VOLUNTARY WINDING UP IN INDIA -
A COMPARATIVE ANALYSIS Submitted By: Sumita Patwari
INTRODUCTION Winding-up of a company is a procedure of allocating the assets and concluding the existence of a company. It is a process of dissolving a company by collecting its assets, paying off its liabilities out of the assets of the company or from contributions by its members. If any excess is left, it is distributed amid the members in accordance with their rights. In the words of Prof . L .C.B. Gowe , “Winding -up -up of a company is the process whereby its life is Gower r ended and its property administered for the benefit of its creditors and members. An administrator called liquidator is appointed and he takes control of the company, collects its debts and finally distributes any surplus among the members in accordance with their rights.” 1 Thus in the words of Pennington , “Winding up or liquidation is the process by which the management of a company’s affairs is taken out of its dire ctor’s hand, its assets are realized re alized by a liquidator, and its debts and liabilities are discharged out of the proceeds of realization and any surplus of assets remaining is returned to its members or shareholders. At the end of winding up the company will have no assets or liabilities, and will therefore be simply a formal step for it to be dissolved, that is its legal personality as a corporation to be brought to an end.” 2 A company company r egister gister ed un der der the Companies Act, 1956 may be be woun woun d up i n an y of t he 3
fol l owin g mode modes:
1. By the Court4 i.e. compulsory winding up;
1
‘ Modern Modern Company Law’, 4th Edn., p.789 2 ‘ Pennington’s Pennington’s Company Law’ , 5th Edn., p. 839 3 Section 425, Companies Act, 1956 4 Substituted by ‘Tribunal’ by Companies (Second Amendment) Act, 2002
2. Voluntary winding up, which may be either: (a) Members’ volunt ary winding up; or (b) Creditors’ Creditors’ voluntary winding up; 3. Winding up subject to the supervision of the Court (Section 522 to 527). 5 In every winding up, a liquidator or liquidators is or are appointed to administer the property of the company and he or they must apply the assets of the company, first, in the payment of the creditors in their proper order, and then, in distributing the residue among the members according to their rights.
The companies are usually wound up voluntarily as it is an easier process of winding up. It is different from a compulsory winding up. Winding up order by the Tribunal is not common because normally the members of the company prefer to wind up the company voluntarily for in in such a case they shall have a voice in its winding up. Further, its creditors are left to settle their affairs without going to a Court, although they may apply to the Court for directions or orders, when necessary. The procedure involved in a members' voluntary liquidation, a solvent liquidation commenced by a shareholders' special resolution with no court involvement and no stigma attached, as all the company's debts are paid in full. Moreover, a voluntary winding up is far cheaper, speedier and simpler than a winding up by the Tribunal. 6 The power of the Tribunal to order winding up is exercised only where the winding up is opposed to the interest of the company or public.
VOLUNTARY WINDING UP UNDER THE COMPANIES ACT, 1956 extensively deals with Part V I I Chapter Chapter I I I of th e Companies Act, 1956(Se 1956(Sections ctions 484 484 to 520) the provisions of voluntary winding up of a company. A company may, voluntarily wind up its affairs, if it is unable to carry on its business, or if it was formed only for a limited purpose, or if it is unable to meet its financial obligation, and etc. In case of voluntary winding up, the entire process is done without the supervision of the Tribunal. When the t he winding up is complete, the relevant documents are filed before the Court for obtaining the order of dissolution. A voluntary winding up may be done by the members as it may be done by the creditors.
