Corporate Law II

Project on
Voluntary Winging up of Company

SUBMITTED BY:HERA FATIMA

B.A, LLB (Hons)
7TH SEMESTER
FACULTY OF LAW,
JAMIA MILLIA ISLAMIA

ACKNOWLEDGEMENT
Any accomplishment requires the effort of many people and same is true about this project. This
project is a result of collective effort. There are innumerous helping hands behind it who have guided
me on my way.
First and foremost I would like to thank my Corporate Law Professor for creating such an
opportunity for the students to broaden their frame of skills.
It was an interesting and informative topic and the project helped me in understanding the topic
really well as well as various aspects of Voluntary Winding up of Company. I would also like to
thank my friends who helped me in making this project and also the almighty
Thanking you
Hera Fatima

CONTENTS
1)
2)
3)
4)

INDEX OF AUTHORITIES
INTRODUCTION
VOLUNTARY WINDING UP UNDER THE COMPANIES ACT, 1956
MEMBERS VOLUNTARY WINDING UP
o PROCEDURE FOR MEMBERS VOLUNTARY WINDING UP
5) CREDITORS VOLUNTARY WINDING UP
6) COMPARATIVE STUDY OF VOLUNTARY WINDING UP LAW UNDER
COMPANIES ACT, 1956 WITH UK LEGISLATION AND COMPANIES ACT,
2013
7) CONCLUSION

INDEX OF AUTHORITIES
PRIMARY SOURCE
Companies Act, 1956
Insolvency Act, 1986
Companies Act, 2013

SECONDARY SOURCE

 Books Referred:
A Ramaiya, Guide to Companies Act, (2010), LexisNexis Butterworths Publications, 17th Edn.
C.R.Datta, The Company Law, (2008), LexisNexis Butterworths Publications, 6th Edn.
Palmer's Company Law, (1987), Stevens & Sons Ltd. Publications, Vol 1, 24th Edn.
Articles Referred:
John Tribe Company voluntary arrangements and rescue: a new hope and a Tudor orthodoxy,
2009, Journal of Business Law, J.B.L. 2009, 5, 454-487
Anne Sharp, Members' solvent liquidation, 2011, Financial Regulation International, F.R.I. 2011,
May, 4-6
Websites visited:
http://www.legislation.gov.uk/ukpga/1986/45/part/IV/chapter/III (UK Govt)
http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft916.pdf (Office of Fair Trading)
http://www.jstor.org/stable/1327367
http://www.companyliquidator.gov.in/winding_up_3.html# (Ministry of Corporate Affairs)
http://login.westlawindia.com/maf/wlin/app/document?
&srguid=ia744d06500000140cea3f1666e0d1b7f&docguid=IE092A561D37B11E08093A488213A4
2B9&hitguid=IE092A561D37B11E08093A488213A42B9&rank=2490&spos=2490&epos=2490&td
=2891&crumb-action=append&context=45&resolvein=true

LIST OF CASES
British Water Gas Syndicate v. Notts Derby Water Gas Co. Ltd.; 1889 WN 204
Bailey Hay & Co. Ltd., Re; (1972) 42 Com Cases 442
Southern Counties Deposit Bank Limited v. Rider & Kirkwood; (1895) 11 TLR 563
Indian Trading & Engineering Co. Ltd. Re; (1910-11) 15 CWN 1047 (Cal)
Silkstone Fall Colliery Co. Re.; (1875) 1 Ch D 38
Bhargava (S.P.) v. Rameshwar Shastri; (1952) 22 Com Cases 106: AIR 1952 MB 3A
Neptune Assurance Co. Ltd. v. Union of India; 1973 SCR (2) 940

