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).

Beyond Closure: Delivering Compliance, Efficiency and Stakeholder Value

 

The successful closure of an Indian company, wherein the client engaged us to strategically plan and seamlessly execute the business closure process. Given that the Company was solvent, the objective was to facilitate an orderly exit while enabling the recovery of surplus funds.

Following extensive deliberations and a comprehensive evaluation of the available exit mechanisms, the Firm determined that Voluntary Liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 (IBC) was the most appropriate course of action. This approach aligned with the Company's sound financial standing and the stakeholders' objective of efficiently realizing and distributing surplus assets through a legally compliant liquidation process.

Recognizing the subsidiary's declining commercial viability, the Board approved the initiation of voluntary liquidation proceedings under the Insolvency and Bankruptcy Code, 2016.

The Distress: TDS Amount

Throughout the voluntary liquidation process, the Firm ensured the proper preservation, compilation, and organisation of the Company’s historical records. Given the age of the Company, this involved a detailed review and collation of legacy documents to facilitate the proper surrender and closure of all applicable registrations. This structured exercise helped prevent the accrual of any outstanding statutory liabilities or obligations and contributed to a smooth and efficient financial closure.

By adopting a structured approach to documentation, payment reconciliation, regulatory compliance, and stakeholder coordination, the Firm ensured that all dues and statutory requirements were addressed in an orderly and timely manner. Consequently, the liquidation process progressed seamlessly, without any material operational or compliance-related challenges, culminating in the successful and timely dissolution of the Company.

The Firm Strategic Approach and Execution Framework

The engagement was executed through a methodical and solution-oriented approach, supported by comprehensive legal planning and technical expertise. Given the long-standing history of the Company, the proper identification, compilation, organisation, and preservation of its historical and statutory records involved a detailed and time-intensive exercise. Notwithstanding these complexities, the voluntary liquidation process was successfully completed within 270 days from the liquidation commencement date.

During the proceedings, the Hon’ble NCLT, Bengaluru Bench, issued notices to the Registrar of Companies and the Income Tax Department to ascertain whether any outstanding statutory dues remained payable by the Company. Pursuant thereto, the Income Tax Department identified an outstanding TDS liability pertaining to the financial year 2015–16. The said liability was subsequently discharged by the Liquidator, thereby ensuring complete statutory compliance prior to the dissolution of the Company.

Through proactive execution, meticulous compliance management, and timely completion of all legal and procedural formalities, the Firm successfully transformed a potentially complex liquidation process into a streamlined, efficient, and orderly closure exercise.

What initially presented as a challenging liability was successfully converted into a compliant and efficient closure and value-realization process.

Throughout the engagement, strict adherence to the provisions of the Insolvency and Bankruptcy Code, 2016 and applicable regulatory requirements ensured complete compliance and procedural transparency at every stage.

Conclusion

This engagement reflects the Firm’s ability to manage a complex liquidation mandate and convert it into a seamless, commercially viable, and strategically structured closure process. By combining legal expertise, prudent financial planning, and proactive stakeholder coordination, the Firm successfully delivered a compliant, dispute-free, and efficient exit solution. The engagement enabled the client to maximise value realisation while upholding the highest standards of regulatory compliance, transparency, and operational integrity.

Facilitating a Smooth and Compliant Exit for a UK-Owned Indian Subsidiary

 

The successful closure of the subsidiary of a UK based parent company, wherein the client engaged us to strategically plan and seamlessly execute the business closure process. Given that the Company was solvent, the objective was to facilitate an orderly exit while enabling the recovery of surplus funds.

Following extensive deliberations and a comprehensive evaluation of the available exit mechanisms, the Firm determined that Voluntary Liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 (IBC) was the most appropriate course of action. This approach aligned with the Company's sound financial standing and the stakeholder objective of efficiently realizing and distributing surplus assets through a legally compliant liquidation process.

Recognizing the subsidiary's declining commercial viability, the Board approved the initiation of voluntary liquidation proceedings under the Insolvency and Bankruptcy Code, 2016.

The Issue: Insufficient Funds

During the pre-liquidation stage, the Company was facing insufficiency of funds for the timely settlement of its outstanding liabilities and obligations. The Firm strategically advised and facilitated the raising of additional capital to strengthen the Company’s financial position and ensure smooth completion of the closure process. This enabled the Company to settle all dues and outstanding obligations in a timely and orderly manner, while also ensuring efficient fund transfers and financial closure. By adopting a structured approach towards reconciliation, documentation, and stakeholder coordination, all payments and statutory requirements were completed without any significant operational or compliance challenges. As a result, the liquidation process progressed seamlessly and culminated in the successful and timely closure of the Company.

