Delhi High Court important judgments on Company Law and Insolvency Law

In Sanjeev Mahajan v. Aries Travels Private Limited [61], the Court held that non-compliance of Section 187C(4) of the Companies Act, 1956 (‘Companies Act’), which requires a company to inter-alia make a declaration and file a return with the Registrar of Companies (‘ROC’) qua transfer of a beneficial interest in share-holding would render the said transfer unenforceable in view of Section 187C(6), and in fact the prohibition contained under the Prohibition of Benami Property Transactions Act, 1988 (‘Benami Act’) would kick in. The Court further observed that even a person being a beneficial owner of shares in a company is not entitled to the possession of immovable properties of the said company on this ground alone, unless permitted by a resolution of the board of directors of the said company.

In Sunil Gandhi v. A. N. Buildwell Private Limited [62], the Court held that in a proposed scheme of compromise and arrangement under the provisions of the Companies Act, clauses which seek blanket waiver of criminal liabilities against the promoters of the company could not be approved. The Court, however, observed that once the scheme in question is implemented and the claims of the concerned creditors are accordingly addressed, then appropriate consequences would follow in the pending criminal proceedings.

In Narender Kumar Nehra v. Bhupinder Singh [63], the Court held that once the sale process of the property belonging to the company in liquidation had concluded with the deposit in the Court of the relevant sale consideration by the successful bidder, then, in the absence of any allegation of fraud or illegality in the sale process, the bidding process could not be re-opened at the instance of a party which was willing to offer a marginally higher price on a subsequent date inasmuch as this would adversely affect the finality attached to the bidding process undertaken by the Court. The Court, however, clarified that the position might be different in a case where a significantly higher amount is subsequently offered, and which by itself might be indicative of the unreasonableness of the initial price

NCLT admits SBI’s plea against Videocon Telecommunications

The National Company Law Tribunal (NCLT) has admitted the insolvency petition filed by State Bank of India (SBI) against Videocon Telecommunications Ltd. This is the second firm promoted by Venugopal Dhoot to be admitted to the insolvency resolution process after the flagship company Videocon Industries.

On Friday, the division bench of NCLT Mumbai, presided over by B.S.V. Prakash Kumar and Ravikumar Duraisamy, admitted the petition by the country’s largest lender and also approved Anuj Jain as the interim resolution professional (IRP).

Animesh Bisht, counsel for the bank, argued that the company had defaulted in the payment of ₹234 crore to SBI and three of its associate banks (now merged with SBI). Of this, Videocon Telecommunications owes ₹193 crore to SBI alone in principal and interest.

A consortium of 18 banks has an exposure of ₹1,700 crore to Videocon Telecommunications, which defaulted on loans and bank guarantees in January 2018.

Zal Andhyarujina, counsel for Videocon Telecommunications, argued that the bank’s petition is defective, as it has not furnished the record of default by the company and that it should be dismissed on technical grounds. “The debt that is claimed by the bank is not the debt at all,” he said. “No notice was given to the company regarding the default and there was no crystallization of the dues by the bank.”

On Wednesday, NCLT admitted Videocon Industries’ case, also approving Jain as IRP. In February, Videocon had filed a writ petition in the Bombay high court asking for a stay on bankruptcy proceedings initiated by SBI in NCLT. It had moved the high court against the Reserve Bank of India’s decision not to extend the timeline as requested by SBI and the Joint Lenders’ Forum to rerate Videocon’s restructuring proposal following changes in cash flows after subsequent changes in the import duty policy.

As per Videocon’s FY17 annual report, it is liable to repay the liability of other group firms to the extent of ₹5,082 crore as of 31 March 2017. Its total debt was ₹19,506 crore as of March last year.

https://www.livemint.com/Companies/19avCLGjeDeidnyFL7IucO/NCLT-admits-SBIs-plea-against-Videocon-Telecommunications.html

AskMe Ashok Rajagopal gets interim bail

Ashok Rajagopal, former director of defunct e-commerce firm AskMe who represented the majority investor Malaysia’s Astro on the board, got interim bail on a case filed by one of the online sellers My Limo Trading Company. The seller had accused AskMe of not paying the company the money the latter had collected on its behalf from buyers for goods sold on the e-commerce platform.

Though Rajagopal was not in charge of day-to-day affairs at AskMe, My Limo filed a case against him since he had represented Astro, the 98.5% stakeholder in Getit Infoservice Pvt Ltd, the company that ran AskMe. Rajagopal had sought anticipatory bail in this case in the court of district and sessions judge, Patiala House, New Delhi, after a first information report (FIR) was registered against him on complaints filed by My Limo Trading Company.

My Limo claims AskMe owes the former around Rs 1.5 crore.

The court has ordered not to take any coercive action against Rajagopal till 8 January, when the bail application would again be considered. Rajagopal and Astro spokesperson did not respond to queries regarding the legal proceedings.

The legal imbroglio involving Astro and AskMe is getting more complex with another FIR being registered against former AskMe board members on a case filed by My Limo’s affiliate company EBiz International seeking Rs 2.5 crore of defaulted payments.

AskMe suspended operations and top management led by CEO Sanjiv Gupta left the company in August when Astro stopped funding the company. A number of sellers are now filing cases against former directors while Gupta and the investor Malaysian conglomerate Astro are slugging it out at the National Company Law Tribunal (NCLT).

NCLT has scheduled for hearing on the winding down petition moved by Astro along with several other petitions related to this matter for 12 December.  Various parties including hundreds of online sellers and 4,000 unpaid employees of AskMe are awaiting the conclusion of the legal battle that was set off end-August following the collapse of talks regarding a management buyout.

