Company law

Share capital of company

Every company limited by shares must have a share capital. Share capital of a company refers to the
amount invested in the company for it to carry out its operations. The share capital may be altered or
increased, subject to certain conditions. A company’s share capital may be divided into small shares of
different classes.

A share is the interest of a member in a company. Section 2(84) of the Companies Act, 2013 “share”
means a share in the share capital of a company and includes stock. It represents the interest of a
shareholder in the company, measured for the purposes of liability and dividend.

Shares, debentures, and other interests that a member has in a company are considered movable property.
They can be transferred in the way outlined in the company's articles of association. For example, in a
guarantee company, things like membership interest, suspension of membership, or assignment of interest
can be made transferable if the company's articles allow it.

According to Justice Fairwell, A ‘share’ is not a sum of money but is the interest of a shareholder
in the company measured by a sum of money for the purpose of liability in the first place, and of
interest in the second, [Borland’s Trustees v. Steel Bros. & Co. Ltd. [1901] 1 Ch. 279 (Ch.D.)]

Essential features of share

Shares in a company have several essential features, including:

1. **Ownership Stake**: Shares represent a unit of ownership in a company. When you own shares, you
own a part of the company.

2. **Dividends**: Shareholders may receive a portion of the company's profits in the form of dividends.
The amount and timing of dividends are decided by the company's board of directors.

3. **Voting Rights**: Most shares come with voting rights, allowing shareholders to vote on important
company matters, such as electing the board of directors and approving major corporate actions.

4. **Transferability**: Shares can usually be bought and sold, making them transferable. The terms and
conditions of transfer are often specified in the company's articles of association.

5. **Residual Claims**: In the event of the company's liquidation, shareholders have a claim to any
remaining assets after all debts and obligations have been paid. This is known as a residual claim.

6. **Limited Liability**: Shareholders typically have limited liability, meaning they are only liable for
the company’s debts up to the amount they have invested in the shares. They are not personally
responsible for the company's debts beyond their investment.

7. **Types of Shares**: Companies can issue different types of shares, such as common shares (ordinary
shares) and preferred shares, each with distinct rights and privileges.

These features collectively define the nature and benefits of owning shares in a company.

Difference between share and stock

A share represents a unit into which the capital of a company is divided. Thus, if the share capital of the
company is Rs. 5 lakhs divided into 50,000 units of Rs. 10, each unit of Rs. 10 shall be called a share of
the company.

The word "stock" refers to a bunch of shares that are all paid for and put together in one group of equal
worth. It's like gathering a bunch of shares into one big bundle. Unlike shares, which are counted
individually, stock is measured in money. Stock can be divided into smaller pieces of any value, and these
smaller pieces can be moved around just like shares.

Share

1. A share has a nominal value

2. A share has a distinctive number which distinguishes it from other shares.
3. Originally Shares can only be issued.
4. A share may either be fully paid-up or partly paid up.
5. A share cannot be transferred in fractions. It is transferred as a whole.
6. All the shares of a class are of equal denomination.

Stock

1. A stock has no nominal value.

2. A stock bears no such number.
3. A company can't create new stock from scratch. Instead, it can issue stock by changing
its fully paid-up shares.
4. A stock can never be partly paid-up, it is always fully paid-up.
5. A stock may be transferred in any fractions.
6. Stock may be of different denominations.

Types of share

According to the Companies Act, 1956 a company can issue only types of shares viz.,

1. Preference Shares and

2. Equity Shares

I. PREFERENCE SHARES

The term preference shares focus certain preferential rights over other types of shares. They are,

i) Preference shareholders have the right to receive a fixed dividend before any dividends are
paid to equity shareholders. This means that equity shareholders only get their dividend if there
is any surplus left after paying the preference shareholders.

ii) Preference shareholders also have the right to get their share capital back first if the company
is wound up. This means that when the company is liquidated, after paying off all debts, the
remaining assets are first used to return the money to preference shareholders. Only what is left
after that goes to equity shareholders.

