Corporate Laws CBMBL4T03

Syllabus topics (RTMNU)

• Meaning, Definition, characteristics and types of companies
• Incorporation of a company
• Role and legal position of the promoter
• Lifting of the corporate veil
• Memorandum of Association
• Articles of Association
• Meaning, purpose and contents
• Alteration
• Doctrine of Ultra Vires and Indoor management
• Prospectus: Meaning, Types and misrepresentation in a prospectus

Company: Meaning, Definition and Characteristics

Definition (Sec 2(20), Companies Act, 2013): 'Company' means a company incorporated under this Act or under any previous company law. In simple words, a company is a voluntary association of persons, registered under law, having a separate legal entity, perpetual succession and limited liability.

1. Separate legal entity – company is different from its members (Salomon v. Salomon & Co., 1897).
2. Artificial person – created by law; acts through directors.
3. Limited liability – members liable only up to unpaid amount on shares or guarantee.
4. Perpetual succession – death or exit of members does not end the company.
5. Common seal – optional since the 2015 amendment.
6. Transferability of shares – freely transferable in a public company (Sec 44).
7. Separation of ownership and management – shareholders own, Board manages.
8. Can own property and sue or be sued in its own name.

Types of Companies

Incorporation of a Company

1. Name reservation through the MCA portal (SPICe+ Part A / RUN).
2. Digital Signature Certificate and DIN of proposed directors.
3. Prepare MoA and AoA signed by subscribers.
4. File SPICe+ form with the Registrar of Companies (ROC) along with MoA, AoA, declaration by a professional, subscribers' and directors' declarations, address proof of registered office, and fees (Sec 7).
5. Certificate of Incorporation issued by ROC with Corporate Identity Number (CIN); PAN and TAN are issued with it. The company exists from the date in the certificate.
6. Commencement of business (Sec 10A): a company with share capital must file a declaration within 180 days that every subscriber has paid for his shares.

Promoter: Role and Legal Position

Promoter (Sec 2(69)) is a person named as such in the prospectus or annual return, or who has control over the affairs of the company, or on whose advice the Board is accustomed to act.

• Role: conceives the idea, does feasibility study, gathers persons, arranges finance, chooses name, prepares MoA/AoA, appoints bankers and auditors, gets the company registered.
• Legal position: he is neither an agent nor a trustee of the company (it does not yet exist), but stands in a fiduciary position – must not make secret profit and must disclose all interests.
• Pre-incorporation contracts do not bind the company (Kelner v. Baxter); the promoter is personally liable. Under the Specific Relief Act, 1963, the company may adopt such contracts after incorporation if they are for its purposes.
• Liability: for misstatement in prospectus (Sec 34–35), for secret profit, and for fraud.

Lifting of the Corporate Veil

Normally the law treats the company as separate from its members (the 'corporate veil'). Lifting the veil means the court ignores the separate entity and looks at the real persons behind the company.

• Judicial grounds: fraud or improper conduct; sham or façade company; evasion of tax; enemy character in war (Daimler Co. v. Continental Tyre, 1916); company acting as agent of its members; protection of public interest.
• Statutory grounds: furnishing false information at incorporation (Sec 7(7)); misstatement in prospectus (Sec 34–35); members falling below the minimum for more than six months (Sec 3A); fraudulent conduct of business during winding up (Sec 339).

Memorandum of Association (MoA)

The MoA is the charter of the company. It defines its constitution and the scope of its powers, and its relation with the outside world (Sec 2(56), Sec 4).

1. Name clause – ends with 'Limited' or 'Private Limited'.
2. Registered office clause – State in which office is located.
3. Object clause – objects for which the company is formed.
4. Liability clause – limited or unlimited.
5. Capital clause – authorised capital and its division into shares.
6. Subscription clause – names of subscribers and shares taken.

Articles of Association (AoA)

The AoA contains the internal rules and regulations for management of the company (Sec 2(5), Sec 5) – share issue, transfer, meetings, directors, dividends, borrowing. Model articles are given in Tables F to J of Schedule I (Table F for companies limited by shares).

