Instant Corporate Reader

The E-Journal of Corporate Intelligence Education & Research (CIER) for budding corporate professionals

VOL.VI ISSUE No.43 FEB 2009

CORPORATE LAWS COACHING CLASSES & ALLIED SERVICES SINCE 1998

www.cieronline.com

Instant Corporate Reader E-Journal – Feb 2009 1

Dear Professional Colleagues,

You may have witnessed a change in the brand name of your CIER e-Journal.
The new name for the CIER e-journal is ‘Instant Corporate Reader’, which
clearly depicts the objective of this e-journal. The name has finalized from the
suggestions received from students of professional courses.

Again, in the knowledge front, two new ventures have been initiated. In-house
students’ newsletter titled ‘The Class Room Reader’ (e-newsletter for CIER
students), and ‘The C factor’ (hard-copy) for budding corporate professionals,
targeting professionals students’ community in Trivandrum.

The LLP Act, 2008 has been passed, paving way to a new form of organization.
Now, the concept of multi-professional partnerships will become realty once,
the respective regulation of Professional Institutes has been amended.

The Satyam saga was the hot topic for everyone, especially regulators and
professionals. It is a call for a complete due-diligence drive and I personally
feel that professionals must adhere to their code of conduct and uphold
professional dignity.

CIER as a network of like-minded professionals has gained a unique brand,

which was very evident when a move was made for re-branding the name of
CIER. There was a strong resistance from various stakeholders that the name
should not be changed. I accept and thank all for participating in various ‘Give
your Suggestions’ drive made by CIER.

With kind regards

CS. B. Bilu
Founder, CIER
bilu@ciermail.com

Instant Corporate Reader E-Journal – Feb 2009 2

BANKING
SECTOR –
SURVIVAL OF
THE FITTEST
By REMYA.R.S, CS Finalist

The banking environment has suddenly become quite challenging after the
sub prime crisis that surfaced last year and which has resulted in an
unprecedented global liquidity crunch.

The flattening of the world has dramatically impacted both the dynamics and
the pace of global banking business. Mergers, acquisitions, consolidation,
expansion, diversification of lines of business, shifting customer orientation
and the changing regulatory environment are building up the pressure for
banks to explore new possibilities by abandoning the familiar and embracing
the unconventional. Competition is compelling banks to be agile and innovate
everyday. In this milieu, what really enables banks to build a lasting
competitive advantage is the ability to continuously innovate, achieve
differentiation and respond quickly to dynamic business challenges.

The banking sector has witnessed wide ranging changes under the influence
of the financial Sector reforms initiated during 2008. The approach to such
reforms in India has been one of gradual and non-disruptive progress through
a consultative process. The emphasis has been on deregulation and opening
up the banking sector to market forces. The Reserve Bank has been
consistently working towards the establishment of an enabling regulatory
framework with prompt and effective supervision as well as the development
of technological and institutional infrastructure. Persistent efforts have been
Instant Corporate Reader E-Journal – Feb 2009 3
made towards adoption of international benchmarks as appropriate to Indian
conditions. While certain changes in the legal infrastructure are yet to be
effected, the developments so far have brought the Indian financial system
closer to global standards.

BANKING ACTIVITIES

Banks' activities can be divided into retail banking, dealing directly with
individuals; business banking, providing services to mid-size business;
corporate banking dealing with large business entities; private banking,
providing wealth management services to High Net Worth Individuals; and
investment banking, relates to helping customers raise funds in the Capital
Markets and advising on mergers and acquisitions. Banks are now moving
towards Universal Banking, which is a combination of commercial banking,
investment banking and various other activities including insurance.

TECHNOLOGICAL DEVELOPMENTS

Technology has brought about strategic transformation in the working of

banks. With years, banks are also adding services to their customers. The
Indian banking industry is passing through a phase of customers market. The
customers have more choices in choosing their banks. With stiff competition
and advancement of technology, the service provided by banks has become
more easy and convenient.

