Made with Xodo PDF Reader and Editor

COMPANY LAW
🚀 Studykeeda – Your Ultimate Destination for Railway Exam Preparation! 🚂✨

YouTube: https://www.youtube.com/@StudyKeeda
Telegram: https://t.me/studykeedaoff
Instagram: https://www.instagram.com/studykeeda_learningplatform/?hl=en
Android App: https://play.google.com/store/apps/details?id=co.learnol.wuypw&hl=en_IN
Courses: https://classplusapp.com/w/studykeedacourses/courses

Get the best study materials, for Railway LDCE, GDCE, NTPC & Group B Exams!
Prepare with expert guidance and boost your success with Studykeeda!
Join us now & accelerate your career in Indian Railways!
 Made with Xodo PDF Reader and Editor

Short Title, Extent, Commencement & Application

• This Act is called the Companies Act, 2013.
• It applies to the whole of India.
• It comes into force as per notification by the Central Government, which may specify different
dates for different provisions.
• The Act applies to:
1. Companies incorporated under this or any previous company law.
2. Insurance companies (subject to the Insurance Act, 1938 and IRDA Act, 1999).
3. Banking companies (subject to the Banking Regulation Act, 1949).
4. Companies in power generation/supply (subject to the Electricity Act, 2003).
5. Other companies governed by special laws.
6. Certain body corporates specified by the Central Government.

• The Companies Act, 2013 was introduced as a benchmark legislation to address gaps in the
Companies Act, 1956.

• It aims to enhance transparency, protect investor interests, and align with global standards.

• The Act incorporates corporate governance principles and insider trading regulations.

Legislative Background
• Multiple efforts were made to revise the Companies Act, 1956, but they were unsuccessful.

• The Companies Bill, 2009 was introduced but later withdrawn in 2011.

• The Companies Bill, 2011 was approved by the Lok Sabha on December 18, 2012, and by the
Rajya Sabha on August 8, 2013.

• The Act received Presidential assent on August 29, 2013.

• The new Act includes 470 sections, 7 schedules, and 29 chapters.

• It came into force in a phased manner starting from September 12, 2013.

Corporate Governance
Corporate governance ensures an organization is managed with accountability and transparency.

Key Elements:

1. Systems

2. Principles

3. Processes

Objectives of Corporate Governance:

• Widespread Shareholding: Addresses varied investor perspectives.

• Changing Ownership Structure: Institutional investors play a significant role.

 Made with Xodo PDF Reader and Editor

• Corporate Scams & Scandals: Restoring trust after frauds like Satyam & Harshad Mehta scams.

• Society’s Expectations: Ensuring fair prices, quality services, and optimal resource utilization.

• Globalization: Enhancing international investment confidence.

• Increase in Executive Compensation: Ensuring transparency in high-level salaries.

Case Laws on Corporate Governance:

1. Satyam Scandal Case: Fraudulent financial statements led to loss of investor confidence.

2. Harshad Mehta Scam: Stock market manipulation caused massive financial losses.

Key Features of Companies Act, 2013

New Legislative Framework:

1. One-Person Company (OPC): A company with a single member.

2. Memorandum of Association: Defines company objectives and liabilities.

3. Articles of Association: Contains entrenchment provisions.

4. Company Incorporation: Requires compliance declarations from subscribers and directors.

5. Charitable Companies: More stringent provisions for companies with social objectives.

6. Commencement of Business: Stricter regulations for new companies.

7. Registered Office Requirements: Mandatory display of previous company names for two years.

8. Alteration of Memorandum: Public companies changing objectives must notify shareholders.

9. Subsidiary Shareholding Restriction: Prohibits subsidiaries from holding shares in their parent
company.

New Concepts Introduced in Companies Act, 2013

1. E-Governance: Digital record maintenance and audits.

2. Corporate Social Responsibility (CSR): Companies must contribute to social causes.

3. Independent Directors: Introduced for better accountability.

4. Vigil Mechanism (Whistleblowing): Encourages ethical behavior and rewards informants.

5. Government Oversight: Restriction on subsidiary layers for transparency.

6. Disclosure Standards: Companies must disclose risk management policies and performance
evaluations.

7. Consolidation of Accounts: Mandatory inclusion of joint ventures and subsidiaries.

 Made with Xodo PDF Reader and Editor

8. Shareholding Transparency: Listed companies must report changes in promoter and investor
shareholding.

9. Capital Raising Facilitation: Improved framework for private placements and security
subscriptions.

10. Class Action Suits: Shareholders can take legal action against mismanagement.

11. Fraud Reporting: Stringent penalties for corporate fraud.

2. Key Definitions
• Abridged Prospectus: A summary of the prospectus as per SEBI regulations.
• Accounting Standards: Standards for accounting as per Section 133.
• Alteration: Includes additions, omissions, or substitutions.
• Appellate Tribunal: The National Company Law Appellate Tribunal (NCLAT) under Section 410.
• Articles of Association: Rules governing a company, as initially framed or altered over time.
• Associate Company: A company where another company has significant influence (at least 20%
shareholding or control over business decisions).
• Auditing Standards: Standards for auditing under Section 143(10).
• Authorised Capital/Nominal Capital: The maximum share capital a company is allowed as per its
Memorandum of Association.
• Banking Company: As defined under the Banking Regulation Act, 1949.
• Board of Directors: The collective body of company directors.
• Body Corporate: Includes companies incorporated outside India but excludes co-operative
societies and other government-notified entities.
• Books and Papers: Includes records, deeds, vouchers, and electronic documents.
• Books of Account: Records of financial transactions, assets, liabilities, and cost details under
Section 148.
• Branch Office: Any company establishment labeled as such.
• Called-up Capital: The portion of capital that has been called for payment.
• Charge: Any security interest or lien on company property, including mortgages.
• Chartered Accountant: A professional registered under the Chartered Accountants Act, 1949.
• Chief Executive Officer (CEO): A designated officer of the company.
• Chief Financial Officer (CFO): A designated financial officer of the company.
• Company: A business entity incorporated under this Act or any previous company law.
• Company Limited by Guarantee: Members have limited liability based on an agreed contribution
in case of winding up.
• Company Limited by Shares: Members' liability is limited to the unpaid amount on their shares.
• Company Liquidator: A person appointed for winding up a company by:
1. The Tribunal (in case of Tribunal-led winding up).
2. The company or creditors (in voluntary winding up).

• Company Secretary: A company secretary as defined in clause (c) of sub-section (1) of section 2
of the Company Secretaries Act, 1980 (56 of 1980), appointed by a company to perform the
functions of a company secretary under this Act.
• Company Secretary in Practice: A company secretary deemed to be in practice under sub-section
(2) of section 2 of the Company Secretaries Act, 1980 (56 of 1980).
• Contributory: A person liable to contribute towards the assets of the company in the event of its
winding up.
 Made with Xodo PDF Reader and Editor