 West Cumberland Iron Steel Co., Re; (1889) 40 Ch D 361

Indian States Bank Ltd., Re; (1934) 4 Com Cases 64: AIR 1934 All 114
National Stores v. Ramsaran; AIR 1926 Nag 303
Rangai Goundan (M.K.), Re; (1942) 12 Com Cases 198: 1972 Mad 702
Commr. Of Income Tax v. Liquidator, Ratlam Electric Supply etc. Co. Ltd.; (1982) 52 Comp Cas.
632
Joint Discount Company's Claim, Re; (1872) 7 Ch App 646 at 648-649: (1861-73) All ER Rep 434
at 435
Knowles v. Scott; (1891) 1 Ch 717
Dawsons Banks Ltd. v. Nippon Menkwa Kabu-shiki Kaisha; AIR 1935 PC 79: (1935) 5 Com Cases
191 at 203
Reigate v. Union Manufacturing Co., (Ramsbottom) Ltd.; (1918) 1 K.B. 593
Fowler v. Commercial Timber Co. Ltd.; (1930) 2 K.B.1
Midland Counties District Bank Ltd. v. Attwood; (1905) 1 Ch. 357
Hutton v. West Cork Rly.; (1883) 23 Ch D 654
Dilip Singh T. v. State of T.N.; (2002) 112 Com Cases 195 (Mad)
Collector of Moradabad v. Equity Insurance Co. Ltd.; (1948) 18 Com Cases 309, 317: AIR 1948
Oudh 197
De Courcy v. Clement; (1971) 1 All ER 681: (1971) 41 Com Cases 796 (Ch D)
Shri Raja Mohan Manucha v. Lakshminath Saigal; (1963) 33 Comp. Cases 719
London & Australian Agency Corp. Ltd., Re; (1873) 29 LT 417: 22 WR 45
R. Gertzenstein Ltd., Re; (1936) 3 All ER 341: (1938) 8 Com Cases 53 19
Globe United Engg. & Foundry Co. Ltd. v. Registrar of Cos.; (1974) 44 Com Cases 330 (Del)
Cf. Re, Mortimers (London) Ltd.; (1937) 1 Ch 289: (1938) 8 Com Cases 56
Amalgamated Syndicate Ltd., Re; (1901) 2 Ch 181
Gerard v. North of Paris Ltd.; (1936) 2 All ER 905
Karamelli and Barnett Ltd., Re; (1917)1 Ch 203
Eros Films Ltd., Re, 1 (1963)1 All ER 383: (1963)33 Com Cases 467
Pure Milk Supply Co. Ltd. v. S. Hari Singh; AIR 1962 Punj 190: (1962) 32 Com Cases 659

 Re, Caston Cushioning Ltd.; (1955) 1 All ER 508: (1955) 25 Com Cases 138
Re, Centrabind Ltd.; (1966) 3 All ER 889: (1967) 37 Com Cases 468 (Ch D)
Pamarti Venkataswamy v. Kondandarama Bus Transport Ltd.; (1958) 28 Com Cases 50: AIR 1958
AP 666
Tony Rowse NMC Ltd., Re, (1996) 2 BCLC 225 (Ch D)
Horris v. Conway, 1989 BCLC 28: (1989) 2 Comp LJ 145, 157 (Ch D)

INTRODUCTION

Winding-up of a company is a procedure of allocating the assets and concluding the existence of a
company. It is a process of dissolving a company by collecting its assets, paying off its liabilities out
of the assets of the company or from contributions by its members. If any excess is left, it is
distributed amid the members in accordance with their rights.
In the words of Prof. L.C.B. Gower, Winding-up of a company is the process whereby its life is
ended and its property administered for the benefit of its creditors and members. An administrator

called liquidator is appointed and he takes control of the company, collects its debts and finally
distributes any surplus among the members in accordance with their rights1.
Thus in the words of Pennington, Winding up or liquidation is the process by which the
management of a companys affairs is taken out of its directors hand, its assets are realized by a
liquidator, and its debts and liabilities are discharged out of the proceeds of realization and any
surplus of assets remaining is returned to its members or shareholders. At the end of winding up the
company will have no assets or liabilities, and will therefore be simply a formal step for it to be
dissolved, that is its legal personality as a corporation to be brought to an end.2
A company registered under the Companies Act, 1956 may be wound up in any of the following
modes3:
1. By the Court4 i.e. compulsory winding up;
2. Voluntary winding up, which may be either:
(a) Members voluntary winding up; or
(b) Creditors voluntary winding up;
3. Winding up subject to the supervision of the Court (Section 522 to 527).5
In every winding up, a liquidator or liquidators is or are appointed to administer the property of the
company and he or they must apply the assets of the company, first, in the payment of the creditors
in their proper order, and then, in distributing the residue among the members according to their
rights.
The companies are usually wound up voluntarily as it is an easier process of winding up. It is
different from a compulsory winding up. Winding up order by the Tribunal is not common because
normally the members of the company prefer to wind up the company voluntarily for in such a case
1 Modern Company Law, 4th Edn., p.789
2 Penningtons Company Law, 5th Edn., p. 839
3 Section 425, Companies Act, 1956
4 Substituted by Tribunal by Companies (Second Amendment) Act, 2002
5 Omitted by the Companies (Second Amendment) Act, 2002

they shall have a voice in its winding up. Further, its creditors are left to settle their affairs without
going to a Court, although they may apply to the Court for directions or orders, when necessary. The
procedure involved in a members' voluntary liquidation, a solvent liquidation commenced by a
shareholders' special resolution with no court involvement and no stigma attached, as all the
company's debts are paid in full. Moreover, a voluntary winding up is far cheaper, speedier and
simpler than a winding up by the Tribunal 6. The power of the Tribunal to order winding up is
exercised only where the winding up is opposed to the interest of the company or public.