The Firm Strategic Approach and Execution Framework

The engagement was executed through a methodical and solution-oriented framework, supported by comprehensive legal planning and technical expertise.

During the voluntary liquidation process, a unique situation arose where the parent company was both a creditor and shareholder of the subsidiary. Despite being a creditor, they didn’t file the claim, thereby ensuring procedural clarity and avoiding any potential impediment in the smooth process of voluntary liquidation.

The Voluntary liquidation process was successfully completed within 270 days from the liquidation commencement date through proactive execution, meticulous compliance management, and timely completion of all statutory formalities, the Firm transformed what initially appeared to be a complex and potentially prolonged process into a streamlined and efficient closure exercise.

Key Outcomes

• Orderly settlement of dues through strengthening of the Company’s capital position.
• Settlement of all liabilities and outstanding obligations.
• Completion of all statutory and regulatory requirements without any material compliance issues.
• Achievement of a clean financial closure while preserving procedural integrity and stakeholder confidence.

What initially presented as a challenging liability for insufficient funds was successfully converted into a compliant and efficient value-realization process. Throughout the engagement, strict adherence to the provisions of the Insolvency and Bankruptcy Code, 2016 and applicable regulatory requirements ensured complete compliance and procedural transparency at every stage.

Conclusion

This engagement demonstrates the Firm's capability to transform a complex liquidation mandate into a seamless and commercially effective closure process. Through a combination of legal expertise, strategic financial planning, and proactive stakeholder management, the Firm successfully delivered a compliant, dispute-free, and efficient exit solution, enabling the client to maximize value realization while maintaining the highest standards of regulatory compliance and operational integrity.

Business Closure Framework for an Indian Subsidiary

 

The successful closure of an Indian subsidiary of an Indian parent company, wherein the client engaged us to strategically plan and seamlessly execute the business closure process. Given that the Company was solvent, the objective was to facilitate an orderly exit while enabling the recovery of surplus funds.

Following extensive deliberations and a comprehensive evaluation of the available exit mechanisms, the Firm determined that Voluntary Liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 (IBC) was the most appropriate course of action. This approach aligned with the Company's sound financial standing and the stakeholders' objective of efficiently realizing and distributing surplus assets through a legally compliant liquidation process.

Recognizing the subsidiary's declining commercial viability, the Board approved the initiation of voluntary liquidation proceedings under the Insolvency and Bankruptcy Code, 2016.

The Solution: Payment Settlement

Throughout the voluntary liquidation process, the firm, ensured the timely settlement of all outstanding liabilities and obligations, facilitating efficient smooth fund transfers and financial closure. By adopting a structured approach to reconciliation, documentation, and stakeholder coordination, all payments and statutory requirements were completed in an orderly manner. As a result, the liquidation process progressed seamlessly, without any significant operational or compliance challenges, culminating in the successful and timely closure of the Company.

The Firm Strategic Approach and Execution Framework

The engagement was executed through a methodical, solution-oriented framework supported by comprehensive legal planning and technical expertise.

The Voluntary liquidation process was successfully completed within nine months from the liquidation commencement date. Through proactive execution, meticulous compliance management, and timely completion of all statutory formalities, the Firm transformed what initially appeared to be a complex and potentially prolonged process into a streamlined and efficient closure exercise.

Key Outcomes

• Successful completion of the voluntary liquidation process within the prescribed timeline.
• Orderly settlement of all liabilities and outstanding obligations.
• Efficient remittance and repatriation of surplus funds in compliance with applicable regulations.
• Completion of all statutory and regulatory requirements without any material compliance issues.
• Achievement of a clean financial closure while preserving procedural integrity and stakeholder confidence.

What initially presented as a challenging liability and remittance exercise was successfully converted into a compliant and efficient financial restructuring and value-realization process.

Throughout the engagement, strict adherence to the provisions of the Insolvency and Bankruptcy Code, 2016 and applicable regulatory requirements ensured complete compliance and procedural transparency at every stage.

Conclusion

This engagement demonstrates the Firm's capability to transform a complex liquidation mandate into a seamless and commercially effective closure process. Through a combination of legal expertise, strategic financial planning, and proactive stakeholder management, the Firm successfully delivered a compliant, dispute-free, and efficient exit solution, enabling the client to maximize value realization while maintaining the highest standards of regulatory compliance and operational integrity.

Voluntary Liquidation: Strategic Subsidiary Closure

 

The successful closure of a subsidiary of a parent company headquartered in the United States, wherein the client engaged us to strategically plan and seamlessly execute the business closure process. Given that the Company was solvent, the objective was to facilitate an orderly exit while enabling the recovery of surplus funds.