Preference shareholders have these two special rights, but they also have some limitations.
Normally, they do not have voting rights. However, they can vote in two situations:

1. On any decision that affects their rights.

2. On all decisions if they have not received their dividend for a certain period specified by law.

Kinds of Preference Shares

Preference shares are of different types based on differing rights. They are briefly described
below;

1. Cumulative Preference share, if a dividend isn't declared due to insufficient profits, the right
to that year's dividend doesn't disappear. Instead, unpaid dividends accumulate and must be paid
from future profits before any dividends can be given to equity shareholders. Unless specifically
stated otherwise in the Articles of Association, preference shares are always cumulative.

2. Non Cumulative Preference Shares For non-cumulative preference shares, if a dividend isn't
paid in any given year, it is lost. The unpaid dividend doesn't carry over to future years, even if
there are enough profits later on.

3. Participating Preference Shares Preference shares come with the entitlement to a fixed
dividend and the opportunity to share in surplus profits alongside equity shareholders. Similarly,
during winding up, preference shareholders have the right to a portion of the surplus assets after
settling the preference and equity share capital. However, these rights are contingent upon
explicit provisions in the company's articles of association. Otherwise, preference shares are
assumed to be non-participating.

4. Non Participating Preference Shares These shares receive a set dividend rate and don't have
a share in extra profits or surplus assets. In this situation, all the surplus goes to equity
shareholders. If the company's rules don't mention the right to share in extra profits or assets,
these preference shares are seen as non-participating.

5. Convertible Preference Shares When preference shares give their owners the option to turn
them into equity shares within a certain time, they're called convertible preference shares.

6. Non-Convertible Preference Shares Preference shares that cannot be changed into equity
shares are referred to as non-convertible preference shares. These shares stay as preference
shares for the entire existence of the company without any alteration in their features. If the
company's rules don't mention the option to convert, the preference shares are automatically
classified as non-convertible.

7. Redeemable Preference Shares If a company's rules allow it, the company can issue
redeemable preference shares. This means the money raised through these shares can be given
back after a set time or whenever the company chooses, following the terms set when the shares
were issued. These shares can be bought back either using profits or money from selling new
shares. Redeemable preference shares can only be bought back if they've been completely paid
for. However, a company can't turn existing preference shares into redeemable preference shares.

8. Irredeemable Preference Shares Any preference share that cannot be redeemed during the
lifetime of the company is known as irredeemable preference shares.

II. EQUITY SHARES

Equity shares, also known as ordinary shares, are different from preference shares. They receive
dividends only after preference shareholders get their fixed dividends. Similarly, during
company liquidation, after paying back preference share capital, any remaining surplus goes to
equity shareholders. The dividend rate for equity shares can change yearly depending on the
company's profits. When profits are high, equity shareholders may receive a larger dividend. In
reputable companies, the dividend rate for equity shareholders is often higher than the fixed rate
for preference shareholders. However, if there are no profits in a year, equity shareholders won't
receive any dividend for that year, and it won't be paid later, even if profits are large in
subsequent years. Equity shareholders have the right to vote on all company decisions.

Kinds of share capital

There are multiple kinds of share capital that a company can have. Here is a list of various kinds
of share capital.
  Authorized Share Capital: It refers to the maximum amount of shareholders’ capital
that a company is authorized to issue as per its constitutional documents. This represents
the total value of shares that can be issued by the company.

 Issued Share Capital: This type of share capital of the company is the portion of
authorized shareholders’ capital that the company has actually issued. These are the
shares that are in circulation and held by investors.

 Subscribed Share Capital: It refers to the part of issued capital subscribed by investors
or agreed to be taken up by shareholders. This represents the shares that shareholders
have committed to purchasing.

 Paid-Up Share Capital: It represents the portion of subscribed shareholders’ capital that
has been paid by shareholders. It reflects the actual amount of money received by the
company in exchange for the shares issued.

Features of Share Capital

Here is a list of several key features that may define its role and impact on investors.