5
Omitted by the Companies (Second Amendment ) Act, 2002
6
Anne Sharp, “ Members' solvent liquidation”, liquidation ”, 2011, Financial Regulation International, F.R.I. 2011, May, 4-6 2
7
Th e cir cumstance cumstances s un der der whi ch a company company may be be wound u p vol vol un tari ly ar e:
(a) when the period fixed for the duration of the company as mentioned in its articles has expired; or (b) the event, on the happening of which the articles provide that the company is to be dissolved has occurred; and (c) the company passes a special resolution that the company be wound up voluntarily Thus, a company may be wound up voluntarily on the expiry of the term fixed for duration of the company or on the occurrence of the event as provided in its articles. In these two cases only an ordinary resolution may be passed in the general meeting of the company. In Br i tish Water Water Gas 8
Syndi Syndi cate v. Notts Derby Water Gas Co. Lt d ., held that however prosperous and solvent a
company may be, if the members wish the company to be wound up, they can do so by passing a special resolution to that effect and no reasons need be given. No articles of the Company can prevent the exercise of this statutory right. And the right cannot be interfered with by any Court by means of an injunction or otherwise. Where the required special resolution was passed at a meeting convened by giving a shorter notice than that required by the Act, but all the members of the company unanimously agreed thereto, the resolution being intra vires the company, was held valid. In re, Bailey H ay & 9
Co. L td ., ., there were only five shareholders, two of whom held between themselves 50% of the
voting power and they passed the resolution. Shareholders who abstained from voting on the resolution and allowed it to be passed with knowledge of their power to stop it must be deemed to have assented to the resolution which, accordingly, was held valid. 10 outher n Coun ties Depos Deposit it Bank L imi ted ted v. Ride Riderr & Ki rk wood wood , a notice In Souther notice calling a general
meeting to wind up the company was issued by the authority of a board meeting at which only two directors were present. The quorum for board meetings was for six years regarded as two directors, though the resolution altering the quorum from three to two had not been validly passed. The court refused the application, for declaring the resolution to be invalid saying it
7
Section 484(1), Companies Act, 1956 1889 WN 204 9 (1972) 42 Com Cases 442 10 (1895) 11 TLR 563 8
3
would not interfere “for the purpose of forcing companies to conduct their business according to the strictest rules, where the irregularity complained of can be set right at any moment”. 11 In I ndian Tr ading ading & Engineeri Engineeri ng Co. Co. Ltd. Re Re kstone F all Colli er y Co. Co. , the Court applied Sil kstone
12
., ., where the resolution for voluntary winding-up passed by the shareholders was on the basis Re of a bad notice and though the shareholders at a subsequent meeting appointing liquidators waived the requirement of proper notice and confirmed the resolution, it was held that it was open to the creditors to challenge the appointment of liquidator. The resolution, when passed, must be advertised within 14 days of the passing of the resolution in the Official Gazette and also in some newspaper circulating in the district where the registered office of the company is situated. A default in complying with the above requirements renders the company and every officer of the company, who is in default, liable to a penalty which may extend to five hundred rupees for every day during which the default continues. In Bhargava 13
(S.P.) v. Rames Rameshwar Shastr Shastr i , held that a failure to advertise, may be considered to be an
irregularity and curable, not affecting the validity of winding up. A liquidator of the company is deemed to an officer of the company for the purposes of the above requirements. 14 It was held 15 in Neptune Neptune Ass Assur ance Co. Ltd. v. Uni on of I ndia , that in the Companies Act the expression
“voluntary winding up”, up” , means a winding up by a special resolution of a company to that effect. Similarly, the expression “winding up by the court” means winding up by an order of the Court in accordance with S. 433 of the Companies Act. A voluntary winding up commences from the date of the passing of the resolution for voluntary winding up. This is so even when after passing a resolution for voluntary winding up, a petition is presented for winding up by the Court. 16 The date of commencement of winding up is important for various matters, such as liability of past members, who will not be affected if, on the date of commencement of winding up, a year had elapsed after they ceased to be members, fraudulent preference may have become unimpeachable, etc. In Re, Re, West West Cu mber mber lan d I r on Stee Steel 17
Co ., ., where a voluntary winding up is continued under supervision (section 522), the winding
11
(1910-11) 15 CWN 1047 (Cal) (1875) 1 Ch D 38 13 (1952) 22 Com Cases 106: AIR 1952 MB 3A 14 Section 485, Companies Act, 1956 15 1973 SCR (2) 940 16 Section 486, Companies Act, 1956 17 (1889) 40 Ch D 361 12
4
up commences not at the date of the presentation of the petition or order for supervision but at the date of the resolution for voluntary winding up; for the order is only to continue the winding up. In Indian States’ Bank L td., ,18 when the voluntary liquidation is followed by a compulsory td., Re order, the date of commencement of the compulsory liquidation is the date of voluntary liquidation. Hence a suit filed before commencement of winding up can be continued by the company and the liquidator need not be brought on record held in National Stores v. 19
. Ramsaran
The effect of the voluntary winding up is that the company ceases to carry on its business except Rangai Goun dan (M .K.), so for as may be required for the beneficial winding up thereof. 20 In Rangai 21
Re , held that a voluntary winding up does not put an end to the corporate existence of the
company. The company exists until it is dissolved. The powers of the directors continue to the extent to which they are allowed by the liquidator. In Commr. Of I ncome Tax v. Li quidator, 22
Ratlam E lectri c Suppl Suppl y etc. etc. Co. Co. L td. , it was held that Section 487 does not contemplate the
carrying on business of the company except to the extent necessary for its beneficial winding up. It does not prohibit a company which is being voluntarily wound up from receiving income from other sources and interest on securities. The property of the company becomes a trust property with the passing of the resolution for winding up for the benefit of creditors and contributories. The principle of the establishment of 23 trust was stated in General Rolling Stock Co., Join t Di scount count Company's Company's Claim, Re , : “A duty
and a trust are thus imposed upon the court, to take care that the assets of the company shall be applied in discharge of its liabilities. What liabilities? All the liabilities of the company existing at the time when the winding up order was made which gives the right. It appears to me that it would be most mos t unjust if any other construction were put upon the section.”
