How to Wind up a Company in India?

Winding up refers to a company's formal closure and stopping of all operations. It usually happens when a company has finished its purpose, is facing heavy losses, or cannot pay its debts. Winding up is a way to end a business properly and legally. This process is governed by Companies Act, 2013, and must be done through proper legal steps. It helps settle all dues and ensures everything ends fairly and lawfully. In this article, we will explore How to Wind up a Company in India and everything you need to know about it.

What is the Winding Up of a Company?

Winding up is the closing of a company legally so that no compliance need to maintain any longer. It is the process where a company stops doing business, pays off its debts, sells its assets, and shares whatever is left with the owners or shareholders and submission of an application for company closure to NCLT (National Company Law Tribunal). It is a way to legally shut down a company so that no rules are broken and no money is left unpaid.

Winding up and dissolution are often confused with being related to each other, but they are not the same. Winding up is the process that comes before dissolution. During winding up, the company’s affairs are settled. After everything is completed, the business will be dissolved, which means that it is no longer legally in existence.

Laws That Govern Winding up a Company in India

The following details include the laws that govern winding up a company in India:

Companies Act, 2013

• The Companies Act, 2013, is the primary law that explains how a company can be legally shut down in India.
• It covers both voluntary and compulsory winding up.
• It ensures proper steps are followed to protect the rights of employees, creditors, and shareholders.

Role of the National Company Law Tribunal (NCLT)

• NCLT is a special court for company-related matters.
• In compulsory winding up, the company is closed only after the NCLT approves.
• Even in voluntary winding up, NCLT may be involved for permissions and legal formalities.
• It handles complaints, supervises the process, and makes final decisions.

Involvement of the Insolvency and Bankruptcy Code (IBC), 2016

• IBC is used when a company cannot repay its debts, which is called insolvency.
• It gives a time-bound process for either saving or closing the company.
• Creditors can use IBC to recover their money fairly and legally.
• IBC works along with the Companies Act to handle financial failures.

Types of Winding Up in India

Winding up of a company in India can happen in two ways that is, voluntary and compulsory. Let us discuss them briefly:

1. Voluntary Winding Up

Voluntary winding up is when the company itself chooses to close down. This usually happens when the business is no longer profitable, the company has completed its purpose, or there are no future plans to continue operations. The procedure starts when the board of directors of the company passes a resolution to wind up. A liquidator is then appointed to handle the process, which includes selling the company’s assets, paying off any debts, and distributing the remaining money to the shareholders. Once everything is settled, the company submits a final report, and the Registrar of Companies (ROC) declares it officially closed.

2. Compulsory Winding Up

Compulsory winding up happens when the National Company Law Tribunal (NCLT) orders the company to shut down. This may occur if the company is unable to pay its debts, is involved in fraud, or has not followed the rules of the Companies Act. In such cases, a petition is filed in the NCLT, which reviews the case and, if it is valid, then appoints a liquidator. The liquidator manages the sale of assets, clears dues, and ensures proper closure. Both types of winding up follow legal steps to protect everyone involved.

Grounds for Winding up a Company

A company can be legally closed under certain conditions as outlined in Section 271 of the Companies Act, 2013. The details mentioned below include the grounds for winding up a company:

1. Decision by the Company: If the company’s members pass a special resolution agreeing to close the business, the National Company Law Tribunal may approve the winding up.
2. Activities against National Interests: If the company engages in actions that threaten India’s security, sovereignty, or public order, the NCLT can order its closure.
3. Fraudulent or Illegal Operations: Companies involved in unlawful activities, fraud, or misconduct can be wound up to protect stakeholders and the public.
4. Failure to Submit the Financial Documents: If a company doesn’t file its financial statements or annual returns continuously for five years, the NCLT may consider it inactive and order for its winding up.
5. Just and Equitable Grounds: The NCLT can decide to wind up a company if it is fair and reasonable to do so. This can include situations like loss of purpose, if the company can no longer achieve its primary objectives. Management deadlock is when the directors and shareholders can't agree on a key decision, which may pause operations.

How to Wind up a Company in India?

Winding up a company is the formal process of closing it down, which ensures all obligations are settled and the company is legally dissolved. Let us discuss the steps involved in winding up a company:

Step 1: Board Resolution

The company’s directors convene a meeting to assess the financial position. If they believe the company can pay its debts, they will pass a resolution proposing a voluntary winding up. The shareholders are then asked to approve this decision.