Corporate Insolvency - National Company Law Tribunal

On November 25 2016, the provisions of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (SICA Repealing Act) were notified with effect from 1 December 2016. This means that the Sick Industrial Companies (Special Provisions) Act 1985 stands repealed and consequently, the Board for Industrial and Financial Reconstruction (BIFR) and the Appellate Authority for Industrial and Financial Reconstruction (Appellate Authority) are dissolved. On the same day, Section 4(b) of the SICA Repealing Act, as substituted by the Eighth Schedule of the Insolvency and Bankruptcy Code 2016 (Code), was also notified with effect from 1 December 2016. It seems that as a corollary to these notifications and possibly to avoid creating a vacuum in the legal process, the Government of India decided to notify substantive parts of the Code relating to corporate insolvency resolution process on 30 November 2016, effective from 1 December 2016.

In our Ergo Newsflash of 25 November 2016 we had outlined that the Code was being notified in phases and that the provisions dealing with intermediaries had been notified into law on 27 November 2016. In May 2016, we had shared our thoughts on the broad contours of the Code with you. In addition to these, we provide below in FAQ format (i) a brief outline of what has been notified; and (ii) the implication of notifying the SICA Repealing Act on the Code.

The Code is here; long live the Code

What provisions of the Code have been notified?

Per the latest notification issued on 30 November 2016, the provisions relating to corporate insolvency have been notified into law, namely:

Sections 4 to 32: These deal with the substantive as well as procedural aspects of initiating a corporate insolvency resolution process, moratorium, constitution of the committee of creditors, and appointing of insolvency professionals, etc.;

Sections 60 to 77: These deal with offences and penalties for various actions;

Section 198: This allows the National Company Law Tribunal (NCLT) to condone any delay by the Board for reasons recorded in writing;

Section 231: The section bars the jurisdiction of civil courts in respect of any matter which the NCLT is empowered to pass orders on;

Sections 236 to 238: These sections (i) empower the special courts created under the Companies Act 2013 to try offences under the Code; (ii) empower the High Court to hear appeals and revisions from the special court; and (iii) make clear that the Code overrides all other laws in India;

Sections 239(2)(a) to (f): These sections empower the Central Government to make rules for various purposes; and

Sections 246 to 248 and 250 to 255: These sections amend various other laws and were notified prior to 1 December 2016.

In addition, the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016 were also notified with effect from 1 December 2016. These regulations are substantive guidelines which outline how a corporate insolvency resolution process can be triggered, what constitutes proof of claim, the governance of the committee of creditors, and the power of the insolvency professional, amongst other things.

Impact of the notification of the SICA Repealing Act

What does notifying the SICA Repealing Act and, inter alia, Part II (Chapter 1 and 2) of the Code (both effective from today, 1 December 2016) mean for pending cases under the erstwhile SICA?

Section 252 of the Code, notified on 1 November 2016, amended the SICA Repealing Act by substituting Section 4(b) therein with the Eighth Schedule of the Code. This was later followed by the notification on 25 November 2016 notifying the SICA Repealing Act itself with effect from 1 December 2016. The net effect of this is that BIFR and the Appellate Authority are, as of today functus officio (ie defunct). In terms of the Eighth Schedule of the Code, it means that any appeal preferred to the Appellate Authority or any reference made to the BIFR or any inquiry pending before the BIFR or any other authority or any proceeding of whatever nature pending before the Appellate Authority or the BIFR immediately before the commencement of the SICA Repealing Act stand abated. Any company in respect of which such an appeal or reference or inquiry stands abated has been given an option to make an application to the NCLT under the Code within 180 (One hundred and eighty) days from the commencement of the Code in accordance with the provisions therein. The provisions of the Code giving such an option have come into force from 1 December 2016.

What is the impact of the SICA Repealing Act on the orders passed either under Section 22 of SICA or scheme sanctioning order or any other order affecting the rights of the parties therein?

As stated above, the SICA Repealing Act read together with Section 252 of the Code, does state that all proceedings pending before the BIFR or Appellate Authority, shall stand abated with effect from 1 December 2016. However, the SICA Repealing Act also contains a "savings" section. The way this section is drafted, it intends to "save" any rights and obligations which have vested in a party under SICA upon its repeal. Given the substantive nature of the above orders passed under SICA, it may be argued by some that these orders are saved. Having said this, considering that the criteria for reference to NCLT and declaration of moratorium under the Code are substantively different from what was prescribed under SICA, it remains to be seen if such an interpretation is maintainable and merits a clarification from the Government to remove ambiguity.

Do the notified provisions of the Code apply to all companies (and not just industrial companies)? What is the test for "sickness" under the Code?

The Code is a significant change from the erstwhile SICA regime, particularly on this point. As a remedy, the Code is available for and against all companies and partnerships in India, but as of now only against companies and limited liability partnerships. Further, as a remedy it is available not just to scheduled commercial banks in India but to all financial creditors (ie lenders or beneficiaries of corporate guarantees) and operational creditors (ie trade creditors).

Furthermore, the balance sheet test under SICA for determination of "sickness" has been replaced with a low threshold cash flow test. Where a corporate debtor has committed a default of INR 100,000 (Indian Rupees One lakh) or more, an operational creditor or a financial creditor or corporate applicant itself may initiate a corporate insolvency resolution process.

Source: http://www.mondaq.com/india/x/549680/Corporate+Commercial+Law/India+Steps+Into+A+New+Era+For+Corporate+Rescue+And+Insolvency

Appointing a Women as a Director in a company

The society in our county is male inclined from the very inception. Women were always seen as lower to men. But now, the time has drastically changed the thinking of society. Several laws are framed for providing security and special status to women. From many years the Central Government was providing even a special tax exemption to the women. Some schemes of Central Government are specially designed only for the betterment, protection and empowerment of the women. Here we can say that Companies Act, 2013 by second proviso to section 149(1) which is providing for the appointment of the women director is an effort for empowerment of the women in India.

