WINDING-UP OF A BANKING COMPANY
The winding-up process of a banking company is a comprehensively regulated procedure
governed by specific provisions under Part III of the Banking Regulation Act 1949. This legal
framework overrides any conflicting provisions in the company's memorandum, articles of
association, or other internal documents.1 Understanding the complexities of this process is
imperative to ensure compliance and protect the interests of stakeholders.
Initiation of Winding Up:
Winding-up proceedings may begin either voluntarily by the banking company or compulsorily
through court intervention.2 The High Court, exercising jurisdiction over the location of the
banking company's registered office or principal place of business, plays a pivotal role
throughout this process.3
Suspension of Business:
In cases where a banking company is temporarily unable to meet its obligations, the High Court,
upon application by the company, may issue an order staying all actions and proceedings against
the company for a fixed period, not exceeding six months. 4 Additionally, any bank who is unable
to pay off its debts must avail the process of judicial proceeding. 5 This provision aims to provide
a moratorium period to assess the company's financial viability and explore potential solutions. 6
Winding Up by High Court:
The High Court may order the winding up of a banking company if it is unable to pay its debts or
upon application by the Reserve Bank under specific grounds outlined in the Act. 7 The Reserve
Bank may further initiate winding up proceedings under the following grounds8–
1Banking Regulation Act 1949 (Act 10 of 1949), s. 5A
2 Avtar Singh
3 Banking Regulation Act 1949 (Act 10 of 1949), s. 36 B
4 Banking Regulation Act 1949 (Act 10 of 1949), s. 37
5 Mann v. Golstein, (1968) 1 WLR 1091.
6 Vivek Narayan Sharma vs. Union of India (UOI) (02.01.2023 - SC) : MANU/SC/0002/2023
7 Banking Regulation Act 1949 (Act 10 of 1949), s. 38
8 Ibid
1. if the banking company fails to comply with regulatory requirements;
2. is unable to pay its debts;
3. or if its continuation is prejudicial to the interests of depositors.
Appointment of Liquidator:
Upon the High Court's order for winding up, a Court Liquidator or Official Liquidator, appointed
by the Central Government assumes control over the company's assets and oversees the
liquidation process.9 The Reserve Bank also acts as a liquidator in certain cases. 10 The
liquidator's primary responsibility is to collect and distribute assets among stakeholders in
accordance with legal requirements and does not bring about company’s dissolution.11
Stay of Proceedings and Preliminary Report:
During the winding-up process, the High Court may stay proceedings related to the company's
winding up, subject to certain conditions where the Banking company has assured the RBI that
the company will be able pay money back to the depositors. 12 Additionally, the Official
Liquidator is required to submit a preliminary report to the High Court within two months from
the date of the winding-up order, detailing the company's assets and liabilities.13
Notice to Preferential Claimants and Secured Creditors:
The Official Liquidator must serve notices to preferential claimants and secured creditors within
15 days from the date of the winding-up order. Preferential claimants are required to submit
statements concerning the amount claimed, while secured creditors must provide details of their
claim along with the value of the security within one month from the date of service. 14 This has
been elucidated in the further parts of the paper.
9 Banking Regulation Act 1949 (Act 10 of 1949), s. 38 A
10 Banking Regulation Act 1949 (Act 10 of 1949), s. 39
11 K.V.S. Vassan Bros v Associated Banking Corpn of India, AIR (1952) TC 170.
12 Banking Regulation Act 1949 (Act 10 of 1949), s. 40
13 Banking Regulation Act 1949 (Act 10 of 1949), s. 41
14 Banking Regulation Act 1949 (Act 10 of 1949), s.41 A
Voluntary Winding Up:
The Banking Regulation Act also governs the voluntary winding up of banking companies. This
process can only be initiated if the Reserve Bank certifies in writing that the company is able to
pay its debts in full.15 The High Court may order the voluntary winding up to continue under its
supervision if it deems necessary.16
Moreover, the High Court is granted authority, under certain circumstances, to intervene in
voluntary winding up proceedings. It can issue orders to continue the voluntary winding up
under the court's supervision or, in specific situations, order the winding up of the banking
company by the High Court itself.17 These circumstances include instances where the banking
company, during voluntary winding up, fails to meet its debt obligations or where continuing
voluntary winding up would jeopardise the interests of depositors.18
The Act further empowers the Reserve Bank to provide advice in winding-up proceedings,
ensuring its active involvement in cases where a person other than the Reserve Bank has been
appointed as the official liquidator. 19 Additionally, it grants the High Court the authority to
formulate rules consistent with the Act, prescribing the manner of inquiries and proceedings,
offences to be tried summarily, and the procedure for appeals.20
These provisions collectively establish a robust regulatory framework governing the winding up
of banking companies, safeguarding the interests of creditors, depositors, and other stakeholders
while ensuring compliance with legal requirements.
WINDING UP OF A COMPANY
In the realm of corporate law, the process of winding up a company is a pivotal legal procedure
governed by a comprehensive framework laid down in the Companies Act, 2013. The procedure
to wind up a company is much more lengthy and extensive when compared to the Bnaking
companies. This is encapsulated within Chapter XX of the Act, which provides a structured
approach to dissolve companies in a manner that ensures fairness, transparency, and protection
of stakeholders' interests.