Step 2: Declaration of Solvency

The directors must declare that the company is solvent before proceeding, which means it can pay its debts in full within a specified period. This declaration is supported by an auditor’s report and filed with the ROC.

Step 3: Shareholders' Approval

A general meeting is held where shareholders pass a special resolution to wind up the company. During this meeting, a liquidator is appointed to oversee the process.

Step 4: Notification to ROC and the Public

Both the liquidator's appointment and the resolution are submitted to the ROC. Notices are then published in the official gazette and newspapers to inform the public about the winding-up process.

Step 5: Appointment of Liquidator

The liquidator takes charge of the company’s affairs, which includes collecting assets, settling liabilities, and distributing any remaining assets to shareholders.

Step 6: Asset Liquidation and Debt Settlement

The money raised from selling the company's assets is utilized to settle its debts with its creditors. If there is any surplus remaining after settling debts, it is distributed among the shareholders.

Step 7: Final Accounts and Dissolution

Once all the affairs are in order, the liquidator prepares a final report and accounts, which are presented to the shareholders. After the approval, an application is made to the ROC for the company’s dissolution. The firm is formally dissolved when the ROC removes its name from the registry after the verification.

Essential Documents Required for Winding up A Company

Here is the list of documents needed for winding up a company:

1. Certificate of Incorporation: The initial certificate that was granted at the company's registration.
2. Memorandum and Articles of Association (MOA & AOA): Foundational documents outlining the company's objectives and internal rules. ?
3. Board Resolution: A certified copy of the resolution passed by the board of directors approving the winding-up process. ?
4. Special Resolution by Shareholders (Form – 26): A certified copy of the resolution passed by at least 75% of shareholders consenting to the winding up. ?
5. Declaration of Solvency (Form 107): A statement by the directors affirming the company's ability to pay its debts within a specified period, accompanied by an auditor's report. ?
6. Statement of Affairs: A detailed account of the company's assets, liabilities, and financial position, typically prepared in Form WIN 4. ?
7. Affidavit of Concurrence: A sworn statement (Form WIN 5) confirming the accuracy of the Statement of Affairs. ?
8. Appointment of Liquidator: A resolution appointing a liquidator to oversee the winding-up process, along with the liquidator's consent to act. ?
1. Public Notice: An advertisement (Form WIN 6) published in a vernacular newspaper announcing the winding-up decision. ?
10. Final Accounts and Auditor's Report: The liquidator's final statement of accounts, audited and approved by the shareholders. ?
11. Application for Dissolution: A formal request submitted to the ROC or NCLT for the company's dissolution, which depends on the type of winding up. ?
50. Form STK-2: It is used to apply to the ROC (Registrar of Companies) to remove its name from the lists of companies.

Who Can File a Petition for the Winding Up of a Company?

Under the Companies Act, 2013, several parties can request the NCLT to wind up a company. They are as follows:

1. Company: Under Section 272(1) (a), a company can file a petition for winding up the company itself if the members pass a special resolution agreeing to close the business.
2. Creditors: Individuals or entities to whom the company owes money can file a petition if the company cannot repay its debts. This includes those with current claims or potential future claims.
3. Shareholders: Shareholders can file a petition for the winding up of a company even if their shares are fully paid. They must have held shares for at least six months during the 18 months before the petition, or they must have inherited them.
4. Registrar of Companies: The registrar can initiate winding up if the company violates certain legal requirements, like not submitting mandatory reports or failing to start business within a year of incorporation. This requires prior approval from the central government.
5. Government Authorities: The central or state government can request winding up if the company’s activities harm national interests or scrutiny.
6. Authorized Persons: An individual authorized by the central government can also file a petition on their behalf.

Timeline and Costs Involved in Winding up a Company

Winding up a company in India involves varying timelines and costs, depending on the method and complexity of the process. ?

Estimated Duration

1. Voluntary Winding Up (Section 248, Companies Act, 2013): Recent reforms have streamlined this process. As of early 2025, companies can be struck off within an average of 60 to 90 days.
2. Voluntary Liquidation (Section 59, Insolvency and Bankruptcy Code, 2016): For solvent companies opting for voluntary liquidation under the IBC, the process can take approximately 6 to 12 months, which is influenced by factors like asset realization and creditor settlements. ?
3. Compulsory Winding Up (Tribunal-led): This court-supervised process is more intricate and may extend up to 2 years, which depends on legal proceedings and asset liquidation complexities.