VOLUNTARY WINDING UP UNDER THE COMPANIES ACT, 1956

Part VII Chapter III of the Companies Act, 1956 (Sections 484 to 520) extensively deals with the
provisions of voluntary winding up of a company. A company may, voluntarily wind up its affairs, if
it is unable to carry on its business, or if it was formed only for a limited purpose, or if it is unable to
6 Anne Sharp, Members' solvent liquidation, 2011, Financial Regulation International,
F.R.I. 2011, May, 4-6.

meet its financial obligation, and etc. In case of voluntary winding up, the entire process is done
without the supervision of the Tribunal. When the winding up is complete, the relevant documents
are filed before the Court for obtaining the order of dissolution. A voluntary winding up may be done
by the members as it may be done by the creditors.

The circumstances under which a company may be wound up voluntarily are7:

(a) when the period fixed for the duration of the company as mentioned in its articles has expired; or
(b) the event, on the happening of which the articles provide that the company is to be dissolved has
occurred; and
(c) the company passes a special resolution that the company be wound up voluntarily
Thus, a company may be wound up voluntarily on the expiry of the term fixed for duration of the
company or on the occurrence of the event as provided in its articles. In these two cases only an
ordinary resolution may be passed in the general meeting of the company. In British Water Gas
Syndicate v. Notts Derby Water Gas Co. Ltd 8.,held that however prosperous and solvent a
company may be, if the members wish the company to be wound up, they can do so by passing a
special resolution to that effect and no reasons need be given. No articles of the Company can
prevent the exercise of this statutory right. And the right cannot be interfered with by any Court by
means of an injunction or otherwise.
Where the required special resolution was passed at a meeting convened by giving a shorter notice
than that required by the Act, but all the members of the company unanimously agreed thereto, the
resolution being intra vires the company, was held valid. In re, Bailey Hay & Co. Ltd 9. there were
only five shareholders, two of whom held between themselves 50% of the voting power and they
passed the resolution. Shareholders who abstained from voting on the resolution and allowed it to be
passed with knowledge of their power to stop it must be deemed to have assented to the resolution
which, accordingly, was held valid.
In Southern Counties Deposit Bank Limited v. Rider & Kirkwood 10, a notice calling a general
meeting to wind up the company was issued by the authority of a board meeting at which only two
directors were present. The quorum for board meetings was for six years regarded as two directors,
though the resolution altering the quorum from three to two had not been validly passed. The court
refused the application, for declaring the resolution to be invalid saying it would not interfere for
the purpose of forcing companies to conduct their business according to the strictest rules, where the
irregularity complained of can be set right at any moment.
7 Section 484(1), Companies Act, 1956
8 1889 WN 204
9 (1972) 42 Com Cases 442
10 (1895) 11 TLR 563

In Indian Trading & Engineering Co. Ltd. Re 11, the Court applied Silkstone Fall Colliery Co.
Re12. where the resolution for voluntary winding-up passed by the shareholders was on the basis of a
bad notice and though the shareholders at a subsequent meeting appointing liquidators waived the
requirement of proper notice and confirmed the resolution, it was held that it was open to the
creditors to challenge the appointment of liquidator.
The resolution, when passed, must be advertised within 14 days of the passing of the resolution in
the Official Gazette and also in some newspaper circulating in the district where the registered office
of the company is situated. A default in complying with the above requirements renders the company
and every officer of the company, who is in default, liable to a penalty which may extend to five
hundred rupees for every day during which the default continues. In Bhargava (S.P.) v. Rameshwar
Shastri13 held that a failure to advertise, may be considered to be an irregularity and curable, not
affecting the validity of winding up. A liquidator of the company is deemed to an officer of the
company for the purposes of the above requirements14. It was held in Neptune Assurance Co. Ltd.
v. Union of India15,that in the Companies Act the expression voluntary winding up, means a
winding up by a special resolution of a company to that effect. Similarly, the expression winding up
by the court means winding up by an order of the Court in accordance with S. 433 of the Companies
Act.
A voluntary winding up commences from the date of the passing of the resolution for voluntary
winding up. This is so even when after passing a resolution for voluntary winding up, a petition is
presented for winding up by the Court16. The date of commencement of winding up is important for
various matters, such as liability of past members, who will not be affected if, on the date of
commencement of winding up, a year had elapsed after they ceased to be members, fraudulent
preference may have become unimpeachable, etc. In Re, West Cumberland Iron Steel Co17, where
a voluntary winding up is continued under supervision (section 522), the winding up commences not
at the date of the presentation of the petition or order for supervision but at the date of the resolution
for voluntary winding up; for the order is only to continue the winding up.
In Indian States Bank Ltd., Re18, when the voluntary liquidation is followed by a compulsory
order, the date of commencement of the compulsory liquidation is the date of voluntary liquidation.
11 (1910-11) 15 CWN 1047 (Cal)
12 (1875) 1 Ch D 38
13 (1952) 22 Com Cases 106: AIR 1952 MB 3A
14 Section 485, Companies Act, 1956
15 1973 SCR (2) 940
16 Section 486, Companies Act, 1956
17 (1889) 40 Ch D 361