18
(1934) 4 Com Cases 64: AIR 1934 All 114 AIR 1926 Nag 303 20 Section 487, Companies Act, 1956 21 (1942) 12 Com Cases 198: 1972 Mad 702 22 (1982) 52 Comp Cas. 632 23 (1872) 7 Ch App 646 at 648-649: (1861-73) All ER Rep 434 at 435 19
5
24 , held that a voluntary winding up does not operate as a stay of any existing In Kn owle owl es v. Scott Scott
proceedings or prevent the institution of new proceedings. The liquidator is treated as a person in the position of an agent for the company, performing his duties in accordance with the provisions of the Act. In Dawsons ,25 held that the Dawsons Banks L td. v. v. Ni ppon ppon M enkwa Kabu-shiki Kaisha liquidators are not parties to such suit and it is improper to implead them as defendants. The change that is brought about by the liquidation in regard to the suit is merely this that in the conduct of their defence the company would, before liquidation, act through the directors, during liquidation through the liquidators, and after the stay of liquidation through the directors once more. A voluntary winding up does not necessarily operate as a discharge of the company’ s servants. 26
Reigate v. v. Un ion M anuf actur actur in g Co., (Rams (Ramsbot bottom) tom) L td., td., In Reigate
held that the passing of a
resolution for voluntary winding up does not operate as notice of discharge of the employees of the company, if the business is continued by the liquidator or the liquidation is only with a view 27
to reconstruction. In Fowler v. Fowler v. Commer Commer cial T im ber ber Co. L td.,
F was appointed managing
director of a company for a period of five years, the company passed a resolution that it could not by reason of its liabilities continue its business. F voted in favour of this resolution. Held, (a) the voluntary winding up operated as a wrongful dismissal of F, and (b) the fact that F consented to the winding up by voting for the resolution did not prevent him from recovering damages. 28
In M idl and Counties Di stri ct Bank L td. v. v. Attwood, Attwood, held that where the voluntary winding up is for the purpose of amalgamation or reconstruction, the resolution to wind up voluntarily does 29 not operate as a notice of discharge to the employees. In H utton v. Wes West Cork Rly ., ., held that a
company should not, after the commencement of the winding up, give gratuities to directors or servants and if they are voted, the liquidator should refuse to pay them. In Di l ip Singh T. v. State of T .N .,30 a company closed its undertaking without permission of labour authority. The company went into voluntary liquidation by passing a special resolution. The director in question had resigned before the date of the resolution. His resignation was
24
(1891) 1 Ch 717 AIR 1935 PC 79: (1935) 5 Com Cases 191 at 203 26 (1918) 1 K.B. 593 27 (1930) 2 K.B.1 28 (1905) 1 Ch. 357 29 (1883) 23 Ch D 654 30 (2002) 112 Com Cases 195 (Mad) 25
6
accepted by the company and all the relevant documents were filed with the ROC. It was held that the prosecution of such a director for not complying with labour enactments was not permissible. 31
There are two two kinds of of volu volu ntary win ding up:
(i) Members’ voluntary winding up; and (ii) Creditors’ voluntary winding up.
MEMBERS’ VOLUNTARY WINDING UP
Secti Secti ons on s 490 to 498 of the Compani es Act, 1956 shall apply in relation to a members’ voluntary
winding up. 32 When the company is solvent and is able to pay its liabilities in full, it need not consult the creditors or call their meeting. Its directors, or where they are more than two, the majority of its directors may, at a meeting of the Board, make a declar declar ation of solvency solvency verified stating that they have made full enquiry into the affairs of the company and that stating by an aff idavit having done so they have formed an opinion that the company has no debts or that it will be able to pay its debts in full within such period not exceeding three years from the commencement of the winding up as may be specified in the declaration. In Collector Collector of M oradabad oradabad v. v. Equi ty 33
I nsur nsur ance Co. L td., Section 488 does not require that there should be an affidavit by each of
the directors making the declaration. An affidavit by one director is sufficient. In De Cour cy v. v. 34
Clement , held that while failure to satisfy the conditions under this section makes the
declaration of no effect i.e., a nullity, a mere error or omission, while it may expose the declarant to the penal consequences, will not prevent the statement from being a statement for the purpose of satisfying the requirements of the section. Such a declaration must be made within five weeks immediately preceding the date of the passing of the resolution for winding up the company and be delivered to the Registrar for registration before that date. The declaration must embody a statement of the company’s asset s and liabilities as at the latest practicable date before the making of the declaration. Any director making a declaration without having reasonable grounds for the aforesaid opinion, shall be punishable with imprisonment extending up to six months or with fine extending up to Rs.
31
Section 488(5), Companies Act, 1956 Section 489, Companies Act, 1956 33 (1948) 18 Com Cases 309, 317: AIR 1948 Oudh 197 34 (1971) 1 All ER 681: (1971) 41 Com Cases 796 (Ch D) 32
7
50,000 or with both. 35 In Shr i Raja Mohan M anucha v. L akshmi ,36 it was held that akshmi nath Saigal “where the declaration of solvency is not made in accordance with the law, the resolution for winding up and all subsequent proceedings wil l wil l be null and void.”