 Divisibility: Shares, the units of share capital, are divisible. Investors can own part of a
company through fractional shares, making ownership accessible to a wider range of
investors.

 Limited Liability: Shareholders’ liability is limited to the amount of capital they have
invested in the company. This means, they are not personally liable for the company’s
debts beyond their investment.

 Voting Rights: Each shareholder is granted voting rights on every resolution concerning
the company under Section 47 of the Companies Act, 2013. Shares often come with
voting rights, allowing shareholders to participate in certain company decisions like
dividend distribution or board member appointments. This empowers investors and
ensures stakeholder involvement.

 No Charge: When issuing share capital, no charge is created on the company’s held
assets.

 Bonus Shares: Companies may choose to reward shareholders by periodically offering

them bonus shares at no cost.

Transfer of share

Transfer of shares means the voluntary handing over of the rights and possibly, the duties of a
company member (as represented in a share of the company). The rights and duties of the share
transfer happen from a shareholder who wishes to not be a member of the company any more to
a person who wishes of becoming a member.

Thus, shares in a company are transferable like any other movable property in the absence of any
expressed restrictions under the articles of the company.

Persons involved in Share Transfer

 Subscribers to the memorandum.

 Legal Representative, in case of a deceased.

 Transferor.

 Transferee.

 Company (whether listed/ unlisted).

Directors and key managerial personnel

The Companies Act, 2013 (‘Act’) mandates that certain classes of companies have to appoint

Key Managerial Personnel (KMP). KMP is a group of people in charge of the company’s

operations. They are the decision-makers and responsible for the company’s smooth functioning.
They are employees vested with certain essential functionalities and roles.

Definition of KMP Under the Companies Act, 2013

Section 2(51) of the Act defines Key Managerial Personnel (KMP). It states that the KMP of a

company means:

 Chief Executive Officer, manager or Managing Director

 Company secretary

 Whole-Time Director

 Chief Financial Officer

 Such other officers, designated by the Board as KMP but are not more than one level

below the directors in whole-time employment

 Such other officer as may be prescribed

Chief executive officer, manager, or managing director

The CEO and Managing Director are in charge of running the company, with the Managing
Director having authority over all operations and responsibility for company growth and
innovation.

As per the Act, the Managing Director is someone with significant powers over managing the
company and its affairs. They can be appointed through various means: by the Articles of
Association, through an agreement with the company, by a resolution in a general meeting, or by
the board of directors.
The Act defines a manager as someone who oversees all company affairs, following the
direction, control, and supervision of the board of directors. A manager can be a director or any
other person in a managerial role, even under a service contract. However, a company cannot
have both a Managing Director and a manager simultaneously.

Company secretary

The company secretary is in charge of ensuring that the company runs smoothly by managing
administrative tasks, meeting regulatory obligations, and implementing the board's directives.
According to the Act, a company secretary is someone defined by Section 2 of the Company
Secretaries Act, 1980, as a member of the Institute of Company Secretaries of India (ICSI). Their
role includes making sure the company follows secretarial standards.

Whole time director

According to the Act, a Whole-Time Director is a director who works full-time for the company.
They are present for all of the company's working hours and are involved in its day-to-day
operations. Unlike independent directors, they have a direct role in the company's management
and hold a substantial interest in its affairs. It's worth noting that a Managing Director can also
serve as a Whole-Time Director.

Companies required to appoint KMP

Section 203 of the Act outlines the requirement for certain types of companies to appoint Key
Managerial Personnel (KMP), including the Managing Director, manager, Chief Executive
Officer (CEO), company secretary, and Chief Financial Officer (CFO). If a company doesn't
have a CEO, manager, or Managing Director, it must appoint a whole-time director.

Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014
specifies the categories of companies that must appoint a whole-time KMP. These include every
listed company, public companies with a paid-up share capital of Rs.10 crore or more, and
private companies with a paid-up share capital of Rs.10 crore or more, which must appoint a
whole-time company secretary.