Hence a suit filed before commencement of winding up can be continued by the company and the
liquidator need not be brought on record held in National Stores v. Ramsaran19.The effect of the
voluntary winding up is that the company ceases to carry on its business except so for as may be
required for the beneficial winding up thereof 20. In Rangai Goundan (M.K.), Re,21 held that a
voluntary winding up does not put an end to the corporate existence of the company. The company
exists until it is dissolved. The powers of the directors continue to the extent to which they are
allowed by the liquidator. In Commr. Of Income Tax v. Liquidator, Ratlam Electric Supply etc.
Co. Ltd.22, it was held that Section 487 does not contemplate the carrying on business of the
company except to the extent necessary for its beneficial winding up. It does not prohibit a company
which is being voluntarily wound up from receiving income from other sources and interest on
securities.
The property of the company becomes a trust property with the passing of the resolution for winding
up for the benefit of creditors and contributories. The principle of the establishment of trust was
stated in General Rolling Stock Co., Joint Discount Company's Claim, Re 23, A duty and a trust
are thus imposed upon the court, to take care that the assets of the company shall be applied in
discharge of its liabilities. What liabilities? All the liabilities of the company existing at the time
when the winding up order was made which gives the right. It appears to me that it would be most
unjust if any other construction were put upon the section.
In Knowles v. Scott24, held that a voluntary winding up does not operate as a stay of any existing
proceedings or prevent the institution of new proceedings. The liquidator is treated as a person in the
position of an agent for the company, performing his duties in accordance with the provisions of the
Act. In Dawsons Banks Ltd. v. Nippon Menkwa Kabu-shiki Kaisha 25, held that the liquidators are
not parties to such suit and it is improper to implead them as defendants. The change that is brought
about by the liquidation in regard to the suit is merely this that in the conduct of their defence the
company would, before liquidation, act through the directors, during liquidation through the
liquidators, and after the stay of liquidation through the directors once more.
18 (1934) 4 Com Cases 64: AIR 1934 All 114
19 AIR 1926 Nag 303
20 Section 487, Companies Act, 1956
21 (1942) 12 Com Cases 198: 1972 Mad 702
22 (1982) 52 Comp Cas. 632
23 (1872) 7 Ch App 646 at 648-649: (1861-73) All ER Rep 434 at 435
24 (1891) 1 Ch 717
25 AIR 1935 PC 79: (1935) 5 Com Cases 191 at 203

A voluntary winding up does not necessarily operate as a discharge of the companys servants. In
Reigate v. Union Manufacturing Co., (Ramsbottom) Ltd26., held that the passing of a resolution
for voluntary winding up does not operate as notice of discharge of the employees of the company, if
the business is continued by the liquidator or the liquidation is only with a view to reconstruction. In
Fowler v. Commercial Timber Co. Ltd 27.,27 F was appointed managing director of a company for
a period of five years, the company passed a resolution that it could not by reason of its liabilities
continue its business. F voted in favour of this resolution. Held, (a) the voluntary winding up
operated as a wrongful dismissal of F, and (b) the fact that F consented to the winding up by voting
for the resolution did not prevent him from recovering damages.
In Midland Counties District Bank Ltd. v. Attwood 28, held that where the voluntary winding up is
for the purpose of amalgamation or reconstruction, the resolution to wind up voluntarily does not
operate as a notice of discharge to the employees. In Hutton v. West Cork Rly29.held that a
company should not, after the commencement of the winding up, give gratuities to directors or
servants and if they are voted, the liquidator should refuse to pay them.
In Dilip Singh T. v. State of T.N30 a company closed its undertaking without permission of labour
authority. The company went into voluntary liquidation by passing a special resolution. The director
in question had resigned before the date of the resolution. His resignation was accepted by the
company and all the relevant documents were filed with the ROC. It was held that the prosecution of
such a director for not complying with labour enactments was not permissible.
There are two kinds of voluntary winding up31:
(i) Members voluntary winding up; and
(ii) Creditors voluntary winding up.

26 (1918) 1 K.B. 593

27 (1930) 2 K.B.1
28 (1905) 1 Ch. 357
29 (1883) 23 Ch D 654
30 (2002) 112 Com Cases 195 (Mad)
31 Section 488(5), Companies Act, 1956

MEMBERS VOLUNTARY WINDING UP

Sections 490 to 498 of the Companies Act, 1956 shall apply in relation to a members voluntary
winding up32. When the company is solvent and is able to pay its liabilities in full, it need not consult
the creditors or call their meeting. Its directors, or where they are more than two, the majority of its
directors may, at a meeting of the Board, make a declaration of solvency verified by an affidavit
stating that they have made full enquiry into the affairs of the company and that having done so they
have formed an opinion that the company has no debts or that it will be able to pay its debts in full
within such period not exceeding three years from the commencement of the winding up as may be
specified in the declaration. In Collector of Moradabad v. Equity Insurance Co. Ltd.33 Section
488 does not require that there should be an affidavit by each of the directors making the declaration.
An affidavit by one director is sufficient. In De Courcy v. Clement34, held that while failure to
satisfy the conditions under this section makes the declaration of no effect i.e., a nullity, a mere error
or omission, while it may expose the declarant to the penal consequences, will not prevent the
statement from being a statement for the purpose of satisfying the requirements of the section.