Alteration of MoA and AoA

• MoA (Sec 13): special resolution required. Change of name needs Central Government approval; shifting registered office from one State to another needs Central Government (Regional Director) approval; change of objects of a company that raised money by prospectus needs newspaper notice and exit option to dissenting shareholders; capital clause altered under Sec 61.
• AoA (Sec 14): by special resolution; conversion of private into public company or vice versa (the latter needs Tribunal approval) is done by altering the AoA. Entrenchment provisions (Sec 5(3)) need stricter procedure.

Doctrine of Ultra Vires and Indoor Management

Ultra vires means 'beyond powers'. Any act of the company beyond the object clause of MoA is void and cannot be ratified even by all shareholders (Ashbury Railway Carriage Co. v. Riche, 1875). Directors are personally liable for such acts.

Indoor management (Royal British Bank v. Turquand, 1856): an outsider dealing with the company may assume that internal procedures have been properly followed. It protects outsiders against the doctrine of constructive notice. Exceptions: outsider knew of irregularity, was negligent or suspicious, or the document was forged.

Prospectus: Meaning, Types and Misrepresentation

Prospectus (Sec 2(70)) means any document described or issued as a prospectus, including a red herring prospectus, shelf prospectus, notice, circular or advertisement, inviting offers from the public for securities.

• Red herring prospectus (Sec 32) – lacks final price and quantity; used in book building.
• Shelf prospectus (Sec 31) – one prospectus for several issues over up to one year.
• Abridged prospectus (Sec 33) – short summary attached to application form.
• Deemed prospectus (Sec 25) – document by which securities are offered for sale to public through an issue house.

Misrepresentation: an untrue or misleading statement, or omission of a material fact, in a prospectus.

• Civil liability (Sec 35): directors, promoters, experts and persons authorising the issue must compensate investors who suffered loss; investors may also rescind the contract.
• Criminal liability (Sec 34): punishable as fraud under Sec 447.
• Defences: withdrawal of consent before issue; issue without his knowledge; reasonable belief that the statement was true.

Likely exam questions

1. (Long, 8/16 marks) Define a company. Explain its characteristics and the different types of companies.
2. (Long, 8/16 marks) What is a Memorandum of Association? Explain its contents and the procedure for its alteration. Distinguish between MoA and AoA.
3. (Short, 4 marks) Explain the legal position of a promoter.
4. (Short, 4 marks) Explain the doctrine of indoor management and its exceptions.
5. (Short, 4 marks) What is a prospectus? Explain the liability for misrepresentation in a prospectus.

Syllabus topics (RTMNU)

• Shares and Debentures: Definition, Types, Transfer and Transmission, Register of Members
• Share Capital: Meaning, Alteration, Voting Right
• Debenture: Definition, Types, Rules Regarding Issue of Debenture
• Register of Debenture holders
• Charges and their types
• Rules regarding declaration and distribution of dividends
• Investors Education and Protection Fund
• Provisions relating to Audit
• Auditors' Appointment
• Rotation of Auditors
• Auditors' Report
• Secretarial Audit

Shares: Definition and Types

Share (Sec 2(84)): a share in the share capital of a company, and includes stock. It is a unit of ownership and is movable property (Sec 44).

• Equity shares (Sec 43) – owners of the company; get dividend after preference shareholders; have voting rights; may be with differential voting rights (DVR) as per rules.
• Preference shares (Sec 43, 55) – preferential right to fixed dividend and to return of capital in winding up. Types: cumulative/non-cumulative, participating/non-participating, convertible/non-convertible, redeemable. A company cannot issue irredeemable preference shares; they must be redeemed within 20 years (up to 30 years for infrastructure projects).
• Other issues: bonus shares (Sec 63), rights shares (Sec 62), sweat equity shares to employees/directors for know-how (Sec 54), ESOPs.