Procedure for for Members’ Members’ Voluntary Winding Winding Up :
The company shall appoint one or more liquidators, in a general meeting, who shall look after the affair of winding up procedure, and distribution of assets. 37 The secretary of a company can 38
be appointed as liquidator, held in L ondon ondon & Australi an Agency Agency Corp. Corp. L td. Re Re., so also a solicitor can be appointed as liquidator. The liquidator so appointed, shall be paid remuneration 40 Ger tzens tzenste teii n L td. Re , the for his services, which shall also be fixed in general meeting.39 In R. Ger
remuneration fixed may include the fee for professional services also. But he cannot recover costs for the services rendered by him as a solicitor over and above the fixed remuneration. In 41
., held that the remuneration Globe Uni ted ted E ngg. & F oundr y Co. L td. v. Regis Registrar trar of Cos
cannot be increased in any circumstances whatever. Even the court does not have power to 42 ., held that when the voluntary winding up is increase it. In Cf . Re, Re, M orti mers mers (London) L td
superseded by a compulsory winding up, the Court may review the amount. In Amalgamated 43
Syndi Syndi cate L td., Re , held the remuneration of the voluntary liquidator has to be fixed at the
meeting by the contributories or at a subsequent meeting. If that is not done, an application can be made to the court for fixing such remuneration as the court court thinks just. The company shall also give notice of appointment of one liquidator to the registrar within ten days of appointment. 44 Once the company has appointed liquidator, the powers of Board of Directors, Managing Director, and Manager, shall cease to exist. 45 The liquidator is generally given a free hand, to carry out the winding up procedure, in such a manner, as he thinks best in the interest of creditors, and company. In case, the winding up procedure, takes more than one
35
Section 488, Companies Act, 1956 (1963) 33 Comp. Cases 719 37 Section 490 (1), Companies Act, 1956 38 (1873) 29 LT 417: 22 WR 45 39 Section 490 (2), Companies Act, 1956 40 (1936) 3 All ER 341: (1938) 8 Com Cases 53 41 (1974) 44 Com Cases 330 (Del) 42 (1937) 1 Ch 289: (1938) 8 Com Cases 56 43 (1901) 2 Ch 181 44 Section 493, Companies Act, 1956 45 Section 491, Companies Act, 1956 36
8
year, then liquidator will have to call a general meeting, at the end of each year, and he shall present, a complete account of the procedure, and position of liquidator. l iquidator.46 In Gerar Gerar d v. Nor th of 47
., ., held that under the members’ members ’ voluntary winding up there is a presumption, until the Paris L td
contrary is shown, that all the debts of the company will be paid in full and it must be taken that the company is solvent when there is no evidence to the contrary. The liquidator shall take various steps, when affairs of the company are fully wound up. He shall call a general meeting of the members and lay before it, complete picture of accounts, winding up procedure and how the properties of company are disposed of. The meeting shall be called by advertisement, specifying the time, place and object of the meeting. The liquidator shall send to, the Registrar and official Liquidator copy of account, within one week of the meeting. If from the report, official liquidator comes to the conclusion, that affairs of the company are not being carried in manner prejudicial to the interest of its members, or public, then the company shall be deemed to be dissolved from the date of report to the court. However, if official liquidator comes to a finding, that affair have been carried in a manner prejudicial to interest of member or public, then court may direct the liquidator to investigate furthers. 48
CREDITORS’ VOLUNTARY WINDING UP
Where a declaration of solvency of the company is not made and delivered to the Registrar in a voluntary winding up it is a case of creditor’s voluntary winding up. A winding up petition is a perfectly proper remedy for enforcing payment of a just debt. It is i s the mode of execution which the Court gives to a creditor against a company unable to pay its debts. 49 Section Section s 500 to 509 of creditors ’ voluntary winding up. up . Where the th e Compani es Act, 1956 shall apply in relation to a creditors’ resolution for winding up has been passed, but the Board of Directors are not in a position to give a declaration on the liability of company to the Registrar, they may call a meeting of creditors, for the purpose of winding up. It is the duty of Board of Directors, to present a full statement of company’s affairs, and list of creditors along with wit h their dues, before the meeting of creditors.50
46
Section 496, Companies Act, 1956 (1936) 2 All ER 905 48 Section 497, Companies Act, 1956 49 Palmer’s Company Precedents, Part 11, 1960 Edn., at p. 25 50 Section 500, Companies Act, 1956 47
9
