Winding up of a company means closing of the company by realising its assets, paying off creditors' dues and distribution of the remaining assets to the Shareholders through a Liquidator as per the procedure prescribed under the Companies Act. Winding-up has been defined under Section 2(94A) of the Companies Act 2013 as "Winding up means winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016, as applicable".

Prior to the implementation of the Insolvency and Bankruptcy Code 2016, all the winding-up proceedings were governed under the Companies Act. Due to introduction of the IBC 2016 winding-up cases are now dealt by both the said Code and the Companies Act. The Insolvency and Bankruptcy Code covers:

  1. Voluntary liquidation in case of companies with no default
  2. Winding-up by a Tribunal in case of inability to pay debt

Under the Companies Act, companies can wind-up in case of any reasons mentioned in Section 271 such as: 

  1. Companies by special resolution may decide to wind up their business through a Tribunal
  2. Companies acting against the interests of the sovereignty and integrity of the Nation
  3. If the Tribunal is of the opinion that the affairs of the company have been conducted in a  fraudulent  manner or the company was formed for fraudulent and unlawful purpose or the persons concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct in connection therewith and that it is proper that the company be wound up.
  4. Default in filing the financial statements or annual returns for five financial years consecutively
  5. Tribunal on its own if it thinks it is just and equitable to wind up the company


The Ministry of Corporate Affairs has notified The Companies (Winding up) Rules, 2020, which will be effective from 1st April 2020. Rationale behind introducing these rules is to make the Winding up procedure simpler for smaller companies to shut down their business without the intervention of the tribunal.


The rules prescribed under the Companies (Winding Up) Rules, 2020, will be applicable only to certain class of companies which are mentioned under Section 361 of the Companies Act, 2013, which provides Summary Procedure for Liquidation and Part V of the Companies (Winding Up) Rules, 2020, such as companies having book value of assets not exceeding Rs. 1 crore and certain class of companies as mentioned below:

  1. Companies having outstanding loan not exceeding Rs. 50 lakh or
  2. Companies having a turnover not exceeding Rs. 50 crore or
  3. Companies with paid-up capital not exceeding Rs. 1 crore or
  4. Companies who have taken deposit and its total outstanding deposits do not exceed Rs. 25 lakh

The above figures shall be based on the latest audited Balance Sheet of the company.


  1. These specified companies as mentioned above are not required to apply to tribunal for winding up their company.
  2. While complying with the procedure laid down in the rules the word Tribunal shall be read as Central Government.
  3. The Rules have been divided into 6 parts consisting of 191 rules and 95 forms.
  4. Central Government will appoint the Official Liquidator as the liquidator of the company in place of Tribunal.
  5. The Company Liquidator shall maintain the registers and books of accounts as provided in rules 79 and 80.
  6. The Official Liquidator will dispose the assets in the manner prescribed in rules 165 to 167 with the modification that wherever the word Tribunal is mentioned it shall be read as Central Government.
  7. Creditors shall prove their claim in the manner as provided under rules 100 to 125, with the modification and directions by Central Government as mentioned in sub-rule (4).


Under the new winding-up rules all the approvals will be given by the Central Government without the intervention of the tribunal, thus, resulting in speeding up of the liquidation process for the specified companies. Normally the liquidation through the Tribunal is time consuming. With these new rules smaller companies can opt to close their business through this procedure which will be cost-effective and time-bound procedure for them.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.