Transfer and Transmission of Shares; Register of Members

Transfer is the voluntary act of a member selling or gifting shares. Transmission is the passing of shares by operation of law on death, insolvency or lunacy of a member.

Procedure of transfer (Sec 56): transfer deed signed by transferor and transferee, delivered to the company within 60 days of execution with share certificate → company registers the transfer and delivers certificate within one month. Shares of listed companies can be transferred only in demat form (SEBI rule).

Register of members (Sec 88): every company must keep a register showing name, address, PAN, shares held, date of becoming/ceasing to be a member. It is prima facie evidence of membership. For demat shares, the depository's records are deemed the register.

Share Capital: Meaning, Alteration, Voting Rights

Share capital is the capital raised by issue of shares. Kinds: authorised (maximum in MoA), issued (offered to public), subscribed (taken up), called-up and paid-up capital.

• Alteration (Sec 61) – if AoA authorises, by ordinary resolution in general meeting a company may: increase authorised capital; consolidate or split shares; convert fully paid shares into stock and vice versa; cancel unissued shares. Notice to ROC within 30 days (Sec 64).
• Reduction of capital (Sec 66) needs special resolution and confirmation of the National Company Law Tribunal (NCLT).
• Voting rights (Sec 47): equity shareholders vote on every resolution in proportion to paid-up capital. Preference shareholders vote only on resolutions directly affecting their rights, winding up or reduction of capital; but if their dividend is unpaid for two years or more, they get voting rights on all resolutions.

Debentures: Definition, Types, Rules of Issue

Debenture (Sec 2(30)) includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether or not it creates a charge on assets. Debenture holders are creditors, not owners; they get fixed interest.

• Types: secured / unsecured; redeemable / irredeemable (perpetual); convertible (fully or partly) / non-convertible (NCD); registered / bearer; first / second.
• Rules (Sec 71 and Share Capital and Debentures Rules, 2014): debentures cannot carry voting rights; conversion option needs special resolution; appoint a debenture trustee before issuing a prospectus or offering to more than 500 persons; create a Debenture Redemption Reserve where the rules require; secured debentures must be secured by charge on assets and redeemed within the prescribed time; trust deed to be executed.

Register of debenture holders (Sec 88): names, addresses and debentures held by each holder must be recorded; it is open to inspection.

Charges and their Types

Charge (Sec 2(16)) means an interest or lien created on the property or assets of a company as security; it includes a mortgage.

• Fixed charge – on definite, specific assets (land, machinery); company cannot sell them without lender's consent.
• Floating charge – on a class of changing assets (stock, debtors); company can deal with them in normal business until the charge crystallises (becomes fixed) on default or winding up.
• Registration (Sec 77): particulars must be filed with ROC within 30 days of creation; late filing is allowed with additional fees within the time the Act permits. Unregistered charge is void against liquidator and creditors. Satisfaction of charge must be reported within 30 days (Sec 82); company keeps a register of charges (Sec 85).

Declaration and Distribution of Dividends (Sec 123–127)

1. Dividend is declared only out of: profits of the current year after depreciation, profits of past years remaining undistributed, or both, or money given by Government for this purpose.
2. Company may transfer any part of profit to reserves before declaring dividend.
3. Interim dividend is declared by the Board; final dividend by members at the AGM on the Board's recommendation – it cannot exceed the recommended rate.
4. Dividend amount must be deposited in a separate bank account within 5 days of declaration.
5. Dividend must be paid in cash (cheque or electronic) within 30 days of declaration; otherwise directors are punishable (Sec 127).
6. Unpaid amount is moved to an Unpaid Dividend Account within 7 days after the 30 days (Sec 124).
7. Dividend is taxable in the hands of shareholders.

Investor Education and Protection Fund (IEPF)

Set up by the Central Government under Sec 125. Amounts in the Unpaid Dividend Account remaining unclaimed for 7 years are transferred to IEPF, along with shares on which dividend was unclaimed for 7 consecutive years. Uses: refund of claims to investors, promotion of investor education and awareness, and protection of investors' interests. Investors can claim back their money/shares from the IEPF Authority by filing an online claim.

