Research Questions:

1. Is the current corporate governance framework in India, particularly in relation to companies approaching insolvency, provides the right combination of high standards and low burdens?
    
2. In respect of Companies Act 1956, Companies Act 2013 and Insolvency and Bankruptcy Code 2016, what were the various issues arising in winding up procedures and how it would have been tackled so far?

Rationale
The procedure for winding up is not simple, and it is a long and time-consuming process. It encompasses a wide range of complications and technicalities. Using modifications, the Ministry of Corporate Affairs has simplified the process of forming a company simple and quick through its online platform. The same ministry will make reforms and introduce new winding-up formats to make it easier for businesses to wind up. Previously, just the Companies Act covered this, but with the Insolvency and Bankruptcy Code of 2016, it has become more difficult to apply these laws and provisions while deciding on a priority.

The Companies Act of 1956 was the first to bring the provisions of winding up into the legal system, and the Companies Act of 2013 kept them. Winding up by Court or Compulsory Winding Up, Voluntary Winding Up, and Winding Up Subject to Court Supervision were all options under the Companies Act of 1956. The third provision i.e. Winding Up subject to the supervision of the Court was eliminated by the Companies (Second Amendment) Act of 2002, and the word 'Court' was replaced by 'Tribunal.'

The Companies Act, 1956 was modified, and the Companies Act, 2013 (Act) was enacted, however the winding up provisions remained unchanged until the legislature introduced the new Insolvency and Bankruptcy Code, 2016. Also, due to large number of cases being filed there is unnecessary delay in winding up of business and hence this paper recognizes the corporate governance issues regarding the winding-up of the business entity and give suggestion for effective insolvency resolution.

Introduction
Every capitalist system must have bankruptcy rules. They serve as the foundation for the orderly dissolution or restructuring of a variety of company structures, including sole proprietorships, partnerships, and limited liability companies. As a result, bankruptcy laws make it easier to re-allocate capital that has been locked up in a failed enterprise. There are apparent distributional effects in any bankruptcy procedure since bankruptcy laws must balance the competing interests of various stakeholders, including banks, suppliers, employees, operational creditors, bondholders, and the government. As a result, bankruptcy rules are subject to political and economic pressures.

The procedures for insolvency and bankruptcy were deeply rooted in common law traditions by the time the British withdrew in 1947. The argument over the role of the private sector in a system of socially regulated industry affected advances in bankruptcy and insolvency legislation after Independence. Because the state owned all main means of production and distribution under socialism, the concept of bankruptcy was largely ignored. Insolvency would not be regarded a legal issue because the planned economy eliminates most trading risks. As a result, personal bankruptcy laws remained substantially untouched.

As evidenced by recommendations of the Bhabha Committee in 1952, the bankruptcy/winding-up provisions of business legislation were not influenced by economic compulsions of socialism and followed the same route during the colonial period. The aim of legislative wisdom, however, was to experiment with debt recovery laws rather than bankruptcy laws in practise.

In the immediate aftermath of Independence, India's legal framework for dealing with corporate insolvency and bankruptcy consisted of only two significant laws: the Industrial Development and Regulation Act, 1951, and the Companies Act, 1956. Insolvency and bankruptcy cases were allocated to the high courts under both statutes. Many flaws afflicted the procedures under these regulations, including a lack of a time frame for completing proceedings or prescribing an insolvency fee, a lack of expertise in the official liquidator, and little information about the organisation or its business and technology.

Creditors' access to an insolvent company's liquidation was almost non-existent. There are two methods of winding up under Companies Act, 2013 and they are: Winding up by Tribunal and Voluntary winding up. Let us look into Winding up by Tribunal, to initiate the winding up of a company process a petition has to be filed in NCLT. NCLT is the only place where a company can file the application for winding up of the company.

The company must give accurate and reasonable reasons for winding up of the company for believing, it would be the last best solution. The petition would be cancelled if the judicial body finds out that the reasons given by the company aren't adequate and reasonable and the winding up process would not start.

There are few grounds on which the company can be wound up by the Tribunal. If the company can't pay the debts made by it, if the special resolution is passed and the company is resolved then the company will be wound up by the Tribunal, if the company has worked against the interest of sovereignty, integrity, security of India, friendly relations with foreign countries, decency, public order and morality.

