Compulsory Winding Up ⚖️
Recap: Compulsory Winding Up = Winding Up by Tribunal (NCLT orders it).
This lesson focuses on comparing Compulsory vs Voluntary winding up.
Key Differences: Compulsory vs Voluntary 🆚
| Feature | Compulsory (by Tribunal) | Voluntary (MVL/CVL) |
|---|---|---|
| Who Initiates | Court (NCLT) | Company (Shareholders/Creditors) |
| Court Involvement | Full (Court-supervised) | Minimal (only for dissolution order) |
| Liquidator | Official Liquidator (appointed by Tribunal) | Appointed by shareholders/creditors |
| Speed | Slower (court procedures) | Faster (no court hearings) |
| Cost | Higher (court fees, legal costs) | Lower |
| Flexibility | Less (court rules) | More (company decides process) |
| Stigma | High (forced closure) | Lower (voluntary choice) |
| When Used | Fraud, insolvency (unwilling), deadlock | Solvent closure, willing insolvency |
When is Compulsory Winding Up Appropriate? 🎯
Best for:
- Fraud/Misconduct: Court ensures fair investigation.
- Disputes: Shareholders/creditors fighting. Need neutral authority.
- Default: Company failed legal obligations (5 years no returns).
- Unwilling Debtor: Company refuses to acknowledge insolvency.
Example: Satyam Computers (2009 fraud case) - Court had to step in to protect stakeholders.
Winding Up Commencement Date 📅
Compulsory:
- Date of petition filing (or earlier if court decides).
- Effect: All transactions after this date can be VOID (if prejudicial to creditors).
Voluntary:
- Date of Special Resolution passing.
Why it Matters:
- Transactions just before winding up are scrutinized.
- If director sold assets cheap to a friend 1 day before winding up, liquidator can reverse it!
Fraudulent Preference = Giving unfair advantage to one creditor over others just before winding up.
Example: Company owes ₹10L to Bank A and ₹10L to Bank B. Total assets = ₹10L. Director (who personally guaranteed Bank A's loan) pays only Bank A ₹10L before winding up. Result: Bank A gets 100%, Bank B gets 0%.
Remedy: Liquidator can void this transaction. Both banks should get ₹5L each (equal treatment).
Time Limit: Transactions in 6 months before winding up can be challenged.
Quiz Time! 🎯
Test Your Knowledge
Question 1 of 5
1. Compulsory winding up is ordered by:
💡 Final Wisdom: "Compulsory = Court's rod. Voluntary = Company's choice. Both lead to the same end: dissolution!" 🏁
Next up: Consequences of Winding Up - What happens to company, shareholders, employees? 💥