32 Section 489, Companies Act, 1956

33 (1948) 18 Com Cases 309, 317: AIR 1948 Oudh 197
34 (1971) 1 All ER 681: (1971) 41 Com Cases 796 (Ch D)

Such a declaration must be made within five weeks immediately preceding the date of the passing of
the resolution for winding up the company and be delivered to the Registrar for registration before
that date. The declaration must embody a statement of the companys assets and liabilities as at the
latest practicable date before the making of the declaration. Any director making a declaration
without having reasonable grounds for the aforesaid opinion, shall be punishable with imprisonment
extending up to six months or with fine extending up to Rs. 50,000 or with both 35. In Shri Raja
Mohan Manucha v. Lakshminath Saigal 36, it was held that where the declaration of solvency is
not made in accordance with the law, the resolution for winding up and all subsequent proceedings
will be null and void.
PROCEDURE FOR MEMBERS VOLUNTARY WINDING UP
The company shall appoint one or more liquidators, in a general meeting, who shall look after the
affair of winding up procedure, and distribution of assets37. The secretary of a company can be
appointed as liquidator, held in London & Australian Agency Corp. Ltd. Re. 38,so also a solicitor
can be appointed as liquidator. The liquidator so appointed, shall be paid remuneration for his
services, which shall also be fixed in general meeting 39.In R. Gertzenstein Ltd. Re40, the
remuneration fixed may include the fee for professional services also. But he cannot recover costs for
the services rendered by him as a solicitor over and above the fixed remuneration. In Globe United
Engg. & Foundry Co. Ltd. v. Registrar of Cos 41, held that the remuneration cannot be increased in
any circumstances whatever. Even the court does not have power to increase it. In Cf. Re,
Mortimers (London) Ltd42, held that when the voluntary winding up is superseded by a compulsory
winding up, the Court may review the amount. In Amalgamated Syndicate Ltd., Re43,held the
remuneration of the voluntary liquidator has to be fixed at the meeting by the contributories or at a
subsequent meeting. If that is not done, an application can be made to the court for fixing such
remuneration as the court thinks just.
35 Section 488, Companies Act, 1956
36 (1963) 33 Comp. Cases 719
37 Section 490 (1), Companies Act, 1956
38 (1873) 29 LT 417: 22 WR 45
39 Section 490 (2), Companies Act, 1956
40 (1936) 3 All ER 341: (1938) 8 Com Cases 53
41 (1974) 44 Com Cases 330 (Del)
42 (1937) 1 Ch 289: (1938) 8 Com Cases 56
43 (1901) 2 Ch 181

The company shall also give notice of appointment of one liquidator to the registrar within ten days
of appointment44. Once the company has appointed liquidator, the powers of Board of Directors,
Managing Director, and Manager, shall cease to exist 45. The liquidator is generally given a free hand,
to carry out the winding up procedure, in such a manner, as he thinks best in the interest of creditors,
and company. In case, the winding up procedure, takes more than one year, then liquidator will have
to call a general meeting, at the end of each year, and he shall present, a complete account of the
procedure, and position of liquidator46. In Gerard v. North of Paris Ltd 47., held that under the
members voluntary winding up there is a presumption, until the contrary is shown, that all the debts
of the company will be paid in full and it must be taken that the company is solvent when there is no
evidence to the contrary.
The liquidator shall take various steps, when affairs of the company are fully wound up. He shall
call a general meeting of the members and lay before it, complete picture of accounts, winding up
procedure and how the properties of company are disposed of. The meeting shall be called by
advertisement, specifying the time, place and object of the meeting. The liquidator shall send to, the
Registrar and official Liquidator copy of account, within one week of the meeting. If from the report,
official liquidator comes to the conclusion, that affairs of the company are not being carried in
manner prejudicial to the interest of its members, or public, then the company shall be deemed to be
dissolved from the date of report to the court. However, if official liquidator comes to a finding, that
affair have been carried in a manner prejudicial to interest of member or public, then court may
direct the liquidator to investigate furthers48.

