Modes of Winding Up: The Current Legal Position

Many older descriptions of this topic list two broad modes of winding up a company under the Companies Act, 2013 — winding up by the Tribunal and voluntary winding up — with voluntary winding up further divided into a members' voluntary winding up (used when the company was solvent and could pay its debts in full) and a creditors' voluntary winding up (used when the company was insolvent, giving creditors a greater say in the process). That description was accurate when the Companies Act, 2013 was first enacted, and it is still useful as background, but it is no longer the current law and students must be careful not to state it as though it still applies unchanged.

The law changed with the Insolvency and Bankruptcy Code, 2016 (IBC). The IBC consolidated and re-wrote the law relating to insolvency and liquidation of companies, limited liability partnerships and individuals into a single code. As part of this reform, the provisions on voluntary winding up in the Companies Act, 2013 (the original Sections 304 to 323) were omitted altogether, and voluntary liquidation of a solvent company was moved, in its entirety, to Section 59 of the IBC, along with the Insolvency and Bankruptcy Board of India's (IBBI) Voluntary Liquidation Process Regulations, 2017. The separate members' voluntary / creditors' voluntary split from the old framework does not exist as such under the IBC — voluntary liquidation under Section 59 is available only to a company that is solvent (able to pay its debts in full), so the modern process is closest in spirit to the old "members' voluntary" route; a genuinely insolvent company today does not liquidate itself voluntarily at all — its creditors instead trigger the Corporate Insolvency Resolution Process (CIRP) under the IBC, which may or may not end in liquidation.

So, stated honestly and in line with the law as it stands today, the two routes by which a company's winding up and dissolution can validly be brought about are:

1. Winding up by the Tribunal (NCLT), under the Companies Act, 2013 — a compulsory process, ordered by the Tribunal on a petition, on one of the specific grounds listed in Section 271 of the Act (studied in the next section).
2. Voluntary liquidation of a solvent company, under Section 59 of the Insolvency and Bankruptcy Code, 2016 — a process the company itself chooses to undergo, subject to a declaration of solvency and the approval of its members (and, where it owes debts, its creditors).