THE INDIAN FINANCIAL NETWORK (INFINET)

The Indian Financial Network, a VSAT-based communication back-bone for the

national payment system, was equipped with a full transponder on the INSAT-
3B satellite to carry out its operations. This was spearheaded by the Institute
for Development and Research in Banking Technology (IDRBT), a Hyderabad-
based research institute promoted by the Reserve Bank of India, is currently
undergoing major changes. INFINET can be used for both intra and inter bank
applications. Banks can develop and port intra bank applications on their own.
Inter bank applications are being developed together by the Reserve Bank of
India, IDRBT and member banks. The INFINET is a Closed User Group (CUG)
Network and uses a blend of communication technologies such as VSATs and
Terrestrial Leased Lines. The network consists of over 700 VSATs located in 127
cities of the country and utilizes one full transponder on INSAT 3B. Applications
such as Real Time Gross Settlement, Central Funds Management System,
Security Settlement System, Electronic Clearing System and Electronic Funds
Transfer, being developed by the RBI will be ported on the INFINET and in a
true sense, the INFINET will become the backbone for the National Payment
Systems. These applications will use the SFMS platform. Some of the
applications, which the members are using on the network are Any Branch
Banking (Multi Branch Banking), Fast Collection of Cheques, Cash Management
Products, ATM Network, Interbank reconciliation, Corporate E-mails etc.
Instant Corporate Reader E-Journal – Feb 2009 4
The INFINET is the most secure platform that technology can provide. Here are
its salient features:
 INFINET being a CUG, it provides a high level of security against
intruders. Outsiders cannot enter or penetrate the network. In the case
of VSAT Network, the IP Addresses for IDUs at the remote VSAT
locations are allotted and maintained by the Hub and cannot be
changed by the endusers. This takes care of the network integrity and
security.
 In the space segment, the data transmission, even in broadcast mode,
is encrypted using proprietary standards and the packets cannot be
opened at any VSAT location except the one specified as the
destination VSAT.
 In the case of Leased Line Network (LLN) IPSEC 56 will be used to
provide state-of-the-art encryption and security.
 Apart from the above layers of network security, there will be a host of
in-built security mechanisms in each application that is deployed on the
INFINET - like password, access control, encryption, digital signatures
and certification and in some applications there will be smart card
and/or bio-metric authentication as well.
 Application level Security at par with international standards is provided
through Symmetric Key and Public Key Cryptography and IDRBT will act
as the Certification Authority for the Banking and Financial Sector.

INTERNET BANKING (E-BANKING)

Internet banking (or E-banking) means any user with a personal computer and
a browser can get connected to his bank -s website to perform any of the
virtual banking functions. In internet banking system the bank has a
centralized database that is web-enabled. All the services that the bank has
permitted on the internet are displayed in menu. Any service can be selected
and further interaction is dictated by the nature of service. The traditional
branch model of bank is now giving place to an alternative delivery channels
with ATM network. Once the branch offices of bank are interconnected through
terrestrial or satellite links, there would be no physical identity for any branch.
It would a borderless entity permitting anytime, anywhere and anyhow
banking.
The network which connects the various locations and gives connectivity to
the central office within the organization is called intranet. These networks are
limited to organizations for which they are set up. SWIFT is a live example of
intranet application.

INTERNET BANKING IN INDIA

The Reserve Bank of India constituted a working group on Internet Banking.

The group divided the internet banking products in India into 3 types based on
the levels of access granted. They are:

 Information Only System: General purpose information like interest

rates, branch location, bank products and their features, loan and
Instant Corporate Reader E-Journal – Feb 2009 5
 deposit calculations are provided in the banks website. There exist
facilities for downloading various types of application forms. The
communication is normally done through e-mail. There is no interaction
between the customer and bank's application system. No identification
of the customer is done. In this system, there is no possibility of any
unauthorized person getting into production systems of the bank
through internet.

 Electronic Information Transfer System: The system provides customer-

specific information in the form of account balances, transaction details,
and statement of accounts. The information is still largely of the 'read
only' format. Identification and authentication of the customer is
through password. The information is fetched from the bank's
application system either in batch mode or off-line. The application
systems cannot directly access through the internet.

 Fully Electronic Transactional System: This system allows bi-directional

capabilities. Transactions can be submitted by the customer for online
update. This system requires high degree of security and control. In this
environment, web server and application systems are linked over secure
infrastructure. It comprises technology covering computerization,
networking and security, inter-bank payment gateway and legal
infrastructure.