If the Tribunal has ordered under the Chapter XIX for winding up of the company, if the company is found to be fraudulent, if the company has failed to file financial statement of immediately preceding last financial year with the registrar and if Tribunal feels that the company should wound up on just and equitable grounds. These grounds are given under section 271 of a Companies Act, 2013.

Under section 272 of the Companies Act, 2013 the petition for winding up of the company can be filed by: The Company, any creditors, any contributory, the registrar, any person authorized by central government in this behalf and by the central government or state government in case the company act against interest of sovereignty, integrity, security of India, friendly relations with foreign countries, decency, public order and morality.

Winding Up of the Company Before Amendment Companies Act, 2013

There are two methods of winding up under Companies Act, 2013 and they are: Winding up by Tribunal and Voluntary winding up. Let us look into Winding up by Tribunal, to initiate the winding up of a company process a petition has to be filed in NCLT. NCLT is the only place where a company can file the application for winding up of the company. The company must give accurate and reasonable reasons for winding up of the company for believing, it would be the last best solution. The petition would be cancelled if the judicial body finds out that the reasons given by the company aren't adequate and reasonable and the winding up process would not start.

There are few grounds on which the company can be wound up by the Tribunal. If the company can't pay the debts made by it, if the special resolution is passed and the company is resolved then the company will be wound up by the Tribunal, if the company has worked against the interest of sovereignty, integrity, security of India, friendly relations with foreign countries, decency, public order and morality, if the Tribunal has ordered under the Chapter XIX for winding up of the company.

If the company is found to be fraudulent, if the company has failed to file financial statement of immediately preceding last financial year with the registrar and if Tribunal feels that the company should wound up on just and equitable grounds. These grounds are given under section 271 of a Companies Act, 2013.

Under section 272 of the Companies Act, 2013 the petition for winding up of the company can be filed by: The Company, any creditors, any contributory, the registrar, any person authorized by central government in this behalf and by the central government or state government in case the company act against interest of sovereignty, integrity, security of India, friendly relations with foreign countries, decency, public order and morality.

Voluntary Winding Up:

The company doesn't have to go to the court for the winding up of the company; the matter is decided and solved between the company and the security holders (shareholders) in a general meeting. The company appoints the official liquidator to manage the affairs. Under section 304, the voluntary winding up process of the company takes place from the day of passing the resolution in the General Meeting.

Changes in winding up after the Insolvency and Bankruptcy code, 2016

In companies act 2013 the definition of the word winding up was given and in the Insolvency and Bankruptcy Code, 2016 the definition of the word changed to liquidation. As discussed above in the paper, the modes of winding up under which are section 270 of companies act is now substituted by the Tribunal of law. Grounds for winding up of a company were described under the section 271 of the companies act, 2013, now it is substituted by Tribunal and it states that: If a petition is filed under 272, a company may wound up by the Tribunal.

If the special resolution is passed and the company is resolved then the company will be wound up by the Tribunal; there are six elements and if the company acts against one of them, the company will be wound up by the Tribunal, the six elements are:
sovereignty, integrity, security of India, friendly relations with foreign countries, decency, public order and morality; if the company is found to be fraudulent or the company's aim was fraudulent or unlawful or if the people concerned with the company are found to be guilty of fraud, misconduct and etc, the company would be wound up by the Tribunal; if the company has failed to file financial statement of immediately preceding last financial year with the registrar and if Tribunal feels that the company should wound up on just and equitable grounds, it can do that. These were the grounds on which the company can be wound up by the Tribunal.

The Procedure For Winding Up Under New Law:

The company has to submit a declaration to the registrar of the companies saying that the company is not fraud and it will pay all the debts and dues. The company after getting approval for voluntary liquidation, it has to pass a special resolution within four weeks and a liquidator has to be appointed, within 5 days public announcement has to be made in newspapers by the company.

The company has to intimate Registrar of companies within seven days and the company should give all its assets and liabilities estimation to corporate person within forty-five days, after this process the uncalled amount will be released and the company has to give it to shareholders within six months. The company has to submit a final report to corporate person, registrar of companies, the board, and application to NCLT and once the company receives the receipt, the order of the resolution has to be submitted at least within fourteen days.

