(a)Are Winding-up and Dissolution Synonymous ? Explain the difference between a Company Winding-up as per IBC, 2016 and Companies Act, 2013.
The terms “Winding up” and “Dissolution” are sometimes erroneously used to mean the same thing. But, the legal implications of these two terms are quite different and there are fundamental differences between them as regards the legal procedure involved.
The entire procedure for bringing about a lawful end to the life of a company is divided into two stages i.e., ‘winding up’ and ‘dissolution’. Winding up is the first stage in the process whereby assets are realized, liabilities are paid off and the surplus, if any, distributed among its members. Dissolution is the final stage whereby the existence of the company is withdrawn by the law. Dissolution brings about an end to the legal entity of the company.
Winding up is governed under the Companies Act,2013 on six grounds out of which ground of inability to pay debt [stated below under(a)} has been transferred to the Insolvency and Bankruptcy Code,2016. Therefore, remaining grounds on which winding up can be initiated under the Companies Act, 2013 by the Tribunal are:
(a)if the company is unable to pay its debts (now dealt under Insolvency and Bankruptcy Code, 2016).
(b)if the company has, by special resolution, resolved that the company be wound up by the tribunal;
(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;
(e)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; or
(f)if the Tribunal is of the opinion that it is just and equitable that the company should be wound up.
Petition under the Companies Act,2013 for winding up can be made by the company, contributory/ ies, Registrar of Companies (ROC), Central Government or State Government or any one authorised by Central Government or State Government while application for initiating insolvency can be made by a creditor or the company under the Code.
The petition is for winding up of the company under the Companies Act,2013, while the first step in IBC is to resolve the insolvency of the company which if fails result in liquidation and dissolution of the company.
Winding up is conducted by Official Liquidator appointed by the Tribunal under the Companies Act while Liquidation under the Code is conducted by the insolvency professional acting as Liquidator.
Source: ICSI Guideline Answers, June 2024, Q. 3(A) (Syllabus 2017).