2. MEANING OF WINDING UP
The term Winding up or liquidation is the process by which:
(a) the Management of a company’s affairs is taken out of its
director hands
(b) its assets are realised by a liquidator’s
(c) its debt and liability are discharged out of the proceeds of
realisation and
(d) any surplus over asset remaining is returned to its
member or shareholders.
Thus, The process of winding up involves realisation of assets,
payments of liability and distribution of surplus, if any,
amongst the member of the company.
3. THE INSOLVENCY AND BANKRUPTCY CODE, 2016 AN
OVERVIEW
The Code Became Functional From 1st December,2016.
The Insolvency & Bankruptcy Code (Amendment) Act, 2018 Were :
a) home buyers should Be treated as financial creditors
b) the voting percentage in the committee of creditors [COC] to be reduced to a
minimum of 66% from 75% earlier .
c) Company/LLP needed to take approval of 3/4th of its shareholders/partners before
the resolution process began.
d) Withdrawn an application from the NCLT, it needed 90% shareholder approval.
The Insolvency & Bankruptcy Code (Amendment) Act, 2019 Were :
a) Increase the timeline From 270 days to an overall timeline of 330 days
b) Resolution plan once approved was binding on all stakeholders
c) Empowered the (COC) to liquidate the corporate debtor any
4. time after the COC is constituted.
Insolvency & Bankruptcy Code (Amendment) Act, 2020
a) Section 7 now provides, an application for initiating corporate
insolvency resolution process against the corporate debtor Shall by
filed jointly by not less than 100 of such creditors in the same class
or not less than 10% of total number of such creditors in the same
class, whichever is less .
b) Increase the minimum threshold of default to 1 Cr from 1 Lac
earlier.
Insolvency & Bankruptcy Code (Amendment) Act, 2021
(For PPIRP):
a. A resolution plan is negotiated between debtor and its creditor
before commencement of formal bankruptcy proceedings
(For MSMEs) :
a. Default of higher value, which shall not be more than 1 Cr.
b. The central government has prescribed the minimum threshold for
default at rupees 10 Lac for PPI RP, by MSME corporate debtor.
5.
6. Corporate Insolvency Resolution
Process (CIRP)
The insolvency And Bankruptcy Code, 2016 applies to –
Companies incorporated under the Companies Act, 2013 or any
previous company law ,
Companies governed by special acts,
LLP’s incorporated under LLP Act, 2008,
Companies incorporated by special act of the government,
Partnership firm, and
Individuals
There are two types of creditors to whom the corporate owes
money –
1. Financial Creditors
2. Operational Creditors
7.
8. MODES OF WINDING-UP
Section 270(1) now provides for only one mode of winding up-
namely by the tribunal . If the company wants to be wound up
voluntarily, it will have to follow the provision of chapter V of
insolvency and Bankruptcy Code, 2016
9. WINDING-UP BY THE TRIBUNAL
Circumstances under which company may be bound up by
tribunal.
Special resolution,
The company has acted against the interest of the sovereignty and integrity
of India,
on an application made by the registrar or the tribunal is of the opinion that:
I. Fraudulent manner
II. company was formed for fraudulent and unlawful purpose
III. guilty of fraud, misfeasance
•default in filling with registrar its financial statement or annual return for
immediate preceding 5 consecutive financial year;
•It is just and equitable
On the basis of previous judicial decision following are a few
examples of just and equitable on the basis of which the tribunal
may order the winding up
1.Deadlock in management 2.loss of substratum 3.operation of
minority 4.illegality of object and fraud 5.bubble company
10. PETITION FOR WINDING-UP
[SECTION 272]
An application to the tribunal’ for winding up is called a petition. As per section
272(1), petition for the winding up of the company by the tribunal can be
presented by any of the following :
a) By the company ;
b) By any contributory or contributories;
c) By all or any of the parties specified in (a) and (b) ;
d) The registrar ;
e) By any person authorised by the central government
f) By the central government or the state government .
11. POWER OF TRIBUNAL ON RECEIPT
OF PETITION (SECTION 273)
As per section 273(1), the tribunal on receipt of petition for winding up made
under section 272 may pass any of the following order namely :
a) dismiss it,
b) make an interim order;
c) appoint a provisional liquidator;
d) order for winding up;
e) any other that it thinks fit .