A whole-time KMP cannot hold office in more than one company simultaneously, except for its
subsidiary company.

The board is responsible for filling KMP vacancies within six months. A person can be
appointed or re-appointed as a managing director, whole-time director, or manager for a
maximum term of five years.

Person Who can’t be appointed as KMP?

According to the law, a company cannot employ or appoint a managing director, whole-time
director, or manager if that person:

- Is either over 70 years old or under 21 years old

- Has been declared insolvent or is an undischarged insolvent

- Has defaulted on payments to creditors at any time

- Has been convicted of a crime by a court and sentenced to more than six months in prison

Penalty for non-Appointment of KPM

If a company fails to appoint Key Managerial Personnel (KMP) as required by the Act, it will
face penalties. The company itself will be fined Rs.5 lakh, and each director and KMP, if any,
will be fined Rs.50,000. Additionally, a penalty of Rs.1,000 per day, up to Rs.5 lakh, will be
added after the first day of such default.

KMPs play vital roles in managing company affairs. Companies listed under Rule 8 of the
Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, must
appoint KMP as mandated by the Act. Failure to do so will result in penalties as specified in the
Act.

Case laws

1. **Larsen & Toubro Ltd. vs. State of Maharashtra**: This case involved the interpretation
of the term "officer who is in default" under the Maharashtra Value Added Tax (MVAT) Act.
The court held that a KMP, such as a CFO, can be considered an "officer who is in default" if
they are actively involved in the management and conduct of the company's affairs. This ruling
established the liability of KMPs under the MVAT Act.

2. **Nirma Limited vs. SEBI**: In this case, the Securities and Exchange Board of India
(SEBI) imposed penalties on Nirma Limited and its directors for delayed disclosures of material
information. The court upheld SEBI's decision, emphasizing the responsibility of KMPs,
including the company secretary, in ensuring timely and accurate disclosures to regulatory
authorities.

These cases underscore the legal significance of KMPs and highlight their accountability in
various aspects of corporate governance and regulatory compliance.

Prevention of oppression and mismanagement

Chapter XVI of the Company Act, 2013. These measures aim to protect the interests of investors
and the public. Modern company laws have specific rules to stop unfair treatment and
mismanagement, in addition to protections for minority shareholders.

Meaning of oppression and mismanagement

Section 241-246 of the Companies Act, 2013 lays down the provisions to effectively deal with
oppressing and mismanagement in a company.

In the case Elder v. Watson Ltd, Lord Cooper defined oppression as a wrongdoing by majority
shareholders who, using their majority power, unfairly harm minority shareholders. This
definition was also endorsed by WANCHOO J (later CJ) of the Supreme Court of India in
Shanti Prasad Jain v. Kalinga Tubes Ltd.

An application under Section 241 can be made on the following grounds:

(a) If the company's operations are being run unfairly to the detriment of one or more members,
or in a way that harms the public interest or the company's own interests;

(b) If there's been a significant change in the company's management or control, such as
alterations in the Board of Directors or management team.

Meaning of mismanagement
Mismanagement happens when a company's operations harm the public interest or its own
interests. It can also occur when there's a significant change in ownership of the company's
shares, or if it has no share capital among its members or for any other reason, and it's likely that
the company's affairs will be run unfairly to the public interest or its own interests because of
that change. Palmer emphasizes that a good balance between the rights of majority and minority
shareholders is crucial for the company to function smoothly.

If any member of the company feels like things are being handled unfairly or if there's a big
change that's not good for the members, they can ask the tribunal to look into it.

The Central Government can also file an application with the tribunal in certain cases. If the
tribunal believes that the company's affairs are being conducted in a way that harms the public,
its members, or the company itself, the tribunal can make orders regarding whether the company
should be wound up or not.

These orders can include:

- Regulating how the company conducts its affairs.

- Allowing members to buy shares from other members.

- Allowing the company to buy back shares and reduce its capital.

