Section 271: circumstances in which a company may be wound up by the Tribunal

Introduction

The present text was substituted by the Insolvency and Bankruptcy Code, 2016 (section 255 and the Eleventh Schedule) with effect from 15 November 2016 under S.O. 3453(E). The section as enacted in 2013 also listed inability to pay debts as a ground; that ground does not appear in the substituted text.

Chapter XX, including section 271, was brought into force on 15 December 2016 by S.O. 3677(E). The 2013 version was therefore replaced before it ever came into force.

Key takeaways

The five grounds

A company may be wound up by the Tribunal: (a) if it has resolved by special resolution to be wound up by the Tribunal; (b) if it has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality; (c) on an application by the Registrar or a person authorised by the Central Government by notification, if the Tribunal finds fraud of the kind described in clause (c) and thinks it proper to wind the company up; (d) if the company has not filed its financial statements or annual returns with the Registrar for the immediately preceding five consecutive financial years; or (e) if the Tribunal thinks it just and equitable to wind it up.

• India Code — consolidated Companies Act, 2013, section 271
• eGazette — Insolvency and Bankruptcy Code, 2016 (No. 31 of 2016)
• eGazette — MCA notification S.O. 3453(E), 15 November 2016 (IBC section 255 in force)
• eGazette — MCA notification S.O. 3677(E), 7 December 2016 (commencement from 15 December 2016)

The fraud ground

Clause (c) covers affairs conducted in a fraudulent manner, a company formed for a fraudulent and unlawful purpose, and fraud, misfeasance or misconduct by the persons concerned in its formation or management. Two things are needed. The application must come from the Registrar or a person authorised by the Central Government by notification, and the Tribunal must also find it proper that the company be wound up.

What changed in 2016

The 2013 text had seven grounds, including inability to pay debts, plus a deeming provision on when a company is unable to pay its debts. The Insolvency and Bankruptcy Code, 2016 substituted the section with effect from 15 November 2016, leaving the five grounds above. The insolvency of companies is now dealt with under that Code.

Practical preparation

Identify which clause of section 271 the facts fit; check who may petition on that ground under section 272; for a filing-default case, verify the five consecutive financial years from the Registrar’s records; for the fraud ground, note that the application must come from the Registrar or an authorised person; for a debt-recovery objective, consider the Insolvency and Bankruptcy Code, 2016 instead.

Practical checklist

Glossary

Tribunal

The National Company Law Tribunal constituted under section 408.

Just and equitable

The residual ground in clause (e), applied when the Tribunal is of the opinion that winding up is fair in the circumstances.

Frequently asked questions