 gives 2 ways for a company to wind up, Voluntary wind up and winding the company by the tribunal. Many people mistake that the winding up of a company means the dissolution the company, but it is not the same. Once when the winding up process is over, the liabilities and assets will not be under the company’s name. After the winding up process the company is dissolved, this means that the name of the company is removed from the Registrar of Companies (RoC). So the process of dissolution is possible only after the completion of the winding up procedure.


A member of the panel of the professional enterprise of advocates, chartered accountants, company secretaries and work and cost accountants of the central government, full time and part time officers appointed by the central government and the corporate bodies approved by the central government can be appointed as the official liquidator.

Role of Liquidator: The liquidator appointed by the central government gives a list of companies under their charge, so they have to maintain separate accounts with respect to each company under their administration. They will maintain the Central Cash Book in which the details regarding the transactions are listed so that they can work out the periodic reconciliation of the balances in the liquidator’s accounts. With the government approval, the liquidator can open a ledger account in the nearest branch of the Reserve Bank and is combined with the companies under their charge and the payments are remitted in separate challans into the RBI.

Every 3 months, the Official liquidator examines the accounts of all the enterprises under them and calculates the amount available for the investment and acknowledges in the record that they have examined the accounts along with their decision regarding the investments and so on.

Voluntary Winding up

According to Section 484 under the Companies Act, the company can voluntarily wind up their business. This way of wind up happens in the case when the members of the company join hands together and comes under a resolution to close the business or because of any recent activities the company is asked to dissolve with respect to the Articles of Association (AOA).

  • If the company is planning for a voluntary winding up, they have to follow the following steps
  • The Board meeting must be arranged with the all the Directors of the company and pass the resolution. In the resolution the Directors must declare that the equity is under the affairs of the enterprise and has no more debts to repay.
  • By the end of the Board meeting the members have to fix the date, time and place for holding a General Meeting. It is noted that the General meeting must be held after 5 weeks of the Board meeting.
  • Notice must be given to the members of the company regarding the General meeting, the notice must be in the written form and it should include the resolution along with the explanation regarding the meeting.
  • From the date of passing the resolution, the process of winding up can started. In the General meeting, the ordinary resolution can be passed in front of the ordinary majority, but in the case of special resolutions, it must be passed in front of three fourth of the majority.
  • After passing the resolution at the Board of the meeting, a meeting must be held with the creditors of the company to know their consent about the winding up of the company. If they accept the winding up process the company can continue the process, but if the enterprise is unable to meet the liabilities, then the Tribunal must wind up the company.
  • They should also file a notice with the Registrar for the appointment of liquidator within ten days of passing the resolution. Also within fourteen days they have to hand a copy of the resolution of the winding up of the company to the Gazette office and should publish advertisements in the newspapers and distribute them in the area in which the registered office is located.
  • The certified copies of the special resolution or ordinary resolution should be filed within 30 days of the General meeting.
  • All the equity affairs of the company must be wound up and the liquidator account must be prepared and audited and then they have to call for the last General meeting of the enterprise on the prescribed date and venue.
  • When the affairs of the enterprise are wound up, a special resolution for the disposal of the documents and books must be passed.
  • Within 2 weeks of the last General meeting, the copy of the accounts must be filed. They should also apply for the dissolution of the company from the Tribunal.
  • The company will receive an order for dissolving the company from the Tribunal, if they are satisfied with the application. And this order will be given within sixty days of receiving the application.
  • A copy of the order will be filed with the Registrar by the company liquidator. On receiving the copy of the order that was passed by the Tribunal, the Registrar will publish that the particular company is dissolved in the Official Gazette.

Tribunal Winding up

According to the Companies Act under Section 433 a company can be wind up by the Tribunal if they satisfy the conditions of the law. Some of the reasons in which the Tribunal can wind a company are,

  • If the company takes an anonymous special resolution in the Board meeting, the Tribunal can proceed with the winding up process.
  • If a company is unable to repay their debt, then the Tribunal can wind up the company.
  • Under Chapter XIX, the Tribunal can wind up the company.
  • If the company was formed for an unlawful purpose, or if the affairs were conducted in an unlawful manner, then the Tribunal can proceed with the winding up procedures.
  • Any member who was a part of the management of affairs of the company or involved in the formation of the enterprise was found guilty or misconduct, then the Tribunal must proceed with the winding process of the company.
  • In some cases, the Tribunal winds up the companies because they state that it is equitable and just.
  • If any company acts against the morality, integrity and sovereignty of the country and the state and maintain a friendly relationship with the foreign states, then the Tribunal can lead the winding up procedure.
  • If the statutory report delivered to the Registrar is default or if the enterprise fails to commence their business within one year from the incorporation of if they have suspended their business for the entire one year, the Tribunal will wind up the company.


Author Bio:

Anand Rajendran, CEO of Uptra.in, a leading provider of legal services, including company registration. He is the Head of Communications at Uptra Consultancy Services , India’s largest online legal services facilitator.

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