Audit: Appointment and Rotation of Auditors

• First auditor: appointed by the Board within 30 days of registration; in a government company by the CAG within 60 days.
• Subsequent auditor (Sec 139): appointed by members at the first AGM to hold office from that AGM till the sixth AGM (5 years).
• Qualification (Sec 141): only a Chartered Accountant or a CA firm.
• Rotation (Sec 139(2)): listed and prescribed companies cannot appoint an individual auditor for more than one term of 5 consecutive years, or an audit firm for more than two terms of 5 years each; then a cooling-off of 5 years.
• Removal (Sec 140): before expiry of term by special resolution with prior approval of the Central Government, after giving a hearing.

Auditor's Report

Under Sec 143, the auditor reports to the members whether the financial statements give a true and fair view of the state of affairs and profit or loss. It states whether proper books are kept, all information was obtained, and statements comply with accounting standards. It may be clean (unmodified) or qualified, adverse, or a disclaimer. Certain companies must also report on matters under CARO, 2020.

Secretarial Audit (Sec 204)

Every listed company and prescribed companies (e.g. public company with paid-up capital of ₹50 crore or more, or turnover of ₹250 crore or more) must get a secretarial audit done by a Company Secretary in practice. The report in Form MR-3 is attached to the Board's report and checks compliance with company law, SEBI rules and other laws.

Likely exam questions

1. (Long, 8/16 marks) What is a share? Explain the types of shares. Distinguish between transfer and transmission of shares.
2. (Long, 8/16 marks) Explain the rules regarding declaration and distribution of dividend. Write a note on the Investor Education and Protection Fund.
3. (Short, 4 marks) Explain the provisions relating to rotation of auditors.
4. (Short, 4 marks) What is a charge? Distinguish between fixed and floating charge.
5. (Short, 4 marks) Write a note on secretarial audit.

Syllabus topics (RTMNU)

• Director (Concept and Definition)
• Qualification
• Disqualification
• Appointment
• Rights
• Duties
• Liabilities
• Removal and Resignation of Director
• Managing Director
• Whole-time Directors
• Director Identification Number (DIN)
• Small shareholders’ director
• Resident Director
• Alternate Director
• Independent Director
• Women director
• Company Secretary: Appointment, Duties and Powers

Director: Concept and Definition

Director (Sec 2(34)) means a director appointed to the Board of a company. Directors together form the Board of Directors, which manages the company. Only an individual can be a director (Sec 149(1)).

A director acts as an agent of the company, a trustee of its money and property, and an officer of the company. Number (Sec 149): public company – minimum 3; private – minimum 2; OPC – minimum 1; maximum 15 (more by special resolution).

Qualification and Disqualification

The Act prescribes no share qualification; the AoA may require directors to hold some shares. A director must hold a valid DIN and give written consent.

Disqualifications (Sec 164):

1. Of unsound mind, declared by a court.
2. Undischarged insolvent, or has applied to be adjudged insolvent.
3. Convicted of an offence and sentenced to imprisonment of 6 months or more (disqualified for 5 years from release); 7 years or more – permanently disqualified.
4. Court/Tribunal order disqualifying him.
5. Has not paid calls on his shares for six months.
6. Convicted for related-party transaction offences in the last 5 years.
7. Has no DIN.
8. Is a director of a company that has not filed financial statements or annual returns for 3 continuous financial years – cannot be reappointed there or appointed in any other company for 5 years.

Appointment of Directors

• First directors – named in AoA; if not, subscribers to MoA who are individuals (Sec 152(1)).
• By members in general meeting (Sec 152(2)).
• By the Board – additional director (till next AGM), alternate director, director in casual vacancy (Sec 161).
• By proportional representation if AoA provides (Sec 163).
• Nominee director – by financial institutions or Government.
• Retirement by rotation – in a public company at least two-thirds of directors are rotational; one-third of them retire at every AGM (Sec 152(6)).
• A person can be director of at most 20 companies, of which not more than 10 public companies (Sec 165).