Analysis of Companies Act, 1956:
Winding up by the court, often known as compulsory winding up, begins with a petition to the proper court for a winding up order. The power of the court to hear a winding-up petition is governed by Section 10 of the Companies Act of 1956.

The High Court has jurisdiction over the location of the company's registered office, or the location of the company's headquarters. The District Court over which the Act or a Central Government notice has conferred authority.

In GTC Industries Ltd v. Parasrampuria Trading, it was held that only the High Court where the registered office is located has jurisdiction in winding up proceedings, even if the parties have reached an agreement, which will be resolved before the High Court where the registered office is not located.

Who May File Petition For Winding Up?

The people who can submit a petition for the winding up of a business are defined under Section 439 of the Companies Act of 1956.

The board of directors can file a petition in the company's name with the approval of the general meeting through a special resolution.

If the corporation is unable to pay its debts, creditors might file a petition. A debt assignee, a decree holder, a secure creditor, a debenture holder, or a trustee of debenture holders are among the creditors.

If the number of members of a public company falls below 7 and falls below 2 in a private business, a contributory can file a winding up petition.

After receiving prior approval from the central government, the Registrar of Companies can file a petition for corporate winding up.

Analysis of Companies Act, 2013:
The Companies Act of 2013 establishes two methods for winding up a company-

Winding up by Tribunal:
An application for a winding up order can be filed with the National Company Law Tribunal. It should only be used after all other options for repairing an ill firm have failed. The Act provides remedies for issues relating to the company's management and operations. Under the Companies Act of 2013, the NCLT has primary authority over the winding up of businesses. As it is a last option, there must be compelling reasons to order winding up.

Grounds on which a Company may be wound up by the Tribunal
Under Section 271(1), a company may be wound up by the tribunal if:

• The business is unable to pay its debts;
• If the company has decided to be wound up by the Tribunal by a special resolution;
• If the corporation has behaved against India's sovereignty and integrity, as well as the state's security, good ties with other countries, and public order;
• If the Tribunal has ordered the company to be wound up under Chapter XIX;
• If the Tribunal finds, on an application made by the Registrar or any other person authorised by the Central Government by notification under this Act.

That the company's affairs have been conducted in a fraudulent manner, that the company was formed for a fraudulent or unlawful purpose, or that the persons involved in the formation misfeasance or misconduct in connection therewith.

Powers & Functions of the Tribunal:
If the tribunal is satisfied, it may instruct the company to file objections along with a statement of affairs within 30 days, which may be extended by another 30 days in unusual circumstances, according to Section 274 of the Companies Act, 2013.

According to Section 275 of the Companies Act, 2013, when a winding up order is issued, the Tribunal must appoint an official liquidator or a liquidator from a panel. The Central Government maintains a panel of CS/CS/Advocates and other notified professionals having at least 10 years' experience in business problems.

According to Section 281 of the Companies Act, 2013, the Liquidator must provide a report to the Tribunal within 60 days, comprising information such as:

The existing and contingent liabilities of the company, including names and other details; the debts due to the company, including names and addresses; list of contributories with amount details; details of trademarks, intellectual properties, if owned by the company; details of contracts, joint ventures, and collaborations, if any; details of holding and subsidiary companies.

On the basis of the Liquidator's report, the Tribunal will set a deadline for the completion of all actions and the dissolution of the corporation. The Tribunal may also order the Company's assets or a portion of its assets to be sold as a continuing concern. The Tribunal shall resolve the list of contributories, cause correction of the register of members in all circumstances where needed, and use the company's assets to fulfil its responsibility after passing a winding up order.

Analysis of Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code was suggested in 2014 by the Bankruptcy Legislative Reforms Committee, led by T. K. Viswanathan (IBC). The goal of the IBC was to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner in order to maximise the value of such persons' assets, promote entrepreneurship, increase credit availability, and balance the interests of all stakeholders, including changing the priority of government dues payment.

In May 2016, the IBC, 2016 was eventually adopted and published in the Indian Gazette. The law strives for insolvency resolution by insolvency experts in a time-bound way (originally 180 days, extendable by further 90 days under specific circumstances, but currently extended to 330 days).