Second Proviso to Section 149(1) runs as:

“Provided further that such class or classes of companies as may be prescribed, shall have at least one woman director.”

Earlier the draft rules in regard to the appointment of the Women Director were not very clear as it was providing “The listed company and all other companies which will fall under category of Rs. 100 crore Share capital or 300 crore sales shall appoint the women director within one year and three years respectively from the commencement of second proviso”. If we analyze the draft rules it clearly mentioned that government reserved arbitrary rights in its hands for the appointment of the women director when it was providing such class or classes of companies and on the other side from the commencement of second proviso.

But today as the rules got notified and enforced from 1st day of April, 2014, the position is clear, but only to a limited extent which is providing a choice for company in regard to appointment of the women director.

Section 149(1) clarifies that all the companies must have the Board of Directors, which shall consist of individuals

In case of Private Company: Minimum 2 directors;

In case of Public Company: Minimum 3 directors;

In case of One Person Company:  One director.

The Companies (Appointment & Qualification of Director) Rules, 2014 which come into force on 1st April 2014 provides the class of companies which shall appoint at least one woman director, these are-

(i) every listed company;

(ii) every other public company having -

(a) paid–up share capital of one hundred crore rupees or more; or

(b) turnover of three hundred crore rupees or more:

as on the last date of latest audited financial statements.

Proviso added to the rule is providing that a company, which has been incorporated under the Act and is covered under provisions of second proviso to sub-section (1) of section 149 shall comply with such provisions within a period of six months from the date of its incorporation

So, we can make the difference for the purpose of compliance of the provisions between companies:

Here, first category is of the companies which are incorporated under the current act, for which the proviso is providing that they are to appoint the women director with in the period of six months.

Second category is of those companies which were incorporated under the previous company laws, for those companies the period shall be one year from 1st April 2014 i.e. uptil 31st March 2015.

But the main concern here is to see whether the companies will seriously appoint deserving women director or the women director will also be coming out of the Promoter group. The provision is not clear about the independence of the women director. So, uptil when there is no restriction for the appointment of women director from the promoter group, there will be no difficulty for the promoters to appoint a women director. But, we can interpret only that this provision is a social measure so, the government will not take any step for independence of the women director.

Moreover, if the women director will be independent, it will be more beneficial for the companies because by appointing independent women director they will be complying two provisions of section 149 i.e. by appointing the women director and Independent Director.

The second proviso to the rule 3 is further providing that if there is intermittent vacancy of a woman director, it shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy whichever is later. This proviso can be analysed as essential for maintaining the post of women directors as if this provision would not have been made, the companies will be appointing a women director and after appointment will try her removal and would have overcome law. But this provision has ensured the enforcement of the appointment of Women Director in a Company.

http://www.mca.gov.in/MinistryV2/companiesact.html

Winding up of a company

Winding up of a company is the stage, where by the company takes its last breath. It is a process by which business of the company is wound up, and the company ceases to exist anymore. All the assets of the company are sold, and the proceedings collected are used to discharge the liabilities on a priority basis.

MODES OF WINDING UP:

There are three ways, in which a company may be wound up. They are:

A.   Winding up by the court.

B.    Voluntary winding up:

Members Voluntary winding up.

Creditors Voluntary winding up.

C.   Winding up subject to supervision of the court

A.  WINDING UP BY THE COURT:

 A company may be wound up by the court in following situations. Here, the court means "High Court".

i.    If the company itself, has passed a special resolution in the general meeting to wound up its affairs. Special resolution means, resolution passed by three-fourth (3/4") of the members present.

ii.    If there is a default, in holding the statutory meeting or in delivering the statutory report to the Registrar.

A company which is limited by shares, and a company limited by guarantee having share capital, is required to hold a " Statutory meeting" of its members, within six months, and after one month, from the date of commencement of it's business. A statutory report of the meeting so held shall also be forwarded to the registrar. [Sec 165 (1) & (5)]

iii.     If the company fails to commence its business within one year from the date of it's incorporation, or suspends its business for a whole year.

A company limited by shares, has to obtain a "certificate of commencement" of business from the registrar. Unless it obtains such certificate, it cannot carry on its business operation.

iv.     If the number of members, in a public company is reduced to less than seven, and in case of private company less than two.

The statutory requirement of minimum number of members in a public company is seven, and in case of private company, it is two (sec 12)

v.      If the company is unable to pay its debits; where the financial position of the company is, such, that it has more liabilities than assets, and after disposing off the assets, it is still unable to extinguish it's liabilities, it means that company is unable to pay it's debts.

 vi.     If the court, itself is of the opinion that the company should be wound up.

The court may form such an opinion, if it comes to the knowledge of court that, the company is mismanaged, or financially unsound, or carrying an illegal operations etc.

RELEVANT POINTS:

A. WHO CAN APPLY TO COURT, FOR WINDING UP PETITION? (SEC 439)

Following persons can apply to the court, for petition for winding up:

o        The company itself

o        The creditor

o        Any Contributory

o        Registrar

O      Any person authorized by central government, in case of oppression or mismanagement (397)

B. WHAT ORDERS, THE COURT MAY PASS? (SEC 443)

The court may pass any one of the following orders on hearing the winding up petition.

 i.     Dismiss it, with or without costs

 ii.    Make any interim order, as it thinks fit, or

 iii.   Pass an order for winding up of the company with or without costs.