 Automated Teller Machine (ATM): ATM is designed to perform the most

important function of bank. It is operated by plastic card with its special
features. The plastic card is replacing cheque, personal attendance of
the customer, banking hours restrictions and paper based verification.
There are debit cards. ATMs used as spring board for Electronic Fund
Transfer. ATM itself can provide information about customers account
and also receive instructions from customers - ATM cardholders. An ATM
is an Electronic Fund Transfer terminal capable of handling cash
deposits, transfer between accounts, balance enquiries, cash
withdrawals and pay bills. It may be on-line or 0ff-line. The on-line ATM
enables the customer to avail banking facilities from anywhere. In off-
line the facilities are confined to that particular ATM assigned. Any
customer possessing ATM card issued by the Shared Payment Network
System can go to any ATM linked to Shared Payment Networks and
perform his transactions.

 Credit Cards/Debit Cards: The Credit Card holder is empowered to spend

wherever and whenever he wants with his Credit Card within the limits
fixed by his bank. Credit Card is a post paid card. Debit Card, on the
other hand, is a prepaid card with some stored value. Every time a
person uses this card, the Internet Banking house gets money
transferred to its account from the bank of the buyer. The buyers
account is debited with the exact amount of purchases. An individual
has to open an account with the issuing bank which gives debit card
with a Personal Identification Number (PIN). When he makes a purchase,
he enters his PIN on shops PIN pad. When the card is slurped through
the electronic terminal, it dials the acquiring bank system - either Master
Card or VISA that validates the PIN and finds out from the issuing bank
Instant Corporate Reader E-Journal – Feb 2009 6
 whether to accept or decline the transactions. The customer can never
overspend because the system rejects any transaction which exceeds
the balance in his account. The bank never faces a default because the
amount spent is debited immediately from the customers account.

 Smart Card: Banks are adding chips to their current magnetic stripe
cards to enhance security and offer new service, called Smart Cards.
Smart Cards allow thousands of times of information storable on
magnetic stripe cards. In addition, these cards are highly secure, more
reliable and perform multiple functions. They hold a large amount of
personal information, from medical and health history to personal
banking and personal preferences.

CORE BANKING SOLUTIONS

Core Banking Solutions is new jargon frequently used in banking circles. The
advancement in technology especially internet and information technology
has led to new way of doing business in banking. The technologies have cut
down time, working simultaneously on different issues and increased
efficiency. The platform where communication technology and information
technology are merged to suit core needs of banking is known as Core
Banking Solutions. Here computer software is developed to perform core
operations of banking like recording of transactions, passbook maintenance,
interest calculations on loans and deposits, customer records, balance of
payments and withdrawal are done. This software is installed at different
branches of bank and then interconnected by means of communication lines
like telephones, satellite, internet etc. It allows the user (customers) to
operate accounts from any branch if it has installed core banking solutions.
This new platform has changed the way banks are working. Now many
advanced features like regulatory requirements and other specialised services
like share (stock) trading are being provided.

REAL TIME GROSS SETTLEMENT (RTGS)

RTGS is an electronic settlement system of Reserve Bank of India without

involvement of papers. To facilitate an Efficient, Secure, Economical, Reliable
and Expeditious System of Fund transfer and clearing in the Banking sector
throughout India. Real time gross settlement systems (RTGS) are a funds
transfer mechanism where transfer of money takes place from one bank to
another on a "real time" and on "gross" basis. Settlement in "real time" means
payment transaction is not subjected to any waiting period. The transactions
are settled as soon as they are processed. "Gross settlement" means the
transaction is settled on one to one basis without bunching with any other
transaction. Once processed, payments are final and irrevocable.

ELECTRONIC CLEARING SERVICE

Electronic Clearing Service is another technology enhancement happened in

the banking industry. The customer willing to use this facility is required to fill
in the mandate form from the corporate/any utility service institution for ECS
mode of credit and debit. The customer needs to prepare the payment date
Instant Corporate Reader E-Journal – Feb 2009 7
and submit it to the “sponsor Bank” and after that every thing happened
electronically, so customer can there by make payments as well as receive all
incomes electronically.

