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).