12. CONSEQUENCES OF WINDING-UP
ORDER
Its various consequences are as follows:
1. Not exceeding seven days from the date of passing the order
2. Registrar shall make a note in his records relating to the company, and notify it in the official
gazette.
3. Notice of discharge
4. All the power of BOD are now vested in the company liquidator
5. Company liquidator shall, forthwith take into his custody control all the properties books and
papers of the Company.
6. Company liquidator must submit a report of receiving detail about the company’s assets.
7. Within three weeks monitor the progress of liquidation proceedings by the company liquidator.
8. Company liquidator shall be the convener of the meetings.
9. Company liquidator shall place before the tribunal report along with a minute of the meetings of
the committee on a monthly basis.
10. Prepare the draft final report for the approval of the winding up committee.
11. Final report so approved by the winding committee shall be submitted by the company liquidator .
12. Section 278 operate in favour of all creditors
13. Section 279 , permissions under this section shall be disposed off by the tribunal within 60 Days.
13. ADVISORY COMMITTEE
Meetings of advisory committee
As per companies (winding up) rule 2020–
1. The advisory company shall meet at such time as appointed. The company
liquidator or 1/3 of the total number of member may also call a meeting.
2. The quorum 1/3 of the total of the members, or two, whichever is higher.
3. May act by a majority of its member present
4. A member may resign by notice in writing
5. If a member is adjudged as an insolvent arranges with his creditors, or is
absent from the five consecutive meeting his office shall become vacant.
6. a member may be removed subject to the direction of the tribunal by an
ordinary resolution of which seven days notice has been given, stating the
object of the meeting.
17. In fact, India has the largest number of listed companies in the world today. This surge in
activity brought with it problems of processing large amounts of paperwork, clearing and
settlement etc.
The system of settlement which was based on physical delivery of papercertificateswas adequate
in the past when only handfulof investorswere participating in the transactions. But because of
increasing investing population and substantial volume of trade, the investors were finding it
difficult to deal with the old system of physical delivery.
~ The need emerged to replace the existing clearing and settlement system which involved
physical shares, with a depositary system or scripless/paperless trading system.
The government enacted the depositaries act 1996 so as to provide a legal framework for
setting up depositaries so that transfer of shares could be effected in an alternate mode.
DEMARTERIALISATION~ it is a process by physical certificates are taken back by
company ,and destroyed. Then , an equivalent number of shares are credited in the electronic
holding of that investor.
18. The Depositories Act 1996 defines “Depository as an
organization where securities of a shareholder are held
in the form of electronic accounts , in the same way as
bank holds money”.
A Depository is an organization where share certificates
of a shareholders are held in electronic form, at request
of shareholders, through medium of his agent known as
the Depository Participants (e.g. ICICI direct etc.)
DPs is the key player in the system which act as an agent
of the depository and interface of depository. He opens
the accounts of investors, facilitates dematerialization.
The main objective of a depository is to minimize the
paperwork involved with ownership, trading and
transfer of securities.
19. 1. Depository – it’s an entity which helps an investor to buy or sell securities in a paperless
manner by maintaining his ownership records in electronic form.
2. Depository Participants – They act as an interface between investors and depository.
(Banks, brokers, custodians etc.) it act as a service provider to investor by taking care of
trading and settlement thereof.
3. Issuer or Company – the company listed with depository and whose shares are available
for trading under Demat mode.
4. Issuer’s Registrar – intermediary, they collects application from investors with respect to
an issue, maintain application and money received from investors and assists the
company in allotment of securities.
5. Stock brokers – they are registered members of the exchange, who have been authorized
to trade on behalf of investors. Brokers have one clearing member with whom they work
to clear their trades.
20. 6. Clearing house corporation - It is a financial institution formed to facilitate the exchange of
payment and securities. It is an intermediary between buyers and sellers financial instruments.
it is clearing houses which make sure that adequate funds are set aside for trade settlements.
they ensure proper transfer and ownership of shares and money from buyers to seller.