• Explanation: A person holding fully paid-up shares in a company is a contributory but has
no financial liability under the Act while retaining the rights of a contributory.
• Control: The right to appoint a majority of directors or influence management/policy decisions,
exercised directly or indirectly through shareholding, management rights, shareholder
agreements, or other means.
• Cost Accountant: As defined in clause (b) of sub-section (1) of section 2 of the Cost and Works
Accountants Act, 1959 (23 of 1959).
• Court: Includes:
1. The High Court with jurisdiction over the company’s registered office, unless jurisdiction
is transferred to a district court.
2. The district court, if authorized by the Central Government.
3. The Court of Session handling offences under this Act or previous company laws.
4. The Special Court under Section 435.
5. Any Metropolitan Magistrate or Judicial Magistrate of the First-Class handling offences
under this Act.
• Debenture: Includes debenture stock, bonds, or any debt instrument, whether secured or not.
• Deposit: Any receipt of money by way of loan or deposit, except as specified by RBI regulations.
• Depository: Defined under clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996
(22 of 1996).
• Derivative: Defined under clause (ac) of section 2 of the Securities Contracts (Regulation) Act,
1956 (42 of 1956).
• Director: A person appointed to the Board of a company.
• Dividend: Includes both final and interim dividends.
• Document: Includes summons, notices, orders, declarations, forms, registers, and electronic
records maintained under this Act or any other law.
• Employee Stock Option (ESOP): An option granted to directors, officers, or employees of a
company or its subsidiaries/holding company to purchase or subscribe to company shares at a
predetermined price.
• Expert: Includes engineers, valuers, chartered accountants, company secretaries, cost
accountants, and any other legally authorized certifiers.
• Financial Institution: Includes scheduled banks and other institutions defined under the Reserve
Bank of India Act, 1934 (2 of 1934).
• Financial Statement: Comprises:
1. Balance sheet as of the financial year-end.
2. Profit and loss account (or income and expenditure account for non-profits).
3. Cash flow statement.
4. Statement of changes in equity, if applicable.
5. Explanatory notes annexed to any of the above.
• Exception: OPCs, small companies, and dormant companies may omit the cash flow
statement.
• Financial Year:
• Ends on March 31st each year.
• For companies incorporated on or after January 1st, the first financial year extends to
the following March 31st.
• Holding/subsidiary companies needing a different financial year for global consolidation may
seek Tribunal approval.
• Existing companies must align their financial year within two years of this Act’s
commencement.
• Foreign Company: A company incorporated outside India that:
o Has a business presence in India (directly, through an agent, or electronically).
 Made with Xodo PDF Reader and Editor

o Conducts any business activity in India.

• Free Reserves: Reserves available for dividend distribution as per the latest audited balance
sheet. It does not include:
o Unrealized or notional gains, asset revaluation amounts.
o Changes in asset/liability values recorded in equity.
• Global Depository Receipt (GDR): A depository receipt created by a foreign depository outside
India, authorized by a company issuing such receipts.
• Government Company: A company where at least 51% of the paid-up share capital is held by:
o The Central Government
o Any State Government(s)
o Both Central and State Governments together
o Includes subsidiaries of such companies.
• Holding Company: A company that has one or more subsidiary companies.
• Independent Director: A director as per sub-section (6) of Section 149 of the Companies Act.
• Indian Depository Receipt (IDR): A depository receipt created by an Indian depository,
authorized by a foreign company issuing such receipts.
• Interested Director: A director with a direct or indirect interest in a company’s
contract/arrangement through:
o Himself
o His relatives
o A firm, corporate body, or association in which he or his relatives are involved.
• Issued Capital: The portion of capital issued by the company for subscription.
• Key Managerial Personnel (KMP): Includes:
o CEO, Managing Director, or Manager
o Company Secretary
o Whole-time Director
o Chief Financial Officer (CFO)
o Any other prescribed officer
• Listed Company: A company with securities listed on a recognized stock exchange.
• Manager: An individual managing the company's affairs under the supervision of the Board of
Directors. This includes any person acting in the managerial role, regardless of title or contract.
• Managing Director: A director with substantial management powers as per:
o Company’s Articles of Association
o Agreement with the company
o General Meeting resolution
o Board of Directors’ decision
o Routine administrative tasks do not count as substantial management powers.
• Member of a Company:
o A person who subscribes to the company's memorandum and is entered in the register
of members.
o Anyone who agrees in writing to become a member and is recorded in the register.
o A person holding company shares whose name appears as a beneficial owner in
depository records.

