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).