The procedure laid down in Section 500 and the following sections, in regard to the creditors’
, a company which is not able to pay its debts and win ding u p of an i nsolve nsolvent nt company company 51 . liabilities, is based upon the views expressed by J., in In r e, Karamell Karamell i and Barn ett Ltd
“Under this procedure the company has to convene a meeting of the creditors to take place immediately after the meeting of the shareholders, on the same day or the next day; and the directors have to place a full statement of the position of affairs at the creditors” meeting. The creditors at the meeting have the right to nominate a liquidator and if their nominee is different from the one nominated by the shareholders, creditors” nomination prevails, p revails, subject to the power of interference of the court. Thus, the creditors are given a controlling voice in the winding up of an insolvent company.” Whatever resolution, the company passes in creditor's meeting, shall be given to the Registrar within ten days of its passing. 52 In Re, ., .,53 held the giving of notices under this Re, Eros F il ms L td section is analogous to the filing, under the law of insolvency, of a declaration of inability to pay 54 , held non-compliance with the provisions debts. In Pure M il k Supply Supply Co. L td. v. S. H ari Sin gh
of Section 501 renders the directors liable to fine but does not make the proceedings of the meeting invalid. The creditors appoint the liquidator, approve the accounts and regulate the winding up 56 Re, Cas Caston Cushion i ng L td ., held a liquidator appointed by a resolution of proceedings.55 In Re,
the members cannot be replaced by one appointed by a majority in value but not in number of 57 ., ., held where a liquidator is appointed by the members of the creditors. In Re, Re, Ce Centr abind L td
the company but the creditors did nothing, the liquidator appointed by the members will not be disentitled to act as the liquidator of the company. He has locus-standi to take all proceedings. The creditors may appoint a Committee of Inspection consisting of not more than five creditors in order to regulate and supervise the winding up proceedings. 58 Section 509 deals with the various steps to be taken by the liquidator, when affairs of the company are fully wound up. This section has the same provisions as that of members’ voluntary
51
(1917)1 Ch 203 Section 501, Companies Act, 1956 53 (1963)1 All ER 383: (1963)33 Com Cases 467 54 AIR 1962 Punj 190: (1962) 32 Com Cases 659 55 Section 502, Companies Act, 1956 56 (1955) 1 All ER 508: (1955) 25 Com Cases 138 57 (1966) 3 All ER 889: (1967) 37 Com Cases 468 (Ch D) 58 Section 503, Companies Act, 1956 52
10
winding up under Section 497 of the Act. Once the company is fully wound up, and assets of the company sold or distributed, the proceedings collected are utilized to pay off the liabilities. The proceedings so collected shall be utilized to pay off the creditors in i n equal proportion. Thereafter any money or property left may be distributed among members according to their rights and 60 interests in the company. 59 In Pamarti Venkataswamy Venkataswamy v. Kon dandarama Bu s Tr ansport ansport L td.,
held the shareholders shareholders can draw a scheme for distributing the company’s assets and business among themselves, undertaking in turn to pay off the company’s debts.
In voluntary winding up it is left to the company, the contributories and the creditors to settle their affairs without intervention of the Court as far as possible. However, the Act contains certain provisions which provide a means of access to the Court with a view to speed up the liquidation proceedings and to overcome the difficulties that may arise in the course of liquidation. The Court will intervene in the voluntary winding up whenever it is satisfied that such an intervention will be just and beneficial. In appropriate cases the Court can be approached for compulsory winding up (Section 440) or winding up being conducted under the supervision of the Court.61
COMPARATIVE STUDY OF VOLUNTARY WINDING UP LAW UNDER COMPANIES ACT, 1956 WITH UK LEGISLATION AND COMPANIES ACT, 2013 The study of insolvency laws have gained importance over the years due to growing cross borders business ventures. This has made it necessary to be aware of the legislative framework with regard to corporate insolvency and latest developments in other countries too. The laws relating to voluntary winding up in India is very much similar to those prevailing in UK. In UK the insolvency laws are governed by the Insolvency Act, 1986, Insolvency Rules, 1986, the Company Director Disqualification Act, 1986. The insolvency proceedings governed by this Act fall under two categories namely, (a) Insolvency proceedings in respect of companies registered under the Companies Act, 2006 and unregistered companies; (b) Insolvency proceedings in respect of individuals known as bankruptcy.