MOBILE BANKING

Mobile banking (also known as M-Banking, mbanking, SMS Banking etc.) is a

term used for performing balance checks, account transactions, payments etc.
via a mobile device such as a mobile phone. Mobile banking today (2007) is
most often performed via SMS or the Mobile Internet but can also use special
programs called clients downloaded to the mobile device. Mobile Banking
Services:

• Account Information

• Payments, Deposits, Withdrawals, and Transfers

• Investments (Portfolio management services, Real-time stock quotes,

personalized alerts and notifications on
security prices)

LATEST ISSUE APPLICATION SUPPORTED BY BLOCKED AMOUNT (ASBA)

SEBI has introduced the facility of making application through “APPLICATION

SUPPORTED BY BLOCKED AMOUNT” process, in book built public issue. ASBA is
an application containing an authorization to block the application money in
the bank account, for subscribing to an issue. If an investor is applying
through ASBA, his application money shall be debited from the bank account
only if his/her application is selected for allotment after the basis of allotment
is finalized, or the issue is withdrawn/failed. In case of rights issue his
application money shall be debited from the bank account after the receipt of
instruction from the registrars. Merchant bankers, Registrars and Self Certified
syndicate banks (SCSBs) are advised to provide the ASBA facility in rights
issues with suitable modifications to ASBA process specified by SEBI for public
issue through book building route, as deemed fit. SCSB is a bank which is
recognized as a bank capable of providing ASBA services to investors.

The list of SCSBs is as below:

• Axis Bank
• Bank of Baroda
• Corporation Bank
• HDFC Bank
• ICICI Bank Ltd
• IDBI Bank Limited
• Kotak Mahindra Bank
• State Bank of Bikaner & Jaipur
• State Bank of India
• Union Bank of India
• Yes Bank Limited

Instant Corporate Reader E-Journal – Feb 2009 8

The objective of introducing ASBA is to ensure that the investor's funds leave
his bank account only upon allocation of shares in public issues. The ASBA
process also ensures that only the requisite amount of funds is debited to the
investor's bank account on allotment of shares. In this mechanism, the need
for refunds is completely obviated.

CONCLUSION

“Success is the sweetest thing in this world”….the future of banking industry

depends on efforts of all concerned parties such as service providers, service
facilitators, regulatory system and customers. The banking Business has
always been different from other business because it comes under service
industry and financial industry category. Every one making a financial
transaction is anxious about the security of his money. Hence the bank,
regulatory authorities and other organisations must try their best to make
banking sector as secure as possible.

Reference: Chartered secretary, The Analyst, The Hindu Business Line,

www.rbi.org.in

Source: Extracts from paper presented as part of CIER PAPER PRESENTATION

COMPETITION in RECENT TRENDS & DEVELOPMENTS IN BANKING SECTOR
held on 05.12.2008. R S Remya is a CIER Student & was awarded a special
prize for this paper presentation.

All about
company
winding-Up
CIER Research Desk

Instant Corporate Reader E-Journal – Feb 2009 9

 “Winding-up” in literal sense, means to bring to a conclusion or an end by
putting in order. It is defined as the process by which the life of a company is
ended and its property is administered for the benefit of its members and
creditors. Winding-up is different from insolvency and dissolution. The Act
provides for three kinds of winding up:

1. The winding-up by the Court. [(Sec 433) of Companies Act, 1956]

· If the company has, by special resolution, resolved that the company may be
wound-up by the Court;

· If default is made in delivering the statutory report to the registrar or in

holding the statutory meeting;

· If the company does not commence its business within a year from its
incorporation, or suspends its business for whole of a year;

· If the number of members are reduced then their required number;

· If the company is unable to pay its debts (specified in Sec 434);

· If the court is of the opinion that it is just and equitable that the company
should be wound –up;

· If the company is in default in filing up with the Registrar its balance sheet
and profit and loss account for five consecutive financial years;

· If the company has acted against the interests of the sovereignty and
integrity of India or security of any state, friendly relation with foreign States,
public order, decency and morality;

· If the tribunal is under the opinion that the company should be wound up
under the circumstances specified under the Sec. 424G.

2. Voluntary winding-up, which itself is of two kinds, namely,

· Members voluntary winding-up,

· Creditors voluntary winding-up.

