Indian Company Liquidation Process

Indian Companies Act provisions


Process of Liquidation of Indian Companies

Company liquidation means that when the company is facing termination, entities with liquidation obligations shall, in accordance with the methods and procedures prescribed by law, conduct a comprehensive clean-up and disposal of the company’s assets, liabilities, shareholder’s equity and other company’s conditions, so that the company and other entities The rights and obligations that arise between are eliminated. Recently, according to the notification no. SO 3677(E) dated 07.12.2016 of the Ministry of Corporate Affairs of India, in the newly published chapters of the “Corporate Act 2013” ​​issued by the Central Government of India, Sections 270 – 288, 290 – 303, 324, sections 326-365 specify the procedures for the court to liquidate the company. Below, we will sort out the process of liquidation of Indian companies for readers.


Note: In this Section, we only sort out the liquidation process specified in these chapters for everyone, but in practice, it needs to be interpreted in conjunction with the National Company Law Tribunal Rules, 2016.


According to Chapter 270 of the 2013 of the Indian Companies Act (hereinafter also referred to as the “Company Law”), companies can be liquidated in two ways: court or voluntary.

 The procedural provisions on court liquidation have been announced and come into force.


Whats is the procedure on court declaration for company liquidation?

According to the circumstances under which the company can be liquidated under section 271 of the Indian Companies Act, the creditor must submit a petition to the court in accordance with the requirements of Section 272 of the Companies Act of India.

 The petition can be filed by any company, creditor, investor, registrar, anyone authorized by the central government, and by the state or the central government (when it involves national security and integrity).


Note: Each application or relevant information must be in the same form as provided in the NCLT form.



Section 34 of the Indian Companies Act

Any attachment must be accompanied by a form NCLT.2. The authenticity of each petition, application or related materials should be confirmed and signed in the form NCLT.2.


After the court receives the liquidation petition, it must make a ruling in accordance with Section 273 of the Company Law within 90 days from the filing date of the petition.

The court may make a ruling not to consider the application for liquidation, or issue an interim order, appoint an interim liquidator, make a liquidation approval order or make other orders.


Section 34 of the Indian Companies Act

Before appointing a provisional liquidator, the court must issue a notice to the liquidation entity and give the opportunity to make representations, and notify the liquidation entity through the form NCLT.5.



If the court based on the preliminary evidence is sufficient to conclude that the liquidation procedure is applicable to the case, the court may, in accordance with Section 274 of the Company Law, pass an order and instruct the company to submit a written objection and statement within 30 days of the order. In special circumstances, the court may approve an extension of 30 days.



If the court passes a liquidation order under Section 273(1)(d), according to Section 274 of the Company Law, the directors and other personnel of the company must notify the provisional liquidator of the liquidation order in court and submit it to the company within 30 days Completed and audited accounts. Section 274(4) imposes fines and imprisonment on directors or related personnel who violate the above regulations.



The court must appoint a provisional liquidator or company liquidator when passing a company liquidation order.

According to Section 275 of the Act, when appointing the provisional or company liquidator, the liquidator must declare any conflict of interest or lack of independence of the appointment within 7 days after the appointment date.


The court may appoint a provisional liquidator as the liquidator of the company to conduct the legal process of company liquidation.


According to Section 276, the liquidator appointed in this way may be replaced due to misconduct or lack of professional ability.



After the court appoints a provisional liquidator or passes a liquidation order, the court shall notify the liquidator and the Registrar of the order within 7 days from the date of passing the order.

The Registrar must then sign the document and announce the order in the government gazette under section 277.

If the company is a listed company, the registrar must notify the stock exchange where the company’s securities are listed.


Within 3 weeks of the issuance of the liquidation order, the liquidator of the company must apply to the court to establish a liquidation committee to assist and monitor the liquidation process.

The liquidator of the company may convene members of the committee and submit a report on the meeting to the court every month, and prepare a draft final report for approval by the committee. The final approved report will be submitted to the court by the company’s liquidator to pass a dissolution order.


Section 279 of the Indian Companies Act

Once the court passes the liquidation order, no legal proceedings or legal proceedings may be instituted against the company.


Section 280 of the “Company Law” stipulates that the court shall have jurisdiction to handle or accept litigation or requests against the company.


Section 281 of the Company Act of India

Section 281 of the Company Law stipulates that the liquidator must submit a report to the court within 60 days of the passage of the liquidation order, and the report must include the details described in Section 281.

The liquidator may also make further reports on the company’s viability and matters that it deems appropriate.



After the liquidator has duly reviewed the liquidation report, the court shall determine the time limit for the completion of the liquidation process and dissolve the company in accordance with Section 282 of the Company Law.


Section 282 of the Indian Company Act

The court can make an order to sell the company, and it can also appoint a sales committee to assist the liquidator in processing in accordance with Section 282 of the Company Law.



If there is a false statement/fraud in the liquidation report, the court will investigate it and initiate criminal proceedings against the liquidator and related parties in accordance with Section 282, paragraph 3 of the Company Law.



After the liquidation is approved, in accordance with Section 283 of the Company Law, the liquidator of the company shall, in accordance with the order made by the court, have the right to supervise and control all the company’s property and litigation claims.

Since the passage of the liquidation order, the company’s property shall be transferred to the court for safekeeping, and the liquidator may require the designated person to transfer the relevant documents, account books, property and money to the liquidator.


Section 285 of the Indian Companies Act

Section 285 of the Company Law stipulates that the court shall make a list of responsible persons (capital contribution) and make corrections if necessary to release the company’s current assets and liabilities.



In the liquidation process, the court set up an advisory committee in accordance with Section 287 of the Company Law to issue opinions to the liquidator and the liquidator directly reports to the court.