After an intense discussion & comprehensive assessment of available exit mechanisms for the Company, the Liquidator finds Voluntary Liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 was the most appropriate course of action, considering the Company's sound financial position and the intent to efficiently realize and repatriate the surplus funds through the liquidation process under Section 59 of the Insolvency and Bankruptcy Code, 2016.

In view of the subsidiary’s declining commercial relevance and business prospects, the Board commencement of voluntary liquidation proceedings in accordance with the Insolvency and Bankruptcy Code, 2016.

The Challenge: Managing Outstanding Trade Payables

While the Company continued to demonstrate financial stability, the subsidiary faced a key operational challenge in the form of significant trade payables owed to foreign parties attracting FEMA Compliances. These outstanding obligations had the potential to impede the timely and orderly closure of the Company if not addressed effectively, because unresolved trade payables could have resulted in regulatory delays in completing the closure process, complexities in financial reconciliation, and potential regulatory and compliance concerns.

Accordingly, a structured and strategic approach was adopted to identify, reconcile, and settle all outstanding dues. Through meticulous documentation, stakeholder coordination, and financial alignment, the Company was able to address these liabilities efficiently, thereby ensuring a smooth, compliant, and seamless closure process.

The Firm Strategic Approach and Execution Framework

The Firm undertook the engagement through a methodical, solution-driven approach & legal planning, leveraging its technical expertise and strategic insight to facilitate an efficient and compliant closure process. The key measures implemented included:

• Strategic Set-off of Trade Receivables and Trade Payables: In accordance with Regulation 28 of the IBBI (Voluntary Liquidation Process) Regulations, 2017, the Firm conducted a detailed review of the Company's outstanding receivables and payables and effected a mutual set-off between trade receivables and trade payables. This strategic exercise streamlined the settlement process, optimized recoveries, and significantly reduced the Company's net liability position, thereby contributing to an orderly and efficient voluntary liquidation.

This approach converted what initially appeared to be a liability-intensive balance sheet into a streamlined and compliant financial framework, thereby facilitating a smooth and efficient voluntary liquidation process.

This engagement serves as a notable example for No cash flow issued. The Company achieved a clean and orderly financial closure, with its balance sheet comprehensively reconciled and all liabilities duly resolved. Furthermore, what initially presented as a liability management challenge was transformed into a compliant and efficient financial restructuring exercise that enhanced value realization. Throughout the engagement, strict adherence to the provisions of the Insolvency and Bankruptcy Code and applicable regulations ensured complete regulatory compliance and procedural integrity.

Conclusion

This matter highlights the Firm’s ability to transform a complex liquidation scenario into a seamless and efficient closure process. Through a combination of legal acumen, strategic financial planning, and proactive stakeholder engagement, the Firm ensured a compliant, dispute-free, and commercially effective exit, enabling the client to realize maximum value while maintaining operational integrity throughout the process.

Factum Legal awarded at the EU Chambers' 34th Foundation Day

 

We are honoured to announce that our Firm “Factum Legal” has been awarded as Runner-Up in the Legal & Regulatory Sector at the EU-India Business Excellence Awards 2026, held on the occasion of the EU Chambers of Commerce 34th Foundation Day in India. The ceremony, convened under the theme "Celebrating 34 Years of Bridging EU-India Relations," brought together eminent diplomats, senior government representatives, industry leaders, and corporate members, reaffirming the institutional ties between India and the European Union.

This recognition holds a very special place in our hearts, as it is not merely an award but a validation of the years of relentless effort, professional integrity, and unwavering dedication that our Firm has poured into every case, every client, and every cause we have championed.  Since the beginning of Factum legal we have made relentless efforts towards India EU corridors. We have collaborated with various EU Firms & have dealt in Cross-border, M&A, Dispute resolution, and Corporate regulatory compliance. Being recognized on such a distinguished & celebrated platform is a moment of immense pride for us, and we are deeply grateful to the Indo EU Awards for considering us worthy of this honour.

The event was graced and awarded by Mr. Rajeev Sharma, President, EU Chambers; Dr. Rajesh Gawande, Secretary – Protocol, FDI, Diaspora & Outreach and Chief Protocol Officer, Government of Maharashtra; Mr. Erik af Hällström, Consul General of Finland; and Mr. Sven Östberg, Consul General of Sweden.

The firm extends sincere gratitude to its Clients, Organizers, EU Partners and Friends, whose continued confidence has been the foundation of this journey. Equally, this recognition belongs to every member of the Factum Legal family whose daily commitment to rigorous, principled practice makes achievements of this kind possible.

