Principles of voluntary winding up UNDER IBC, 2016 : An overview
The Companies Act 1956 has
undergone several changes periodically and the last substantive change had
brought out a new law i.e Company Act 2013. The principles of voluntary winding
up was encapsulated earlier in Section 488- Section 502 of Companies Act 1956 and voluntary winding up
was contained inter alia in section
488 of Companies Act. 1956. The
corresponding provisions were made under section 304 of Companies Act 2013. Then
came, Insolvency & Bankruptcy Code 2016 (IBC), thereby, a new vista was
opened for dealing with the cases relating to insolvency and a complete code
was devised and enacted for this purpose. The National Company Law Tribunal (NCLT)
and The National Company Law Appellate Tribunal (NCLAT) was constituted for
matters related to IBC 2016, more particularly, of cases relating to rehabilitation
and dissolution of companies, apart from the issues arising out of Companies
Act 2013 as regards insolvency. The IBC 2016, being a complete code in itself stipulates detailed
mechanism of insolvency proceedings including its resolution and liquidation by
way of rehabilitation or stipulating purchase of corporate person as a going concern
for rehabilitation and if necessary, devising methods to liquidate, should the
process of resolution fails. The principles of voluntary winding, contrary to the
invoking of insolvency process by Financial Creditors and Operational Creditors
as per Section 7 & 9 of the Code, respectively, up shall not entail the
comprehensive process of resolution and appointment of resolution professional
or liquidator in a manner necessary under the aforesaid sections.
The principles of voluntary
winding up is contained in section 59 of the Insolvency & Bankruptcy Code
2016 and the process u/s 59(1) to Section 59 (7) of the Code itself entails a comprehensive process and the requisites of the
same shall be dwelt in little later. It is worthwhile to tabulate the
provisions of voluntary winding up as per the successive enactments and under
the Acts are illustrated hereunder:
PROVISIONS OF VOLUNTARY WINDING
UP
|
S.N |
PARTICULARS |
REMARK |
|
1. |
Companies
Act 1956 |
Section
484 to 502 |
|
2. |
Companies
Act 2013 |
Section
304 to 318 |
|
3. |
Insolvency
& Bankruptcy Code 2016 |
Section 59
(1) to (7), Provisions of section 35 to 53 shall also apply Section
59(1) deals with initiating voluntary winding up process, whereas clause (2)
relates to meeting the conditions laid down in this regard and as may be
prescribed by the Board. Similarly, clause (3) (a)(b) & (c) requires
declaration from majority of Directors of the company to the effect that the
company has no debt or shall be able to fully pay off the debts from the
assets of the company and that company is not being wound up to defraud any
person or entity. Moreover, audited account of the company of preceding two
years are or for the period since its incorporation, whichever is later is to
be furnished. The valuation of the company assets from a registered valuer is
to be obtained as well. The Special
resolution is to be passed by the members of the in a general meeting of the
company within Four (4) weeks of above declaration endorsing the liquidation
of company and appointing insolvency professional to act as liquidator. As
per clause (4) The Registrar of Company and the Board is also to be notified
about resolution passed under clause (3) within Seven (7) days of passing of
such resolution or by the subsequent approval of creditors, as the case may
be. The
liquidator is required to make an application before the Adjudicating
Authority, for seeking orders of dissolution of company, once the company is
wound up and its assets completely liquidated (Clause 7 of section 59). The
necessary order shall be passed by the Tribunal in terms of section 59(8) of
IBC 2016 specifying the date of dissolution. As per Section 59(7) the order
passed by the Adjudicating authority shall be forwarded to the Authority
under which the corporate person was registered. |
The essence of initiating voluntary winding up,
more particularly as contained in Section 59 of Insolvency & Bankruptcy
Code 2016 is that that Corporate Debtor, being a company should not default on
any debt payable to any person or entity and opt to wound up under several
circumstances, including but not limited to, winding up as a result of expiry
of period of operation fixed in its constitutional documents or in case of
occurrence of any or such event provided in its documents relating to
dissolution. The provision is equitable and as per the judicial principles of
good conscience.
Is illustrated above, the provisions of voluntary
Winding up was contained in Companies Act 1956 and also in Companies Act 2013.
However, thereafter a complete code was enacted in the name & style of
Insolvency & Bankruptcy Code with a view to give fillip to the issue of
companies and efforts of rehabilitation and dissolution is more aptly
prescribed in the Code. The process of voluntary winding up as per IBC 2016,
does not contemplate any official liquidator, rather, resolution professional
and liquidator is appointed in case specific manner by the Corporate Applicant
itself. The Code is a comprehensive legislative act and stipulates the
mechanism of dissolution in greater details.