7. Clearing Members – these members are clearing and settles deals which have been done by
stock members , through a clearing house. He is backbone of securities market. Clearing
members has the responsibility to clearing and settlement of all deals executed.
8. Investors – they are the main beneficiaries for the services provided by depository . They are
also known as beneficial owners.
9. Banks - Account number for banks is recorded to directly credit the monetary benefits in the
accounts.
10. Stock Exchanges – All transactions are routed through a common platform known as stock
exchange.
21. Conversion of physical certificates into dematerialized
holdings at request of the investors is called
Dematerialisation.
Process of Dematerialisation
Investors surrenders defaced certificate along with DRF
filled in triplicate to his DP .
DP intimates NSDL of the request through the system.
DP submits certificates along with DRF to registrar.
Registrar confirms the Demat. request from NSDL.
Registrar validates the request updates record and
informs NSDL.
NSDL credits the DP’s account and informs the DP.
DP updates investors account and informs investor
~ The entire process of Dematerialisation takes about 15
days . Some it may take upto 30 days.
22. It is a term used for converting electronics holdings back
into physicals certificates.
Process of Rematerialisation
Beneficial owner submits Rematerialisation request
form to DP in triplicate.
DP intimates NSDL of the request through the system.
DP submit RRF to the registrar.
NSDL confirms Rematerialisation request to the
registrar.
Registrar updates accounts and print certificates and
inform NSDL.
NSDL updates accounts and download details to DP.
Registrar dispatches certificates to investors.
~ The entire process of Rematerialisation takes a
maximum of 30 days.
23. Rematerialisation takes place to the following steps:
• Beneficial owner submits rematerialisation request from RRR to DP or depository participants
• DP intimates NSDL of the request through the system .
• DP submit RRR to thew registrar .
• NSDL confirms rematerialisation request to the registrar.
• Registrar updates accounts and prints certificates and inform NSDL.
• NSDL update account and downloads details to DP.
• Registrar dispatch certificates to the investors.
The entire process of rematerialisation takes a maximum of 30 days
24.
25. The primary market has witnessed spectacular growth in terms of volume , no.
of issues and aggregate amount raised over the last few years. Indian primary
market though larger in size , suffered from many weakness such as price rigging
, lack of transparency , issue of wrong securities , transit loss , problem of fake
and duplicate securities , among others .
In order to overcome all these problems SEBI requires all public issues to be in
the dematerlised for moreover , the promoters holding will be in demat mode .
The promoters are required to have their share holding mandatorily
dematerlised before filling the draft offer document with SEBI for public / rights /
offer for sale of shares
The investors shall be compulsory required to open a demat account with the
depository participants for maki g an application
26. The benefits of participation in a depository are :
•Immediate transfer of securities.
•No stamp duty on transfer of securities.
•Elimination of risks associated with physical certificates such as
bad delivery , fake securities etc.
•Reduction in paperwork involved in transfer of securities.
•Reduction in transaction cost.
•Nomination facility.
•Change in address recorded with DP gets registered electronically
with all companies in which investor holds securities eliminating
the need to correspond with each of them separately.
•Transmission of securities is done by DP eliminating correspondence
with companies.
•Convenient method of consolidation of folios/accounts.
•Holding investments in equity, debt instruments and Government
securities in a single account.
•Automatic credit into Demat account, of shares, arising out of
split/consolidation/merger etc.
27. The salient features of the depositories are as follows:
• The investor has been given the option to hold the securities in physical or the
materialized form.
• The depository has been interested with the responsibilities of indemnifying beneficial
owners for any loss caused due to negligence of the depository and its participants.
• No stamp duties is charged on share transferred in the depository from the investors .
• Pledge is allowed in depositories by surrendering once securities .
• The depository act 1996, makes a provision for the setting up of multiple depositories in
India . Every depositories will be required to the registered with the SEBI and received a
certificate of commencement of a business from it.
• In the depository system the investors have the options to join the system or not those
who join the system will have to registered with one or more participants who will be the
agent for the depositories.
28. The Depositories Act, 1996
• Depository is an organisation where share certificate of a shareholder are held in electronic form, at
request of shareholders through the medium of his agent known as Depository Participant.
