In the words of Prof. L.C.B. Gower, the 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. A 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 rights. The main purpose of winding up a company is to realize its assets and pay its debts expeditiously and fairly in accordance with the law. The Companies Act, 2013 provides for an effective time-bound winding-up process.

Under the process, the life of the company is ended, and its property is administered for the benefit of the members and creditors. A liquidator is appointed to realise the assets and properties of the company. After payment of the debts, any surplus of assets left out will be distributed among the members according to their rights. Winding up does not necessarily mean that the company is insolvent. A perfectly solvent company may be wound up with the approval of members in a general meeting.

As per Section 2(94A) of the Companies Act, 2013, “winding up” means winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016. Thus, winding up ultimately leads to the dissolution of the company. In between winding up and dissolution, the legal entity of the company remains, and it can be sued in a Tribunal of law.

The meaning of dissolution

A company is said to be dissolved when it ceases to exist as a corporate entity. On dissolution, the company’s name shall be struck off by the Registrar from the Register of Companies and he shall also get this fact published in the Official Gazette. The dissolution thus puts an end to the existence of the company.

Modes of dissolution

Dissolution of a company may be brought about in any of the following ways:

1. Through transfer of a company’s undertaking to another under a scheme of reconstruction or amalgamation. In such a case the transferor company will be dissolved by an order of the Tribunal without being wound up.
2. Through the winding up of the company, wherein assets of the company are realized and applied towards the payment of its liabilities. The surplus, if any is distributed to the members of the company, in accordance with their rights.

Difference between dissolution and winding up.

Particulars	Winding up	Dissolution
Meaning	Winding up means appointing a liquidator to sell off the assets, divide the proceeds among creditors, and file to the NCLT for dissolution.	Dissolution means to dissolve the company completely. Any further operations cannot be done in the company name.
Process	Winding up is one of the methods through which the dissolution of a company is carried on.	Dissolution is the end process/result of winding up and getting the name stuck off from the Register of Companies.
Existence of Company	The legal entity of the company continues and exists at the commencement and during the winding up process.	The dissolution of the company brings an end to its legal entity status.
Continuation of Business	A company can be allowed to continue its business during the winding up process if it is required for the beneficial winding up of the company.	The company ceases to exist upon its dissolution.
Moderator	Liquidator carries out the process of winding up.	The NCLT passes the order of dissolution.
Activities Included	Filling of winding up resolution or petition, the appointment of the liquidator, receiving declarations, preparation of reports, disclosures to ROC and filing for dissolution to the NCLT.	Filing of resolutions, declarations and other required documents to the NCLT to pass dissolution order.

Modes of winding up

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

1. Compulsory winding up. (Sec. 272)
2. Liquidation under Insolvency and Bankruptcy Code, 2016.

Grounds of Winding up

As per section 271, Tribunal may order for the winding up of a company on a petition submitted to it
under section 272 on any of the following grounds:

1. Passing of special resolution for the winding up. When a company has by passing a special resolution resolved to be wound up by the Tribunal, winding up order may be made by the Tribunal. The resolution may be passed for any cause whatever. Tribunal may not order for the winding up if it finds it to be opposed to public interest or the interest of the company as a whole.
2. Inability to pay debts. As per section 271(2), a company shall be deemed to be unable to pay its debts under the following circumstances:
   a) Notice for payment. If a creditor to whom the company owes a sum exceeding one lakh rupees has served on the company a demand for payment and the company has for three weeks thereafter neglected to pay the sum or otherwise satisfy the creditor, it shall be deemed that the company has become unable to pay its debt. It is essential that the debt is payable presently. Negligence in paying a debt on demand is omitting to pay without reasonable cause. Mere omission by itself will not amount to negligence. Further, where a debt is bonafide disputed, there is no negligence to pay. Failure to pay public deposits on their due dates amount to inability to pay debts. A dividend when declared becomes a debt due by the company and the shareholder can also apply for company’s liquidation if the company is unable to pay his dividend.

b) Decree. If a decree or order issued by a Tribunal/court in favour of a creditor of the company on execution remains unsatisfied on its execution.

c) Commercial Insolvency. It is proved to the satisfaction of the Tribunal that the company cannot pay its debts. This implies commercial insolvency (when company’s assets are insufficient to meet its existing liabilities) of the company as is disclosed by its balance sheet. The mere fact that the company is incurring losses does not mean that it is unable to pay its debts, for its assets may be more than its liabilities. Liabilities for this purpose will include all contingent and prospective liabilities and even if the debt relied upon in the petition is disputed bona fide, the company may be wound up if the applicant can prove the insolvency of the company. However, non-payment of a bona fide disputed claim is no proof of insolvency.