- Restricting the transfer or allotment of shares.

- Terminating agreements between the company and its Managing Director, directors, or
managers if the tribunal sees fit.

- Terminating other agreements with third parties after giving due notice and obtaining consent.

- Removing the Managing Director, directors, or managers and deciding how they will be
replaced.

The company must file a certified copy of the tribunal's order with the registrar within 30 days.
The tribunal can also issue interim orders as needed. If the tribunal's order changes the
company's Memorandum of Association or Articles of Association, the company must make
those changes accordingly and file them with the registrar.
If the tribunal cancels an agreement, it doesn't lead to any claims against the company. The Managing
Director, directors, or managers mentioned in the agreement can't take on those roles for five years unless
the tribunal allows it. Permission can only be given after notifying the Central Government and giving them a
chance to speak up.

Class of
No. of members to apply
company

–Not less than 100 members OR Not less than 1/10th of the total
Company with number of its members Whichever is less OR –Any member or
a share capital members holding not less than 1/10th of the issued share capital
of the company
 Class of
No. of members to apply
company

Company with
Not less than 1/5th of the total number of its members
no share capital

Class action law suit

Class action laws allow a big group of individuals to file a lawsuit against a defendant who has
harmed the entire group in a similar way.

Filling to the tribunal

Who can apply.

1) Members a) Company having share capital b) Company not having share capital

A class action lawsuit can be filed by either:

- At least 100 members or a percentage of the total members as specified, whichever is less, or

- Any member or members holding a percentage of the company's issued share capital as
specified.

It's important to note that the applicant must have paid all the required fees and amounts due on
their shares, and the number of applicants should be no less than one-fifth of the total members.

Depositor

A class action lawsuit can be initiated by either:

- A minimum of 100 depositors or a percentage of the total depositors as specified, whichever is

lower, or

- Any depositor or depositors to whom the company owes a specified percentage of the total
deposits, as specified.

Circumstances of filing

If any member, depositor, or a group of them described previously believes that the company's
management is being carried out in a way that harms the company's interests, they can file an
application with the tribunal.

Rule of Foss vs. Harbottle

The case of Foss v. Harbottle established that the majority of shareholders usually control
company decisions, but there are important exceptions to protect minority rights, known as
"Qualified Minority Rights."

In this case, Richard Foss and Edward Starkie Praton, minority shareholders of the Victoria Park
Company, claimed that the company's property was misused and improperly mortgaged. They
wanted to hold the directors accountable and requested a receiver. However, the court dismissed
their claim for two reasons:

1. Only the company, as a separate legal entity, can sue for wrongs done to it.
2. If the majority of shareholders can approve or correct the wrong in a general meeting, the
court will not interfere.

Exceptions to this rule include situations involving actions beyond the company's powers (ultra
vires), illegal activities, actions needing a special majority, violations of individual rights, and
fraud against the majority.

Hindustan Co-operative Insurance Society Ltd In Re

In the case of Hindustan Co-operative Insurance Society Ltd In Re, the insurance industry was
taken over by the government in 1956. A Life Insurance Company was acquired by the Life
Insurance Corporation of India, which then paid compensation to the company. The majority of
shareholders decided not to distribute this compensation to the minority shareholders. To achieve
this, they changed the company's objective clause using their majority power.

The Calcutta High Court ruled that this action was a clear example of oppression by the majority
shareholders against the minority. The court invalidated the newly inserted objective clause and
ordered that the appropriate share amount be paid to the minority shareholders.

Winding up of companies
Winding up a company refers to the process of ending its existence by managing its assets for the
benefit of shareholders and creditors. A company, as a corporate entity formed under the
Companies Act 2013, is an association of individuals united for a common purpose of
conducting business and making profits. Chief Justice Marshall describes a company as "a
corporation, which is an artificial being, invisible, intangible, and exists only in contemplation of
law." A company possesses several characteristics:

- It has its own legal identity.

- It is an artificial entity.

- It enjoys limited liability.