Rights, Duties and Liabilities

• Rights: attend and vote at Board meetings; receive notice and agenda; inspect books of account (Sec 128); get remuneration as approved (Sec 197); be indemnified; resign.

Duties (Sec 166):

1. Act as per the AoA.
2. Act in good faith to promote the objects of the company for the benefit of members, employees, community and environment.
3. Use due and reasonable care, skill and diligence with independent judgment.
4. Avoid conflict of interest.
5. Not make undue gain; if he does, he must pay it back to the company.
6. Not assign his office to anyone.

Liabilities: to the company for breach of trust, ultra vires acts and negligence; to third parties for misstatement in prospectus and personal guarantees; statutory liability as 'officer in default' (fine for breach of Sec 166 is ₹1 lakh to ₹5 lakh); criminal liability for fraud (Sec 447).

Removal and Resignation of Director

• Removal by members (Sec 169): by ordinary resolution after special notice (Sec 115); the director is given a chance to be heard and to send a representation. Not applicable to a director appointed by the Tribunal.
• Resignation (Sec 168): by written notice to the company; the Board takes note and informs ROC; the director may also send a copy to ROC within 30 days. Resignation is effective from the date of receipt by the company or the date stated in the notice, whichever is later.

Managing Director and Whole-time Director

Managing Director (Sec 2(54)) is a director entrusted with substantial powers of management by AoA, agreement, Board or general meeting. Whole-time Director (Sec 2(94)) is a director in whole-time employment of the company.

• Appointment for a term not exceeding 5 years at a time (Sec 196); reappointment allowed.
• Age between 21 and 70 years; a person above 70 can be appointed by special resolution.
• A company cannot appoint both a managing director and a manager at the same time.
• Listed companies and public companies with paid-up capital of ₹10 crore or more must have a MD/CEO/manager (or whole-time director) as Key Managerial Personnel (Sec 203).

Director Identification Number (DIN)

DIN is a unique identification number allotted by the Central Government to an individual who wants to be a director (Sec 153–154). Application is made online in Form DIR-3 with identity and address proof. It is valid for life; no person can hold more than one DIN. Directors must keep their KYC details updated with the MCA.

Small Shareholders' Director and Resident Director

• Small shareholders' director (Sec 151): a listed company may have one director elected by small shareholders (holding shares of nominal value up to ₹20,000), on notice by at least 1,000 small shareholders or one-tenth of them, whichever is lower. Term up to 3 years; not liable to retire by rotation; not eligible for reappointment.
• Resident director (Sec 149(3)): every company must have at least one director who has stayed in India for at least 182 days in the previous financial year.

Alternate Director

Under Sec 161(2), the Board, if authorised by AoA or a general meeting resolution, may appoint an alternate director to act for a director who is absent from India for at least 3 months. He cannot hold office longer than the original director and must vacate when the original director returns to India. A person cannot be alternate for an independent director unless he is himself qualified to be an independent director.

Independent Director

An independent director (Sec 149(6)) is a non-executive director with no material financial relationship with the company, its promoters or management, who has integrity and relevant expertise.

• Listed companies – at least one-third of directors must be independent; prescribed public companies – at least two.
• Term up to 5 years; reappointment for one more term by special resolution; maximum two consecutive terms, then a cooling-off of 3 years.
• Not liable to retire by rotation; not entitled to stock options; gets sitting fees and commission.
• Must register in the independent directors' databank (Sec 150) and follow the Code in Schedule IV.

Woman Director

Every listed company and every public company with paid-up capital of ₹100 crore or more, or turnover of ₹300 crore or more, must have at least one woman director (Sec 149(1) and Rules). A vacancy must be filled within 3 months or by the next Board meeting, whichever is later. SEBI LODR additionally requires the top 1,000 listed companies to have at least one independent woman director.