Consequences of court passing an order for winding up:

If the court is satisfied, that sufficient reasons exist in the petition for winding up, then it will pass a winding up order. Once the winding up order is passed, following consequences follow:

i.     Court will send notice to an official liquidator, to take change of the company. He shall carry out the process of winding up, ( sec. 444)

ii.    The winding up order, shall be applicable on all the creditors and contributories, whether they have filed the winding up petition or not.

iii.   The official liquidator is appointed by central Government ( sec. 448)

iv.   The company shall relevant particulars, relating to, assets, cash in hand, bank balance, liabilities, particulars of creditors etc, to the official liquidator. ( sec. 454)

v.    The official liquidator shall within six months, from the date of winding up order, submit a preliminary report to the court regarding :

o        Particulars of Capital

o        Cash and negotiable securities

o        Liabilities

o        Movable and immovable properties

o        Unpaid calls, and

o        An opinion, whether further inquiry is required or not ( 455)

The Central Govt. shall keep a cognizance over the functioning of official liquidator, and may require him to answer any inquiry. (463)

C. STAY ORDER:

Where, the court has passed a winding up order, it may stay the proceedings of winding up , on an application filed by official liquidator, or creditor or any contributory. (466)

D. DISSOLUTION OF COMPANY (481)

Finally the court will order for dissolution of the company, when:

o        the affairs of the company are completely wound up, or

o        the official liquidator is unable to carry on the winding up procedure for want of funds.

E. APPEAL: 483

An appeal from the decision of court will lie before that court, before whom, appeals lie from any order or decision of the former court in cases within its ordinary jurisdiction.

B.  VOLUNTARY WINDING UP

A company may, voluntary wind up its affairs, if it is unable to carry on its business, or if it was formed only for a limited purpose, or if it is unable to meet its financial obligation, and etc. A company may voluntary wind up itself, under any of the two modes:

i.     Members voluntarily winding up

ii.    Creditors voluntarily winding up

A company may voluntarily wind up itself, either by passing:

An ordinary resolution, where the purpose for which the company was formed has completed, or the time limit for which the company was formed, has expired.

Or

By way of special resolution

Both types of resolution shall e passed in the general meeting of the company. (484)

Once the resolution of voluntarily winding up is passed, and then the company may be wound up, either through:

O     Members voluntarily winding up, or

o     Creditors voluntarily winding up

The only difference between the abate two, is that in case of members voluntarily winding up, Board of Directors have to make a declaration to the effect, that company has no debts. (488)

 

                   i.            MEMBERS VOLUNTARILY WINDING UP

Directors of the company shall call for a Board of Directors Meeting, and make a declaration  of winding up, accompanied by an Affidavit, stating that;

o        The company has no debts to pay, or

o        The company will repay it's debts; if any, within 3 years from the commencement of winding up, as specified in declaration (488)

WHO SHALL CARRY OUT THE WINDING UP PROCEDURE? & WHAT SHALL BE THE PROCEDURE?

· The Company shall appoint one or more liquidators, in a general meeting, who shall look after the affair of winding up procedure, and distribution of assets. [490 (1)]

· The liquidator so appointed, shall be paid remuneration for his services, which shall also be fixed in general meeting [490 (2)]

 · The Company shall also give notice of appointment of liquidator to the registrar within ten days of appointment (493)

· Once the company has appointed liquidator, the powers of Board of Directors, Managing Director, and Manager, shall cease to exist. (491)

· The liquidator is generally given a free hand, to carry out the winding up procedure, in such a manner, as he thinks best in the interest of creditors, and company.

· In case, the winding up procedure, takes more than one year, then liquidator will have to call a general meeting, at the end of each year, and he shall present, a complete account of the procedure, and position of liquidator (496)

WHEN AFFAIRS OF THE COMPANY ARE FULLY WOUND UP

The liquidator shall take the following steps, when affairs of the company are fully wound up : (497)

i.    Call a general meeting of the members of the company, a lay before it, complete picture of accounts, winding up procedure and how the properties of company are disposed of.

ii.    The meeting shall be called by advertisement, specifying the time, place and object of the meeting.

iii.  The liquidator shall send to, the Registrar and official Liquidator copy of account, within one week of the meeting.

iv.  If from the report, official liquidator comes to the conclusion, that affairs of the company are not being carried in manner prejudicial to the interest of it's members, or public, then the company shall be deemed to be dissolved from the date of report to the court.

v.     However, if official liquidator comes to a finding, that affair have been carried in a manner prejudicial to interest of member or public, then court may direct the liquidator to investigate furthers.

ii. CREDITORS VOLUNTARILY WINDING UP

· Where the resolution for winding up has been passed, but the Board of Directors are not in a position to give a declaration on the liability of company, they may call a meeting of creditors, for the purpose of winding up. (500)

· It is the duty of Board of Directors, to present a full statement of company’s affairs, and list of creditors along with their dues, before the meeting of creditors. [500 (3)]

· Whatever resolution, the company passes in creditor's meeting, shall be given to the Registrar within ten days of its passing. (501)

WHO SHALL CARRY OUT THE WINDING UP PROCEDURE ? & WHAT SHALL BE THE PROCEDURE?

· Company in the general meeting [in which resolution for winding up is passed], and the creditors in their meeting, appoint liquidator. They may either agree on one liquidator, or if two names are suggested, then liquidator appointed by creditor shall act. (502)

· Any director, member or creditor may approach the court, for direction that:

o        Liquidator appointed in general meeting shall act, or

o        He shall act jointly with liquidator appointed by creditor, or

o        Appointing official liquidator, or

o        Some other person to be appointed as liquidator. [502 (2)]

· The remuneration of liquidator shall be fixed by the creditors, or by the court. (504)

· On appointment of liquidator, all the power of Board of Directors shall cease. (505)

· In case, the winding up procedure, takes more than one year, then he will have to call a general meeting, and meeting of creditors, at the end of each year, and he shall present, a complete account of the procedure, and the status / position of liquidation (505).

