Indian Company Liquidation Legal Process under the Indian Companies Act 2013
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.
Ministry of Corporate Affairs of India notification
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, Articles 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.
NB: In this write-up, we only sort out the liquidation process specified in these chapters for everyone. While in practice, it needs to be interpreted in conjunction with National Company Law Tribunal Rules, 2016.
According to Chapter 270 of the 2013 India Companies Act (hereinafter also referred to as the “Company Law”), companies can be liquidated in two ways:
The procedural provisions on court liquidation have been announced and come into force. The procedure is as follows:
According to the circumstances under which the company can be liquidated under section 271 of the Company Law, the creditor must submit a petition to the court in accordance with section 272 of the Company Law. 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).
NB: Each application or related information must be in the same format as provided in the NCLT form.
What is the NCLT.2 Form?
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. (Article 34)
After receiving the liquidation petition, the court 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.
Before appointing a provisional liquidator, the court must issue a notice to the liquidation entity and give the opportunity to make an appeal, and notify the liquidation entity through the form NCLT. (Article 34)
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 Article 274 of the Indian Companies Act 2013, 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.
court passing liquidation order under section 273(1)(d) of the Indian Companies Act 2013
If the court passes a liquidation order under Article 273(1)(d), according to Article 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 the 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.
Appointment of Liquidator per the Section 276 of the Indian Companies Act 2013
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 three 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.
Legal Proceedings per the Section 279 of the Companies Act 2013
Once the court passes the liquidation order, no legal proceedings or legal proceedings may be instituted against the company.
Section 280 of the Companies Act 2013
Section 280 of the Indian Company Law stipulates that the court shall have jurisdiction to handle or accept litigation or requests against the company.
Section 281 of the Companies Act
Article 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.
The court can make an order to sell the company, and can also appoint a sales committee to assist the liquidator in processing in accordance with section 282 of the Company Law.
Section 282, paragraph 3 of the Companies Act 2013
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 Companies Act.
After the liquidation is approved, in accordance with Article 283 of the the Indian Companies Act, 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 approval of the liquidation order, the company’s property shall be transferred to the court for safekeeping, and the liquidator may require the designated personnel to transfer the relevant documents, account books, property and money to the liquidator.
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.
Section 287 of the Indian Companies Act 2013
In the liquidation process, the court set up an advisory committee in accordance with Article 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.
Provision under Section 288 of the Indian Companies Act 2013
Section 288 of the Indian Companies Act 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.
Provision under Section 291 of the Indian Companies Act
Article 291 of the Indian Companies Act stipulates that the liquidator may hire professionals to assist him in fulfilling his obligations during the liquidation process.
Section 293 of the Indian Companies 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.
Provision under Section 294 of the Indian Companies Act
Section 294 of the Company Law stipulates that the liquidator must submit the company’s income and expenditure account book to the court, and the court shall review the account book.
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.
Provision under Article 296 of the Indian Companies Act
Article 296 of the Company Law stipulates that the investor shall pay off within the scope of his responsibility.
Provision under Section 299 of the Indian Companies 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 Article 300 of the Indian Companies Act Provision
Article 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 Article 302 of the “Company Law”.
The court shall make a decree to dissolve the company on this basis, and the day when the decree is made is 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.
Stipulation under Section 324 of the Indian Companies Act
Section 324 of the Company Law stipulates that all company debts can be used as evidence of company liquidation.
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. (Article 39)
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 328 to 335 of the Companies Act)
Stipulation under Sections 336 to 339 of the Indian Companies Act
According to sections 336 to 339 of the Indian Companies Act 2013, fraudulent acts by company personnel, failure to properly keep the company’s account books, and acts of company personnel deceiving creditors will be punished or held criminally liable.
Stipulation under Section 344 of the Indian Companies Act
Any invoice, order or business letter should contain a statement that the company is liquidated.
Stipulation under Section 347 of the Indian Companies 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 Articles 349 to 351 of the Indian Companies Act, the liquidator shall pay the Reserve Bank of India and deposit the money into a designated bank. The liquidator shall not deposit the money into a private account.
According to Article 356 of the Indian Companies Act, 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
Section 359 of the Indian Companies Act Provision
According to section 359 of the Company Law, the official liquidator appointed by the court must be a full-time central government official.
Article 362 of the Indian Companies Act 2013
The official liquidator must dispose of all the company’s assets within 60 days of the appointment and must notify the debtor within 30 days to pay off the remaining company debts and deposit them in the Reserve Bank of India.
Section 363 of the Indian 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 in writing the accepted or rejected claims.
Section 364 of the Indian Companies Act 2013
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.
Few More Companies Regulation Points
In addition to the above general regulations, we may also mark some regulations that require special attention, such as:
- If the assets do not exceed Rs 10 million, the enterprise can also apply to the court to implement the simplified liquidation procedure. (article 361)
- The company’s liquidation order issued by the arbitration court shall be deemed to have begun when the application is submitted. (Article 357)
- Before the date of informing the respondent to participate in the hearing, the NO.NCLT.5 form should be filled out. (Article 37)
- 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 a form NCLT.12 that authorize the defense’s agent must be filled out. (Article 45)
Regardless of whether it is business termination, termination of business objectives, or bankruptcy liquidation for investors’ business needs, we should take appropriate measures in light of our own circumstances. In the process of liquidation, we must comply with the relevant provisions of 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.
Name: Ajay Rastogi
Educational Qualification: LLB
Profession: Advocate / Lawyer
Work Experience: 20 Years of Legal Practice