- It can own separate assets and properties.

- It has a common seal.

- It has perpetual succession.

- It can initiate legal actions and be subject to legal action.

- Shares in a public company can be freely transferred.

As per this definition, a company must be incorporated in compliance with the Act. Likewise,
when it comes to closing down a company, a proper procedure must be followed. This process,
involving the realization of assets, repayment to creditors, and the distribution of surplus to
shareholders before ultimately dissolving the company, is known as winding up. Therefore,
winding up marks the final stage in which a company ceases to exist and is formally dissolved.

Modes of winding up
According to Section 270 of the Act, a company can be wound up by either of the two modes.
These are:

 Winding up by the Tribunal ( NCLT)/ Compulsory winding-up

 Voluntarywinding up of a company
Chapter XX of the Companies Act, 2013 deals with the winding up of a company. Part I
provides for winding up by the tribunal, while Part II provides provisions for the voluntary
winding up of a company. However, Part II has been omitted by the Insolvency and Bankruptcy
Code, 2016.

Difference between winding up and dissolution

The terms "wind-up" and "dissolution" are often used interchangeably, but they refer to different
stages in the process of closing down a company:

1. **Wind-Up:**

- Wind-up refers to the process of settling the affairs of a company, which includes selling off
its assets, paying off its debts, and distributing any remaining assets among the shareholders.

- During the wind-up process, the company ceases its normal business operations and starts the
process of liquidation.

- The goal of winding up a company is to make sure everything is wrapped up smoothly and all
debts are paid off.

2. **Dissolution:**

- Dissolution is the final stage of the winding-up process. It signifies the formal end of the
company's legal existence.

- Once all assets have been distributed, creditors have been paid, and any remaining matters
have been resolved, the company is dissolved.

- After dissolution, the company no longer exists as a legal entity and is removed from the
register of companies.

In summary, wind-up is the process of settling the company's affairs, while dissolution is the
formal termination of the company's legal existence. Wind-up precedes dissolution and is the
series of steps leading up to the company's final closure.

Winding up by tribunals

Part I of Chapter XX of the Companies Act, 2013 discusses the process of winding up a
company through a court or tribunal. When a company is ordered to be wound up by a court or
tribunal, it's known as winding up by the court or tribunal. This method is also referred to as
compulsory winding up. The following sections explain the provisions related to this process.

Who can file a petition for the winding up of a company

According to Section 272 of the Companies Act, 2013, the following individuals or entities can
file a petition for the winding up of a company to the Tribunal:
1. **Company:** A company can file a petition for its own winding up, but it must first pass a
special resolution to do so. It's important to know that if someone files a petition without the
company's board of directors' approval, it might be considered invalid.

2. **Contributory:** A contributory, who is responsible for helping pay the company's debts if
it closes, can file a petition. This includes people with fully paid shares or when the company has
no extra assets after paying its debts. The shares must have been held for at least six months in
the 18 months before the winding up starts.

3. **Registrar:** The registrar can file a petition to wind up a company in certain situations,
like actions against national interests, fraud, not filing financial statements, or if the tribunal
thinks it's fair. However, the registrar must get approval from the Central Government before
filing the petition.

4. **Person authorized by the Central Government:** Any person authorized by the Central
Government can file a winding-up petition.

5. **Central or State Government:** The Central or State government can file a petition if the
company's actions go against national interests, public order, morality, decency, or foreign
relations.

Grounds for compulsory winding up

Section 271 outlines the circumstances in which a tribunal can order the winding up of a
company. These circumstances include:

1. **Special Resolution:** According to Section 271(a), if a company passes a special

resolution for its winding up, a tribunal may order the same.

2. **Sovereignty, Integrity, and Other Factors:** Section 271(b) allows for the winding up of
a company if its actions are against India's sovereignty, integrity, security of the state, foreign
relations, public order, or morality.

3. **Fraudulent Conduct:** Under Section 271(c), if the tribunal, based on an application by

the registrar, finds that a company was formed fraudulently or its affairs were conducted
fraudulently, it may order winding up.