Company Secretary: Appointment, Duties and Powers

Company Secretary (Sec 2(24)) means a member of the Institute of Company Secretaries of India (ICSI) appointed by a company to perform the functions of a company secretary.

• Appointment (Sec 203): a whole-time CS is compulsory as KMP in every listed company and every other public company with paid-up capital of ₹10 crore or more; companies with paid-up capital of ₹5 crore or more must also have a whole-time CS (Rule 8A). Appointed by Board resolution; a vacancy must be filled within 6 months.
• Duties (Sec 205): report to the Board on compliance with company law; ensure compliance with secretarial standards; convene meetings, prepare agenda and minutes; maintain statutory registers; file forms and returns with ROC; act as compliance officer under SEBI rules; guide directors on their duties.
• Powers: signs the annual return and financial statements (where appointed), authenticates documents and records, communicates with regulators on behalf of the company.

Likely exam questions

1. (Long, 8/16 marks) Who is a director? Explain the qualifications, disqualifications and the modes of appointment of directors.
2. (Long, 8/16 marks) Explain the provisions relating to independent directors and women directors. Add a note on small shareholders' director.
3. (Short, 4 marks) State the duties of a director under Section 166.
4. (Short, 4 marks) Explain the procedure for removal of a director.
5. (Short, 4 marks) Write a note on the appointment and duties of a Company Secretary.

Syllabus topics (RTMNU)

• Corporate Meetings: Shareholder and Board
• Types of Meetings
• Requisite of Valid Meeting: Notice, Agenda, Chairman, Quorum, Proxy, Resolutions, Minutes
• Postal Ballot
• E-voting
• Video Conferencing
• Resolution-kinds
• Winding Up meaning
• The Insolvency and Bankruptcy Code, 2016, an overview
• Modes of winding up
• Winding up by Tribunal
• Circumstances for Compulsory winding up
• petition for winding up
• Company Liquidator
• Consequences of winding up order
• Voluntary liquidation of Corporate persons

Corporate Meetings and their Types

A company meeting is a gathering of members or directors, after proper notice, to decide business by passing resolutions.

Requisites of a Valid Meeting

• Notice (Sec 101): at least 21 clear days in writing or electronically to every member, director and auditor, stating date, time, place and business. Shorter notice needs consent of 95% of members (as per Sec 101).
• Agenda: list of business to be transacted. Business other than ordinary AGM business (accounts, dividend, directors retiring, auditors) is special business and needs an explanatory statement (Sec 102).
• Chairman (Sec 104): elected by members present on a show of hands unless AoA provides otherwise; conducts the meeting and has a casting vote if AoA gives one.
• Quorum (Sec 103): public company – 5 members if members up to 1,000; 15 if 1,000 to 5,000; 30 if more than 5,000; private company – 2 members. If no quorum within half an hour, the meeting is adjourned to the same day next week. Board quorum (Sec 174): one-third of total directors or 2, whichever is higher.
• Proxy (Sec 105): a member entitled to vote may appoint another person to attend and vote on his behalf. A proxy cannot speak and votes only on a poll; proxy form must reach the company 48 hours before the meeting.
• Minutes (Sec 118): fair summary of proceedings, recorded within 30 days, signed by the chairman; evidence of proceedings.

Resolutions and their Kinds

Postal Ballot, E-voting and Video Conferencing

• Postal ballot (Sec 110): voting by post or electronic means without holding a meeting. Certain items must be passed only by postal ballot (for prescribed companies), such as alteration of objects, change in registered office outside local limits, sale of whole or substantially whole undertaking, and buy-back of shares.
• E-voting (Sec 108, Rule 20): every listed company and every company with 1,000 or more members must give members the facility to vote electronically. Voting rights are fixed on a cut-off date.
• Video conferencing: directors may attend Board meetings through video conferencing or other audio-visual means (Sec 173(2)). MCA circulars since 2020 have allowed general meetings (AGM/EGM) through VC/OAVM – check the latest MCA circular for its validity.

