Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
Company law will always be
complicated to understand, but, certainly each and every provision of company
law is backed by sound logic. It is imperative on the part of companies to
understand the company law, the requirements under company law and the
complications too. If good counsel has not taken on important issues, the
company may be in trouble unnecessarily. There are certain issues in the course
of managing a company which requires greater concentration. An application
against a company seeking to investigate into the affairs of company, the
winding up application against the company and an application seeking remedial
and preventive measures against the majority or the company etc. are to be
handled by the Company carefully. While it is very rare to see an investigation
into the affairs of the Company, it is very very common to see a preventive
measure against a company when a minority files an application under section
397/398 of Companies Act, 1956. On the same lines, a company may have to face
winding-up proceedings very frequently.
But, at times, on flimsy grounds,
the Company may have to face winding-up proceedings. The Act enumerates certain
grounds on which a winding-up application can be filed against a company. Among
the grounds provided under the Act, I feel the ground of “inability to pay its
debt” is very dangerous. Because, it is very difficult to construe the word
“inability” and conclude the issue. The company may not have any tangible
assets and might not have secured good profits, but, it does not mean that the
company is unable to pay its debt. A company may have goodwill and good credit
rating despite not making good profits in some years. But, what the act says is
that when a person demands the company to pay his debt and when the company
does not meet the demand, then, that person can approach court of law to
wind-up the company on the ground that the company is unable to pay its debt.
The company may have some counter claim, some good reason for not paying the
debt and the company may be in the course of initiating proceedings. Based on
technicalities and ineffective handling of the issue, winding-up order may be
passed against a company. The Company may have to face some consequences with
the winding up order against it. Because, it is general perception that the
company will be wound-up only when it is not in a good position or financially
sick. But, its not technically true. A company may resort to voluntary winding
up or a winding up application can be filed against the company on the ground
that the reports are not filed as provided. But, public will see the issue of
winding-up from a different angle.
How to understand the issue of winding
up?
Section 425 of Companies Act,
1956, deal with the modes of winding up. The section says that a company can be
wound up either by the Tribunal or by the company voluntarily. The first
question to be considered is as to what is winding up. It is nothing but
winding up the affairs of the company. In accordance with the memorandum and
articles and in accordance with the provisions of the Act, the company does its
business managed by the professionals called directors, secretaries and
managers. While it is for the majority stake holders logically to run the
company as they wish, there should be regulations while running the company
both in the interest of members and creditors on one part and the public
interest on the other. The members of the company are always considered as
internal part of the company being the contributories liable to contribute to
the assets of the company during liquidation. Though, the creditors are
provided with certain rights against the company including the right to file winding
up petition etc. in accordance with law, normally excepting their interest,
they will in no way directly related to the affairs of the company or its
business. Thus, the members having every right to direct the company, the
creditors being the interested parties and the government etc. statutory bodies
representing the public at large, are involved when it comes to winding up of
the company. Thus, either the members or creditors can go for winding up of the
company in accordance with the provisions of the Act. Again, for winding up,
either the members or the creditors can go ahead with the winding up of the
company voluntary for which separate procedure is prescribed under the Act.
Otherwise, the Tribunal, on certain grounds, can wind up the company. On one
hand, there are provisions like revival and rehabilitation of sick industrial
companies and provision for revival even during the liquidation, and one the
other hand, on certain grounds the Tribunal will wind up the company. Thus, it
can’t be said that the company should not be wound up and always remedial
measures to be resorted to without winding up the company. On the other hand,
when it is impossible to put the company on track and the interested parties
are not towards revival and rehabilitation, then, there can be no option for
the company except to wind up the company. Thus, once the company is wound up,
it means, literally, the affairs of the company are stalled and the liquidation
starts. Putting an end to the affairs of the company by settling the dues and
realizing the amounts in accordance with law is liquidation. If the entire
liquidation is over, then, the company will get dissolved and literally loses
its identity as a legal entity.
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