• Memorandum: The memorandum of association of a company, either in its original

form or as altered under company law.
 Made with Xodo PDF Reader and Editor

• Net Worth: The total value of paid-up share capital and reserves (from profits and
securities premium), minus accumulated losses, deferred expenses, and
miscellaneous expenses. Reserves from asset revaluation, depreciation write-back,
or amalgamation are not included.
• Notification: An official announcement published in the Official Gazette.
• Officer: Includes any director, manager, key managerial personnel, or any person
whose directions the Board or directors follow.
• Officer in Default: A company officer liable for penalties or punishment due to
company law violations. Includes:
o Whole-time director
o Key managerial personnel
o Directors designated by the Board
o Persons responsible for accounts or compliance
o Those directing the Board (except in a professional capacity)
o Directors aware of or consenting to violations
o Share transfer agents, registrars, and merchant bankers in case of share
issues or transfers
• Official Liquidator: A liquidator appointed under Section 359.
• One Person Company (OPC): A company with only one member.
• Ordinary or Special Resolution: As defined in Section 114.
• Paid-up Share Capital: The total amount received as paid-up for shares issued,
excluding any other amounts received under different names.
• Postal Ballot: Voting by post or electronic mode.
• Prescribed: Defined by rules under this Act.
• Previous Company Law: Includes various historical company laws such as:
o Acts before the Indian Companies Act, 1866
o The Companies Act, 1956
o Specific laws for merged territories, Jammu & Kashmir, Portuguese
Commercial Code, and Sikkim Registration of Companies Act, 1961.
• Private Company: A company with a minimum paid-up capital (as prescribed) and:
o Restricts share transfers
o Limits members to 200 (excluding employees or former employees who
became members while employed)
o Prohibits public subscription for securities

• Promoter – A person who:

o Is named in the prospectus or company’s annual return.
o Controls the company directly or indirectly.
o Influences the Board of Directors (except in a professional capacity).
• Prospectus – A document inviting the public to subscribe or purchase company
securities, including red herring and shelf prospectuses.
• Public Company – A company that:
o Is not a private company.
o Has a minimum paid-up share capital (as prescribed).
o A subsidiary of a public company is also considered public, even if its articles state
otherwise.
• Public Financial Institution – Includes:
 Made with Xodo PDF Reader and Editor

o LIC, IDFC, and specified companies under the Unit Trust of India Act.
o Institutions notified by the government in consultation with RBI.
o Institutions established by law or with at least 51% government ownership.

• Recognised Stock Exchange – As defined under the Securities Contracts (Regulation)

Act, 1956.
• Register of Companies – The official record of registered companies, maintained
physically or electronically.
• Registrar – An official responsible for company registration and related functions.
• Related Party – Includes:

o A director, key managerial personnel, or their relatives.

o Firms and companies where directors/managers have a significant role.
o Entities acting on a director’s or manager’s advice (except in a professional
capacity).
o Holding, subsidiary, or associate companies.

• Relative – A person related by:

o Hindu Undivided Family (HUF) membership.

o Marriage (husband and wife).
o Other prescribed relations.

• Remuneration – Payment for services, including perquisites under the Income Tax
Act.\
• Schedule – An annexure to the Act.
• Scheduled Bank – As defined under the RBI Act, 1934.
• Securities – As defined in the Securities Contracts (Regulation) Act, 1956.
• Securities and Exchange Board (SEBI) – The regulatory authority for securities
markets.
• Serious Fraud Investigation Office (SFIO) – The agency responsible for investigating
major corporate frauds.
• Share – A unit of ownership in a company, including stock.
• Small Company – A private company with:

o Paid-up share capital ≤ ₹50 lakh (can be increased up to ₹5 crore).

o Turnover ≤ ₹2 crore (can be increased up to ₹20 crore).
o Exceptions: Does not apply to holding/subsidiary companies, Section 8
companies, or companies under special Acts.

• Subscribed Capital – The portion of a company’s capital subscribed by its members.

• Subsidiary Company – A company controlled by a holding company through:

o Controlling the Board of Directors.

o Holding more than 50% of total share capital (alone or with other subsidiaries).
o Holding companies cannot have unlimited layers of subsidiaries as per prescribed
rules.
 Made with Xodo PDF Reader and Editor

o Sweat Equity Shares – Equity shares issued at a discount or for non-cash

consideration to directors/employees in exchange for:
o Know-how, intellectual property, or value additions.

