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).

When Can a Company Be Wound Up by the NCLT?

 

Winding up under the Companies Act, 2013 is not simply an alternative method for closing any company that has stopped business.

Under Sections 270 and 271 of the Companies Act, 2013, a company may be wound up by the Tribunal only on the grounds specifically recognized by law.

These include where:

• the company has passed a special resolution that it be wound up by the Tribunal;
• the company has acted against the sovereignty and integrity of India, security of the State, public order, decency or morality;
• the affairs of the company have been conducted fraudulently, the company was formed for a fraudulent or unlawful purpose, or persons involved in its formation or management have been guilty of fraud, misfeasance or misconduct;
• the company has defaulted in filing its financial statements or annual returns for five consecutive financial years; or
• the Tribunal considers it just and equitable that the company should be wound up.

A petition may be presented by persons specified under Section 272, including the company itself, contributories, the Registrar and other authorised persons, depending upon the ground invoked. The powers available to the Tribunal after receiving the petition are provided under Section 273.

Practical issue

A company may have stopped operations several years ago, but cessation of business by itself does not automatically constitute a ground for winding up under Section 271.

The first question therefore is not:

“Does the company want to close?”

It is:

“Does the company fall within a statutory ground on which the NCLT can order winding up?

Main takeaway

Winding up by the Tribunal begins with establishing a statutory ground under Section 271—not merely with a commercial decision to close the business.

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