Category: Winding Up

ISSUE:

Whether Corporate Insolvency Resolution Proceedings initiated under the Insolvency and Bankruptcy Code of 2016 prevail over winding up proceedings as initiated under the Companies Act of 2013?

RULE:

Corporate Insolvency Resolution Proceedings initiated under either Section 7 or Section 9 of the Insolvency and Bankruptcy Code of 2016 function independently of winding up proceedings initiated under Companies Act of 2013.

When the death of the corporate is unavoidable, efforts must be made to revive the company for the public welfare, which may be inclusive of reviving the workmen, creditors and products produced for the greater benefit of the country.

ISSUE:

Whether the NCLT has the power to order for winding up of a company under Section 271 (c ) of the Companies Act, 2013 on the ground that the incorporation & operations was backed by fraud?

RULE:

A company incorporated to commit fraudulent activities or if its operations are fraudulent can be wound by the Tribunal by the powers granted to it under Section 271(c ) & Section 271(e).

The standard norms of justice and morality are constantly against fraud and therefore the intention behind any action initiated by the victim of a fraud can never be an obstruction.

Companies that commit fraudulent activities cannot hide behind arbitral awards or trivial legal provisions, since fraud takes priority over arbitral and contractual rights.

ISSUE:

Whether the Company Court is empowered to order for a re-auction of the property of the company undergoing winding up process if the price received in the auction is insufficient?

RULE:

The Company (Court) Rules require that the Official Liquidator needs the sanction of the court before proceeding with the sale of the company’s assets by way of an auction under Rule 272 and Rule 273.

In spite of this provision, the Court is obliged to determine whether the price received in the auction is adequate even in the absence of fraud or discrepancies. The Court is empowered to order for a re-auction of the assets if the price received in the auction is not sufficient.

ISSUE:

Whether the Company Court is bound to admit a winding up petition filed under Section 433 of the Companies Act, 1956?

RULE:

Section 433 of the Companies Act, 1956 empowers the Tribunal to pass a winding up order of the company if it is unable to pay off its debts.

However, the Company Court has to take into consideration the defense of the defaulting company before admitting the petition.

The winding up petition cannot be admitted automatically. In the situation the debt of the company is disputed for genuine reasons and the defense is considerable, the company should not be wound up.