Pending Litigation: What Happens to Cases After a Winding-Up Order?

 Pending litigation can materially affect the winding-up process.

The company may be involved in:

• civil suits;
• arbitration;
• recovery proceedings;
• tax litigation;
• labour disputes;
• regulatory proceedings; or
• proceedings in which the company itself is seeking recovery of money.

Under Section 279, once a winding-up order has been passed or a provisional liquidator has been appointed, a suit or other legal proceeding generally cannot be commenced or continued by or against the company without leave of the Tribunal, subject to the terms imposed by it.

An important exception is provided for proceedings pending in appeal before the Supreme Court or a High Court.

Further, Section 280 gives the Tribunal extensive jurisdiction over suits, claims and questions arising out of or relating to the winding up.

Practical issue

A winding-up order does not automatically make pending litigation disappear.

Instead, the Company Liquidator needs to identify:

• what proceedings exist;
• whether they should be continued;
• whether Tribunal permission is required;
• whether settlement is appropriate; and
• whether the proceeding represents a liability or a potential asset of the company.

Main takeaway

Pending litigation is not merely a footnote in winding up it can directly affect claims, recoveries, distributions and the timing of dissolution.

This Article has been compiled by Diksha Narang (Associate).

Hidden & Forgotten Assets: Finding Everything the Company Owns

 If Part 3 asks:

“Who does the company owe?”

Part 4 asks:

“What does the company own?”

A company undergoing winding up may still have:

• old receivables;
• security deposits;
• electricity or lease deposits;
• income-tax/GST refunds;
• investments;
• shares in subsidiaries;
• trademarks and patents;
• domain names;
• software or other intellectual property;
• immovable property;
• loans and advances;
• insurance claims; or
• balances lying in dormant bank accounts.

Under Section 283, the Company Liquidator is required to take custody or control of the property, effects and actionable claims to which the company appears entitled.

Section 290 further provides the Company Liquidator with powers and duties relating to the company's property and affairs.

The winding-up committee under Section 277 specifically assists in taking over assets, recovery of property and cash, and sale of assets.

Practical issue

An asset does not cease to belong to the company simply because nobody has looked at it for ten years.

Before dissolution, the asset may need to be:

identified → recovered → valued → realised/transferred → accounted for

Main takeaway

A company cannot be properly wound up until its assets are identified and dealt with as carefully as its liabilities.

This Article has been compiled by Shallu Garg (Senior Associate).

The Creditor Challenge: What Happens to Outstanding Claims?

Creditors are central to the winding-up process.

A company's books may show ₹10 lakh payable to a vendor, but:

• the vendor claims ₹15 lakh;
• the creditor cannot be traced;
• invoices are unavailable;
• the company disputes the liability;
• the balance has remained outstanding for many years;
• the liability is contingent; or
• a creditor submits a claim during winding up.

Under Section 324, debts and claims of different descriptions, including certain present, future and contingent claims, may be admitted to proof in winding up.

Priority amongst certain claims is separately governed by Sections 326 and 327, including workmen's dues and specified preferential payments.

The winding-up committee contemplated under Section 277 also assists in matters including finalisation of the list of creditors and contributories and compromise, abandonment or settlement of claims.

Practical issue

An old creditor appearing in the balance sheet cannot simply be removed because:

“Nobody has followed up for years.”

The underlying liability needs to be examined, supported, disputed, admitted, settled or otherwise appropriately dealt with during winding up.

Main takeaway

Winding up is not about deleting liabilities from the books—it is about identifying and legally dealing with them.

This Article has been compiled by Diksha Narang (Associate).

Before the Petition: Is the Company Ready for Winding Up?

 

Even where a valid ground for winding up exists, the company's affairs should be carefully reviewed before entering the winding-up process.

Think of this as a pre-winding-up health check.

The review should identify:

• creditors and outstanding loans;
• statutory and tax dues;
• ROC filing defaults and penalties;
• bank accounts and balances;
• trade receivables;
• fixed assets and investments;
• employee and workmen dues;
• pending suits, arbitrations and regulatory proceedings;
• guarantees and contingent liabilities;
• intellectual property;
• contracts and leases;
• related-party balances;
• licences and registrations; and
• books, records and supporting documents.

This review becomes particularly important because Section 274 deals with the statement of affairs in specified winding-up petitions, while Section 281 requires the Company Liquidator to submit a report to the Tribunal regarding the company's affairs after appointment. Directors, promoters and officers are also required to cooperate with the Company Liquidator under Section 284.

Practical issue

A company may appear dormant but still have:

₹2 lakh in an old bank account

• an unrecovered security deposit
• a tax appeal
• an old creditor
• an unreconciled related-party balance.

These issues do not disappear merely because commercial operations have stopped.

Main takeaway

Before approaching winding up, understand the company's complete financial, legal and regulatory position.

This Article has been compiled by Shallu Garg (Senior Associate).

Section 10 – IBC, 2016 & Section 271 – Companies Act, 2013

 

Section 10 of the Insolvency and Bankruptcy Code, 2016 enables a corporate debtor that has committed a default to initiate the Corporate Insolvency Resolution Process (“CIRP”) before the NCLT through a corporate applicant. Its primary objective is to provide an opportunity for resolution and revival of the corporate debtor, rather than its immediate liquidation.

Section 271 of the Companies Act, 2013 specifies the circumstances in which a company may be wound up by the NCLT, including where the company passes a special resolution for winding up, its affairs are conducted fraudulently, it defaults in filing financial statements or annual returns for five consecutive financial years, or where the Tribunal considers it just and equitable to wind up the company. The provision is therefore aimed at winding up and eventual dissolution of the company on specified statutory grounds.

1. Purpose	Intended for insolvency resolution and revival of a corporate debtor that has committed a default.	Intended for winding up and eventual dissolution of a company on specified statutory grounds.
2. Trigger	Requires the corporate debtor to have committed a default.	Financial default is not necessary. Winding up can be sought on grounds such as fraud, five consecutive years of filing default & passing special resolution to wind up the company.
3. Nature of process	In Corporate Insolvency Resolution Process (CIRP) the first attempt is to resolve/restructure the company rather than close it.	It directly invokes the winding-up jurisdiction of the NCLT. There is no CIRP or resolution-plan process under Section 271.
4. Who can initiate	Section 10 is specifically a self-initiated insolvency application by the corporate applicant/corporate debtor, backed by the prescribed shareholder/partner approval.	A winding-up petition under Section 272 may be presented by the company, contributories, Registrar, Central Government-authorised person, or specified Government authorities, depending on the ground.
5. Control after commencement	On admission of CIRP, the management framework shifts under the IBC to the IRP/RP, with creditors participating through the insolvency process.	In winding up, the company's affairs and assets are dealt with through the Company Liquidator under supervision of the NCLT.
6. Final outcome	If results in approval of a resolution plan and continuation of the company as a going concern. Liquidation is generally a consequence if resolution fails.	The intended outcome is realisation of assets, settlement of liabilities and eventual dissolution of the company.

This Article has been compiled by Diksha Narang (Associate) and edited by Shallu Garg (Senior Associate).