The Legislative Reform
59
Section 511, Companies Act, 1956 (1958) 28 Com Cases 50: AIR 1958 AP 666 61 Section 522, Companies Act, 1956 60
11
(Insolvency) (Miscellaneous Provisions) Order 2010 and The Insolvency (Amendment) Rules 2010 came into force on 6 April 2010 and made a number of changes in relation to voluntary liquidations. The amendments generally apply only to cases where the resolution for voluntary winding up was passed on or after 6 April 2010 (unless it went into liquidation under Paragraph 83 of Schedule B1 to the Act and the preceding administration commenced before 6 April 2010 or was an administration by virtue of an administration order where the application was made before 6 April 2010).62 Prior to enactment of Insolvency Act, the Bankruptcy Act 1914 did not apply to corporate insolvency. Corporate insolvency provisions were contained in the Companies Act, 1985. Kenneth Cork Committee (Insolvency Law Review Committee) recommended spin off and enactment of Insolvency Act 1985. Thereafter the 1985 Act on the very first day was replaced by Insolvency Act 1986. It was substantially amended by Insolvency Act 1994. Further the Enterprise Act 2002 has attempted to fundamentally change approaches to corporate insolvency regulation in the United Kingdom. 63 By endeavouring to improve the administration procedure first introduced by the Insolvency Act 1986, the legislature has given paramount consideration to corporate rescue outcomes through the administration procedure, as originally envisaged by the Cork Committee in its seminal report of 1982. 64 comprising of Sections 84 to 116 Chapters Chapters I I to V of Part I V of the I nsolve nsolvency ncy Act, 1986 1986 (corresponding sections in the Companies Act, 1956 are Sections 484 to 520) deal with voluntary winding up. 65 The Indian law adopts the provisions of the English law with little or no difference. Most of the provisions relating to voluntary winding up are same as that of Act of 1986. However, there are few striking differences relating to the power of liquidators and directors during the winding up procedure. Like the Companies Act, 1956 there are two types of voluntary winding up under the Insolvency Act, 1986. Members’ voluntary winding up up is commenced by a resolution of the shareholders that the company is wound up and that a named licensed insolvency practitioner is appointed the
62
http://www.legislation.gov.uk/ukpga/1986/45/part/IV/chapter/III http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft916.pdf 64 John Tribe “Company voluntary arrangements and rescue: a new hope and a Tudor orthodoxy ”, 2009, Journal of Business Law, J.B.L. 2009, 5, 454-487 65 ‘ Palmer's Palmer's Company Law’ Law’, 24th Edn., 1987, Vol. 1, Para 89-01A, Pages 1493 63
12
liquidator.66 If the directors make a statutory declaration of solvency within five weeks prior to the resolution, the liquidation will proceed as a members’ voluntary liquidation. 67 Otherwise the process will be a creditors’ voluntary liquidation and a meeting meeti ng of creditors must be held within 14 days of the members’ resolution. 68 If the meeting of creditors nominates a practitioner other than the one nominated by the members as liquidator, the creditors’ c hoice will prevail. On the appointment of a liquidator in a creditors’ voluntary winding -up, all powers of the directors cease except so far as are preserved by the creditors’ creditors’ committee or the the creditors.69 If the shareholders do not appoint a liquidator, the powers of the directors are not exercisable except so far as are necessary to secure compliance to convene a meeting of creditors, the production of a statement of affairs and to protect the assets or dispose of perishable assets. In a voluntary liquidation, the company must cease to carry on its business except so far as is necessary for its beneficial winding-up. There are number of similarities in the two laws however, Section 89 of the Insolvency Act, 1986 clearly mentions a time limit to commence the creditor’s voluntary winding up. There is no such exact time frame provided under the corresponding Section 500 of the Companies Act, 1956. Further, as stated earlier under Section 490 of the Companies Act, 1956 the remuneration cannot be increased in any circumstances whatever; even the court does not have power to increase it. In English law, however, by virtue of the rules under the English Insolvency Act, 1986, a voluntary liquidator can make an application showing that his remuneration is insufficient according to objective standards. The court then gets an unfettered discretion both as to the amount and the basis of the increase having regard to all the circumstances and to the criteria set out in the rules.70 Under the Indian law, the liquidator's remuneration is paid out of the assets of the company. But where those assets were not sufficient to pay him for his labours, English Court allowed him to
66
Section 84 of the Insolvency Act, 1986 Section 89 of the Insolvency Act, 1986 68 Section 98 of the Insolvency Act, 1986 69 Section 91 of the Insolvency Act, 1986 67
70
Tony Rowse NMC Ltd., Re, Re , (1996) 2 BCLC 225 (Ch D) 13
recover his costs and remuneration out of the trust property which was held by the company on trust for its investors.71 Section 494 of the Companies Act does not render the liquidator the position of an officer of the court but, subject to this, his position as regards taking possession of the assets is the same as in the case of a winding up by the Court. The liquidator should at once take possession of the books, deeds and documents of the company etc. However, the position of the liquidator is a stronger one by virtue of Section 246 of the English Act whereby it is provided that a lien or other right to retain possession of the books, papers or other records of the company is unenforceable to the extent that its enforcement would deny possession of any books, papers or other records to the office-holder.
Under Section 502 of the Companies Act, 1956, the creditors are given a preferential right in the matter of the appointment of a liquidator, with a power to the court to vary the appointment on application made within seven days, by a director, member or creditor. However, the Insolvency Act, 1986 restricts the authority of directors to enter into transactions which are binding on the company where no liquidator is appointed or nominated in a creditors’ voluntar y voluntar y winding up. 72 deals with voluntary Part I I of Ch apter apter XX (Sections (Sections 304 to 323) of the Compani Compani es Act, 2013 2013 winding up. The provisions of the Act are similar to that of the Act. The only difference is the provisions are compressed unlike the elaborative sections in the Act. The procedure for voluntary winding up, powers of liquidator, commencement etc. remains the same with slight or no difference.