WHEN AFFAIRS OF THE COMPANY ARE FULLY WOUND UP ( 509)

The liquidator shall take the following steps, when affair of the company are fully wound up:

I.            Call a general meeting, and meeting of creditors, and lay before it, complete picture of accounts, winding up procedure and how the properties of company are disposed of.

II.            The meeting shall be called by advertisement, specifying the time, place and object of the meeting.

 III.            The liquidator shall send to the Registrar and official liquidator copy of account, within one week after the meeting.

 IV.            If from the report, official liquidator comes to the conclusion, that affairs of the company are not being carried in manner prejudicial to the interest of it’s members or public, then the company shall be deemed to be dissolved, from the date of report to the court.

    V.            However, if official liquidator comes to a finding, that affairs have been carried in a manner prejudicial to intent of members or public, and then court may direct the liquidator to investigate further.

DISTRIBUTION OF PROPERTY OF COMPANY ON VOLUNTARILY WINDING UP [BOTH MEMBERS AND CREDITORS VOLUNTARILY WINDING UP]

Once the company is fully wound up, and assets of the company sold or distributed, the proceedings collected are utilized to pay off the liabilities. The proceedings so collected shall be utilized to pay off the creditors in equal proportion. Thereafter any money or property left may be distributed among members according to their rights and interests in the company.

C.  WINDING UP SUBJECT TO SUPERVISION OF COURT.

Winding up subject to supervision of court, is different from "Winding up by court."

Here the court only supervises the winding up procedure. Resolution for winding up is passed by members in the general meeting. It is only for some specific reasons, that court may supervise the winding up proceedings. The court may put up some special terms and conditions also.

However, liberty is granted to creditors, contributories or other to apply to court for some relief. (522)

· The court may also appoint liquidators, in addition to already appointed, or remove any such liquidator. The court may also appoint the official liquidator, as a liquidator to fill up the vacancy.

· Liquidator is entitled to do all such things and acts, as he thinks best in the interest of company. He shall enjoy the same powers, as if the company is being wound-up voluntarily.

· The court also may exercise powers to enforce calls made by the liquidators, and such other powers, as if an order has been made for winding up the company altogether by court. ( 526)

PRIORITY IN DISPOSING LIABILITIES [529 A & 530]

When the company is wound up, by any mode, the liabilities shall be discharged in following priority.

1.     Workman's dues.

2.     Debts due to secured creditors, in case of insolvency.

3.     All ---------, taxes, cesses and rates due from the company to the central government or a state govt.

4.     All wages and salary of any employee due within four months.

5.     All -------- holiday remuneration becoming payable to any employee.

· All such debts shall be paid in full. If assets are insufficient to meet them, they shall abate in equal proportions.

MONEY RECEIVED BY LIQUIDATOR: (553)

Apart from an official liquidator, every liquidator appointed by company or court to carry on the winding up procedure, shall deposit the money is received by him in a scheduled bank, to the credit of a special banking account opened by him.

Apart from a normal company, registered under the companies Act, 1956 there are other companies as well winding up procedure for these companies are bit different from a company registered under companies Act.

These companies are:

1.     UNREGISTERED COMPANIES : (583)

In simple words, an unregistered company is a company which is not registered or covered under provisions of companies Act. 1956 (582)

· An unregistered company cannot be wound up voluntarily, or, subject to super vision of court.

· However, the circumstances, in which unregistered company may be wound up, are as follows:

o         If the company, is dissolved, or has ceased to carry on business, or is carrying on business only for the purposes of winding up, it's affairs,

o         If the company is unable to pay it's debt

o         If the court is of opinion, that it is just and equitable, that the company should be wound up.

· A creditor, contributory, or company itself by filing a petition, or any person authorized by central government may institute winding up proceedings.

· In respect to other aspects, the same provisions and procedure shall follow, as in winding up of registered company.

· A foreign company, carrying on business in India, which has been dissolved, may be wound up, as unregistered company.

1.     FOREIGN COMPANY ( 584)

A foreign company is a company which is incorporated outside India, and having a place of business in India.

Winding up of such companies is only limited to the extent of it's assets in India. In respect of assets and business carried outside India, Indian courts have no jurisdiction.

· Winding up of a foreign company can only be made through court.

· Even if the company had been dissolved or ceased to exist in the country of its incorporation, winding up order in this country can be made.

· Even if a foreign company has been wound up according to foreign law, the courts in India still protect the Indian Creditors. The surplus assets, after paying the creditors, should be distributed among the share holders equally in the same proportion, as the assets ---- to the total issued and paid up capital.

· Pendency of a foreign liquidation does not affect the jurisdiction to make winding up order. The Assets can be of any nature and do not take to be in the ownership of the company and can come from any Source.

· As, for persons claiming to be creditors, their presence, itself is sufficient. It is not required to be shown, that company carried on business operations from any place of business in India.

2.     GOVERNMENT COMPANY

 A Govt. company, means a company, in which 51% or more of, shares are held by a govt. company

Winding up procedure for a government company registered under the companies Act, 1956, is nearly similar to normal winding up procedure.

However, courts, take interest of public into consideration, and priority is given to them, as a govt. company is main function is to provide services to public.

 

 Source http://www.companyliquidator.gov.in/12/windingup_data.htm#b

Duties of Director of a company

A company is a legal entity and does not have any physical existence. It can act only through natural persons to run its affairs. The person, acting on its behalf, is called Director. A Director is any person, occupying the position of Director, by whatever name called. They are professional men, hired by the company to direct its affairs. But, they are not the servants of the company. They are rather the officers of the company.

The definition of Director given in this clause is an inclusive definition. It includes any person who occupies the position of a director is known as Director whether or not designated as Director. It is not the name by which a person is called but the position he occupies and the functions and duties which he discharges that determine whether in fact he is a Director or not. So long as a person is duly, appointed by the company to control the company's business and, authorized by the Articles to contract in the company's name and, on its behalf, he functions as a Director.