The Corporate Person having completed requisite
formalities and procedure of liquidation in compliance of law may file the
Petition for its dissolution under Section 59 (7) of the Code.
The voluntary liquidation process shall entail the
following:
1.
Intimation to Registrar, IBBI and IT
Department etc
2.
Liquidator to start proceedings
3.
Preliminary Report
4.
Realisation of assets and distribution
of proceeds
5.
Final report and audited receipt and
payment account
6.
Application to NCLT for dissolution of
company
7.
Order by the NCLT for dissolution of
company
8.
Filing of Order with ROC
9.
Change of Master Data by the ROC
The aforesaid prescription as per
the Code has passed muster in various
judgments rendered by National Company Law Tribunal (NCLT) and National Company
Law Appellate Tribunal (NCLAT) .
Judgments
of NCLT endorsing Voluntary winding up
|
S.N |
PARTICULARS |
REMARK |
|
1. |
NCLT MUMBAI CP (IB)
-3052/I&BP/ MB/2019 Under Section
59 of IBC, 2016 Indipreneurs. Com Private Limited |
(i)
Minutes of the meeting of the Board of Directors
stating that voluntary liquidation is approved of notice convening EGM for consideration of voluntary
liquidation and approving declaration
of solvency A special
resolution of Board of Directors’ deciding to liquidate the company
voluntarily subject to necessary approval from ROC and appointing Insolvency
professionals as liquidator of the company under voluntary winding up.
Explanatory statement pursuant to section 102 of the Companies Act stating
that company has not been carrying out business activities and has no
intention to do that in future and Board of Directors felt it necessary that
the company be wound up voluntarily. The directors of the company under
section 59 (3) (a) of IBC Code 2016, is required to make full inquiry into
affairs of the Corporate Person and formed an opinion that the company has no
debts and the companies is not being liquidated to defraud any person. The Public
announcement in two newspapers one in English and another in vernacular
language, calling upon stake holders, to submit their claims as required
under Regulation 14 of IBBI (Voluntary Liquidation Process) Regulations, 2017
and it is required to be made clear no claims were
received from any creditors. The
Liquidator is required to realize proceeds of the assets of the Corporate
Person as mentioned under regulation 32 of IBBI Regulations. There should be
no creditors and proceeds were distributed to the stake holders after meeting
the expenses such as Professional fees, etc. As
per 34 of IBBI Regulation the liquidator has to duly open a bank account in
the name and style of corporate person. The Liquidator has to file
preliminary report and final report. The audited accounts of liquidation
under liquidation as per Regulation 38 of IBBI Regulations is necessary.
Finally, the liquidator has to file the Petition along with final report and
a copy of the final report is to be sent to the Registrar of Companies and
Insolvency and Bankruptcy Board of India, in compliance of Section 59 (6) of
Code, read with Regulation 32 and 34-38 of IBBI Regulations. |
|
2. |
CP(IB)No.2524/(MB)/C-IV/2019 - Myzus Infotech Private Limited |
(ii)
As above. The Company had two (2) directors and
both of them had resolved to voluntarily liquidate the company while meeting
the prescription as set out in section 59(1) to (7) of IBC 2016. The Liquidator made a public announcement of
commencement of liquidation in Form A of Schedule I as per regulation 14 of
Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process)
Regulations, 2017 by way of publication in Two 92) newspapers inviting for
the submission of claims due to the corporate person by various stakeholders.
The public announcement was submitted to Insolvency and Bankruptcy Board of
India (IBBI). The resolution for the commencement of liquidation, the
appointment of a liquidator and a public announcement made in the newspaper
to the Registrar of Companies in Form MGT-14 and Form GNL-2 was submitted.
The Registrar of Companies was notified about passing of special resolution.