CREDITORS VOLUNTARY WINDING UP

Where a declaration of solvency of the company is not made and delivered to the Registrar in a
voluntary winding up it is a case of creditors voluntary winding up. A winding up petition is a
perfectly proper remedy for enforcing payment of a just debt. It is the mode of execution which the
44 Section 493, Companies Act, 1956
45 Section 491, Companies Act, 1956

46 Section 496, Companies Act, 1956

47 (1936) 2 All ER 905
48

Section 497, Companies Act, 1956

Court gives to a creditor against a company unable to pay its debts 49.Sections 500 to 509 of the
Companies Act, 1956 shall apply in relation to a creditors voluntary winding up. Where the
resolution for winding up has been passed, but the Board of Directors are not in a position to give a
declaration on the liability of company to the Registrar, they may call a meeting of creditors, for the
purpose of winding up. It is the duty of Board of Directors, to present a full statement of companys
affairs, and list of creditors along with their dues, before the meeting of creditors50.
The procedure laid down in Section 500 and the following sections, in regard to the creditors
winding up of an insolvent company, a company which is not able to pay its debts and liabilities, is
based upon the views expressed by J., in In re, Karamelli and Barnett Ltd 51. Under this procedure
the company has to convene a meeting of the creditors to take place immediately after the meeting of
the shareholders, on the same day or the next day; and the directors have to place a full statement of
the position of affairs at the creditors meeting. The creditors at the meeting have the right to
nominate a liquidator and if their nominee is different from the one nominated by the shareholders,
creditors nomination prevails, subject to the power of interference of the court. Thus, the creditors
are given a controlling voice in the winding up of an insolvent company.
Whatever resolution, the company passes in creditor's meeting, shall be given to the Registrar within
ten days of its passing52.In Re, Eros Films Ltd53., held the giving of notices under this section is
analogous to the filing, under the law of insolvency, of a declaration of inability to pay debts. In Pure
Milk Supply Co. Ltd. v. S. Hari Singh 54, held non-compliance with the provisions of Section 501
renders the directors liable to fine but does not make the proceedings of the meeting invalid.
The creditors appoint the liquidator, approve the accounts and regulate the winding up proceedings 55.
In Re, Caston Cushioning Ltd56, held a liquidator appointed by a resolution of the members cannot
be replaced by one appointed by a majority in value but not in number of the creditors. In Re,
Centrabind Ltd.57 held where a liquidator is appointed by the members of the company but the
49 Palmers Company Precedents, Part 11, 1960 Edn., at p. 25
50 Section 500, Companies Act, 1956
51 (1917)1 Ch 203
52 Section 501, Companies Act, 1956
53 (1963)1 All ER 383: (1963)33 Com Cases 467
54 AIR 1962 Punj 190: (1962) 32 Com Cases 659
55 Section 502, Companies Act, 1956
56 (1955) 1 All ER 508: (1955) 25 Com Cases 138
57 (1966) 3 All ER 889: (1967) 37 Com Cases 468 (Ch D)

creditors did nothing, the liquidator appointed by the members will not be disentitled to act as the
liquidator of the company. He has locus-standi to take all proceedings. The creditors may appoint a
Committee of Inspection consisting of not more than five creditors in order to regulate and supervise
the winding up proceedings58.
Section 509 deals with the various steps to be taken by the liquidator, when affairs of the company
are fully wound up. This section has the same provisions as that of members voluntary winding up
under Section 497 of the Act. Once the company is fully wound up, and assets of the company sold
or distributed, the proceedings collected are utilized to pay off the liabilities. The proceedings so
collected shall be utilized to pay off the creditors in equal proportion. Thereafter any money or
property left may be distributed among members according to their rights and interests in the
company59. In Pamarti Venkataswamy v. Kondandarama Bus Transport Ltd 60, held the
shareholders can draw a scheme for distributing the companys assets and business among
themselves, undertaking in turn to pay off the companys debts.
In voluntary winding up it is left to the company, the contributories and the creditors to settle their
affairs without intervention of the Court as far as possible. However, the Act contains certain
provisions which provide a means of access to the Court with a view to speed up the liquidation
proceedings and to overcome the difficulties that may arise in the course of liquidation. The Court
will intervene in the voluntary winding up whenever it is satisfied that such an intervention will be
just and beneficial. In appropriate cases the Court can be approached for compulsory winding up
(Section 440) or winding up being conducted under the supervision of the Court.61