Section 484 remains intact with the corresponding Section being 304. Section 485 is amended by Section 307 by increasing the fine to five thousand rupees from rupees from five hundred. Section 486 and 487 remain intact with corresponding Sections being 308 and 309 respectively. Section 488 is amended by Section 305 by adding two more things that the declaration must contain namely, Cl.305 (2) (b) “it contains a declaration that the company is not being wound up to defraud any defraud any person or persons” and Cl.305 (2) (d) “where there are any assets of the company, it is accompanied by a report of the valuation of the assets of the company prepared by a registered
71
Horris v. Conway, Conway , 1989 BCLC 28: (1989) 2 Comp LJ 145, 157 (Ch D) A Company (No 006341 of 1992), Re; B. Ltd. Ex p., (1994) 1 BCLC 225 (Ch D)
72
14
valuer.” Further the punishment under Cl.305 (4) has been enhanced from six months and fifty thousand rupees to “imprisonment for a term which shall not be less than three years but which may extend to five years or with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees, or with both.” Sections 490 and 502 have been combined in the same Section and have been amended by Section 310. Under this earlier the company in general meeting could appoint the liquidator however now this has to be followed by appointing Company Liquidator from the panel prepared by the Central Government. Section 500 and 501 has been combined under Section 306 and now notice of the meeting of the creditors need not be advertised in the Official Gazette and newspapers. Further the punishment for default is enhanced from ten thousand rupees to “fine which shall not be less than fifty thousand rupees but which may extend to two lakh rupees and the director of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than fifty thousand rupees but which may extend to two lakh rupees, or with both.” Sections 492 and 506 have been combined in Section 311; however, earlier the company had power only to fill the vacancies and there was no provision as to removal of Company Liquidator. The new Section has clear provisions regarding the removal of the Liquidator. Section 493 has been amended by Section 312 whereby the fine has been reduced to five hundred rupees rupees from one thousand rupees. Section 491, 503, 512 remains intact with the corresponding Sections being 313, 314 and 315 respectively.
Sections 496 and 508 have been combined under Section 316 and now the “Company Liquidator shall report quarterly on the progress of winding up of the company c ompany..” Further the fine has been enhanced from one thousand rupees to ten lakh rupees. rupees. Sections 497 and 509 have been combined under Section 318 whereby the time limit for sending the copy of final winding up accounts of the company has been raised to two weeks from weeks from one week. Further the fine has also been enhanced from five thousand to one lakh rupees. Sections 494, 511, 517, 518 and 520 remain intact with the corresponding Sections being 319, 320, 321, 322 and 323 respectively.
15
CONCLUSION After a clear perusal of the laws and procedures of voluntary winding up under the Companies Act, 1956 and Insolvency Act, 1986, it can be concluded that these provisions may not be verbatim copies of each other, yet they are very similar in many aspects. A clear understanding of the international insolvency laws is important due to rise in cross border business ventures. Hence from the above discussion we can draw a conclusion that most of the provisions carry similar meaning however there are few striking differences to be found in the English Law is that the position of the Liquidator is stronger than that in India. For instance, if there are grievances regarding his remuneration he can apply to the Court and get his dues or even increase it, restrictions on director’s rights director’s rights etc. The Companies Act, 2013 is not that elaborative like the Act. It contains all the provisions of the Act however, many of the sections are combined under a single Section and certain provisions have been removed. The most important thing to be noted is that most of the provisions relating to the punishments have been amended. Where the company or an officer of the company fails to comply with the said provisions of the Act or Act, the fine amount and the imprisonment term is enhanced. Further the time limit for submitting reports by liquidator or members to authorities have also been altered. It can be concluded that voluntary winding up is preferred because it is easier and speedier. The members and creditors have a say and control over the proceedings. It is to be noted that winding up by the Tribunal is approached only if there is a dire need for it, if the proceedings are detrimental to the interests of the company and public at large
16
BIBLIOGRAPHY PRIMARY SOURCE
Companies Act, 1956
Insolvency Act, 1986
Companies Act, 2013
SECONDARY SOURCE Books Ref Ref er r ed:
A Ramaiya, “Guide to Companies Act”, (2010), LexisNexis Butterworths Publications, 17th Edn.
C.R.Datta, “The Company Law”, (2008), LexisNexis Butterworths Publications, 6 th Edn.
‘ Palmer's Palmer's Company Law’, Law’, (1987), Stevens & Sons Ltd. Publications, Vol 1, 24 th Edn.