The India-EU Free Trade Agreement signed in January 2026 reinforces this direction as bilateral trade deepens and cross-border transactions grow, that defines our practice in legal advisory. This evolving landscape doesn't just create opportunity; it validates the corridor we've been building, and positions Factum Legal to guide clients through this chapter in more evolved way with confidence and clarity.

Successful Closure and Navigation of a Software Designing Company

The successful closure and navigation of a Software Designing Company, where after the client engaged us to design and execute a smooth business closure process. Since the Company was solvent, it opted to recover the available surplus funds through the closure process.

Following a detailed evaluation of the available exit routes for the Company, the Firm found Voluntary Liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 to be the most suitable option, considering that the Company was financially stable and intended to reclaim and recover the surplus funds through the said process.

Recognizing the company’s diminishing commercial viability, the Board approved the initiation of voluntary liquidation proceedings in accordance with the Insolvency and Bankruptcy Code, 2016.

The Distress: Continuous Losses

The company was in the business of providing Software designing services including services like development, customization, implementation, maintenance, testing, benchmarking, designing, dealing in computer software solutions and Database management. Despite facing no major operational problems, recurring losses made it unviable to continue the business.

Role of the Firm and Strategic Execution

The Objective of the Client was to distribute the surplus fund to the shareholder so after careful consideration and sustained efforts by the Firm, persistent follow-ups were undertaken to safeguard the financial position of the Company in the interest of its stakeholders. As the Company was incurring substantial losses that adversely affected its overall asset health, the Liquidator, through continuous and diligent effort, succeeded in releasing the Company from its liabilities, thereby bringing an end to further losses & help in dissolution.

The cessation of these losses strengthened the Company's asset pool and proved beneficial to the shareholders. Through the Firm's strategic adjustments, the Company was rendered free from losses and was subsequently dissolved in accordance with the applicable legal provisions. Importantly, the entire process was concluded without prolonged litigation, regulatory penalties, or disruption to stakeholder relationships.

Conclusion

This case exemplifies how a well-planned exit strategy, backed by the Firm’s technical expertise and disciplined execution, transformed a complex business closure into a smooth and value-driven process. The Firm’s ability to align legal frameworks, financial restructuring, and stakeholder management underscores the importance of strategic advisory in corporate exits.

Turning Closure into Opportunity: Navigating a Strategic Voluntary Liquidation for a Solvent Indian Company

The successful closure and navigation of an Indian company, having several foreign investors, was undertaken after the client engaged us to design and execute a smooth business closure process. Since the Company was solvent, it opted to recover the available surplus funds through the closure process.

Following a detailed evaluation of the available exit routes for the Company, the Firm found Voluntary Liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 to be the most suitable option, considering that the Company was financially stable and intended to reclaim and recover the surplus funds through the said process.

Recognizing the company’s diminishing commercial viability, the Board approved the initiation of voluntary liquidation proceedings in accordance with the Insolvency and Bankruptcy Code, 2016.

The Distress: Income Tax Refund

Despite everything looking clean after thorough checking, the Balance Sheet of the Company originally reflected an income tax refund relating to the financial year 2008–2009. Subsequently, upon detailed examination and reconciliation of the Company’s financial and tax records, it was observed that further refunds pertaining to the assessment years 2018–19 and 2020–21 were also due and recoverable from the concerned authorities.

Role of the Firm and Strategic Execution

After careful consideration and extensive efforts undertaken by the Liquidator, persistent follow-ups were made with the concerned authorities to secure the realization of these amounts for the benefit of the stakeholders of the Company.

Further, the Company was also entitled to recovery of certain VAT guarantees, which had remained pending for a considerable period. Through continuous and diligent efforts of the Liquidator, the said guarantees were successfully released, resulting in the recovery of a requisite sum. The realization of these refunds and guarantees ultimately enhanced the asset pool of the Company and proved beneficial to the shareholders.

Through Firm’s strategic adjustments, Income Tax refund were effectively recovered, enabling the company balance sheet clean. The company was subsequently dissolved in accordance with legal provisions. Importantly, the entire process avoided Prolonged litigation, regulatory penalties & disruptions to stakeholder relationships. 

Conclusion

This case exemplifies how a well-planned exit strategy, backed by the Firm’s technical expertise and disciplined execution, transformed a complex business closure into a smooth and value-driven process. The Firm’s ability to align legal frameworks, financial restructuring, and stakeholder management underscores the importance of strategic advisory in corporate exits.

Successful Exit of European Ship Management Company from India

 

We are delighted to announce the legally compliant exit of a European - owned company engaged in ship management services, from the Indian market. The client engaged our services to navigate the exit strategy, closure of business operations, and facilitate the remittance of surplus funds to their shareholders in various parts of Europe.