The Articles of a company may, therefore, designate its Directors as governors, members of the governing council or, the board of management, or give them any other title, but so far as the law is concerned, they are simple Directors.

Duties of a Director

There is no exhaustive list defining the duties of the Board of Directors towards the company and shareholders. But based on the analysis of the provisions of the Companies Act, 1956 with regards to a director, some general duties of a Director are mentioned herein:

To file return of allotments: a company must file with the Registrar, within a period of 30 days, a return of the allotments, stating the specified particulars. Failure to file such return shall make the Directors liable as 'officer in default'. A fine, up to Rs.500 per day, till the default continues may be levied.

Not to issue irredeemable preference shares or shares, redeemable after 20 years: A company cannot issue irredeemable preference shares or preference shares, redeemable beyond 20 years. Directors, making any such issue, may be held liable as 'officer in default' and, may be subject to a fine, up to Rs.1, 000.

To disclose interest: A Director, who is interested in a transaction of the company, must disclose his interest to the Board. The disclosure must be made at the first meeting of the Board, held after he has become interested. This is because a Director stands in a fiduciary capacity with the company and, therefore, he must not place himself in a position in which his personal interest conflicts with his duty.

A company is not debarred from entering into a contract in which a Director is interested. It only requires that such interest be disclosed. An interested Director should not take part in the discussion on the matter of his interest. His presence shall not be counted for the purpose of quorum for that item. He shall not vote on that matter. If he does vote, his vote shall be void. Non-disclosure of interest makes the contract avoidable and not void. However, the concerned Director may be subjected to fine, up to Rs. 5,000.

Duty to attend Board meetings - A number of powers of the company are exercised by the Board of Directors in their meetings, held from time to time. Although, a Director may not be able to attend all the meetings, but, if he fails to attend three consecutive meetings or, all meetings for a period of three months, whichever is longer, without permission of the Board, his office shall, automatically, fall vacant.

A Director's duties also include the following:

• To convene Statutory, Annual General Meeting (AGM) and also Extraordinary General Meetings;

• To prepare and place at the AGM, along with the balance sheet and, profit and loss account, a report on the company's affairs, including the report of the Board of Directors;

• To authenticate and approve annual financial statement;

• To appoint first auditor of the company;

• To appoint cost auditor of the company;

• To make a declaration of solvency in the case of a Members' voluntary winding up;

It is difficult to describe the duties of directors in general terms, whether by way of analogy or otherwise. The nature of duties of director would depend not only on the nature of the company's business but also on the manner in which the work of the company is distributed between directors and other officials. A director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience.

In case of a Non Executive Director: A director is not bound to give continuous attention to the affairs of his company. His duties are of an intermittent nature to be performed at periodical board meetings, and at meetings of any committee of the board upon which he happens to be placed. He is not, however, bound to attend all such meetings, though he ought to attend whenever, in the circumstances, he is reasonably able to do so. However an Executive Director needs to give constant attention and take active interest in the affairs of the Company.

In respect of all duties that, having regard to the exigencies of business, and the articles of association, may properly be left to some other official, a director, is in the absence if grounds for suspicion justified in trusting that officer to perform such duties honestly. A director must of necessity trust the officials of the company to perform properly and honestly the duties allocated to those officials.

When presenting their annual reports and balance sheet to their shareholders and when recommending the declaration of a dividend, directors ought not to be satisfied as to the value of their company's assets merely by the assurances neither of their chairman, nor with the experience or the belief of the auditor howsoever competent and trust worthy he is. All in all, there is no difference between legal and equitable duties of directors. If the directors act within their power with such care as is reasonably to be expected from them, having regard to their knowledge and experience, and if they act honestly for the benefit of the company. They discharge both their legal as well as equitable duty to the company. The directors are not liable for all mistakes they make, although if they had taken more care they might have avoided them.

What are the Liabilities of the Directors of a company towards the company?

The liability of a Director to the company may arise from:

Breach of fiduciary duty: Where a Director acts dishonestly to the interest of the company, he will be held liable for breach of fiduciary duty. Most of the powers of Directors are powers in trust and, therefore, should be exercised in the interest of the company and, not in the interest of the Directors or, any section of members. Thus, in a case where the Directors, in order to forestall a take-over bid, transferred the unissued shares of the company to trustees, to be held for the benefit of the employees, and an interest-free loan from the company was advanced to the trustees to enable them to pay for the shares, it was held to be a wrongful exercise of the fiduciary powers of the Directors.

Ultra vires acts: Directors are supposed to act within the parameters of the provisions of the Companies Act, Memorandum and Articles of Association, since these lay down the limits to the activities of the company and, consequently, to the powers of the Board of Directors. Further, the powers of the Directors may be limited in terms of specific restrictions, contained in the Articles of Association. The Directors shall be held, personally, liable for acts beyond the aforesaid limits, being ultra vires the company or the Directors. Thus, where the Directors pay dividends or interest out of capital, they will be liable to indemnify the company for any loss or damage, suffered due to such act.

Negligence: As long as the Directors act within their powers with reasonable skill and care, as expected of them as prudent businessmen, they discharge their duties to the company. But, where they fail to exercise reasonable care, skill and diligence, they shall be deemed to have acted, negligently, in discharge of their duties and, consequently, shall be liable for any loss or damage, resulting there from. However, error of judgment will not be deemed as negligence. The Directors cannot be absolved of their liability for negligence by any provisions in the Articles of Association.

Mala fide acts: Directors are the trustees for the money and property of the company, handled by them, as well as for exercise of the powers, vested in them. If they dishonestly or in a mala fide manner, exercise their powers and perform their duties, they will be liable for breach of trust and, may be required to make good the loss or damage, suffered by the company by reason of such mala fide acts. They are also accountable to the company for any secret profits they might have made in course of their performance of duties on behalf of the company. Directors can also be held liable for their acts of 'misfeasance', i.e., misconduct or willful misuse of powers. However, misconduct, which is not willful, shall not amount to 'misfeasance'.