• Section 1 of the Depository Act, 1996 provides that this act came into force from 20th September 1995
and extends to the whole of India.
• Section 2 of the Depositories Act, 1996 contains definitions. As per section 2(1)(e) depository means a
company formed and registered under the Companies Act, 2013 and which has been granted a certificate
of registration and under section 12 (1A) of the Securities and Exchange Board of India Act, 1992.
• As per Regulation 6 of SEBI (Depositories and Participants) Regulations 1996, SEBI shall consider an
application only from the following categories of institutions to be registered as a Depository:
1. A public financial institution as defined in Section 2(72) of the Companies Act, 2013.
2. A Bank included for the time being in Schedule lI to the Reserve Bank of India;
3. A foreign bank operating in India with the approval of Reserve Bank of India;
4. A recognized stock exchange within the meaning of Section 2 (i) of the Securities Contracts
(Regulation) Act, 2013;
5. A body corporate engaged in providing financial services where ot less than seventy five percent of
the equity capital is held by any of the Institutions mentioned in a),b),c)or d) jointly or severally.
6. An institution engaged in providing financial services established outside of India and approved by
Central Government.
7. Moreover each of the applicants must be a fit and proper person. In other words only the above
specified can become a depository.
29. If the SEBI is satisfied that company established by the sponsor is
eligible to act as depository, it may grant a certificate of registration in
Form B to the Depository subject to the following, namely:
• The Depository shall pay the registration fee specified within 15 days of the receipt
of information from SEBI.
• The Depository shall comply with the provisions of the Act, Depositories Act, the
bye-laws agreements and these regulations.
• The Depository shall not carry on any activity other than that of a Depository unless
the activity is incidental to the activity of the Depository.
• The sponsor shall, at all times, hold at least 51% of the equity capital of the
Depository and the balance of the equity capital shall be held by its Participants.
• No Participant shall at any time, hold more than 5% of the equity
• capital of the Depository.
As per Section 2(1)(g) Participant means a person registered under
section 12(1A) of the Securities and Exchange Board of India Act, 1992.
In other words, a Participant must be registered with SEBI. SEBI shall
consider the application only if the applicant complies with the
following requirements:
30. a)The applicant should belong to one of the following categories:
• A public financial institution
• a bank
• a foreign bank
• a state financial corporation
• an institution engaged in providing financial services
• a custodian of securities
• a clearing Corporation
• a stock broker
• a non banking Finance Company
• a Registrar to an issue or share transfer agent
b) The applicant is eligible to the admitted as a participant of the
depository through which it has made the application to the board.
c) The applicant has adequate infrastructure, systems, safeguards and
trained staff.
d) The applicant is a fit and proper person.
e) The grant of certificate of registration is in interest of investors in the
securities market.
31. Certificate of Commencement of Business
• As per Section 3 of the Depositories Act, 1996, no Depository
shall act as a Depository unless it obtains a certificate of
commencement of business from SEBI. As per Regulation 10 of
the SEBI (Depositories and Participants) Regulations, 1996, a
Depository which has been granted a certificate for registration
must apply to SEBI for the commencement of business in Form C
within one year from the date of its registration.
• The SEBI shall not grant a certificate of commencement unless it
is satisfied that the Depository has adequate systems and
safeguards to prevent manipulation of records and transactions.
However, no certificate shall be refused by SEBI unless the
Depository concerned has been given a reasonable opportunity
of being heard.
32. Rights and Obligations of Depositories, Participants,
Issuers and Beneficial owners
AGREEMENT BETWEEN DEPOSITORY AND PARTICIPANT:
Section of 4(1) of the Depositories Act requires a Depository
to enter into an agreement, as per the form specified in its bye-
laws with one or more Participants to become its agents.
Moreover any person wishing to avail of the services of a
Depository, must enter into an agreement with it, in such form
as may be specified by the byelaws of the Depository, through a
Participant.
Section 19B provides that if a Depository or Participant or any
issuer or its agent or any person who is required to enter into an
agreement fails to do so, then such Depository or Participant or
issuer or its agent or intermediary shall be liable to a fine of Rs. 1
lakh for every day during which such failure continues or
Rs. 1 crore whichever is less.