Following a detailed evaluation of available exit routes for the Company, Liquidator finds Voluntary Liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 as the most suitable option with the company being financially stable and to also reclaim/recover the surplus funds through Voluntary Liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016.

Recognizing the subsidiary’s diminishing commercial viability, the Board approved the initiation of voluntary liquidation proceedings in accordance with the Insolvency and Bankruptcy Code, 2016.

The Distress: Bank Account

The foreign shareholder did not have a valid bank account capable of receiving the remittance, due to which the company was unable to transfer the funds directly to the shareholder concerned. This created substantial procedural and regulatory difficulties, as the remittance could not be processed through the conventional banking channels.

Role of the Firm and Strategic Execution

The Firm approached the engagement with a structured and detail-oriented methodology, combining conceptualization, documentation, legal advisory, technical expertise with strategic foresight.

The situation required extensive deliberations, multiple rounds of trial and error, and careful strategy formulation to ensure compliance with applicable regulatory and banking requirements. Considerable time was spent evaluating various alternatives and coordinating among stakeholders to identify a legally and operationally viable solution before a workable structure could be finalized.

Ultimately, the foreign shareholder transferred his shares to an eligible shareholder within the compliance requirement, upon completion of the share transfer and fulfillment of the relevant formalities, the remittance was successfully made to the eligible shareholder in accordance with the agreed structure and applicable regulations.

Conclusion

This case exemplifies how a well-planned exit strategy, backed by Firm’s technical expertise and disciplined execution, turned a complex business closure into a smooth and value-driven process. The Firm’s ability to align legal frameworks, financial restructuring, and stakeholder management underscores the importance of strategic advisory in corporate exits.

BUSINESS EXIT OF JAPANESE SUBSIDIARY

 

The successful closure of a Japanese company operating in the Indian market stands as a notable benchmark in cross-border voluntary liquidation. The company had previously acted as a corporate guarantor for financial facilities extended by Bank of India to Northern Railway and Southern Railway. These facilities were structured loans provided to support railway operations, with the company guaranteeing repayment obligations in the event of default.

Upon completion of the underlying obligations, the Board concluded that voluntary liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 represented the most appropriate and compliant exit route.

Role of the Firm and Strategic Execution

The Firm handled the process with a structured, detail-oriented approach, demonstrating technical expertise and strategic clarity. It began with a thorough verification of solvency and closure of guarantees, including obtaining repayment certificates confirming that all loan obligations had been discharged. This eliminated any residual liabilities and ensured a clean financial position.

Strict compliance with statutory requirements was central to the process. We ensured a declaration of solvency, confirmed the absence of creditors, updated statutory records, and issued public notices for claims. All timelines and documentation standards were adhered to, resulting in a smooth and uncontested process.

The asset realization was efficiently managed through recovery of unutilized deposits, ensuring complete financial closure. Transparent communication with stakeholders including the Japanese parent company, Bank of India, regulatory authorities, and project partners helped maintain trust and avoid disputes.

The final dissolution application submitted to the National Company Law Tribunal included a comprehensive report covering the liquidation process, extinguished guarantees, asset recovery, and compliance confirmations. The Tribunal noted the precision, absence of litigation, and strong compliance framework, and ordered immediate dissolution.

This case highlights a seamless, dispute-free liquidation under Section 59, with full discharge of guarantees. It sets a high benchmark for similar mandates, demonstrating how careful planning, legal rigor, and disciplined execution can achieve a compliant and dignified market exit.

Outcome and Significance

This case highlights a seamless, dispute-free liquidation under Section 59, with full discharge of guarantees. It sets a high benchmark for similar mandates, demonstrating how careful planning, legal rigor, and disciplined execution can achieve a compliant and dignified market exit.

COMPREHENSIVE EXIT STRATEGY EXECUTED FOR U.S PARENT’S INDIAN SUBSIDIARY

The client, a U.S.-based parent company, engaged us to design and execute a comprehensive exit strategy for its Indian subsidiary. The scope of the engagement included an orderly winding down of operations, recovery of assets, resolution of outstanding obligations, and distribution of any surplus funds to the shareholders based in the United States, in compliance with applicable legal and regulatory requirements.

Following a detailed evaluation of available exit routes for the Company, Liquidator finds Voluntary Liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 as the most suitable option with the company being financially stable and to also reclaim/recover the surplus funds through Voluntary Liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016.

Recognizing the diminishing commercial viability of the subsidiary, the Board approved the initiation of voluntary liquidation proceedings under the Insolvency and Bankruptcy Code, 2016.