Where a Director misapplies or misappropriates the money or properties of the company or, has been guilty of breach of trust or misfeasance, the Court may order him to repay the money or, restore the property or, to pay compensation.

Can a Director be made liable for the acts of his Co-Directors?

A Director is the agent of the company, except for matters to be dealt with by the company in General Meeting and, not of the other members of the Board. Accordingly, except in one instance, nothing done by the Board can impose liability on a Director, who did not participate in the Board's action or, did not know about it. To incur liability, he must either be a party to the wrongful act or, later acquiesce (consent) to it. Thus, the absence of a Director from a meeting of the Board does not make him liable for the fraudulent act of a co-Director, on the ground that he ought to have discovered the fraud, except where he had the knowledge or, he was a party to confirm that action.

Where a Director is made liable for the acts of a co-Director, he is entitled to contribution from the other Directors or co-Directors, who were a party to the wrongful act. However, where the Director, seeking contribution alone, benefited from the wrongful act, he is not entitled to contribution.

Board's powers and restrictions thereon

General powers of Board

(1) Subject to the provisions of this Act, the Board of directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do:

Provided that the Board shall not exercise any power or do any act or thing which is directed or required, whether by this or any other Act or by the memorandum or articles of the company or otherwise, to be exercised or done by the company in general meeting

Provided further that in exercising any such power or doing any such act or thing, the Board shall be subject to the provisions contained in that behalf in this or any other Act, or in the memorandum or articles of the company, or in any regulations not inconsistent therewith and duly made thereunder, including regulations made by the company in general meeting.

(2) No regulation made by the company in general meeting shall invalidate any prior act of the Board which would have been valid if that regulation had not been made.
Certain powers to be exercised by Board only at meeting.

(1) The Board of directors of a company shall exercise the following powers on behalf of the company, and it shall do so only by means of resolutions passed at meetings of the Board :-

(a) the power to make calls on shareholders in respect of money unpaid on their shares;

(b) the power to issue debentures;

(c) the power to borrow moneys otherwise than on debentures;

(d) the power to invest the funds of the company; and

(e) the power to make loans

[Provided that the Board may, by a resolution passed at a meeting, delegate to any committee of directors, the managing director, the manager or any other principal officer of the company or in the case of a branch office of the company, a principal officer of the branch office, the powers specified in clauses (c), (d) and (e) to the extent specified in sub-sections (2), (3) and (4) respectively, on such conditions as the Board may prescribe:

Meetings of Board

Board to meet at least once in every three calendar months
In the case of every company, a meeting of its Board of directors shall be held at least once in every [three months and at least four such meetings shall be held in every year] :
Provided that the Central Government may, by notification in the Official Gazette, direct that the provisions of this section shall not apply in relation to any class of companies or shall apply in relation thereto subject to such exceptions, modifications or conditions as may be specified in the notification.]

Notice of meetings

(1)   Notice of every meeting of the Board of directors of a company shall be given in writing to every director for the time being in India, and at his usual address in India to every other director.

(2)   Every officer of the company whose duty is to give notice as aforesaid and who fails to do so shall be punishable with fine which may extend to 100[one thousand rupees].

General meetings of the Company

Annual general meeting

[(1) Every company shall in each year hold in addition to any other meetings a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it; and not more than fifteen months shall elapse between the date of one annual general meeting of a company and that of the next:
Provided that a company may hold its first annual general meeting within a period of not more than eighteen months from the date of its incorporation; and if such general meeting is held within that period, it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation or in the following year;

Provided further that the Registrar may, for any special reason, extend the time within which any annual general meeting (not being the first annual general meeting) shall be held, by a period not exceeding three months.]

(2) Every annual general meeting shall be called for a time during business hours, on a day that is not a public holiday, and shall be held either at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situate:

Provided that the Central Government may exempt any class of companies from the provisions of this sub-section subject to such conditions as it may impose:
Provided further that-

(a)    a public company or a private company which is a subsidiary of a public company, may by its articles fix the time for its annual general meetings and may also by a resolution passed in one annual general meeting fix the time for its subsequent annual general meetings; and

(b)   a private company which is not subsidiary of a public company, may in like manner and also by a resolution agreed to by all the numbers thereof, fix the time as well as the place for its annual general meetings.]

Contents and manner of service of notice and persons on whom it is to be served

(1) Every notice of a meeting of a company shall specify the place and the day and hour of the meeting, and shall contain a statement of the business to be transacted thereat.

(2) Notice of every meeting of the company shall be given-

(i) to every member of the company, in any manner authorised under the Act

(ii) to the persons entitled to a share in consequence of the death or insolvency of a member, by sending it through the post in a prepaid letter addressed to them by name, or by the title of representatives of the deceased, or assignees of the insolvent, or by any like description, at the address, if any, in India supplied for the purpose by the persons claiming to be so entitled, or until such an address has been so supplied, by giving the notice in any manner in which it might have been given if the death or insolvency had not occurred; and

(iii) to the auditor or auditors for the time being of the company, in any manner authorized under the Act in the case of any member or members of the company:
Provided that where the notice of a meeting is given by advertising the same in a newspaper circulating in the neighbourhood of the registered office of the company, the statement of material facts referred to need not be annexed to the notice as required by that section but it shall be mentioned in the advertisement that the statement has been forwarded to the members of the company.

(3) The accidental omission to give notice to, or the non-receipt of notice by, any member or other person to whom it should be given shall not invalidate the proceedings at the meeting.

