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Unit 14: Winding Up of Companies

The memorandum of a company limited by guarantee shall also state that each member Notes
undertakes to contribute to the assets of the company in the event of its being wound up while
he is a member or within one year after he ceases to be a member, for payment of the debts and
liabilities of the company, or of such debts and liabilities of the company as may have been
contracted before he ceases to be a member, as the case may be, and of the costs, charges and
expenses of winding up, and for adjustment of the rights of the contributories among themselves,
such amount as may be required, not exceeding a specified amount. (S. 13)

14.1 Winding Up

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 a ‘liquidator’, is appointed
and he takes control of the company, collects its assets, pays its debts and finally distributes any
surplus among the members in accordance with their rights. In simple words, winding up
means applying the assets of a company in the discharge of its liabilities and returning any
surplus to those entitled to it, subject to the cost of doing so. The statutory process by which this
is achieved is called ‘liquidation’. Winding up of a company differs from insolvency of an
individual in as much as a company cannot be made insolvent under the insolvency law. Besides,
even a solvent company may be wound up.

14.2 Modes of Winding Up (S. 425)

A company may be wound up in any of the following three ways:

1. Compulsory winding up under an order of the court.
2. Voluntary winding up.
3. Voluntary winding up under the supervision of the court.

14.2.1 Winding Up by the Court

Court having jurisdiction. For the purpose of filing the petition for compulsory winding up, the
following courts have jurisdiction:
(a) High court having jurisdiction in relation to the place at which the registered office of the
company is situated. The expression ‘registered office’ means the place which has longest
been the registered office of the company during the six months immediately preceding
the presentation of the petition for winding up.

(b) A District court, subordinate to the High Court on which jurisdiction has been so conferred.
However, it shall necessarily be a High Court in ‘respect of a company having a paid up
capital of 1 lakh or more (s. 10].

Example: X Ltd has its registered office in Mumbai. Mr. Y is a creditor of the company
and he resides in Chennai. He files a petition in the High Court at Chennai. The paid up capital
of the company is one crore.

The High Court at Chennai does not have the jurisdiction to entertain the petition. It is the High
Court at Mumbai to which the petition for winding up should be made.
Winding up by the court, also called compulsory winding up, may be ordered in cases mentioned
in s.433. The court will make an order for winding up on an application by and of the persons
enlisted in s.439.

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