The International Product Life Cycle Theory that discusses the stages which a product goes through in a market suggests that the life of a product can be circumscribed within the following four stages: Introduction, growth, maturity and decline. A company is a going concern. It is a voluntary association where the individuals sharing common purpose and common goals unite, usually to make profits. Like any product which is introduced in the market, a company is first incorporated; it attains growth and eventually reaches maturity. However, there are times when the going concern stops to flourish because of some or the other reasons. It is then that the business needs to be shut down. This closing down of business is the last stage in the life of a company and is termed as ‘winding up’. It is then that the existence of the company is dissolved and all the assets of the company are utilised for paying off the creditors, debtors and to settle other dues. The Companies Act, 2013 states that the procedure for winding up can either be initiated by the tribunal or can be a voluntary process.
- Voluntary Winding up:
The voluntary winding up as the term itself suggests; takes place with the mutual decision of the members of the company with certain conditions attached to it which are:
- The company passes a special resolution for winding up; or
- The company in its general meeting passes a resolution after the expiry of the duration specified in its Articles of Association or on the occurrence of any of the events as has been mentioned in the Articles for the purpose of dissolution of the Company.
The following stages are involved in the voluntary winding up of the Company:
- A Board Meeting is conducted where the two directors pass a declaration that the companies have no debt and if there is any; that can be paid through the proceeds from the sale of assets of the company and thereby a notice is issued for calling a General Meeting and the notice is accompanied with the proposal for winding up.
- A General Meeting is then conducted where an ordinary resolution for winding up needs to be passed by ordinary majority and a special resolution needs to be passed by three-fourth majority and a creditor’s meeting is also conducted after passing the resolution. If majority of creditors opine that the winding up is beneficial for all parties, then winding up can be done voluntarily.
- An application is made for the appointment of official liquidator with the Registrar within ten (10) days of the resolution and the notice of the Resolution needs to be published in the official gazette within 14 days of passing such resolution and advertised in a newspaper.
- Within 30 days of general meeting, a certified copy of original and special resolution is filed.Thereafter, all the affairs of the company are wound up, and liquidators account are prepared which later and get audited.
- Next, a general meeting is conducted where the accounts of the company are settled by passing a special resolution, and thereafter, within fifteen (15) days, an application is to be filed in the tribunal for an order of winding up the company.
- If the tribunal is satisfied that the accounts stand cleared, then an order for dissolution of the company is issued within sixty (60) days of the filing of the application.
- Next, the liquidator files a copy of the order with the Registrar and a notice of the dissolution of the company is published in the official gazette.
- Compulsory Winding Up:
The petition for the compulsory winding up can be presented to the appropriate authority by the company, creditors, any contributor or contributories, Central or State Government or by the registrar or any person authorised by the Central or State Government.
The stages that are involved in the compulsory winding up are as follows:
- Statement of affairs of the company needs to be filed with the Registrar and it needs to be certified by a Chartered Accountant.
- The petition needs to be advertised in both the English and a regional daily newspaper at least 14 days before the date of hearing the petition.
- The tribunal, after hearing the petition, can either dismiss or pass an interim order or appoint an official liquidator for dealing with the winding up affairs of the company.
Issues in the Existing Framework:
The businesses need speedy and efficient exit so that the creditors can further reinvest in new business endeavours. However, the process of winding up takes around 8-10 years in India. This is because of the existence of multiple forums like the High Court, Debt Recovery Tribunal and the Board of Industrial and Financial Restructuring; all of which have jurisdiction to take up the matters pertaining to liquidation and winding up of a company. An attempt was made to expedite the process of winding up of companies by setting up the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) by way of the Companies Amendment Act of 2002. It was supposed to replace the multiple forums like the Company Law Board (CLB), the Board for Industrial and Financial Reconstruction (BIFR) and the Appellate Authority for Industrial and Financial Reconstruction (AAIFR). However, the same cannot be implemented since the structure faced constitutional challenges and the provisions under the Companies Act, 2013 were not notified.
In Oswal Foods Limited, the debtor company had made two references to the BIFR, while a creditor filed a winding up petition in the High Court. In Jeevan Diesels and Electricals v. HSBC the Calcutta High Court considered if a creditor can file a winding up petition in the High Court while another creditor had already initiated an enforcement action in the DRT under the RDDBFI Act. A close reading of the case laws make us understand that the high courts are often caught up in the dilemma of enforcing the rights of the different parties under the conflicting legislations. Moreover, even the creditors lack clarity in the aspect of how and in which order of priority their dues are to be recovered.
In 2015, the Supreme Court upheld the constitutional validity of the NCLT and NCALT that are in effect from June 01, 2016, with Hon’ble Justice S.J. Mukhopadhaya, Judge (Retd.), Supreme Court of India as the Chairperson of the NCLAT and Hon’ble Justice M.M.Kumar, Judge (Retd.) as the President of the NCLT. Therefore, the establishment of NCLT and NCLAT might result in an efficient implementation of the winding up provisions. This will definitely reduce the multiplicity in the number of cases in multiple forums. These institutions will work as specialised quasi-judicial bodies and will reduce the pendency of winding-up cases, shorten the winding-up process, and avoid multiplicity and levels of litigation before high courts, the Company Law Board and the Board for Industrial and Financial Reconstruction. An efficient exit and closure mechanism will not only help the creditors in easy recovery of their dues but will encourage them to make new investments resulting in an increase in the flow of capital across the economy.
 The Companies Act, 2013; S. 270
 The Companies Act, S. 304
 The Companies Act, S.306-318
 The Companies Act, 2013; S. 272
 The Companies Act, S.272-274
 In re: Oswal Foods Limited, 145CompCas259(All), decided on 16.11.2006
 APO 254 of 2014 and CP 845 of 2013, decided on 02.12.2014