• Total Voting Power – The total number of votes that can be cast on a matter if all
eligible members vote.
• Tribunal – Refers to the National Company Law Tribunal (NCLT).
• Turnover – The total revenue generated from sales and services during a financial
year.
• Unlimited Company – A company where members have unlimited liability.
• Voting Right – The right of a company member to vote in meetings or through postal
ballots.
• Whole-time Director – A director who is fully employed by the company.
• Other Laws – Any terms not defined in this Act but found in the Securities Contracts
(Regulation) Act, SEBI Act, or Depositories Act will have the same meanings as in
those laws.
 Made with Xodo PDF Reader and Editor

Incorporation of Company and Matters

Incidental Thereto
1. Formation of a Company

A company may be formed for any lawful purpose based on the number of persons required:

• Public Company: Minimum 7 persons.

• Private Company: Minimum 2 persons.
• One Person Company (OPC): A single person. The memorandum must include a
nominee who will become a member upon the subscriber’s death or incapacity.
Changes in the nominee must be reported to the Registrar.

Types of Companies:

1. Limited by Shares: Liability is limited to the unpaid amount on shares held.

2. Limited by Guarantee: Members contribute towards debts and winding-up costs.
3. Unlimited Company: No limit on liability.

2. Memorandum of Association (MOA)

The MOA must include:

1. Company Name:
o "Limited" for public companies.
o "Private Limited" for private companies.
o Not applicable for Section 8 companies.
2. Registered Office: The state where the company is registered.
3. Objectives: Purpose of incorporation and matters necessary for furtherance.
4. Liability of Members:
o Limited by shares: Liability restricted to unpaid shares.
o Limited by guarantee: Contribution to debts and winding-up.
5. Share Capital:
o Total share capital and its division.
o Number of shares subscribed by each member.
6. Nominee for OPC: Name of the designated person to take over in case of the
member’s death.

Restrictions on Company Name:

• Must not resemble an existing company’s name.

• Must not violate laws or appear undesirable to the Central Government.
• Must not suggest government affiliation without approval.
 Made with Xodo PDF Reader and Editor

3. Reservation of Company Name

• Application to the Registrar to reserve a company name.

• The name is reserved for 60 days.
• If obtained with incorrect information:
o Before incorporation: Name canceled, penalty up to ₹1 lakh.
o After incorporation: The Registrar may order a name change within 3
months, strike off the name, or initiate winding-up proceedings.

4. Articles of Association (AOA)

• Defines internal management regulations.

• May include entrenchment provisions, making changes subject to stricter
conditions.
• Must be reported to the Registrar.
• If no modifications are made, model articles in Schedule I (Tables F to J) apply.

5. Companies Act Superseding Company Documents

• The Companies Act overrides conflicting provisions in:

o Memorandum
o Articles of Association
o Agreements
o Board or General Meeting Resolutions
• Any provision contradicting the Act is void to that extent.
 Made with Xodo PDF Reader and Editor

Capital Formation in Company Law

Capital formation refers to raising funds for business operations and expansion
through shares, debentures, and borrowing. The Companies Act, 2013, regulates capital
formation to ensure financial transparency.

1. Types of Capital

1. Authorized Capital: Maximum amount a company can raise through share issuance
(specified in MOA).
2. Issued Capital: Portion of authorized capital offered to investors.
3. Subscribed Capital: Portion of issued capital investors agree to buy.
4. Paid-up Capital: Amount actually received from shareholders (cannot exceed issued
capital).
5. Called-up Capital: Portion of subscribed capital the company asks shareholders to
pay.
6. Reserve Capital: Uncalled capital reserved for future use, especially during
liquidation.

2. Methods of Capital Formation

1. Equity Share Capital

o Provides ownership and voting rights.
o Dividends depend on profits.
2. Preference Share Capital
o Fixed dividend before equity shareholders.
o Types: Cumulative/Non-Cumulative, Convertible/Non-Convertible,
Redeemable/Irredeemable.
3. Debentures & Bonds
o Fixed-interest debt instruments.
o Types: Secured/Unsecured, Convertible/Non-Convertible.
4. Loans from Financial Institutions
o Borrowing from banks with asset pledging.
5. Retained Earnings
o Profits reinvested instead of distributing dividends.
6. Public Deposits
o Companies can accept deposits under SEBI & RBI regulations.
7. Venture Capital & Private Equity
o Funding from venture capitalists/private equity firms for startups and high-
growth companies.

