Companies (Winding up) rules,2020 and its impact on NCLAT

In response to rising consumer demand for a diverse range of products and services across a variety of commodity categories, as well as rapid expansions in both competition and globalisation, countless businesses have sprouted up over the years to meet these demands and explore new avenues of meeting and improving upon these needs. Again, this event makes it clear that problems related to corporations, including insolvency, takeovers, the rebuilding of sick sectors, etc., can arise, and history is replete with examples of many such occurrences. A board or panel from the relevant agency must intervene in order to resolve or dispose of such matters.[i] The dissolution of a corporation marks the end of its existence. It is the formal procedure by which a corporation is formally dissolved and its corporate life brought to an end. The Companies (winding up) Rules, 2020[ii] were issued by the Ministry of Corporate Affairs to summarise the procedures for winding up companies that fall under the outlined thresholds. The National Company Law Tribunal benefits greatly since the process of winding down enterprises that are large enough to reach the threshold restrictions is simplified. In order to dissolve, these businesses must first receive consent from the Central Government rather than the NCLT.

As of July 31, 2020, there were 19,844 cases pending before the National Law Company Tribunal, as reported by the Honorable Minister of State for Finance and Corporate Affairs, Mr. Anurag Singh Thakur[iii]. As a result, the government has made a good step by permitting summary liquidation processes to be filed with the federal government rather than the NCLT, reducing the NCLT’s workload and strain. Since a sizable chunk of the procedure applicable to normal businesses continues to apply to corporations that can pick summary procedure, it is unclear whether the step or process will be expedited merely by transferring the jurisdiction.

Through “winding up,” a company’s assets are liquidated and any remaining debts are settled. The company’s assets are managed for the benefit of the shareholders and the creditors. If a company violates the terms of Section 272[iv] of the Companies Act of 2013, the tribunal has the authority to dissolve the business in accordance with the Companies Act of 2020.[v] As a result of the Companies (Amendment) Act of 2002[vi], the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) were established. The Rules also govern businesses going into winding up for the conditions stated in section 271[vii] and summary procedure for liquidation under section 361[viii] of the Companies Act, 2013. The Guidelines are just one of the measures the government has taken to ease NCLT’s workload. Appointing new members and even setting up new courts are two others.

Before the implementation of these winding-up regulations, only the types of corporations specified in the summary-proceedings provisions of Section 361 of the Companies Act, 2013 were to be dissolved. In addition, the order to dissolve the corporation were to be issued only after the federal government is satisfied.  Prior to the introduction of the act certain conditions which were necessary for companies to wind up are given as follows:

  1. Firms with assets total less than one crore
  2. An organisation type mentioned by the central government.
  3. Any assets or claims that can be legally enforced must be turned over to the appointed liquidator within 30 days of his appointment by the central government. It is also required that the liquidator provides the central government with a report including assertions to the effect that no fraud has been perpetrated in the company’s promotion, establishment, or management.

However, with the enactment of Companies (Winding up) Rules, 2020, companies can directly file a petition with the central government, albeit this is given only to some classes of companies.

According to the new rules, the dissolution of a corporation is governed by Companies Act section 271(a)(3)[ix]. The new rules also talk about the appointment of liquidator in such circumstances in great detail and also provides for the rules for the same. The appointment of liquidator is mandated through rule 14 as per Section 273(1)[x]. In cases when the business isn’t the applicant, a WIN 7 notice of appointment of provisional liquid must be served on the company. Any assets, records, funds, or proceeds in a person’s possession must be turned over to the temporary liquidator. The Registrar should, within seven days after an order has been made appointing the provisional liquidator or Company liquidator, indicate to the company liquidator or provisional liquidator in the form WIN 9 and shall deliver it by post or another possible means. Along with the petition and affidavit, it is required to provide a copy of the appointment to the Companies Registrar. The temporary liquidator or the Company liquidator may reveal any conflicts of interest or lack of independence by filing a declaration in form WIN 10 within seven days after appointment.

A copy of the petition and affidavit, as well as the signed and sealed winding up order, must be submitted to the registrar within seven days of the order’s signing and sealing. These documents must be submitted in Form WIN 11 to the registrar of companies and Forms WIN 12 and WIN 13 to the company liquidator. Companies (winding up) Rules, Part V, specifies a Summary Procedure for Liquidation by 2020. The powers and duties of the official liquidator are defined under Rule 190 [xi]of the Companies (winding up) Rules, 2020. They are

  1. The official liquidator has the authority to carry out the tasks and responsibilities outlined in the legislation.
  2. The official liquidator is responsible for keeping all financial records in order.
  3. All assets shall be sold by the authorised liquidator.