No claim was received from operational creditors, financial creditors,
workmen, employees and other stakeholders under the advertisement published
in the newspaper. The Liquidator had submitted the audited financial
statements of the company reflecting a true and fair picture of the affairs
of the company. The Auditors Certificates on the liquidation accounts of the
Company, showing receipts and payments pertaining to liquidation since
liquidation commencement date stating that the company does not have any
pending litigations which would impact its financial position, proper books
of accounts as per law have been maintained, the company did not have any
long-term contracts including derivatives contracts for which there were any
foreseeable material losses and that there are no amounts that require to be
transferred to the Investor Education and Protection Fund by the Company. The copy of the final report of the Liquidator
was annexed to the petition, stating how the liquidation process has been
conducted, and the assets of the company had been disposed-off The debts of
the company have been discharged to the satisfaction of the creditors and
that no litigation was pending against the company. The said final report of
the Liquidator is submitted with the Registrar of Companies and sent to IBBI
via e-mail as well as via courier. The Liquidator has filed the petition before
the Tribunal under section 59(7) of IBC seeking an order of dissolution of
the Petitioner company. On
examining the submission made by the petitioner and the documents annexed to
the petition it was held that the affairs of the company have been completely
wound up, and its assets have been completely liquidated. The
Company was thus dissolved from the date of the order and the company was
directed to serve the order of dissolution of company to the concerned
Registrar of company |
Similarly, in CP 2048/IBC/NCLT/MAH/2018 in a matter captioned as KONFIAANCE JEWELLERY PRIVATE LIMITED, the NCLT
Mumbai under Section 59 of
the I&B Code, 2016 has held in similar line and the company was wound up.
NCLAT ENDPORSEMENT OF SECTION 59
of IBC 2016
The NATIONAL COMPANY LAW APPEALLATE TRIBUNAL, NEW DELHI in Company Appeal (AT) (Insolvency) No. 58 of
2020 in a matter captioned as Mr.
Harrish Khurana, Liquidator of M/s. TEIL Projects Limited (In Voluntary
Liquidation) Versus M/s. Engineers India
Limited & Anr.
The question for consideration in the
appeal, as formulated was- whether the provisions of Section 59 of the
Insolvency and Bankruptcy Code, 2016 can be made applicable under Voluntary
Liquidation initiated pursuant
to the Companies Act, 1956 and the procedure to be followed and in such case,
whether the appeal under Section 42 of the ‘I&B Code’ is maintainable
before the Adjudicating Authority (National Company Law Tribunal)?
The NCLAT has held that IBC Code
shall apply in all such cases. It is held that that Section 59 of the ‘I&B
Code’ incorporated in Chapter V of Part II of the ‘I&B Code’ providing for
‘Voluntary Liquidation of Corporate Persons’ is a clear answer in itself. The
section 59 of IBC Code stands duly notified vide S.O. 1005 (E) dated 30th March, 2017 and has been enforced
w.e.f. 1st April, 2017.
If a company was undergoing Voluntary
Liquidation Process as per the trap of Chapter V of Part II of the ‘I&B
Code, the same has no fetter attached to it. Moreover, Section 2 of the
‘I&B Code’ clearly provides that the ‘I&B Code’ shall apply to any
company incorporated under the Companies Act, 2013 or any previous company law,
special Act, LLP Act and other specified corporate bodies as also individuals
other than personal guarantors, in relation to their insolvency, liquidation,
voluntary liquidation or bankruptcy, as the case may be. As per Section 238 of
the ‘I&B Code, the latter override other laws. As there clearly is specific
provision in the ‘I&B Code’ dealing with admission or rejection of claim by
the Liquidator with mechanism provided for questioning the same in appeal
before the Adjudicating Authority and such provision being made applicable to
voluntary liquidation proceedings explicitly in terms of the provisions
embodied in Section 59(6) of the ‘I&B Code’, issue raised with regard to maintainability
of the appeal and jurisdiction of the Adjudicating Authority are without
substance.
REMARK
The IBC Code 2016 has travelled in
very fast pace since its inception in 2016 and more particularly after its
notification as regards the various sections in 2017. The Code has succeeded in
creating and perpetuating speedy resolution of disputes related to companies.
The underlying objective of the Code has
been to seek and pursue the process of resolution/rehabilitation and, if
possible, as a going concern, in as much as the company in that event could be
revived “as is where is basis” and
the employment and infrastructure is not altered to the disadvantage of any.
Should the process of rehabilitation fails, only, then, the process of liquidation
begins. More pertinently, the Committee of Creditors (CoC) is constituted in a
contested insolvency matter so as to ascertain the assets of the company in
liquidation and proportionately share the proceeds upon liquidation, amongst
the creditors. In that event the resolution professional, Liquidator and CoC
has a salutary role. It is democratic in essence, as the claimant/creditor is part and parcel of decision making process. However, so far as
voluntary winding up/insolvency matter is concerned, the comprehensive procedure
is contemplated only with a view to ensure that no one who may have claim
against the company seeking its winding up could be deprived of or wronged by
the acts of the company/corporate person. The series of compliance, though,
might appear cumbersome, but in essence, it is not so, as the various ladder of
compliance is meant to ensure probity and fair play and not to cause stumbling
block.
Anil
K Khaware
Founder & Sr Associate
societylawandjustice.com
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