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Unit 14: Winding Up of Companies

extend to six-months, or with fine up to 5,000 or with both. If the company is wound up in Notes
pursuance of a resolution passed within the period of five weeks after making the declaration,
but its debts are not paid or provided for in full within the period specified in the declaration, it
shall be presumed, until the contrary is shown, that the director did not have reasonable grounds
for his opinion.
If the above provisions are not complied with, the winding up shall not be a members’ voluntary
winding up [Vosica vs. Janda Rubber Works AIR (1950) East Punjab 180] and in such case provisions
(s.490 and 498) relating to members voluntary winding up cannot apply and if liquidator is
appointed in pursuance of s. 490 or 498 such appointment would be bad in law. In such a case, the
provisions relating to creditor’s voluntary winding up (Ss. 500-509) should be followed and the
violation of these provisions will make the winding up proceedings void ab initio (M. Kakshmiah
vs. Registrar of Companies, Trivandrum-unreported case decided by the Kerala High Court)
and if default is made in calling a meeting of the creditors then the company and the Directors’
as the case may be, shall be punishable with fine which may extend to 10,000 and in the case of
default by the company, every officer of the company who is in default, shall be liable to the like
punishment [s.500 (6)]. The Court may, if moved by the company or its shareholders, instead of
treating the winding up proceedings as invalid, direct the company to convene the creditors
meeting [Light of Asia Insurance Company, I.L.R. 1940 (2) Cal.325]. The above rules will be
applicable even where a declaration of solvency has been filed but in accordance with the
provisions of s.488(2).
The company, however, may pass a fresh resolution for its winding up after complying with the
requirements of s.488 (Declaration of Solvency).

Appointment and Remuneration of Liquidators (s.490)

The company in general meeting must: (a) appoint one or more liquidators for the purpose of
winding up the affairs and distributing the assets of the company; and (b) fix the remuneration,
if any, to be paid to the liquidator or liquidators.
Any remuneration so fixed cannot be increased in any circumstances whatever, whether with or
without the sanction of the Court. No liquidator shall take charge of his office unless his
remuneration is fixed. Further, if a vacancy occurs by death, resignation or otherwise in the
office of the liquidator appointed by the company, the company in general meeting may, subject
to any arrangement with its creditors, fill the vacancy. For this purpose a meeting may be
convened by any contributory or the continuing liquidator or by the Court on the application of
any of them (s.492).

Board’s Power to Cease

On the appointment of a liquidator, all the powers of the Board of directors and of the managing
director or whole-time directors or manager shall cease except for purpose of giving a notice of
such appointment to the Registrar. But their powers may continue if sanctioned by the general
body or by the liquidator so far as the sanction applies (s.491).

Notice of Appointment of Liquidator to be given to the Registrar (s.493)

The company must give notice to the Registrar regarding the appointment of liquidator within
10 days of his appointment. In case of default, the company and every officer of the company
(including liquidator) who is in default, shall be punishable with fine which may extend to
1,000 for every day during which the default continues.

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