58 Section 503, Companies Act, 1956

59 Section 511, Companies Act, 1956
60 (1958) 28 Com Cases 50: AIR 1958 AP 666
61 Section 522, Companies Act, 1956

COMPARATIVE STUDY OF VOLUNTARY WINDING UP LAW

UNDER COMPANIES ACT, 1956 WITH UK LEGISLATION AND
COMPANIES ACT, 2013
The study of insolvency laws have gained importance over the years due to growing cross borders
business ventures. This has made it necessary to be aware of the legislative framework with regard to
corporate insolvency and latest developments in other countries too. The laws relating to voluntary
winding up in India is very much similar to those prevailing in UK. In UK the insolvency laws are
governed by the Insolvency Act, 1986, Insolvency Rules, 1986, the Company Director
Disqualification Act, 1986. The insolvency proceedings governed by this Act fall under two
categories namely, (a) Insolvency proceedings in respect of companies registered under the
Companies Act, 2006 and unregistered companies; (b) Insolvency proceedings in respect of
individuals known as bankruptcy. The Legislative Reform (Insolvency) (Miscellaneous Provisions)
Order 2010 and The Insolvency (Amendment) Rules 2010 came into force on 6 April 2010 and made
a number of changes in relation to voluntary liquidations. The amendments generally apply only to
cases where the resolution for voluntary winding up was passed on or after 6 April 2010 (unless it
went into liquidation under Paragraph 83 of Schedule B1 to the Act and the preceding administration
commenced before 6 April 2010 or was an administration by virtue of an administration order where
the application was made before 6 April 2010).62
Prior to enactment of Insolvency Act, the Bankruptcy Act 1914 did not apply to corporate
insolvency. Corporate insolvency provisions were contained in the Companies Act, 1985. Kenneth
Cork Committee (Insolvency Law Review Committee) recommended spin off and enactment of
Insolvency Act 1985. Thereafter the 1985 Act on the very first day was replaced by Insolvency Act
1986. It was substantially amended by Insolvency Act 1994. Further the Enterprise Act 2002 has
attempted to fundamentally change approaches to corporate insolvency regulation in the United
Kingdom.63 By endeavouring to improve the administration procedure first introduced by the
Insolvency Act 1986, the legislature has given paramount consideration to corporate rescue outcomes
through the administration procedure, as originally envisaged by the Cork Committee in its seminal
report of 198264.
62 http://www.legislation.gov.uk/ukpga/1986/45/part/IV/chapter/III
63 http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft916.pdf

Chapters II to V of Part IV of the Insolvency Act, 1986 comprising of Sections 84 to 116

(corresponding sections in the Companies Act, 1956 are Sections 484 to 520) deal with voluntary
winding up.65 The Indian law adopts the provisions of the English law with little or no difference.
Most of the provisions relating to voluntary winding up are same as that of Act of 1986. However,
there are few striking differences relating to the power of liquidators and directors during the
winding up procedure.
Like the Companies Act, 1956 there are two types of voluntary winding up under the Insolvency Act,
1986. Members voluntary winding up is commenced by a resolution of the shareholders that the
company is wound up and that a named licensed insolvency practitioner is appointed the
liquidator66.If the directors make a statutory declaration of solvency within five weeks prior to the
resolution, the liquidation will proceed as a members voluntary liquidation 67. Otherwise the process
will be a creditors voluntary liquidation and a meeting of creditors must be held within 14 days of
the members resolution68. If the meeting of creditors nominates a practitioner other than the one
nominated by the members as liquidator, the creditors choice will prevail.
On the appointment of a liquidator in a creditors voluntary winding-up, all powers of the directors
cease except so far as are preserved by the creditors committee or the creditors 69. If the shareholders
do not appoint a liquidator, the powers of the directors are not exercisable except so far as are
necessary to secure compliance to convene a meeting of creditors, the production of a statement of
affairs and to protect the assets or dispose of perishable assets. In a voluntary liquidation, the
company must cease to carry on its business except so far as is necessary for its beneficial windingup.
There are number of similarities in the two laws however, Section 89 of the Insolvency Act, 1986
clearly mentions a time limit to commence the creditors voluntary winding up. There is no such
exact time frame provided under the corresponding Section 500 of the Companies Act, 1956.
Further, as stated earlier under Section 490 of the Companies Act, 1956 the remuneration cannot be
increased in any circumstances whatever; even the court does not have power to increase it. In
English law, however, by virtue of the rules under the English Insolvency Act, 1986, a voluntary
liquidator can make an application showing that his remuneration is insufficient according to

64 John Tribe Company voluntary arrangements and rescue: a new hope and a Tudor
orthodoxy, 2009, Journal of Business Law, J.B.L. 2009, 5, 454-487
65 Palmer's Company Law, 24th Edn., 1987, Vol. 1, Para 89-01A, Pages 1493
66 Section 84 of the Insolvency Act, 1986
67 Section 89 of the Insolvency Act, 1986
68 Section 98 of the Insolvency Act, 1986
69 Section 91 of the Insolvency Act, 1986