33. REGISTRATION OF TRANSFER OF SECURITY WITH DEPOSITORY:
Section 7 provides that if a shareholder effects the transfer, then
he will contact the Participant which will convey the information
to the Depository which will register the security in the name of
the transferee.
Securities in Depositories to be in Fungible Form As per Section 9
of the Depositories Act, securities of a company joining the
Depository system shall be dematerialised i.e. to say that the
securities will no longer will be identified by the corresponding
share certificate and distinctive number. The securities will be in
fungible form and will not be distinguished by distinctive numbers
which is applicable to securities in non-depository mode.
RIGHTS OF DEPOSITORIES AND BENEFICIAL OWNERS:
As per Section 10 of the Depositories Act, a Depository shall be
deemed to be registered owner for purpose for effecting transfer
of ownership of security on behalf of a beneficial owner. In the
case of shares of a company which has opted for a depository, the
owner of the shares is called the beneficial owner under
the scheme and beneficial owner shall have all the rights and
benefits as holder of the shares.
34. REGISTER OF BENEFICIAL OWNER:
As per section 11 every depository shall maintain a register and an index of beneficial
owners in the manner provided for in section 88 of Companies Act,2013.
PLEDGE OR HYPOTHECATION OF SECURITIES HELD IN A DEPOSITORY:
Section 12 empowers a beneficial owner, with previous approval of depository to create a
pledge or hypothecate a security.
FURNISHING OF INFO AND RECORDS BY DEPOSITORY AND ISSUER:
Section 13 provides that where shares of a company whose shares are maintained by a
depository, are transferred, the transaction may be directly handled by the participant and
depository.
OPTION TO OPT OUT IN RESPECT OF ANY SECURITY:
Section 14 provides that if any existing beneficial owner of shares or other security at any
time decides to go out or the scheme, he will or have to inform the Depository. On receipt
of such intimation, the Depository will make necessary changes in its records and shall
inform the issuer. It is provided in section 14 that the issuer company shall within 30 days,
issue the certificate for the shares or other security to the owner, and the company will
thereafter keep record of the member as per the provisions of the Companies Act, 2013.
DEPOSITORIES TO INDEMNIFY LOSS IN CERTAIN CASES:
Section 16 provides that if any loss is caused to the beneficial owner due to the negligence
of the Depository or the Participant, the Depository shall indemnify such benefīcial owner.
35. ENQUIRY AND INSPECTION
POWER OF SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)
TO CALL FOR INFORMATION AND ENQUIRY:
Section 18 of the Depositories Act provides that if SEBI considers it
necessary in the public interest or in the interest of the investors,
it may, by an order in writing, call upon any issuer, Depository,
Participant or beneficial owner to furnish in writing, such
information relating to the securities held in a Depository, as it
may require.
Section 19A however, provides that if any person who is required
to furnish any information, document, books, returns etc. to SEBI
fails to furnish the same, he shall be liable to a fine of Rs. 1 lakh for
everyday during which such failure continues or Rs.1 crores
whichever is lesser.
Section 19G of the Depositories Act provides for imposing a
penalty which may extend to Rs. 1 crore, on any person who fails
to comply with any provision of this Act, the rules, regulations or
byelaws of the Depository, or directions issued by SEBI, wherever
no separate penalty has been provided.
36. POWER TO ADJUDICATE:
Section 19H provides for the appointment by SEBI, of an officer not below the rank
of a Division Chief of the Securities and Exchange Board of India, as an
Adjudicating Officer for holding an enquiry under sections 19A, 19B, 19C, 19D,
19E, 19F and 19G for the purposes of imposing penalty under the said sections.
As per section 191 while deciding the quantum of penalty the Adjudicating officer
will also regard the following factors:
(a) The amount of disproportionate gains or unfair advantage made as a result of
the default.
(b) The amount of loss caused to an investor or group of investors as a result of
default.
(c) The repetitive nature of default.
Section 19J provides that all sums realized by way of penalties under this Act shall
be credited to the Consolidated Fund of India.