Ar ti cles Ref Ref er r ed:
John Tribe “Company voluntary arrangements and rescue: res cue: a new hope and a Tudor orthodoxy”, 2009, Journal of Business Law, J.B.L. 2009, 5, 454 -487
Anne Sharp, “Members' solvent liquidation”, 2011, Financial Regulation International, F.R.I. 2011, May, 4-6
Websi Websi tes vis vi si ted:
http://www.legislation.gov.uk/ukpga/1986/45/part/IV/chapter/III (UK Govt)
http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft916.pdf
(Office
of
Fair
Trading)
http://www.jstor.org/stable/1327367
http://www.companyliquidator.gov.in/winding_up_3.html#
(Ministry
of
Corporate
Affairs)
http://login.westlawindia.com/maf/wlin/app/document?&srguid=ia744d06500000140cea 3f1666e0d1b7f&docguid=IE092A561D37 3f1666e0d1b7f&do cguid=IE092A561D37B11E08093A48 B11E08093A488213A42B9&hitgu 8213A42B9&hitguid=IE092A id=IE092A 561D37B11E08093A488213A 561D37B11E0 8093A488213A42B9&rank=2490&spos=24 42B9&rank=2490&spos=2490&epos=2490&td=2891 90&epos=2490&td=2891&cr &cr umb-action=append&context=45&resolvein=true 17
LIST OF CASES
British Water Gas Syndicate v. Notts Derby Water Gas Co. Ltd.; 1889 WN 204
Bailey Hay & Co. Ltd., Re; (1972) 42 Com Cases 442
Southern Counties Deposit Bank Limited v. Rider & Kirkwood; (1895) 11 TLR 563
Indian Trading & Engineering Co. Ltd. Re; (1910-11) 15 CWN CWN 1047 (Cal)
Silkstone Fall Colliery Co. Re.; (1875) 1 Ch D 38
Bhargava (S.P.) v. Rameshwar Shastri; (1952) 22 Com Cases 106: AIR 1952 MB 3A
Neptune Assurance Co. Ltd. v. Union of India; 1973 SCR (2) 940 940
West Cumberland Iron Steel Co., Re; (1889) 40 Ch D 361
Indian States’ Bank Ltd., Re; (1934) 4 Com Cases 64: AIR 1934 All 114
National Stores v. Ramsaran; AIR 1926 Nag 303 303
Rangai Goundan (M.K.), Re; (1942) 12 Com Cases 198: 1972 Mad 702
Commr. Of Income Tax v. Liquidator, Ratlam Electric Supply etc. Co. Ltd.; (1982) 52 Comp Cas. 632
Joint Discount Company's Claim, Re; (1872) 7 Ch App 646 at 648-649: (1861-73) All ER Rep 434 at 435
Knowles v. Scott; (1891) 1 Ch 717
Dawsons Banks Ltd. v. Nippon Menkwa Kabu-shiki Kaisha; AIR 1935 PC 79: (1935) 5 Com Cases 191 at 203
Reigate v. Union Manufacturing Co., (Ramsbottom) Ltd.; ( 1918) 1 K.B. 593
Fowler v. Commercial Timber Co. Ltd.; (1930) 2 K.B.1
Midland Counties District Bank Ltd. v. Attwood; (1905) 1 Ch. 357
Hutton v. West Cork Rly.; (1883) 23 Ch D 654
Dilip Singh T. v. State of T.N.; (2002) 112 Com Cases 195 (Mad)
Collector of Moradabad v. Equity Insurance Co. Ltd.; (1948) 18 Com Cases 309, 317: AIR 1948 Oudh 197
De Courcy v. Clement; (1971) 1 All ER 681: (1971) 41 Com Cases 796 (Ch D)
Shri Raja Mohan Manucha v. Lakshminath Saigal; (1963) 33 Comp. Cases 719
London & Australian Agency Corp. Ltd., Re; (1873) 29 LT 417: 22 WR 45
R. Gertzenstein Ltd., Re; (1936) 3 All ER 341: (1938) 8 Com Cases 53 18
Globe United Engg. & Foundry Co. Ltd. v. Registrar of Cos.; (1974) 44 Com Cases 330 (Del)
Cf. Re, Mortimers (London) Ltd.; (1937) 1 Ch 289: (1938) 8 Com Cases 56
Amalgamated Syndicate Ltd., Re; (1901) 2 Ch 181
Gerard v. North of Paris Ltd.; (1936) 2 All ER 905
Karamelli and Barnett Ltd., Re; (1917)1 Ch 203
Eros Films Ltd., Re, 1 (1963)1 All ER 383: (1963)33 Com Cases 467
Pure Milk Supply Co. Ltd. v. S. Hari Singh; AIR 1962 Punj 190: (1962) 32 Com Cases 659
Re, Caston Cushioning Ltd.; (1955) 1 All ER 508: (1955) 25 Com Cases 138
Re, Centrabind Ltd.; (1966) 3 All ER 889: (1967) 37 Com Cases 468 (Ch D)
Pamarti Venkataswamy v. Kondandarama Bus Transport Ltd.; (1958) 28 Com Cases 50: AIR 1958 AP 666
Tony Rowse NMC Ltd., Re, (1996) 2 BCLC 225 (Ch D)
Horris v. Conway, 1989 BCLC 28: (1989) 2 Comp LJ 145, 157 (Ch D)
19
