Home > Topics > Business Laws > Winding Up by Tribunal

Winding Up by Tribunal ⚖️

Also known as: Compulsory Winding Up (Because company has no choice - Court orders it).

Tribunal: NCLT (National Company Law Tribunal).

Grounds for Winding Up (Section 271) 📋

A company can be wound up by Tribunal if:

  1. Special Resolution by company (shareholders decided and petitioned court).

  2. Default in Filing statutory reports/returns for 5 consecutive years.

  3. Failure to commence business within 1 year of incorporation.

  4. Suspension of Business for whole year.

  5. Reduced Members:

    • Public company: < 7 members.
    • Private company: < 2 members.

  6. Unable to Pay Debts (Insolvency):

    • Owes > ₹1 Lakh and cannot pay.
    • Note: Now handled under IBC 2016 (CIRP process).

  7. Just and Equitable:

    • Deadlock among directors.
    • Loss of confidence in management (substratum destroyed).
    • Fraud in formation.

Example of "Just and Equitable": Two equal shareholders (50-50). They had personal fallout. Cannot agree on anything. Business paralyzed. Court may order winding up.

Unable to Pay Debts - Definition

A company is deemed unable to pay debts if:

  • A creditor sends demand notice for payment of debt ≥ ₹1 Lakh.
  • Company fails to pay within 3 weeks.
  • OR execution of court decree failed (assets insufficient).

Practical Test: If total debts > total assets (Balance sheet test).

Who Can File Petition? 👥

  1. Company itself (by Special Resolution).
  2. Creditors (owed money).
  3. Contributories (Shareholders).
  4. Registrar of Companies (ROC).
  5. Central/State Government.
  6. Any person authorized by Central Government.

Procedure 🛠️

Step 1: Petition filed with NCLT.

Step 2: Notice to company and concerned parties.

Step 3: NCLT hearings (Company can defend).

Step 4: If satisfied, Winding Up Order passed.

Step 5: Official Liquidator appointed by NCLT.

Step 6: Liquidator:

  • Takes custody of assets.
  • Sells assets.
  • Pays creditors (in priority order).
  • Distributes surplus (if any) to shareholders.

Step 7: Liquidator submits final report to NCLT.

Step 8: NCLT orders Dissolution (Company removed from register).

Effects of Winding Up Order ⚡

From the date of winding up order:

  1. All suits/proceedings against company STOPPED (Can only be continued with NCLT permission).
  2. Transfer of shares VOID (Cannot sell company shares).
  3. Attachments by creditors VOID (Individual creditors cannot grab assets - everyone must wait in line).
  4. Directors' powers CEASE (Liquidator takes control).
  5. Employees lose jobs (Contracts terminated, subject to notice/compensation).

Quiz Time! 🎯

Test Your Knowledge

Question 1 of 5

1. NCLT stands for:

National Court Law Tribunal
National Company Law Tribunal
National Consumer Law Tribunal
None

💡 Final Wisdom: "Tribunal winding up is the law's way of saying: 'This company cannot continue. Time to close the shop!'" 🏪🔒

Next up: Voluntary Winding Up - By choice, not force! 🙋

← PreviousNext →