Circumstances of winding up of a company by the tribunal

A company may be spoiled by the board in the following circumstances:

  • If the company has a special resolution passed at a general meeting of members resolved that the company be wound-up by the tribunal.
  • If the company does not start its business within a year of registration or excludes its business for the total years.
  • If the number of members is reduced below seven in the case of public limited company or below two in the case of a private limited company.’
  • If the company is not to pay its debts.
  • If the tribunal is of chance that is just and equitable that the company be wound-up.
  • If the company has defaulted in filing its balance sheet, profit and loss account and annual returns with registrar of companies for consecutive five financial years.
  • If the tribunal is of opinion in the case of a sick industrial company that the private limited company should be wound-up as per section-424G.

The companies (second amendment) act 2002 had added clauses (g), (h) and (i) above extending the power of the tribunal to order winding-up of companies.


Circumstances of winding up of a company by the tribunal


Inability to pay debts

A company is deemed to be unable to pay its debts, referred to in clause(e) in section 433 in the following circumstances:

  • A creditor, whether secured or unsecured, to whom the company is indebted for a sum exceeding rs.1 lakh, (increased from rs.500 by the said amendment act)should have served on the company a notice sent by registered post or otherwise to the company registration office or a notice delivered company registration office demanding the company to pay the sum due and the company has for three weeks neglected to pay the amount or to secure it to the satisfaction of the creditor.
  • A decree issued by a court in favor of a creditor is returned unsatisfied.
  • If it is proved to the satisfaction of the tribunal that the company is unable to pay its others.

Courts decisions in respect of a company’s inability to pay its debts

Lack of proof of notice

It has been held that the creditor must show proof of having served the notice.

Place of serving the notice

The notice by the creditor shall be served at the company registration office and this is a mandatory requirement to be compiled with.

Notice must be addressed to the company

A notice of demand addressed to the managing director asking him to settle the dues expeditiously was held not in order.

Manner of making the notice

The notice need not contain a threat that if the debt is not paid within three weeks proceedings will be taken for winding up.

The particulars of the debt due from the company shall be stated in the notice.

Where the company has a bonafide dispute

Where a counter-claim of the company against the creditor would constitute a reasonable excuse for non-payment.

Debt due was not ascertained

It was held that the amount due from the respondent company as damages for non-delivery of goods to the petitioner was still to be ascertained in accordance with law and hence the court could not assume that a debt existed between the petitioner company and the respondent company.

A company in difficulties for a temporary period cannot be asked to wind-up

Because of financial difficulties for a temporary period, it was not possible for the company to pay its creditors.

A secured creditor whose security is sufficient is not debarred from making a petition for winding-up

Apart from the fact that a secured debenture holder can take legal action against the company if his security is impaired, a debenture holder having not received his dues on maturity can issue a notice to the company.

Law of limitation and winding-up petition

It has been held that a petition for winding-up shall be presented within the period when the debt is recoverable in law.

Contingent and prospective liabilities

In order to satisfy itself that the company will be able to pay its debts, the court will take into account the existing contingent and prospective liabilities of the via-à-vis its existing and prospective assets.

Acknowledgement of debt

According to the limitations act, the period of limitation is three years from the date of acknowledgement and the admission of indebtedness in the balance sheet every year is generally recognized.

It has also been subsequently held that the above ruling is subject to the fact of the debt being proved as indebtedness of the company in addition to the entry in the balance sheet.

charge registered

Who can present a petition for winding-up

A petition for winding-up of a company shall be presented to the tribunal by any of the following :

  • By the company after a special declaration has been passed by the company members.
  • By any creditor or creditors involving any contingent or possible creditor or creditors.
  • By any contributory or contributories.
  • By the parties at (a), (b) and (c) together separately.
  • By the register.
  • By the central government or state government if the company has acted against the interest of the state in the manner specified in section 433. The company registration in Chennai creditors may declare a special report in these tribunal.
  • By any person authorized by the central government if that government is of the view that it is just and equitable that the company be wound-up as per section 243.