The statute assures that the judicial and business parts of the resolution process are separated, rectifying previous legislative errors. Furthermore, the National Company Law Tribunal (NCLT), not the DRTs, will be the adjudicating authority under the IBC. The IBC's primary goal is to help distressed corporate debtors. The Code establishes a time-bound insolvency resolution process, which must be completed within 330 days, including any litigation.

The cases that have been successfully resolved demonstrate that IBC's objectives have been met. Despite the fact that the number of companies in liquidation is nearly four times that of those rescued, the assets of the 250 rescued companies are four times those of the 955 liquidated enterprises. Truly, the IBC has been helpful to a large extent thus far; yet, timeliness remains a problem.

For resolving difficulties, the previously planned timescale of 180 days (+90 days extension) was expanded to 330 days. Despite the extension, resolution ideas are still being submitted after the deadline has passed. The average time it takes for resolution plans to be completed is 380 days. Most of the time, this is due to delays in court proceedings, as the NCLT and the National Company Appellate Tribunal (NCLAT) are overburdened there are only 16 benches and 20 bench members.

The process also involves a lot of stakeholders with opposing viewpoints, making settlement even more difficult and time-consuming. Furthermore, a number of stakeholders have lately voiced concerns about IBBI enlisting valuers with ambiguous degrees as registered valuers. Anomalies like these have an impact on the valuation profession's credibility.

Another issue is that the creditors' committee has sole jurisdiction over the RPs, with no guidelines in place. The need of the hour is to strengthen the NCLT benches' institutional competence and increase transparency in the selection of RPs.

Because the IBC is intended to provide a price discovery process for stressed firms, the realisations must be viewed as a representation of the genuine worth of the assets. Unreasonable reductions might result from a lack of technical ability in evaluating assets or from time gaps. As a result, the Standing Committee's advice that haircuts be capped violates the goal of the institutional structure and imposes additional costs on investors as a result of institutional inefficiencies. One of the accusations levelled at the IBC is that it has resulted in more liquidations than resolutions.

The fall in asset reconstruction businesses' purchases of Scheduled Commercial Banks' (SCB) assets in 2019-20 paralleled this trend. According to the Reserve Bank of India's assessment, this is likely due to SCBs using other resolution mechanisms such the IBC and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002. As a result, it may be necessary to establish a more strong structure for simultaneous reorganisation.

Finally, the IBC should not be judged merely on the basis of the recoveries it has elicited, but also on the basis of the behavioural shifts it has induced. The IBC resulted in a major deleverage for 2747 listed businesses in India, according to the data. Over the course of three years, these firms' average debt to equity ratio fell from 1.16 to 0.85.

SUMMARY
There are several ways for a company's existence to come to an end. The liquidation and winding up of businesses is one method. Another option is to strike the company's name from the Registrar's register of companies, as provided for in section 560 of the Companies Act, 1956. Few firms have become vanishing companies because its directors are either untraceable or the company is not conducting business at its registered office, according to the Registrar's records. In either instance, the company becomes a vanishing company, which eventually leads to its closure. A company's business is dissolved through the legal procedure of winding up. "Winding up" and "liquidation" are terms that are used interchangeably. The modern corporate insolvency framework in India, commonly known as the Corporate Insolvency Resolution Process ("CIRP"), openly and comprehensively stipulates the flexibility to depart in a timely and orderly manner, ensuring capital preservation. Insolvency laws are primarily divided into two categories: personal insolvency and corporate insolvency.

As India becomes more global and open through initiatives such as Make in India, Digital India, and Start-up India, which aim to boost the country's popularity and turn it into a preferred investment destination, completing the unfinished agenda will bring insolvency laws in line with international standards and provide a single point of contact for all insolvencies.

The insolvency proceedings will be more time constrained and fast if professionals are given confidence but despite fast improvements in corporate governance standards, there have been governance failures in Indian industry, with Satyam serving as a classic example. These events have sparked a fresh wave of changes, culminating in the implementation of the Companies Act, 2013 and the International Business Code, 2016, which are projected to have a substantial impact on Indian industry in the near future. More effort is needed to identify challenges that are specific to the Indian business environment and to address them with measures that are appealing to Indian enterprises from a variety of viewpoints, including economic, social, political, and cultural.

Award Winning Article Is Written By: Mr.Aditya Kumar,
Company Secretary & Law Student Faculty of Law, Delhi University

Authentication No: MR444731077346-21-0324