15 Banking Regulation Act 1949 (Act 10 of 1949), s. 44
16 Ibid
17 Banking Regulation Act 1949 (Act 10 of 1949), s. 44 ss 3
18 Hawkins, Philip Turner, et.al., “Bank Restructuring in Practice: An Overview” 6 Yale.Edu (1999).
19 Banking Regulation Act 1949 (Act 10 of 1949), s. 45 P
20 Banking Regulation Act 1949 (Act 10 of 1949), s. 45 U
Modes and Circumstances of Winding Up:
The Companies Act delineates two primary modes of winding up (i) by the Tribunal or; (ii)
voluntarily.21 It elucidates the circumstances under which a company may be wound up by the
Tribunal, including22–
1. Insolvency;
2. resolution by the company itself;
3. acts against national interests or;
4. if the Tribunal deems it just and equitable
The Companies Act specifies various parties, including the company itself, creditors, and others,
who can initiate winding-up proceedings. Once a petition is filed, procedural compliances such
as submission of statements of affairs and appointment of Company Liquidators come into
play.23 The liquidator is appointed by the Tribunal from a panel maintained by the Central
Government, ensuring expertise and impartiality.24 Additionally, there is a provision for a
provisional liquidator, aligned with Section 359 of the Act.
The jurisdiction of the Tribunal in winding up proceedings is paramount. The tribunal can
entertain suits, claims, and applications related to winding up, ensuring comprehensive oversight
of the process and addressing any legal matters that may arise where the company is situated.25
Submission of Reports by Company Liquidator:
The submission of reports by the Company Liquidator is also taken into consideration for
accessing the condition of the company to be wound up. 26 These reports play a pivotal role in
guiding the Tribunal's directives, providing essential insights into the conduct of proceedings,
asset realization, and overall progress of the winding-up process.
Custodial Obligations and Cooperation:
Additionally, the emphasis on the custodial obligations of the Company Liquidator and the
importance of cooperation from promoters, directors, and employees highlights the importance
21 The Companies Act, 2013 (Act 18 of 2013), s. 270
22 The Companies Act, 2013 (Act 18 of 2013), s. 271
23 The Companies Act, 2013 (Act 18 of 2013), s. 274
24 The Companies Act, 2013 (Act 18 of 2013), s. 275
25 The Companies Act, 2013 (Act 18 of 2013), s. 280
26 The Companies Act, 2013 (Act 18 of 2013), s. 281
of company liquidators in winding up by the tribunals. 27 Further elaboration is provided on the
settlement of contributors and the obligations of directors and managers in winding-up
proceedings, which has also been discussed at length in the further parts of the paper.
Advisory Committee:
The Companies Act allows for the establishment of an advisory committee by the Tribunal
during the winding-up process. This committee, comprising up to twelve members, advises the
Company Liquidator on specified matters. 28 Its composition is determined through a meeting of
creditors and contributories, and its role includes inspecting company records. 29 Regulations
prescribe procedures for the committee's functioning, ensuring transparency and informed
decision-making.30
Dissolution of a company by tribunals:
Once the winding-up process is finished, the Company Liquidator applies to the Tribunal for the
company's dissolution. Upon approval, the Tribunal issues an order for dissolution, effective
immediately. The Liquidator sends a copy of this order to the Registrar within thirty days, who
records the dissolution in the company register.31 Additionally, any orders made by a court in
winding up proceedings before the commencement of the Act remain unaffected, with appeals
against such orders filed before the competent authority as per pre-Act procedures.32
Voluntary Winding up of a company:
The Insolvency and Bankruptcy Code 2016 replaced the voluntary winding-up provisions given
under Chapter XX, Part II of the Companies Act, streamlining insolvency resolution for
companies with a more efficient and economically viable approach.
27 The Companies Act, 2013 (Act 18 of 2013), s. 283, 284, 285, 286
28 The Companies Act, 2013 (Act 18 of 2013), s. 287
29 The Companies Act, 2013 (Act 18 of 2013), s. 290
30 Balasubramanian and Bala N, “Strengthening Corporate Governance in India: A Review of Legislative and
Regulatory Initiatives in 2013-2014” IIM Bangalore Research Paper 447 (2013).
31 The Companies Act, 2013 (Act 18 of 2013), s. 302
32 The Companies Act, 2013 (Act 18 of 2013), s. 303
Summary Procedure for winding up:
The Companies Act specifies a summary procedure for winding up companies meeting specific
criteria, such as assets valued under one crore rupees and belonging to prescribed classes. 33 The
Central Government orders winding up, appointing the Official Liquidator to oversee the
process.34 Within thirty days, the Liquidator submits a report assessing potential fraud. Further
investigation may follow if fraud is suspected.35 Based on the report, the Central Government
may decide on the winding-up method or refer the matter to the Tribunal. After completion, the
Liquidator submits a final report, leading to the company's dissolution by the Central
Government or Tribunal, depending on involvement.36
33 The Companies Act, 2013 (Act 18 of 2013), s. 361 ss 1
34 The Companies Act, 2013 (Act 18 of 2013), s. 362 ss 2
35 The Companies Act, 2013 (Act 18 of 2013), s. 362 ss 3, 4, 5
36 The Companies Act, 2013 (Act 18 of 2013), s. 365