A company may be wound up voluntarily at any time after passing a special

resolution. But where the articles provide for a period on expiry, which the
company is to wound up and that period has expired, or for a contingency on
the happening of which the company is to be dissolved and that contingency
has happened, winding up may be commenced with an ordinary resolution
[Sec 484]. Within 14 days the resolution should be advertised in the Official
Gazette and in a newspaper circulating in the district of the registered office of
the company [Sec 485]. Winding up commences from the date of resolution
[Sec 486]. The corporate status and power of the company shall continue till
the company is completely dissolved, but it shall stop its business, except so
far as may be necessary for beneficial winding up [Sec 488]. If a declaration of
solvency is made in accordance with the provisions of the Act, it will be
members’ winding up. If the directors are not able to pay the debts within the
Instant Corporate Reader E-Journal – Feb 2009 10
specified period, the liquidator shall call a meeting of the creditors and it then
becomes the creditor’s winding up [sec.495 &Sec.498].

Is winding up possible during the pendency of a civil suit?

Section 433 of the Act provides for the circumstances in which a company may
be wound up by court. Here arises a question that if there are parallel
proceedings for the same subject matter i.e., for the recovery of debt, where
one is a civil suit and the other is for winding up of the company, should they
be allowed to subsist together?

The act nowhere prohibits that the proceedings under the act shall or could
not lie, where civil suits are pending or they subsequently be filed. There is no
provision in the Act to oust the jurisdiction of the court and decide the winding
up proceedings. There would have been a provision to that effect in the Act if
the legislature had intended to that effect. Since the winding up proceeding is
not merely for the benefit of the petitioner but of all its shareholders, creditors
or contributories. The pendency of a civil suit is not a bar to the admission of
winding up petition based on same debt. The proceeding for winding up will
not be invalidated if a suit is filed by the petitioner by way of abundant caution
to save the claim getting barred by limitation.

The winding up proceedings can be continued in a company court once it has

come to the conclusion that it has not been a case of bona fide and tenable
defence is made out. While dismissing the petition for winding up the following
principals have to be relied upon by the Court:

1) The defence of the company is in good faith and one of substance.

2) The defence is likely to succeed in point of law.

3) The company adduces prima facie proof of the facts on which the defence depends.

4) Where the debt is undisputed, the Court will not act upon a defence that the company has the
ability to pay the debt but the company chooses not to pay that particular amount and

5) Where, the company owes the creditor a debt entitling him to a winding up
order. But the exact amount of the debt is disputed; the Court will make the
winding up order without requiring the creditor to quantify the debt precisely.

The following points have to be considered while dealing with

winding-up:

1) A petition presented ostensibly for a winding-up order; but really to exercise

pressure will be dismissed, and under the circumstances, may be stigmatized
as a scandalous abuse of the process of the Court The modern practice has
been to dismiss such petitions. If the debt is not disputed on some substantial
ground, the Court may decide it on the petition and make the order.

2) The company may be wound up even if it has large assets. The crux is to
see if it is unable to meet its current demands i.e., if the current liabilities are
Instant Corporate Reader E-Journal – Feb 2009 11
more than the current assets. If the company is financially sound and in a
position to pay its liability, it cannot be ordered to be wound up under Section
433(e) of the Companies Act. But the company should establish that it is
capable of discharging its existing liabilities. There is presumption of inability.

3) Although a winding up petition is an appropriate remedy and a mode of

execution against a company unable to pay its debt, it is not an alternative to
the ordinary procedure for realization of the debts due from the company.
Since, the creditor had already resorted to the civil suit; the court in its
discretion can dismiss the petition.

4) It has been observed that the pendency of a civil suit as such is not merely
a ground to oppose a winding up petition.

Conclusion

After analyzing and observing various legal propositions and situations, it is

found that the right to apply for winding up is the creature of statute and not
of contract, and the winding up orders passed by the court are not judgments
in rem. In the absence of any prohibited provisions in the Act winding up
proceedings u/s 433(e), 434, 439 can be allowed even if a civil suit is already
pending against the debtor company. But it should be marked that the winding
up proceeding are greatly affected by the facts and circumstances of a
particular case. The machinery of winding-up cannot be used as a pressure
tactics, where a suit has already been instituted for recovery of debt, under
such circumstances, the proceeding are in the nature of parallel proceedings
in respect of the same cause of action. As a result, such course should not be
considered by the court more so to avoid conflict of jurisdiction of findings by
two parallel courts of competent jurisdiction. Thus at last it can be said that a
genuine case has to be made out rejecting the malafide contention, in the
interest of good faith and justice.