3. Regulations Governing Capital Formation

1. Companies Act, 2013: Regulates share capital, security issuance, and capital
reduction.
2. SEBI Regulations: Governs IPOs and stock exchange listings.
 Made with Xodo PDF Reader and Editor

3. RBI Guidelines: Controls foreign investments and external commercial borrowings.

4. FEMA, 1999: Regulates Foreign Direct Investment (FDI) in Indian companies.
 Made with Xodo PDF Reader and Editor

Corporate Administration
• Corporate administration refers to the system and processes ensuring that directors
are accountable to all stakeholders.

• It emphasizes fairness, transparency, and responsibility in business operations.

• Catherwood defines it as managing corporate affairs responsibly, ensuring

accountability to shareholders, employees, suppliers, customers, and the
community.

1. Legal Framework on Administration of Companies

• The Companies Act, 2013 is the primary legislation governing company administration in India,
replacing the Companies Act, 1956.

1.1 Incorporation and Registration

• Lays down the procedures for company formation.

• Includes requirements for the Memorandum of Association (MoA), Articles of Association (AoA),
share capital, and appointment of directors.

1.2 Corporate Governance

• Ensures good governance practices by mandating:

o Appointment of independent directors.

o Formation of audit committees.

o Adherence to transparency and accountability.

1.3 Compliance and Reporting

• Companies must comply with:

o Annual return filings.

o Financial statements submission.

o Periodic reporting to the Registrar of Companies (ROC).

1.4 Mergers and Acquisitions

• Provides a legal framework for mergers, acquisitions, and corporate restructuring.

• Ensures fairness and transparency in corporate transactions.

1.5 Investor Protection

• Includes provisions to protect investors' interests and enhance confidence in the corporate
sector.

2. Key Authorities for Administration of Companies

Several regulatory bodies oversee company law compliance:
 Made with Xodo PDF Reader and Editor

• Ministry of Corporate Affairs (MCA): Primary regulatory body overseeing corporate affairs.

• Registrar of Companies (ROC): Responsible for company registration and compliance.

• National Company Law Tribunal (NCLT): Handles corporate disputes, insolvency cases, and
restructuring.

• Securities and Exchange Board of India (SEBI): Regulates listed companies, ensuring investor
protection and market integrity.

3. Compliance Requirements
Companies must adhere to the following obligations:

• Annual Filing: Submission of annual returns and financial statements to the ROC.

• Board Meetings: Regular meetings with documented minutes.

• Audits: Statutory audits to ensure financial accuracy.

• Director Duties: Directors must act in the company's best interest and avoid conflicts of interest.

• Corporate Social Responsibility (CSR): Companies meeting specific criteria must allocate funds
for social welfare activities.

4. Recent Developments in Corporate Administration

Recent reforms aim to simplify corporate compliance and enhance governance:

• Ease of Doing Business: Introduction of SPICe (Simplified Proforma for Incorporating Company
Electronically) for fast-track incorporation.

• Insolvency and Bankruptcy Code (IBC), 2016: Provides a framework for resolving insolvency
cases efficiently.

• Decriminalisation of Offenses: Minor corporate offences have been decriminalised to reduce

legal burdens.

• Digital Transformation: MCA has digitised compliance processes for online filing and easy access
to records.

Conclusion
Corporate administration in India, governed by the Companies Act, 2013, ensures that companies
function legally and ethically. Compliance with company law helps businesses maintain transparency,
accountability, and investor confidence, contributing to sustainable economic growth.
 Made with Xodo PDF Reader and Editor

Winding Up of a Company
Winding up is the legal process through which a company's existence is terminated, its assets are
liquidated, and the proceeds are used to pay off debts. Any remaining balance is distributed among the
members in proportion to their shareholding.

