THE INSTITUTE OF COMPANY SECRETARIES OF INDIA AHMEDABAD CHAPTER MEMBERS VOLUNTARY WINDING UP

1. 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.

2. 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.

3. 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

4. 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)

5. 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.

6. 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.

7. FILING WITH THE REGISTER OF COMPANIES DECLARATION OF SOLVENCY AND REGISTRATION.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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].

15. PRELIMINARY ACTION TO BE TAKEN BY THE LIQUIDATOR

16. 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.

17. 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

18. 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.

19. OTHER POWERS OF THE LIQUIDATOR

20. 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.

21. 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.

22. 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.

23. DUTY OF LIQUIDATOR TO KEEP THE CONTRIBUTORIES INFORMED [ Section 496 ]

24. 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.

25. 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 :

26. 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.

27. 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.

28. POWER OF THE TRIBUNAL TO APPOINT OR REMOVE LIQUIDATOR [ Section 515 ] This section has been wholly modified by the Second Amendment Act, 2002.

29. 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.

30. 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.

31. 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.

32. 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 :

33. 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.

34. 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.

35. 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.

36. 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.

37. 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.

38. 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.

39. 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.

40. 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.

41. 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.

42. 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.

43. 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.

44. 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.

45. 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.

46. 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.

47. 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.

48. 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.

49. 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:

50. 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;