A summary procedure for winding up of companies is provided under section 361 of the Companies Act, 2013. The proceedings for liquidation are carried out by an Official Liquidator appointed by the Central Government. The summary procedure provides for the method for winding up other than winding up in the situation of an inability to pay debts. The Companies (winding up) rules, 2020 have been notified specifying the detailed procedure for summary winding up.
The Companies (winding up) rules, 2020 are applicable from 1 April 2020.
1. Conditions for Summary Winding Up
A company seeking to wind up or liquidate under Section 361 should meet the below-mentioned conditions:
- The book value of assets of the company does not exceed Rs 1 crore; and
- Anyone of the below conditions based on the latest audited balance sheet:
1. In the case of a firm which has taken deposits, the total outstanding deposits do not exceed Rs 25 lakh or
2. In case the company has outstanding loans, the total outstanding loan including secured loan does not exceed Rs 50 lakh; or
3. The turnover of the company is up to Rs 50 crore; or
4. The paid-up share capital of the company does not exceed Rs 1 crore.
2. Appointment of an Official Liquidator
The central government appoints the Official Liquidator of the company seeking winding up under the summary procedure for liquidation.
3. Procedure for Summary Liquidation
1. Sale of assets and properties: The Official Liquidator shall dispose of all the assets or property belonging to the company after obtaining the previous approval of the central government. Every sale has to be made with the confirmation of the central government. The gross sale proceeds shall be paid to the liquidator. Any expenses incurred in connection with the sale shall be paid by the liquidator out of the gross proceeds of the sale. The monies obtained by the Official Liquidator shall be paid into the public account of India in the Reserve Bank of India (RBI) as mentioned in section 349 not later than the next working day of the RBI.
2. Payments to creditors: The Official Liquidator has to within thirty days of his appointment call upon the creditors of a company to prove their claims from the company. The claims should be made in the prescribed manner within a time of thirty days from the receipt of the call from the liquidator. The liquidator shall examine the proof of debt lodged by the creditors. Within 30 days from the expiry of the time allowed for making claims, the liquidator shall file a list of creditors with the Central Government. The liquidator shall then discharge the dues of the creditors.
4. Powers of the Official Liquidator
The Official Liquidator appointed shall take custody or control of all the assets, effects and actionable claims to which the company is entitled or appears to be entitled. This will include all assets owned by the company and all amount due to the company.
For the purpose of executing a sale of the assets and properties of the company, a liquidator can appoint an agent or auctioneer as approved by the central government.
5. Duties of the Official Liquidator
The Official Liquidator shall investigate into the affairs of the company and submit a report to the Central Government in the prescribed manner. The report shall mention whether any fraud has been committed in promotion, formation or management of the affairs of the company. The report should also be made in case the liquidator is of the opinion there is no fraud committed. If on the receipt of the liquidator’s report, if the Central Government is satisfied that a fraud has been carried out by the promoters, directors or any other officer of a company, it might direct further investigation into the affairs of the firm and that a report will be submitted within a time frame as may be specified.
6. Winding-up Order
After considering the investigation report submitted by the Official Liquidator, the Central Government may order that winding up may be commenced in the same manner in which a company is wound up by the tribunal.