Winding Up Company

Legal Framework

Winding up of companies in India is governed by a robust legal framework:

• Companies Act, 2013 - Sections 270 to 365
• Companies (Winding Up) Rules, 2020
• Insolvency and Bankruptcy Code (IBC), 2016 - applicable primarily for insolvency and voluntary liquidation

Types of Winding Up in India

Compulsory Winding Up (by Tribunal) - Section 271 of Companies Act, 2013

Initiated through the National Company Law Tribunal (NCLT) when certain grounds are met.

Grounds for Compulsory Winding Up:

• Inability to pay debts
• Special resolution passed by the company for winding up
• Conduct prejudicial to sovereignty or integrity of India
• Fraudulent business practices
• Default in filing financial statements/annual returns for 5 consecutive years
• Any other reason deemed “just and equitable” by the Tribunal

Who Can File a Petition:

• The company itself
• Creditors
• Registrar of Companies (ROC)
• Central or State Government

Voluntary Winding Up (Primarily covered under IBC for solvent companies)

Earlier governed by Companies Act provisions, voluntary liquidation is now governed by the IBC, 2016.

Key Conditions:

• Company has no debts or is able to pay all liabilities
• Shareholders decide to wind up operations

Process:

• Conduct board meeting and file a declaration of solvency
• Pass a special resolution in a general meeting
• Appoint a registered insolvency professional as liquidator
• Liquidator prepares a report and files it with ROC and NCLT
• On approval, the company is dissolved

Fast Track Exit (FTE) / Strike off - Section 248 of Companies Act, 2013

A simplified exit route for defunct or dormant companies with no assets or liabilities.

Initiated by:

• Registrar of Companies (ROC) - for companies inactive for two years or more
• The company itself - by filing Form STK-2

This is ideal for businesses that are no longer operational and wish to avoid long winding-up procedures.

Procedure for Compulsory Winding Up (NCLT)

• Filing of Petition: With NCLT (Form WIN-1 or WIN-2)
• Admission of Petition by NCLT
• Hearing and potential appointment of Provisional Liquidator
• Company files Statement of Affairs (Form WIN-4) within 30 days
• Winding Up Order issued by NCLT
• Liquidator takes control of company's affairs
• Asset realization and distribution to stakeholders
• Final report submitted by the Liquidator
• Dissolution Order passed by NCLT - company legally ceases to exist

Key Statutory Forms

Effect of Winding Up

• Business operations cease except for the purpose of winding up
• Board of directors powers are suspended
• Company's assets are sold to pay liabilities
• After settlement, company name is removed from ROC records
• Company ceases to be a legal entity

Penalties for Non-Compliance

Non-compliance with winding-up regulations can attract strict penalties:

• Monetary fines and imprisonment for fraudulent or illegal conduct
• Directors may face disqualification
• ROC may take suo motu action for companies failing to file returns

Summary: When to Choose What

Our Services Include

• Eligibility assessment for winding up/strike-off
• Preparation and filing of petitions and statutory forms
• Liaison with NCLT, ROC, and stakeholders
• Support in appointment of liquidator
• End-to-end compliance and documentation

For professional, compliant, and hassle-free closure of your company, trust VETRI AUDIT SERVICES PRIVATE LIMITED — your reliable partner for legal and regulatory services.