Key points:
• The process is also known as liquidation.

• A liquidator is appointed to manage the process.

• The legal entity of the company remains during winding up but ceases upon dissolution.

Winding Up vs. Dissolution

Basis Winding Up Dissolution

The final termination of the company’s legal

Meaning A process that leads to dissolution.
existence.

Legal Existence Continues until dissolution. The company ceases to exist.

Business Can continue temporarily for beneficial

Business ceases completely.
Activities winding up.

Modes of Winding Up
A company may be wound up in the following ways:

1. Compulsory Winding Up by the Tribunal (Sections 270-272)

2. Winding Up under the Insolvency and Bankruptcy Code (IBC), 2016 (Previously known as
voluntary winding up under Sections 304-323 of the Companies Act.)

Compulsory Winding Up by the Tribunal

Winding up by the Tribunal is initiated by a court order.

Grounds for Compulsory Winding Up (Section 271)

1. Special Resolution Passed by the Company

o If shareholders decide to wind up the company.

o Tribunal may refuse if it is against public or company interests.

 Made with Xodo PDF Reader and Editor

Inability to Pay Debts (Section 271(2))

o A company is unable to pay its debts if:
▪ A creditor (owed ₹1 lakh or more) demands payment, and the company fails to
pay within three weeks.
▪ A Tribunal/court order remains unsatisfied.
▪ The company is commercially insolvent (assets insufficient to meet liabilities).
Just and Equitable Grounds
o Tribunal has broad discretion to order winding up, considering:
▪ Oppression of Minority – If majority shareholders abuse their power.
▪ Deadlock in Management – If management conflicts make business impossible.
▪ Loss of Substratum – If the company's purpose has failed or become
impractical.
▪ Fraudulent or Illegal Business Activities.
Failure to File Financial Statements
o If a company fails to submit financial reports or annual returns for five consecutive
years.
Acting Against National Interest
o If the company has acted against the sovereignty, integrity, or security of India.
Fraudulent Conduct
o If the company was formed for fraudulent purposes or is managed fraudulently.
Who Can File a Petition for Winding Up? (Section 272)
1. Company itself
2. Creditors (if debts exceed ₹1 lakh and remain unpaid for three weeks)
3. Contributories (Shareholders)
4. Registrar of Companies
5. Central Government (in case of national security concerns)
6. State Government (if the company operates against public interest)

Winding Up Under the Insolvency and Bankruptcy Code, 2016

The IBC, 2016 provides a time-bound process for insolvency resolution.
Process of Insolvency Resolution:
1. Initiation:
o Filed by financial/operational creditors or the company itself at the National Company
Law Tribunal (NCLT).
2. Moratorium Period:
o A temporary halt on legal proceedings, debt recovery, and asset disposal.
3. Appointment of Resolution Professional (RP):
o RP takes control of the company and evaluates revival options.
4. Formation of Creditors’ Committee:
o Financial creditors vote on a resolution plan.
o A 75% majority vote is required.
5. Decision:
o If creditors approve a revival plan, the company is restructured.
o If creditors reject the plan, the company goes into liquidation.
 Made with Xodo PDF Reader and Editor

Liquidation Process Under IBC

A company is liquidated if:
1. Creditors (75%) vote for liquidation.
2. No resolution plan is approved within 180 days (extendable by 90 days).
3. The Tribunal rejects the plan on technical grounds.
4. The company violates an approved resolution plan.
Priority of Claim Payments in Liquidation:
1. Insolvency Resolution Costs (including RP fees)
2. Secured Creditors and Workmen’s Dues (for the past 24 months)
3. Employee Salaries
4. Unsecured Financial Creditors
5. Government Dues
6. Shareholders (if anything remains)

Conclusion
• Winding up is a structured process that leads to dissolution.
• Companies can be wound up through Tribunal orders or Insolvency proceedings.
• IBC, 2016 provides a faster resolution mechanism.
• The process ensures creditors’ rights while maintaining business efficiency.