The Crisis: Trade Payables Pile Up

Despite maintaining overall financial stability, the subsidiary encountered a significant operational challenge in the form of substantial trade payables owed to its parent company. These outstanding intercompany liabilities posed potential complications for an orderly and timely closure of operations. If not addressed appropriately, they could lead to delays in closure, issues in financial reconciliation, and regulatory or compliance concerns. Accordingly, it became essential to adopt a structured and strategic approach to settle and reconcile these dues, ensuring proper documentation and alignment, thereby facilitating a smooth and compliant closure process.

Role of the Firm and Strategic Execution

The Firm approached the engagement with a structured and detail-oriented methodology, combining technical expertise with strategic foresight. The key steps included:

• Set-off Trade Receivables against Trade Payables: Identifying and offsetting as per the provisions of Regulation 28 of the IBBI (Voluntary Liquidation process) Regulations, 2017, the Liquidator has made a mutual set off between the Trade receivables & Trade payables, effectively reducing the net liability burden of the Company.

This approach transformed what initially appeared to be a liability-heavy balance sheet into a manageable and compliant financial structure, enabling smoother liquidation proceedings.

Through Firm’s strategic financial adjustments, trade payables were effectively neutralized against Trade receivables, enabling the company to settle obligations without disputes. The subsidiary was subsequently dissolved in accordance with legal provisions. Importantly, the entire process avoided Prolonged litigation, regulatory penalties & d Disruptions to stakeholder relationships.

This engagement stands out as a success for No cash flow issued. Vendor relationships were preserved through professional handling of obligations, maintaining goodwill with service providers. The company achieved a clean financial closure, with the balance sheet systematically resolved and no residual liabilities remaining. Additionally, what began as a liability challenge was transformed into a compliant and efficient capital adjustment, creating strategic value. Throughout the process, strict adherence to the Insolvency and Bankruptcy Code ensured complete regulatory compliance.

Conclusion

This case exemplifies how a well-planned exit strategy, backed by Firm’s technical expertise and disciplined execution, turned a complex business closure into a smooth and value-driven process. The Firm’s ability to align legal frameworks, financial restructuring, and stakeholder management underscores the importance of strategic advisory in corporate exits.

Successful Closure Case: Managing Shareholder Deadlock through Preference Shareholder Rights

 Background:

The successful closure of a software company entered under the process of voluntary liquidation under the Insolvency and Bankruptcy Code, 2016. The company had two equity shareholders holding equal stakes (50% each) and one preference shareholder holding (100%).

During the process to approve voluntary liquidation, the Company faced a stalemate as both equity shareholders were required to pass a special resolution to approve liquidation process of the company. With equal control, neither side could secure the 75% being the majority required for passing special resolution. One equity shareholder persistently opposed every decision, stalling the process and risking asset value erosion.

As per the Articles of Association and Section 47 of the Companies Act, 2013, the preference shareholder was entitled to vote on resolutions concerning winding up of the company or any action affecting their rights.

 

Strategy and Resolution of deadlock for commencement of closure:

Recognizing the deadlock, the Firm strategically advised the promoter regarding their voting rights of the preference shareholders under Section 47(2) of the Companies Act, 2013, since the resolutions related directly to winding up. By engaging with the preference shareholder and ensuring his rights were properly represented, the Firm secured its affirmative vote breaking the impasse and enabling the passage of the required resolutions. We also relied on provisions under the IBC, 2016 specifically Sections 35 and 36 to exercise control over asset realization and distribution independently, once shareholders consent on key matters was achieved. Through transparent communication and compliance with statutory requirements, the process moved towards closure efficiently.

 

Outcome:

After the resolution was duly passed, the voluntary liquidation process was initiated and carried out in accordance with the prescribed procedures. Over precise execution timeline from the commencement of liquidation, all necessary steps including asset realization, settlement of claims, and compliance requirements were completed, leading to the closure of the company’s affairs. Subsequently, the matter was placed before the Adjudicating Authority (NCLT), which reviewed the entire process, verified that all legal and regulatory compliances had been met, and, upon satisfaction, issued the final order for the company’s dissolution, thereby bringing its legal existence to an end.

 

Key Takeaway:

By tactfully leveraging preference shareholder’ voting right and operating within the framework of the Companies Act, 2013 and IBC, 2016, the Firm effectively overcame a deadlock, safeguarded interest of shareholders, and ensured a smooth and successful voluntary liquidation.

PARTH MERCHANT V/S. DETOX INDIA PVT. LTD. & ORS. – NCLT DIVISION BENCH COURT-2, AHMEDABAD – ORDER DATED – 08.12.2025

 Who can seek investigation under Sections 212 & 213 of the Companies Act, 2013?