The advisory committee shall consist of 12 members of the company members, creditors or taxpayers.


The liquidator shall convene a meeting of creditors within 30 days after the issuance of the liquidation order and shall consist of committee members selected by the court. The chairman of the committee is the liquidator.


Section 288 of the Company Law

Section 288 of the “Company Law” stipulates that the liquidator shall periodically prepare a liquidation report and submit it to the court to follow up the liquidation process.



The liquidator shall exercise its powers and perform obligations in accordance with Section 290 of the Company Law.



Section 291 of the Company Act stipulates that the liquidator may hire professionals to assist him in fulfilling his obligations during the liquidation process.


Stipulation under Section 293 of the Indian Companies Act

Section 293 of the “Company Law” stipulates that the creditor’s instructions take precedence over the advisory committee’s instructions, and the liquidator shall properly keep various accounts at all times.


Section 294 of the Company Act

Section 294 of the “Company Law” stipulates that the liquidator shall submit the company’s income and expenditure account books to the court, and the court shall review the account books.

The liquidator needs to submit a copy of the review document to the court and the company liquidation registry.

 In addition, the liquidator should prepare a summary of the review text and send it to all creditors and investors.



The investor may be required to pay off or offset the debt, that is, pay with personal property.

 Section 296 of the “Company Law” stipulates that the investor shall pay off within the scope of his responsibility.


Section 299 of the Indian Company Act

Section 299 of the “Company Law” stipulates that the court has the right to summon the person who owns the company’s property, examine the senior personnel or the aforementioned summoners, record their defenses or statements, and have them sign for confirmation.

In addition, the court may require the liquidator to submit a report on the possession of company property by others.


Section 300 of the Indian Company Act

Section 300 of the Company Law stipulates that the court has the right to review the board of directors and promoters for false statements made by the liquidator in the report.



When the company’s liquidation affairs are all completed, the liquidator shall submit an application for dissolution of the company to the court in accordance with Section 302 of the “Company Law”.


The court shall make an order to dissolve the company on this basis, and the date on which the order is made shall be the day the company is dissolved.


The liquidator shall send a copy of the company’s dissolution decree to the company liquidation registry within 30 days for registration.



Section 324 of the Company Law stipulates that all company debts can be used as evidence of company liquidation.


Section 39 of the Indian Companies Act

The court may require the parties to submit evidence, which may be submitted in writing. Evidence in written form should be completed in the Indian Company Law Tribunal (NCLT). 7. Form before being submitted to the court.


Citation under Sections 328 to 335 of the Indian Companies Act

False priority, non-goodwill or other transfers, and floating mortgages shall be deemed invalid, and transfers, mortgages, and sales after the start of liquidation shall also be deemed invalid.

If any of the above actions occur within 12 months after the start of liquidation, the liquidator of the company shall stop it.


Sections 336 to 339 of the Companies Act of India

According to Sections 336 to 339 of the “Company Law”, fraudulent activities by company personnel, failure to properly keep the company’s account books, and company personnel deceiving creditors will be punished or held criminally liable.


Section 344 of the Indian Companies Act

Any invoice, order or business letter should contain a statement that the company is liquidated.

Section 347 of the Company Act

According to Section 347 of the “Company Law”, when the company is about to dissolve after the company’s liquidation affairs, the company’s account books and related documents must be processed in accordance with the requirements of the court.



According to Sections 349 to 351 of the Company Law, the liquidator shall pay the Reserve Bank of India and deposit the money into the designated bank, and the liquidator shall not deposit the money into a private account.



According to Section 356 of the “Company Law”, the court can declare the dissolution invalid within 2 years after the dissolution of the company, and execute the new procedures in the state when the company has not been dissolved



According to Section 359 of the Company Law, the official liquidator appointed by the court must be a full-time central government official.


Section 362 of the Indian Companies Act

The official liquidator must dispose of all the company’s property within 60 days after the appointment, and must notify the debtor within 30 days to pay off the remaining company debt and deposit it in the Reserve Bank of India.


Section 363 of the Companies Act

At the same time, within 30 days of appointment, the liquidator must also require creditors to prove their claims and pass the list of claims listed by the liquidator. Each creditor shall record the accepted or rejected claims in writing.


Section 364 of the Companies Act

If creditors have any objections, they can appeal to the central government within 30 days, and the official liquidator shall pay the creditors who have accepted the claim.



Finally, if the official liquidator believes that the company’s liquidation process has been completed, it should submit a report to the central government and the courts.

Based on this report, the central government or the court can make an order to dissolve the company.

On top of this decree, the Companies Registry will cancel the company and issue a notice.



In addition to the above general regulations, we have also marked some regulations that require special attention, such as:


1. If the assets do not exceed Rs 10 million, the enterprise can also apply to the court to implement the simplified liquidation procedure (Section 361).


2. The company’s liquidation order issued by the arbitration court shall be deemed to have begun when the application is submitted. (Section 357)


3. Before the date of informing the respondent to participate in the hearing, the NO.NCLT.5 form should be filled out. (Section 37)


4. All parties may appear in court in person or authorized representatives to appear in court.

To appoint a representative to participate in court-related affairs, a document and form NCLT.12 authorizing the defense to be represented must be filled out. (Section 45)


Regardless of whether it is the termination of business operations, the completion of business objectives, or bankruptcy liquidation due to the investor’s business needs, we should take corresponding measures in light of our own circumstances. During the implementation of the liquidation process, we must comply with the “Company Law”


The provisions of the liquidation procedure, and compliance with the court’s orders and requirements for the liquidation process, to prevent unnecessary troubles from affecting the subsequent process.



Author’s Bio

Name: Ajay Rastogi

Educational Qualification: LLB

Profession: Advocate / Lawyer

Work Experience: 20 Years of Legal Practice

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