Section 20(2) provides that if any person fails to pay the penalty imposed by the
Adjudicating Officer or comply with his directions, he shall punishable with
imprisonment for a term which shall not be less than be one month but which may
extend to 10 years or with fine of Rs.25 crore, or with both.
37. Offences by Companies-:
Section 21:
Every officer in default and company shall deemed to guilty of offense
and shall be liable to be proceeded against and punished accordingly .if
any person proves act was committed without his knowledge and
exercised due diligence shall not be liable
Miscellaneous-:
Cognisance of offense by court:
As per sec: 22 of depositories act a company or any person deemed
guilty of any offense can be tried as per the court of criminal procedures
,1973 by any court, not inferior to the court of session.
Sec:22A provides that court or appellate tribunal has the power to
convert jail into penalty to be paid io terms of rupees , except for offence
which are specifically punishable with imprisonment only or
imprisonment and fine.
38. Sec:22B provides that CG on recommendation of SEBI , has power to provide immunity from prosecution ,or
imposition of any penalty , to any person who is alleged to be guilty .No immunity if application for immunity is
received after proceedings have been initiated ,or can be withdrawn in case of non compliances of conditions.
•Appeals-:
• Before commencement of Securities Law Act,1999 who was aggrieved by order of SEBI ha right
to appeal to CG that he has sufficient cause for not preferring the appeal within prescribed
period
• However after commencement,Sec:23A provides aggrieved party may appeal to appellate
tribunal within 45 days from date on which a copy order is received by him. Tribunal may after
giving opportunity of being heard ,pass such order as it may deem fit.
• Procedure and power of security appellate tribunal:-
• Sec:23B provides tribunal need to follow procedure of Code of Civil Procedure,1908 regarding
form and manner of proceedings and in respect of following matters:
• (a)summoning and enforcing the attendance
• (b) discovery and production of documents
• (c) receiving evidences on affidavits
• (d)issuing commission
39. As per sec:23E , no civil court shall have jurisdiction to entertain any suit in respect of any matter which a tribunal is
empowered by the act , and no injunction shall be granted by any court in respect of any action taken by tribunal.
As per sec:23F any aggrieved person may file an appeal to supreme court within 60 days from date of decision .
As per sec:23C the appellate may either appear in person or authorise one or more CA,CS,CMA before the tribunal.
•Power of CG to make rules:-
• Sec:24 empowers CG to make rules for carrying out provisions by notification in official
gazette in following matters:
• (a)enquiry made by adjudicating officer
• (b)time and form within which appeal is to be made by aggrieved party to CG
• (c)procedure of disposing of appeal along with fees
40. Power of SEBI to make regulation:-
Section :25 empowers SEBI to make regulation consistent with provision of act and rules made there under ,in
order to carry out purpose of this act In exercise of power conferred by sec:30 of SEBI act along with sec:25 of
depositories act SEBI has made SEBI regulation,1996 which deal with registration of depository and participant
the form and criteria upon which certificate of commencement of business shall be issued to depository ,manner
in which certificate of security shall be surrendered ,the manner of creating pledge or hypothecation
•Power of depository to make By-laws:-
• As per sec:26, a depository with previous approval of SEBI ,has power to make by-laws and
regulations consistent with provision of this act regarding eligibility criteria for admission for
removal of securities in the depository , criteria for admission of any person as participant ,
manner for dematerialisation ,manner of distribution of dividend ,interest and monetary
benefit received from company by any beneficial owner .
41. Wherever SEBI consider it expedient to do ,it shall direct a depository by an order in writing ,to make any
byelaws ,or to amend or revoke any byelaws already made ,within such period as it may specify .
•Rules and regulation to be laid before
Parliament :-
• Sec:27 provides that every rule and regulation must be laid before each house of
parliament for a total of 30 days while it is in session . If both houses agree in making in any
modification in the rules or not be made ,then to such effect as case may be.
• Sec:28 provides that provision shall be in addition not derogation of any other law for time
being in force relating to holding or transfer of securities .
• Sec:29 further provides if any difficulty arises in giving effect to the provision ,the CG may
by an order in official gazette , make such provision as may be necessary to remove
difficulty.