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Winding of a company by the court under companies act 1956

WINDING UP BY THE COURT

 

    Winding up by the Court is also called as a Compulsory Winding up, may be ordered in case mentioned in Section 433. The Court will make an order for winding up on an application by any of the person enlisted in section 439. Section 438 to 483 specifically deals with winding up along with the sections 528 to 559.

  

   Section 10 says-“Courts having jurisdiction to wind up” it shall be read with Section 2(11) which states “jurisdiction of a court in respect of all matters relating to companies.” In the case of   Haryana Telecom Ltd. V Sterlite Industries Ltd., S.C. held that the H.C. should decide a petition for winding up of a company under the Companies Act and not under Arbitration and Reconciliation Act, even if there was an arbitration agreement between the parties. Even if there is an Agreement that dispute shall be resolved before any specific court, winding up petition can only be filed before the Court where registered office of the company is situated. Merely because any of the circumstances enumerated under section 433 exists, it does not follow that the court is bound to order winding up. No one can ask for winding up of a company as a matter of right. Once the Court exercises jurisdiction by reason of the fact that the registered office of the company is situated in the state over which the High Court has jurisdiction, its jurisdiction will automatically extend to all persons, whether they are residents of the state or not.

      

           Section 10, does not purport to invest the Company Court with jurisdiction over every matter arising under the Act. So, unless a power has been specifically conferred upon a Company Court, Civil Court will have the jurisdiction to entertain the petition. The Karnataka High Court held that Court/Courts, within whose jurisdiction registered office of the company is situated, alone would have the jurisdiction to try the case and not the Court within whose jurisdiction complainant/shareholder is residing.

The court in following situations may wind up a company. Here, the court means "High Court".

·If the company itself, has passed a special resolution in the general meeting to wound up its affairs. Special resolution means, resolution passed by three-fourth (3/4") of the members present.

·If there is a default, in holding the statutory meeting or in delivering the statutory report to the Registrar. A company which is limited by shares, and a company limited by guarantee having share capital, is required to hold a " Statutory meeting" of its members, within six months, and after one month, from the date of commencement of it's business. A statutory report of the meeting so held shall also be forwarded to the registrar. [Sec 165 (1) & (5)]

 

·If the company fails to commence it's business within one year from the date of its incorporation, or suspends its business for a whole year.

 

·A company limited by shares, has to obtain a "certificate of commencement" of business from the registrar. Unless it obtains such certificate, it cannot carry on its business operation.

 

·If the number of members, in a public company is reduced to less than seven, and in case of private company less than two. The statutory requirement of minimum number of members in a public company is seven, and in case of private company, it is two (sec 12)

 

·If the company is unable to pay its debits; where the financial position of the company is, such, that it has more liabilities than assets, and after disposing off the assets, it is still unable to extinguish it's liabilities, it means that company is unable to pay it's debts.

 

·If the court, itself is of the opinion that the company should be wound up. The court may form such an opinion, if it comes to the knowledge of court that, the company is mismanaged, or financially unsound, or carrying an illegal operations etc.

 

Comments
Siddharth March 25, 2010
good article
 gaurav March 29, 2010
Hi,

Thanks for this informative article.
what would happen to share holders??
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