Disclaimer: Compiled from sources by CIER Content Developer Trainee

Winding-up of
companies under
Instant Corporate Reader E-Journal – Feb 2009 12
the Companies
Act, 1956
Contributed by Asha S Kumar, CS Finalist

“Winding-up” in literal sense, means to bring to a conclusion or an end by putting in

order. It is defined as the process by which the life of a company is ended and its
property is administered for the benefit of its members and creditors. Winding-up is
different from insolvency and dissolution. The Companies Act, 1956 provides for
following kinds of winding up:

1. The winding-up by the Court

2. Voluntary winding-up, which itself is of two kinds, namely,
· Members voluntary winding-up,
· Creditors voluntary winding-up.

THE WINDING-UP BY THE COURT. [(Sec 433) of Companies Act, 1956]

* If the company has, by special resolution, resolved that the company may be
wound-up by the Court;
* If default is made in delivering the statutory report to the registrar or in holding the
statutory meeting;
* If the company does not commence its business within a year from its
incorporation, or suspends its business for whole of a year;
* If the number of members are reduced then their required number;
* If the company is unable to pay its debts (specified in Sec 434)
* If the Court is of the opinion that it is just and equitable that the company should
be wound –up;
* If the company is in default in filing up with the Registrar its balance sheet and
profit and loss account for five consecutive financial years;
* If the company has acted against the interests of the sovereignty and integrity of
India or security of any state, friendly relation with foreign States, public order,
decency and morality;
* If the Court is under the opinion that the company should be wound up under the
circumstances specified under the Sec. 424G.

WHO CAN APPLY TO COURT, FOR WINDING UP PETITION? (SEC 439)

• The company itself

• The creditor
• Any Contributory
• Registrar
• Any person authorised by central government, in case of oppression or
mismanagement (397)

Instant Corporate Reader E-Journal – Feb 2009 13

PROCEDURE FOR WINDING UP

 Admission of the petition

 Appointment of liquidator
 Court to hear parties
 Court to make suitable orders
 Suits stayed up in the winding up order
 Committee of inspection
 Audit of liquidator’s account
 Preparation of statement of affairs and submit the same to official liquidator
 Public examination of promoters, directors, etc.
 Dissolution of company
 Winding up order to be filed with registrar of companies

IS WINDING UP POSSIBLE DURING THE PENDENCY OF A CIVIL SUIT?

Section 433 of the Act provides for the circumstances in which a company may be
wound up by court. Here arises a question that if there are parallel proceedings for
the same subject matter i.e., for the recovery of debt, where one is a civil suit and the
other is for winding up of the company, should they be allowed to subsist together?

The act nowhere prohibits that the proceedings under the act shall or could not lie,
where civil suits are pending or they subsequently be filed. There is no provision in
the Act to oust the jurisdiction of the court and decide the winding up proceedings.
Since the winding up proceeding is not merely for the benefit of the petitioner but of
all its shareholders, creditors or contributories. The pendency of a civil suit is not a
bar to the admission of winding up petition based on same debt. The proceeding for
winding up will not be invalidated if a suit is filed by the petitioner by way of
abundant caution to save the claim getting barred by limitation.
The winding up proceedings can be continued in a company court once it has come to
the conclusion that it has not been a case of bona fide and tenable defense is made
out.

WHAT ORDERS, THE COURT MAY PASS? (SEC 443)

The court may pass any one of the following orders on hearing the winding up
petition.
 Dismiss it, with or without costs
 Make any interim order, as it thinks fit, or
 Pass an order for winding up of the company with or without costs.

While dismissing the petition for winding up the following principals have to be relied
upon by the Court:
1) The defence of the company is in good faith and one of substance.
2) The defence is likely to succeed in point of law.
3) The company adduces prima facie proof of the facts on which the defence
depends.
4) Where the debt is undisputed, the Court will not act upon a defence that the
company has the ability to pay the debt but the company chooses not to pay that
particular amount and.
5) Where, the company owes the creditor a debt entitling him to a winding up order.
But the exact amount of the debt is disputed; the Court will make the winding up
order without requiring the creditor to quantify the debt precisely.