4. **Default in Filing Financial Statements:** Section 271(d) permits winding up if a

company fails to file its financial statements or audit returns with the registrar.

5. **Just and Equitable Grounds: ** Winding up may be ordered by a tribunal on various just
and equitable grounds:

- **Deadlock:** When there is an irretrievable deadlock between major shareholders, as seen

in Etisalat Mauritius Ltd. V. Etisalat DB Telecom (P) Ltd. (2013), the tribunal may order
winding up.

- **Loss of Substratum:** If a company fails to demonstrate its business plans or conduct

business, leading to a loss of substratum, as seen in Dunlop India Ltd. re (2013), winding up may
be ordered.

- **Losses:** If a company is unable to sustain its business due to losses, as seen in

Bachharaj Factories v. Hirjee Mills Ltd. (1955), winding up may be justified.
 - **Oppression of Minority:** If majority shareholders oppress minority shareholders, as in
Seth Mohan Lal v. Grain Chambers Ltd. (1968), winding up may be ordered.

- **Fraudulent Purpose: ** If a company is formed for an unlawful purpose, winding up

may be ordered.

- **Public Interest:** If it is in the public interest, as in Millennium Advanced Technology

Ltd., re, (2004), winding up may be ordered due to practices like false invoicing.

- **Company was a Bubble: ** If a company exists solely as a bubble without real business
operations, winding up may be justified.

These provisions ensure that the winding up of a company occurs under appropriate
circumstances, protecting the interests of stakeholders and upholding the integrity of the
corporate sector.

Power of NCLT

Section 273 of the Companies Act, 2013, empowers the National Company Law Tribunal
(NCLT) to exercise certain additional powers in relation to winding up proceedings. Here are
some key provisions under Section 273:

1. **Stay of Proceedings:** The NCLT has the authority to stay the continuation of any suit or
proceeding against a company that is subject to winding up proceedings, except with its
permission.

2. **Dissolution of Company:** The NCLT can order the dissolution of a company that has
been wound up, either by itself or subject to any conditions it deems fit.

3. **Retention of Jurisdiction:** Even after ordering a company to wind up, the NCLT still
has the authority to handle any requests related to the winding up process, such as requests to
transfer assets to the liquidator or any other related issues.

4. **Orders Binding on Company:** Any order passed by the NCLT under Section 273 is
binding on the company and its creditors, contributories, and employees.

5. **Assistance from Other Tribunals:** The NCLT may seek assistance from other courts or
tribunals, including foreign courts, in connection with any winding up proceedings pending
before it.

6. **Continuance of Winding Up Proceedings:** The NCLT ensures the continuance of

winding up proceedings initiated before it, even if there are changes in the constitution of the
tribunal or if proceedings are transferred to another tribunal.

Overall, Section 273 provides the NCLT with additional powers to effectively oversee and
manage winding up proceedings, ensuring that they are conducted in a fair and orderly manner
and that the interests of all stakeholders are protected.

Case laws

1. **In Re: Oriental Inland Steam Company Ltd. (1953)**: This case established that the
power to wind up a company is discretionary, and the court may refuse to wind up a company if
there are alternative remedies available to the petitioner.
4. **Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors. (2019)**: In this landmark
case, the Supreme Court held that the National Company Law Tribunal (NCLT) has the
jurisdiction to entertain winding-up petitions under the Companies Act, 2013, and it is not
necessary to approach the High Court for such matters.

5. **Mafatlal Industries Ltd. v. Union of India (1997)**: This case clarified that the winding
up of a company should be a last resort, and the court should consider whether there are any
reasonable grounds to believe that the company can be revived or rehabilitated before ordering
its winding up.

These cases provide valuable insights into the legal principles governing winding up proceedings
and the discretion exercised by the courts or tribunals in such matters.