Explanatory statement to be annexed to notice

(1)   For the purposes of this section-

(a)    in the case of an annual general meeting, all business to be transacted at the meeting shall be deemed special, with the exemption of business relating to (i) the consideration of the accounts, balance sheet and the reports of the Board of directors and auditors, (ii) the declaration of a dividend, (iii) the appointment of directors in the place of those retiring, and (iv) the appointment of, and the fixing of the remuneration of the auditors; and

(b)    in the case of any other meeting, all business shall be deemed special.

(2) Where any items of business to be transacted at the meeting are deemed to be special as aforesaid, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each such item of business, including in particular [the nature of the concern or interest], if any, therein, of every director and the manager, if any:

Provided that where any item of special business as aforesaid to be transacted at a meeting of a company relates to, or affects, any other company, the extent of shareholding interest in that other company of every director and the manager, if any, of the first mentioned company shall also be set out in the statement if the extent of such shareholding interest is not less than twenty per cent of the paid-up share capital of the other company.]

(3) Where any item of business consists of the according of approval to any document by the meeting, the time and place where the document can be inspected shall be specified in the statement aforesaid.

Quorum for meeting

(1)     Unless the articles of the company provide for a large number, five members personally present in the case of public company, and two members personally present in the case of any other company,shall be the quorum for a meeting of the company.

(2)     Unless the articles of the company otherwise provide, the provisions of sub-sections (3), (4) and (5) shall apply with respect to the meetings of a public or private company.

(3)     If within half an hour from the time appointed for holding a meeting of a company, a quorum is not present, the meeting, if called upon the requisition of members, shall stand dissolved.

(4)     In any other case, the meeting shall stand adjourned to the same day in the next week, at the same time and place, or to such other day and at such other time and place as the Board may determine.

(5)     If at the adjourned meeting also, a quorum is not present within half an hour from the time appointed for holding the meeting, the members present shall be a quorum.

Chairman of meeting

(1) Unless the articles of the company otherwise provide, the members personally present at the meeting shall elect one of themselves to be the chairman thereof on a show of hands.
(2) If a poll is demanded on the election of the chairman, it shall be taken forthwith in accordance with the provisions of this Act, the chairman elected on a show of hands exercising all the powers of the chairman under the said provisions.
(3) If some other person is elected chairman as a result of the poll, he shall be chairman for the rest of the meeting.

Proxies

(1)   Any member of a company entitled to attend and vote at a meeting of the company shall be entitled to appoint another person (whether a member or not) as his proxy to attend and vote instead of himself; but a proxy so appointed shall not have any right to speak at the meeting:

(2)   The instrument appointing a proxy shall-

(a)    be in writing; and

(b)   be signed by the appointer or his attorney duly authorised in writing or, if the appointer is a body corporate, be under its seal or be signed by an officer or an attorney duly authorised by it.

(3)   An instrument appointing a proxy, if in any of the forms set out shall not be questioned on the ground that it fails to comply with any special requirements specified for such instrument by the articles.

(4)   Every member entitled to vote at a meeting of the company, or on any resolution to be moved thereat, shall be entitled during the period beginning twenty-four hours before the time fixed for the commencement of the meeting and ending with the conclusion of the meeting, to inspect the proxies lodged, at any time during the business hours of the company, provided not less than three days' notice in writing of the intention so to inspect is given to the company
Voting to be by show of hands in first instance

At any general meeting, a resolution put to the vote of the meeting shall, unless a poll is demanded under section 179, be decided on a show of hands.
178. Chairman's declaration of result of voting by show of hands to be conclusive.

A declaration by the chairman in pursuance of section 177 that on a show of hands, a resolution has or has not been carried, or has or has not been carried either unanimously or by a particular majority, and an entry to that effect in the books containing the minutes of the proceedings of the company, shall be conclusive evidence of the fact, without proof of the number or proportion of the votes cast in favour of or against such resolution.

Minutes of proceedings of general meetings and of Board and other meetings

Every company shall cause minutes of all proceedings of every general meeting and of all proceedings of every meeting of its Board of directors or of every committee of the Board, to be kept by making within [thirty] days of the conclusion of every such meeting concerned, entries thereof in books kept for that purpose with their pages consecutively numbered.

(1A) Each page of every such book shall be initialled or signed and the last page of the record of proceedings of each meeting in such books shall be dated and signed-

(a) in the case of minutes of proceedings of a meeting of the Board or of a committee thereof, by the chairman of the said meeting or the chairman of the next succeeding meeting;
(b) in the case of minutes of proceedings of a general meeting, by the chairman of the same meeting within the aforesaid period of [thirty] days or in the event of the death or inability of that chairman within that period, by a director duly authorised by the Board for the purpose.

(1B) In no case the minutes of proceedings of a meeting shall be attached to any such book as aforesaid by pasting or otherwise.]

(2) The minutes of each meeting shall contain a fair and correct summary of the proceedings thereat.

(3) All appointments of officers made at any of the meetings aforesaid shall be included in the minutes of the meeting.

(4) In the case of a meeting of the Board of directors or of a committee of the Board, the minutes shall also contain-

(a) the names of the directors present at the meeting; and

(b) in the case of each resolution passed at the meeting, the names of the directors, if any, dissenting from, or not concurring in, the resolution.

(5) Nothing contained in sub-sections (1) to (4) shall be deemed to require the inclusion in any such minutes of any matter which, in the opinion of the chairman of the meeting-
(a) is, or could reasonably be regarded as, defamatory of any person;

(b) is irrelevant or immaterial to the proceedings; or

(c) is detrimental to the interests of the company.

Explanation.- The chairman shall exercise an absolute discretion in regard to the inclusion or non-inclusion of any matter in the minutes on the grounds specified in this sub-section.

A resolution will be taken to be passed at the Board meeting if a majority of the Directors give their consent to the same.