KEY RATIO

Sections 212 and 213 of the Companies Act, 2013 (“Act”) are not “public interest” gateways for outsiders to demand investigations. Unless the applicant fulfills the statutory criteria mentioned under the Act, or is otherwise directly connected with the company’s affairs, the petition filed by the applicant is not maintainable. While delivering the order, the National Company Law Tribunal, Ahmedabad Bench (“NCLT Ahmedabad”) also held that an internal authorisation, such as a board resolution, may confer procedural authority to act on behalf of an entity; however, it cannot create or substitute the statutory locus standi required to invoke Sections 212 and 213 of the Companies Act, 2013 against a company. Further, the NCLT, Ahmedabad, also held that any ongoing disciplinary proceedings against the auditors of the company under the relevant professional framework by themselves do not establish the statutory nexus or eligibility necessary for seeking an investigation under Sections 212/213 of the Act.

FACTS

The matter stemmed from a petition filed by Mr. Merchant (Petitioner) seeking an investigation into the affairs of Detox India Pvt. Ltd. (Respondent) and others, alleging financial irregularities, unpaid statutory dues and siphoning of funds. The petition was for the first time dismissed by NCLT Ahmedabad by an order dated 23.11.2023, holding that the relief sought u/s 212 was premature since the Petitioner had not approached the Registrar of Companies for its prima facie report. The Petitioner challenged this order before the NCLAT which remanded the matter back to the Tribunal by an order dated 12.11.2024, with a specific direction to first determine the issues of locus standi and maintainability u/s 212 and 213(b).

On remand while the Respondent argued that private individuals cannot directly invoke Section 212 or qualify as “any other persons” under section 213. The Petitioner tried to justify his locus on the basis of a Board Resolution dated 31.08.2022 passed by M/s Rajdeep Boiler Pvt. Ltd., (one of the Respondents in the instant petition) authorizing him to pursue legal proceedings on behalf of that company to protect its interests.

TRIBUNAL’S REASONING AND FINDINGS

The NCLT in a detailed analysis held that Section 212 is triggered only after a Registrar of Companies report under section 208 and does not confer an independent / standalone right on private individuals to seek investigation directly before the Tribunal. The Tribunal also closely examined the phrase “any other person” used under section 213(b) and held that this expression cannot be interpreted expansively to include members of the general public or unrelated third parties.

The Tribunal also addressed the Petitioner’s reliance on a Board Resolution authorizing him to initiate proceedings. It clarified that such authorization does not amount to an assignment of debt, transfer of rights, or creation of any legal privity that could confer locus standi under Section 213 assertively holding that right to invoke Section 213 is personal, statutory, and non-transferable.

By applying the principle of ejusdem generis the Tribunal conclusively held that “any other person” refers only to persons who are directly or indirectly connected with the affairs of the company, such as resolution professionals, liquidators, administrators, or independent directors, and not strangers with no legal or financial nexus. In reaching this view, the Bench relied on NCLAT’s judgment dated 22.04.2025 in case of Itesh Sanmukhlal v. Corrtech International Ltd. & Ors. where the Appellate Tribunal observed that it was not the appellant’s case that the business of Respondent was being conducted for a fraudulent or unlawful purpose or that the persons managing the affairs of the company were guilty of fraud when the appellant was neither member nor shareholder or creditor of company.

Based on its findings, the Tribunal noted that the Petitioner was neither a shareholder, nor a member, or a creditor of Respondent and had produced no document to prove any such relationship. Accordingly, the petition was dismissed. The Tribunal has extensively held that even members seeking investigation under section 213(a) are required to meet strict statutory thresholds and support their application with evidence demonstrating good reasons for investigation. Allowing an unrelated individual to invoke Section 213 would dilute these safeguards and defeat legislative intent. The Petitioner’s attempt to expand the scope of Sections 212 and 213 to include public interest complaints was held to be impermissible under the statutory scheme.

SIGNIFICANCE OF THIS ORDER: -

This order of the NCLT, Ahmedabad Bench has significant implications on the interpretation of locus standi and maintainability u/s 212 and 213 of the Act. The Tribunal has clearly reaffirmed that the power to seek investigation into the affairs of a company is not open-ended and cannot be invoked by any person merely on the basis of allegations, however serious they may appear.

A key impact of this order is the clear demarcation of who can approach the Tribunal u/s 212 and 213 by clearly stating that private individuals or unrelated third parties cannot directly invoke these provisions unless they fall within the specific categories recognized by the statute. This brings clarity and certainty to the law by preventing misuse of investigation provisions by persons who have no legal, financial, or managerial connection with the company concerned.