CONSEQUENCES OF COURT PASSING AN ORDER FOR WINDING UP:

Instant Corporate Reader E-Journal – Feb 2009 14

1. Court will send notice to an official liquidator, to take change of the company. He
shall carry out the process of winding up, (sec. 444)
2. The winding up order, shall be applicable on all the creditors and contributories,
whether they have filed the winding up petition or not.
3. The official liquidator is appointed by central Government (sec. 448)
4. The company shall relevant particulars, relating to, assets, cash in hand, bank
balance, liabilities, particulars of creditors etc, to the official liquidator. (sec. 454)
5. The official liquidator shall within six months, from the date of winding up order,
submit a preliminary report to the court regarding:
 Particulars of Capital
 Cash and negotiable securities
 Liabilities
 Movable and immovable properties
 Unpaid calls, and
 An opinion, whether further inquiry is required or not ( 455)
- The Central Govt. shall keep a cognizance over the functioning of official liquidator,
and may require him to answer any inquiry. (463)

DISSOLUTION OF COMPANY (481)

Finally the court will order for dissolution of the company, when:

• the affairs of the company are completely wound up, or

• the official liquidator is unable to carry on the winding up procedure for want of
funds.

The following points have to be considered while dealing with winding-up:

1) A petition presented ostensibly for a winding-up order; but really to exercise

pressure will be dismissed, and under the circumstances, may be stigmatized as a
scandalous abuse of the process of the Court The modern practice has been to
dismiss such petitions. If the debt is not disputed on some substantial ground, the
Court may decide it on the petition and make the order.
2) The company may be wound up even if it has large assets. The crux is to see if it is
unable to meet its current demands i.e., if the current liabilities are more than the
current assets. If the company is financially sound and in a position to pay its liability,
it cannot be ordered to be wound up under Section 433(e) of the Companies Act. But
the company should establish that it is capable of discharging its existing liabilities.
There is presumption of inability.
3) Although a winding up petition is an appropriate remedy and a mode of execution
against a company unable to pay its debt, it is not an alternative to the ordinary
procedure for realization of the debts due from the company. Since, the creditor had
already resorted to the civil suit; the court in its discretion can dismiss the petition.
4) It has been observed that the pendency of a civil suit as such is not merely a
ground to oppose a winding up petition.

ROLE OF COMPANY SECRETARY IN WINDING UP

 A qualified C S can be appointed as official liquidator

 Appearing before NCLT
 Appearing before Appellate Court
 A qualified C S can be appointed as a technical member of the Tribunal

Instant Corporate Reader E-Journal – Feb 2009 15

WHO CAN BE APPOINTED AS THE OFFICIAL LIQUIDATOR?

 A Member from the panel of professional firms of Chartered Accountants,

Advocates, Company Secretaries, Cost and Work Accountants which the
Central government may constitute.
 Body Corporate approved by the Central Government.

RECENT CASE LAWS:

ICICI LOMBARD GENERAL INSURANCE CO. v. AFL P. LTD. [(2008) 141 COMP CAS 188
(BOM)]
MRIDULA GUPTA v. SHREE DATTA STONE CRUSHERS (P) LTD. [(2007) 75 SCL 452
(RAJ.)]
AHMEDABAD ELECTRICITY CO. LTD. v. SANGHI SPINNERS (INDIA) LTD. [(2007) 74 SCL
95 (AP)]
SHAKTI AGENCIES v. MANSHUK BHAI INDUSTRIES LTD [(2007) 74 SCL 332 (RAJ)]

CONCLUSION

After analyzing and observing various legal propositions and situations, it is found
that the right to apply for winding up is the creature of statute and not of contract,
and the winding up orders passed by the court are not judgments in rem. In the
absence of any prohibited provisions in the Act winding up proceedings u/s 433(e),
434,439 can be allowed even if a civil suit is already pending against the debtor
company. But it should be marked that the winding up proceeding are greatly
affected by the facts and circumstances of a particular case. The machinery of
winding-up cannot be used as a pressure tactics, where a suit has already been
instituted for recovery of debt, under such circumstances, the proceeding are in the
nature of parallel proceedings in respect of the same cause of action. As a result,
such course should not be considered by the court •

Instant Corporate Reader E-Journal – Feb 2009 16

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Instant Corporate Reader E-Journal – Feb 2009 18