Cost Implications

The expenses associated with winding up a company can vary based on several factors, which are mentioned below: ?

• Government Fees: Approximately Rs. 10,000 for filing and processing. ?
• Professional Fees: The cost can vary if you engage legal advisors, accountants, and insolvency professionals, which depends on the case's complexity. ?
• Document Auditing Fees: These depend on the company size and complexity, the nature of winding up, the auditor’s experience and qualifications, and specific requirements of the winding up process.

Role of a Liquidator

?A liquidator plays an important role in the winding-up process of a company in India, which ensures that the company's closure is conducted lawfully and fairly. ?The following details include the role of a liquidator:

1. Duties and Powers

Once the liquidator is appointed, the person takes control of the company's assets, which include identifying and collecting all properties and valuables. They are responsible for selling these assets to generate funds, which are then used to pay off the company's debts. The liquidator must ensure that the distribution of funds follows the legal order of priority, which gives priority to secured creditors and employees before shareholders. The liquidator has the authority to investigate the company's affairs, which includes examining financial records and the conduct of directors, to identify any instances of fraud or misconduct. ?

2. Interaction with Stakeholders

The liquidator serves as a liaison between the company and its stakeholders, which include creditors, shareholders, and employees. They are responsible for inviting and verifying claims from creditors, which ensures that all legitimate claims are acknowledged and addressed. Regular communication is maintained with stakeholders to keep them informed about the progress of the liquidation process and any decisions that may affect their interests. ?

3. Reporting Obligations

The liquidator is required to maintain accurate and proper records of all the transactions throughout the liquidation process. They must prepare and submit all the periodic reports outlining the status of asset realization, debt payments, and distributions to stakeholders. These reports are submitted to the appropriate authorities, such as the NCLT, to ensure transparency and compliance with legal requirements. ?

Implications of Company Winding Up

?Winding up a company in India has significant implications for all involved parties, and they are mentioned as follows:

1. Creditors: Creditors are prioritized during the liquidation process. The liquidator assesses the company's assets and sells them to repay outstanding debts. If the company's assets are insufficient, the creditors may receive only a portion of what they are owed.
2. Employees: Employees face job termination as the company's operations cease. They are entitled to receive unpaid wages, salaries, and other dues. Under the Companies Act, 2013, employees' claims are given priority, which ensures they are compensated before settling debts with unsecured creditors. ?
3. Shareholders: Shareholders are the last to receive any remaining assets after all debts and obligations have been settled. If any surplus remains post-debt repayment, it is distributed among shareholders based on their shareholding. In many cases, when the company is insolvent, the shareholders might not receive any return on their investment. ?
4. Directors: Directors lose their managerial powers once a liquidator is appointed. They are obligated to cooperate fully with the liquidator by providing necessary documents and information. If it is found that the directors are engaged in fraudulent activities or have breached their duties, they can be held personally liable for the company's debts.

Common Challenges in Winding up a Company

Winding up a company in India involves several challenges that can complicate and extend the process. Here are the common issues faced when winding up a company:

1. Delays in the Process

Legal procedures, especially under the National Company Law Tribunal (NCLT), can be time-consuming due to factors like case backlogs and complex documentation. These delays can increase costs and uncertainty for all parties involved. ?

2. Disputes Among Stakeholders

Conflicts may arise between creditors, shareholders, and employees over asset distribution or claim priorities. Such disputes can stall the winding-up process and lead to legal battles. ?

3. Compliance Issues

Failing to meet legal and regulatory requirements can result in penalties and further delays. Common compliance challenges include incomplete filings and non-adherence to statutory timelines. ?

Winding up a company is a big step that must be taken seriously. You learned How to wind up a company in India. It is not just about closing a business but doing it in the right and legal way. It involves many steps, such as settling debts, informing the authorities, and treating everyone fairly. If not done properly, it can cause problems for the company and the people involved. That is why it is always best to follow the rules and seek help from legal or financial experts when needed. To get assistance and guidance from professional experts in filing the winding-up application, contact Online Legal India.