Procedure of tribunal

The Companies (Winding Up) Rules, 2020 outline the procedure for compulsory winding up of a
company, along with the necessary forms and details. Here are the steps involved:

1. **Filing the Petition:** The petition for winding up must be submitted in either Form WIN 1
or Form WIN 2. It should be verified by an affidavit, either by the petitioner or by an authorized
person if the petition is made by the company. The affidavit should be as per Form WIN 3.

2. **Statement of Affairs:** Within 30 days, a statement of affairs must be filed as per Section
274 of the Companies Act, 2013. This statement should contain information up to the filing date
and must be submitted in Form WIN 4, accompanied by an affidavit concurring with the
statement.

3. **Hearing of Petition:** The petition will be scheduled for a hearing before the tribunal, and
a hearing date will be fixed. If the petition is not made by the company, notice must be sent to
the company, giving them an opportunity to be heard before any advertisement directions are
issued regarding the petition.

4. **Service to Contributories:** The person making the petition must serve a copy of the
petition to every contributory within 24 hours of payment, as per Rule 6.

5. **Advertisement Notice:** Notice of the petition will be advertised in a daily newspaper

circulating widely in the state where the registrar's office is located, at least 14 days before the
hearing date. The advertisement must be in English or the vernacular language of that area. Rule
8 specifies that an application for winding up cannot be withdrawn without tribunal permission.

6. **Filing Objections:** Any objections must be filed within 30 days in the form of an
affidavit, which will then be served to the petitioner.

7. **Reply to Objections:** A reply to the objections must be filed within 7 days before the
hearing date, in the form of an affidavit.

8. **Appointment of Provisional Liquidator:** Upon admission of the petition by the tribunal

and upon sufficient grounds, a provisional liquidator will be appointed as per Rule 14. The order
of appointment will include restrictions and limitations on the provisional liquidator's powers
and will be communicated to them and the registrar within 7 days.

9. **Order of Winding Up:** The tribunal's order for winding up, in accordance with Form
WIN 11, will be sent to the company liquidator and the registrar within 7 days, and it will also be
advertised.
10. **Dissolution:** After the company's affairs are completely wound up, the company
liquidator will apply for dissolution within 10 days, along with audited final accounts and
auditors' certificates. Upon receiving the tribunal's order for dissolution, the winding-up process
will conclude.

Here is a flow chart to explain the procedure for the compulsory winding up of a company as per
the Companies (Winding Up) Rules, 2020:

1. **Filing the Petition**

- Submit in Form WIN 1 or WIN 2

- Verified by affidavit (Form WIN 3)

2. **Statement of Affairs**

- File within 30 days as per Section 274 of the Companies Act, 2013

- Submit in Form WIN 4 with an accompanying affidavit

3. **Hearing of Petition**

- Schedule hearing before the tribunal

- Notify the company if the petition is not made by the company

4. **Service to Contributories**

- Serve a copy of the petition to every contributory within 24 hours of payment (Rule 6)

5. **Advertisement Notice**

- Advertise notice in a widely circulated daily newspaper at least 14 days before the hearing

- Advertisement in English or the vernacular language

- Application for winding up cannot be withdrawn without tribunal permission (Rule 8)

6. **Filing Objections**

- File objections within 30 days in affidavit form

- Serve objections to the petitioner

7. **Reply to Objections**
 - File reply to objections within 7 days before the hearing date in affidavit form

8. **Appointment of Provisional Liquidator**

- Tribunal appoints provisional liquidator upon admission of petition and sufficient grounds
(Rule 14)

- Order includes restrictions and limitations

- Communicate order to liquidator and registrar within 7 days

9. **Order of Winding Up**

- Tribunal sends order in Form WIN 11 to company liquidator and registrar within 7 days

- Advertise the order

10. **Dissolution**

- Company liquidator applies for dissolution within 10 days after winding up

- Submit audited final accounts and auditors' certificates

- Winding-up process concludes with tribunal's dissolution order

This flow chart simplifies the steps involved in the compulsory winding up of a company,
detailing the forms and actions required at each stage.