The Tribunal has underlined that investigation provisions are not automatic remedies. This ensures that the process is invoked only in deserving cases and that companies are not subjected to unnecessary scrutiny based on unsupported allegations. Overall, this order strengthens procedural discipline under the Companies Act by clearly separating genuine statutory remedies from impermissible public interest claims.

 

This article is authored by Mr. Arun Gupta and Mr. Sanyam Kohli. Mr. Arun Gupta is the Managing Partner of Factum Legal. Mr. Sanyam Kohli is a Senior Associate at the Firm.

Winding Up under Companies Act, 2013

Winding up refers to the process of closing a company and distributing its assets to settle debts. Under the Companies Act, 2013, winding up can be initiated by the National Company Law Tribunal (NCLT) if the company is unable to pay its debts. The concept of winding up is covered under Part I and II of Chapter XX (Sections 270 to 365) of the Companies Act, 2013.

However, after the introduction of the Insolvency and Bankruptcy Code (IBC), the majority of insolvency-related winding up matters - especially those based on inability to pay debts - are now governed by the IBC. As a result, winding up under the Companies Act, 2013 is currently confined to specific limited situations and modes.

 

WINDING UP BY TRIBUNAL (COMPULSORY WINDING UP)

Grounds for Winding Up by Tribunal (Section 271)

The Tribunal (NCLT) may order winding up of a company on the following grounds:

i.       Company has passed a special resolution to be wound up by the Tribunal;

ii.     The company has acted against the sovereignty and integrity of India, the security of the State, public order, etc;

iii. The company has been conducted fraudulently or for unlawful purposes or in a manner oppressive to members;

iv.   if the company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding five consecutive financial years; 

v.     When the Tribunal is of the opinion that it is just and equitable to wind up the company.

Procedure

1.     Filing of Petition (Section 272)-

                           i.     A petition for winding up is filed with the NCLT. The petition should be accompanied with grounds for winding up, statement of affairs along with the prescribed fee. The petition is filed in FORM WIN-1 as per Companies (Winding Up) Rules, 2000. 

                              ii.     Eligible persons to file:

·       The company itself,

·       Any creditor or creditors,

·       Any contributory or contributories,

·      The Registrar of Companies (with prior sanction of Central Government),

Once filed, the NCLT reviews the petition and may admit it if it is satisfied that there is a prima facie case for winding up.

 

2.    Admission of Petition and Hearing: The Tribunal evaluates the petition along with the statement of affairs, and issues notices to the company and other concerned stakeholders. After admission of the petition, the NCLT may appoint a provisional liquidator to safeguard the company’s assets while the matter is pending. A hearing is then fixed, where the parties are given an opportunity to present their case.

3.    Passing of Winding Up Order: If the Tribunal is convinced that winding up is justified, it passes a winding-up order under Section 273. At that stage, the Tribunal appoints a Company Liquidator and issues directions for publication of the winding-up order through public notice.

4.   Appointment of Company Liquidator (Section 275): Tribunal appoints a Company Liquidator from the panel maintained by IBBI. The Liquidator files a Declaration of Independence in Form WIN 7. The Liquidator’s duties include taking custody and control of the company’s assets, maintaining proper records, realising and distributing assets.

5.     Intimation of Winding Up Order: After the winding-up order is passed, the NCLT sends a copy of the order to the Registrar of Companies (RoC) within 7 days and to the Company Liquidator and in the Official Gazette for publication. The RoC makes an entry and the status of the company changes to "in liquidation."

6.     Submission of Reports and Claims: Liquidator submits preliminary report within 60 days of Winding Up Order (Form WIN-9) and subsequent progress reports every six months (Form WIN-10).

7.    Realisation and Distribution of Assets: The liquidator collects and realises assets of the company, pays off the liabilities, distributes surplus (if any) to the shareholders. A dedicated liquidation bank account is also opened and operated with a scheduled bank for handling all receipts and payments during the liquidation process.

8.   Final Report and Dissolution (Section 302): Once the winding up is completed, the Liquidator prepares the final report in Form WIN-11 and submits it to the NCLT. If the Tribunal is satisfied, it issues an order for dissolution. This order is then filed with the RoC in Form INC-28. After filing, the RoC removes the company’s name from the register of companies, and the company is deemed dissolved. 

Regulatory Body

●   The National Company Law Tribunal (NCLT) is the primary authority responsible for hearing and deciding winding up petitions.

●   The Registrar of Companies (RoC) is responsible for maintaining the company’s status and records during winding up.

●    The Official Liquidator, an officer appointed by the NCLT, manages the liquidation process.