Winding Up: Meaning; IBC 2016 Overview

Winding up is the legal process by which the life of a company is ended: its assets are realised, debts are paid, any surplus is distributed among members, and finally the company is dissolved (its name is struck off).

IBC, 2016: a single law for time-bound insolvency resolution of companies, LLPs, firms and individuals.

• Adjudicating authority for companies – National Company Law Tribunal (NCLT); appeal to NCLAT.
• Regulator – IBBI; Insolvency Professionals run the process.
• CIRP (Corporate Insolvency Resolution Process) can be started by a financial creditor, operational creditor or the company itself on a default of ₹1 crore or more.
• Must be completed within 180 days, extendable by 90 days; overall limit 330 days including litigation.
• A Committee of Creditors (CoC) approves a resolution plan; if no plan is approved, the company goes into liquidation.

Modes of Winding Up

After the IBC, the Companies Act, 2013 provides only for winding up by the Tribunal (Sec 271). Winding up due to inability to pay debts is done through liquidation under the IBC (Sec 33), and voluntary winding up is now voluntary liquidation under Sec 59 of the IBC.

Winding up by Tribunal: Circumstances (Sec 271)

1. The company has resolved by special resolution to be wound up by the Tribunal.
2. Acts against sovereignty, integrity or security of India, friendly relations with foreign States, public order, decency or morality.
3. On application of Registrar/authorised person – affairs conducted fraudulently, company formed for unlawful purpose, or management guilty of fraud or misconduct.
4. The company has not filed financial statements or annual returns for 5 consecutive financial years.
5. The Tribunal thinks it is just and equitable to wind up the company.

Petition for Winding Up (Sec 272)

A petition may be filed by: the company; any contributory (member liable to contribute); the Registrar (with prior sanction of the Central Government); a person authorised by the Central Government; or the Central/State Government (in case of acts against sovereignty etc.). The company must file a statement of affairs within 30 days of the Tribunal's order (Sec 274).

Company Liquidator

The Tribunal appoints a Company Liquidator (and may appoint a provisional liquidator) from a panel of insolvency professionals (Sec 275).

• Duties: take custody of all property and books of the company (Sec 283); submit a report to the Tribunal within 60 days (Sec 281); settle the list of contributories; realise assets; pay debts in order of priority (Sec 326–327 – workmen's dues and secured creditors first, then preferential payments, then others).
• Powers (Sec 290): carry on business for beneficial winding up, sell property, raise money on security, sue and defend in the company's name.

Consequences of Winding up Order

1. Order operates in favour of all creditors and all contributories (Sec 278).
2. No suit or legal proceeding can be started or continued against the company without leave of the Tribunal (Sec 279).
3. After winding up is complete, the Tribunal passes an order of dissolution (Sec 302).

Voluntary Liquidation of Corporate Persons (Sec 59, IBC)

1. Only for a corporate person with no default.
2. A majority of directors give a declaration, verified by affidavit, that the company has no debt or will be able to pay its debts in full from the sale of assets; with audited accounts of 2 years and a valuation report.
3. Within 4 weeks, members pass a special resolution to liquidate and appoint an insolvency professional as liquidator.
4. If the company owes debts, creditors representing two-thirds in value must approve within 7 days.
5. Liquidator realises assets, pays creditors, distributes balance to members.
6. On the liquidator's application, NCLT passes the order of dissolution.

Likely exam questions

1. (Long, 8/16 marks) Explain the requisites of a valid general meeting with reference to notice, quorum, chairman, proxy and minutes.
2. (Long, 8/16 marks) What is winding up? Explain the circumstances in which a company may be wound up by the Tribunal and the consequences of a winding up order.
3. (Short, 4 marks) Distinguish between ordinary resolution and special resolution.
4. (Short, 4 marks) Write a note on postal ballot and e-voting.
5. (Short, 4 marks) Explain voluntary liquidation of a corporate person under the IBC, 2016.