Winding Up of a Company Under Companies Act 2013: A Complete Legal Guide

Winding up refers to the legal process of closing down a company, selling off its assets, paying off liabilities, and distributing any remaining funds among shareholders. Once the process is complete, the company ceases to exist.

Under the Companies Act, 2013, the law lays down specific procedures and legal grounds for winding up to ensure transparency, fairness, and protection of creditors’ and stakeholders’ rights.

Types of Winding Up Under Companies Act 2013

The Companies Act, 2013 classifies winding up into two major categories:

1. Compulsory Winding Up (by Tribunal) – Section 271

In this case, the company is ordered to be wound up by the National Company Law Tribunal (NCLT) based on specific legal grounds.

2. Voluntary Winding Up

Earlier covered under Section 304 to 323 of the Companies Act, 1956, voluntary winding up is no longer in force under the Companies Act, 2013 after the 2016 amendment. Companies now need to use Insolvency and Bankruptcy Code (IBC) for voluntary liquidation.

Grounds for Compulsory Winding Up by Tribunal

According to Section 271 of the Companies Act, 2013, a company can be wound up by the NCLT under the following circumstances:

• Company Unable to Pay Debts

If a company fails to repay debts owed to creditors, the tribunal may initiate winding up proceedings.

• Special Resolution by Company

If shareholders pass a special resolution stating that the company should be wound up, the tribunal can act upon it.

• Fraudulent or Unlawful Activities

When a company has acted against the sovereignty and integrity of India or has carried out fraudulent, unlawful or unethical activities, winding up may be initiated.

• Just and Equitable Grounds

If the tribunal believes it is just and equitable to wind up the company, such as in cases of management deadlock or complete loss of substratum.

• Non-Filing of Financial Statements or Annual Returns

Failure to file financial statements or annual returns with the Registrar of Companies (ROC) for five consecutive years.

Who Can File a Petition for Winding Up?

The following parties can file a winding-up petition with the NCLT:

• The company itself
• Creditors (secured or unsecured)
• Contributories (past or present shareholders)
• The Registrar of Companies (with prior Central Government approval)
• Central or State Government (in cases involving national security or public interest)

Step-by-Step Process of Winding Up by Tribunal

1. Filing of Petition

The applicant files a winding-up petition in Form NCLT-1 along with an affidavit and statement of affairs.

2. Admission of Petition

The tribunal reviews the petition, may issue directions, and fixes a hearing date.

3. Appointment of Company Liquidator

If winding up is approved, the tribunal appoints a Company Liquidator responsible for managing the winding-up process.

4. Public Notice

The order is published in the Official Gazette and newspapers to inform stakeholders.

5. Liquidation of Assets

The liquidator sells the company’s assets, settles outstanding debts, and distributes surplus to shareholders.

6. Final Report and Dissolution

After complete settlement, the liquidator files a final report with NCLT. Upon satisfaction, the tribunal passes the dissolution order, and the company ceases to exist.

Role of the Company Liquidator

A Company Liquidator is a licensed insolvency professional appointed by the tribunal. Their role includes:

• Taking custody of company assets and records
• Evaluating and liquidating assets
• Paying off creditors in the order of priority
• Preparing periodic and final reports
• Ensuring compliance with applicable laws

Compliance Checklist Before Winding Up

Before filing for winding up, the company should ensure the following:

• Complete books of accounts and financial statements
• No pending litigation or unresolved disputes
• Dues to employees, banks, vendors, and tax authorities are cleared
• Consent of shareholders through special resolution (if applicable)
• Proper documentation for all transactions

Legal Implications of Winding Up

• The company’s certificate of incorporation is cancelled
• All operations and business activities must cease immediately
• Directors’ powers are suspended, and the liquidator takes over
• Contracts and leases may be terminated by the liquidator
• Assets are frozen, and sale proceeds are applied to liabilities

FAQs on Winding Up of a Company under Companies Act 2013

1. What is the difference between strike off and winding up?
   Strike off is an administrative closure, while winding up involves a legal process through tribunal or insolvency route.
2. Can a private limited company apply for winding up?
   Yes, a private company can initiate winding up if legal conditions are met.
3. How long does the winding-up process take?
   Depending on complexity, it may take 12 to 24 months or longer.
4. Can a company be revived after winding up?
   No. Once dissolved, the company cannot be revived unless restored by an NCLT order.
5. Is voluntary winding up allowed under Companies Act 2013?
   Voluntary winding up is now governed under the Insolvency and Bankruptcy Code (IBC), 2016.
6. What happens to employees during winding up?
   Employees are terminated, and dues (like gratuity, salary, PF) are cleared during liquidation.
7. Who gets paid first in winding up?
   Liquidation expenses, secured creditors, employees, and unsecured creditors are paid in that order.
8. Can ROC initiate winding up?
   Yes, with Central Government’s sanction, ROC can apply to the tribunal.
9. Are directors personally liable during winding up?
   Generally no, unless there is fraud, mismanagement, or breach of trust involved.
10. Do shareholders get anything after winding up?
    Only if there is surplus left after paying off all liabilities and creditors.

Need Help with Winding Up a Company?

Let Tradeviser’s Expert Consultancy Services handle it for you. From preparing petitions and coordinating with NCLT to managing liquidation and legal compliance, we ensure a hassle-free and legally sound closure. Contact us today to avoid procedural errors and penalties.