3. Just and equitable. The Tribunal may order for the winding up of a company if it thinks that there are just and equitable grounds for doing so. The Tribunal has very large discretionary power in this case. This power has been given to the Tribunal to safeguard the interests of the minority and the weaker group of members. Tribunal, before passing such an order, will take into account the interest of the shareholders, creditors, employees and also the general public. Tribunal may also refuse to grant an order for the compulsory winding up of the company if it is of the opinion that some other remedy is available to the petitioner to redress his grievances and that the demand for the winding up of the company is unreasonable. A few of the examples of ‘just and equitable’
   grounds on the basis of which the Tribunal may order for the winding up of the company are given:
   (i) Oppression of minority. In cases where those who control the company abuse their power to such an extent that it seriously prejudices the interests of minority shareholders, the Tribunal may order for the winding up of the company.
   (ii) Deadlock in management. Where there is a complete deadlock in the management of the company, the company may be ordered to be wound up.
   (iii) Loss of substratum. Where the objects for which a company was constituted have either failed or become substantially impossible to be carried out, i.e., ‘substratum of the company’ is lost.
   (iv) Losses. When the business of a company cannot be carried on except at a loss, the company may be wound up by an order of the Tribunal on just and equitable grounds. But mere apprehension on the part of some shareholders that the company will not be able to earn profits cannot be just and equitable ground for the winding up order.

(v) Fraudulent object. If the business or the objects of the company are fraudulent or illegal or have become illegal with the changes in the law, the Tribunal may order the company to be wound up on just and equitable grounds. However, the mere fact of having been a fraud in the promotion or fraudulent misrepresentation in the prospectus will not be sufficient ground for a winding up order, for the majority of shareholders may waive the fraud.

4. If the company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding five consecutive financial years.

5. If the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality.

6. If on an application made by the Registrar or any other person authorized by the Central Government by notification under this Act, the Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purpose or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that it is proper that the company be wound up.

Example: Re. Yenidje Tobacco Ltd. W and R were the only two shareholders as well as the directors of a private company. Subsequently some serious differences developed, and they became hostile to each other. They stopped even talking to each other. It was held that there was complete deadlock in the management of the company and, therefore, it would be just and equitable to order for its winding up.

Who may file petition?

An application for the winding up of a company has to be made by way of petition to the Court. A
petition may be presented under Section 272 by any of the following persons:
(a) the company; or
(b) any creditor or creditors.
(c) any contributory or contributories.
(d) all or any of the parties specified above in clauses (a), (b), (c) together
(e) the Registrar.
(f) any person authorized by the Central Government in that behalf.
(g) by the Central Government or State Government in case of company acting against the interest of the sovereignty and integrity of India. Section 272 provides that the petition for compulsory winding up of a company may be filed in the tribunal by any of the following persons:

1. Company. A company can make a petition to the Tribunal for its winding up by an order of the Tribunal, when the members of the company have resolved by passing a special resolution to wind up the affairs of the company. Managing director or the directors cannot file such a petition on their own account unless they do it on behalf of the company and with the proper authority of the members in the general meeting. (Section 272(5))
2. Creditors. A creditor may make a petition to the Tribunal for the winding up of the company, when he is able to prove that the company is unable to pay off his debts exceeding Rs. 1, 00,000 within three weeks of the notice of demand or where a decree or any other process issued by the Tribunal in favour of a creditor of a company is returned unsatisfied in whole or in part. Law does not recognize any difference between the secured and unsecured creditors for this purpose. ‘A secured creditor is as much entitled as of right to file a petition as an unsecured creditor.’ But in case of secured creditor’s petition, winding up order shall not be made where the security is adequate, and no other creditor supports the petition.
   A contingent or prospective creditor can also file a winding up petition if he obtains the prior consent of the Tribunal. The Tribunal shall grant the permission only when:
   (i) It is satisfied that there is a prima facie case for the winding up of the company; and
   (ii) The creditor provides such security for costs as the Tribunal thinks reasonable.
   The Tribunal may, before passing a winding up order, on a creditor’s petition, ascertain the wishes of other creditors. If the majority of the creditors in value oppose, and the Tribunal having regard to the company’s assets and liabilities considers the opposition reasonable, it may refuse to pass a winding up order.
3. Contributories. A contributory3 shall be entitled to present a petition for the winding up of a company, notwithstanding that he may be the holder of fully paid-up shares, or that the company may have no assets at all or may have no surplus assets left for distribution among the shareholders after the satisfaction of its liabilities, and shares in respect of which he is a contributory or some of them were either originally allotted to him or have been held by him, and registered in his name,
   for at least six months during the eighteen months immediately before the commencement of the winding up or have devolved on him through the death of a former holder. (Section 272(3))
4. Registrar. Registrar may with the previous sanction of the Central Government make petition to the Tribunal for the winding up the company only in the following cases:
   a) when it appears that the company has become unable to pay debts from the accounts of the company or from the report of the inspectors appointed by the Central Government under section 210; or
   b) If the company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding five consecutive financial years.
   c) if the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality.
   d) if on an application made by the Registrar or any other person authorized by the Central
   Government by notification under this Act, the Tribunal is of the opinion that the affairs of the company have been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purpose, or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that it is proper that the company be wound up.