objective standards. The court then gets an unfettered discretion both as to the amount and the basis
of the increase having regard to all the circumstances and to the criteria set out in the rules70.
Under the Indian law, the liquidator's remuneration is paid out of the assets of the company. But
where those assets were not sufficient to pay him for his labours, English Court allowed him to
recover his costs and remuneration out of the trust property which was held by the company on trust
for its investors71.
Section 494 of the Companies Act does not render the liquidator the position of an officer of the
court but, subject to this, his position as regards taking possession of the assets is the same as in the
case of a winding up by the Court. The liquidator should at once take possession of the books, deeds
and documents of the company etc. However, the position of the liquidator is a stronger one by virtue
of Section 246 of the English Act whereby it is provided that a lien or other right to retain possession
of the books, papers or other records of the company is unenforceable to the extent that its
enforcement would deny possession of any books, papers or other records to the office-holder.
Under Section 502 of the Companies Act, 1956, the creditors are given a preferential right in the
matter of the appointment of a liquidator, with a power to the court to vary the appointment on
application made within seven days, by a director, member or creditor. However, the Insolvency Act,
1986 restricts the authority of directors to enter into transactions which are binding on the company
where no liquidator is appointed or nominated in a creditors voluntary winding up72.
Part II of Chapter XX (Sections 304 to 323) of the Companies Act, 2013 deals with voluntary
winding up. The provisions of the Act are similar to that of the Act. The only difference is the
provisions are compressed unlike the elaborative sections in the Act. The procedure for voluntary
winding up, powers of liquidator, commencement etc. remains the same with slight or no difference.
Section 484 remains intact with the corresponding Section being 304. Section 485 is amended by
Section 307 by increasing the fine to five thousand rupees from five hundred. Section 486 and 487
remain intact with corresponding Sections being 308 and 309 respectively. Section 488 is amended
by Section 305 by adding two more things that the declaration must contain namely, Cl.305 (2) (b)
it contains a declaration that the company is not being wound up to defraud any person or persons
and Cl.305 (2) (d) where there are any assets of the company, it is accompanied by a report of the
valuation of the assets of the company prepared by a registered valuer. Further the punishment
under Cl.305 (4) has been enhanced from six months and fifty thousand rupees to imprisonment for
a term which shall not be less than three years but which may extend to five years or with fine which
shall not be less than fifty thousand rupees but which may extend to three lakh rupees, or with both.
Sections 490 and 502 have been combined in the same Section and have been amended by Section
310. Under this earlier the company in general meeting could appoint the liquidator however now
this has to be followed by appointing Company Liquidator from the panel prepared by the Central
70 Tony Rowse NMC Ltd., Re, (1996) 2 BCLC 225 (Ch D)
71 Horris v. Conway, 1989 BCLC 28: (1989) 2 Comp LJ 145, 157 (Ch D)
72 A Company (No 006341 of 1992), Re; B. Ltd. Ex p., (1994) 1 BCLC 225 (Ch D)

Government. Section 500 and 501 has been combined under Section 306 and now notice of the
meeting of the creditors need not be advertised in the Official Gazette and newspapers. Further the
punishment for default is enhanced from ten thousand rupees to fine which shall not be less than
fifty thousand rupees but which may extend to two lakh rupees and the director of the company who
is in default shall be punishable with imprisonment for a term which may extend to six months or
with fine which shall not be less than fifty thousand rupees but which may extend to two lakh rupees,
or with both.
Sections 492 and 506 have been combined in Section 311; however, earlier the company had power
only to fill the vacancies and there was no provision as to removal of Company Liquidator. The new
Section has clear provisions regarding the removal of the Liquidator. Section 493 has been amended
by Section 312 whereby the fine has been reduced to five hundred rupees from one thousand rupees.
Section 491, 503, 512 remains intact with the corresponding Sections being 313, 314 and 315
respectively.
Sections 496 and 508 have been combined under Section 316 and now the Company Liquidator
shall report quarterly on the progress of winding up of the company. Further the fine has been
enhanced from one thousand rupees to ten lakh rupees. Sections 497 and 509 have been combined
under Section 318 whereby the time limit for sending the copy of final winding up accounts of the
company has been raised to two weeks from one week. Further the fine has also been enhanced from
five thousand to one lakh rupees. Sections 494, 511, 517, 518 and 520 remain intact with the
corresponding Sections being 319, 320, 321, 322 and 323 respectively.

CONCLUSION
After a clear perusal of the laws and procedures of voluntary winding up under the Companies Act,
1956 and Insolvency Act, 1986, it can be concluded that these provisions may not be verbatim copies
of each other, yet they are very similar in many aspects. A clear understanding of the international
insolvency laws is important due to rise in cross border business ventures. Hence from the above
discussion we can draw a conclusion that most of the provisions carry similar meaning however
there are few striking differences to be found in the English Law is that the position of the Liquidator
is stronger than that in India. For instance, if there are grievances regarding his remuneration he can
apply to the Court and get his dues or even increase it, restrictions on directors rights etc.
The Companies Act, 2013 is not that elaborative like the Act. It contains all the provisions of the Act
however, many of the sections are combined under a single Section and certain provisions have been
removed. The most important thing to be noted is that most of the provisions relating to the
punishments have been amended. Where the company or an officer of the company fails to comply
with the said provisions of the Act or Act, the fine amount and the imprisonment term is enhanced.
Further the time limit for submitting reports by liquidator or members to authorities have also been
altered.
It can be concluded that voluntary winding up is preferred because it is easier and speedier. The
members and creditors have a say and control over the proceedings. It is to be noted that winding up

by the Tribunal is approached only if there is a dire need for it, if the proceedings are detrimental to
the interests of the company and public at large