Although the preliminary regulations restricted eligibility to small enterprises, the final rules expand eligibility to include those with a turnover of less than 50 crore, a paid-up capital of less than 1 crore, and a deposit balance of less than 25 lakh. Companies that have the option of using the summary method are nevertheless subject to the vast majority of the rules governing standard corporations. Therefore, it is not apparent if moving responsibility to the central government will speed up the process.

A government-appointed liquidator is responsible for winding down a corporation that has gone bankrupt (Rules 174 and 175), as stated in the Rules (Rule 22 of Rules). As stated in Rule 130 of the Rules, official liquidators are responsible for overseeing the assets and finances of corporations that have been placed in liquidation under a variety of laws, as well as the process by which these assets are sold under the oversight of the bankruptcy tribunal.

Comments by Various dignitaries

As stated by L&L Partners Partner Harish Kumar, the specified summary processes will expedite the liquidation and eventual winding up of the company.

According to Cyril Amarchand Mangaldas & Co. partner and head of mergers and acquisitions Akila Agarawal, winding up processes based on grounds other than insolvency have been lingering for a very long time. The Companies (winding up) Rules, 2020 alleviate the National Company Law Tribunal (NCLT) by allowing the central government to handle the liquidation process.[xii]

For Atul Pandey, a partner at Khaitan & Co., the most notable aspect of the MCA’s newly notified regulations is the introduction of a simplified method for liquidation under Part V of the winding up Rules. The time it takes to wind down a company can be reduced if the central government, rather than NCLT, is consulted for permission.[xiii]

Some Prominent cases in relation to NCLAT and Winding up

In case of Rosoboron Services (India) Ltd. (DOJ: 12.05.2022)[xiv]In this instance, the NCLAT agreed with the petitioner that in the absence of any assets, physical or otherwise, the petitioner should proceed with a voluntary liquidation of the corporation rather than seek insolvency resolution.

In another case of Prakash Chandra Kapoor Vs Vijay Kumar Iyer, (Liquidator) (DOJ: 08.12.2021)[xv], it was held by NCLAT that rather than being seen as a hindrance, procedural law should be seen as a tool for achieving justice. Time extensions in Liquidation are possible only if the court is convinced that extraordinary circumstances exist. Accordingly, Section 35(1)(e)[xvi] of the Code, which establishes the goal of a “beneficial liquidation,” must take precedence over the Regulation.

Lastly in Bhatpara Municipality VS Nicco Eastern Private Limited & Anr[xvii]. (DOJ: 22.11.2021). The Appellant (Municipality) in this case challenged a decision made by the Hon’ble NCLT that dismissed its claims against the Respondent (Auction-Purchaser) for unpaid debts. The defendant in this case acquired certain real estate through the Liquidation proceedings of a Corporate Debtor and afterwards took ownership of that property at auction. After that, the respondent made an application to the appellant for a business licence, requested that the property be transferred to its name via a mutation, and sent a demand notice for unpaid property taxes.

The NCLAT announced that the Liquidator is required to announce the sale of the company’s assets to the public and prepare an asset memorandum detailing the value of the assets and any other information that may be relevant to the sale of the assets.

To conclude, The Ministry of Corporate Affairs introduced the Companies (Winding up) Rules 2020 on January 24, 2020, which significantly altered the procedure for winding up a company by lightening the workload of the tribunal and allowing certain classes of companies to dissolve without having to go through the court system.[xviii]


[i] Taxguru- https://taxguru.in/company-law/companies-winding-up-rules-2020-2.html

[ii] Companies, (Winding Up) Rules 2020, On behalf of notification issued by Ministry of Corporate Affairs.

[iii] Economic Times- https://m.economictimes.com/news/economy/policy/over-19800-cases-were-pending-before-nclt-till-july-31/articleshow/78219380.cms

[iv] The Companies Act 2013, §272, No.18, Acts of Parliament, 2013 (India)

[v] IBLOG Pleaders- https://blog.ipleaders.in/companies-winding-up-rules-2020-and-its-impact-on-the-national-company-law-tribunal/

[vi] The Companies Amendment Act 2002, No.11, Acts of Parliament, 2003 (India)

[vii] The Companies Act 2013, §271, No.18, Acts of Parliament, 2013 (India)

[viii] The Companies Act 2013, §361, No.18, Acts of Parliament, 2013 (India)

[ix] The Companies Act 2013, §271(a)(3), No.18, Acts of Parliament, 2013 (India)

[x] The Companies Act 2013, §273(1), No.18, Acts of Parliament, 2013 (India)

[xi] Rule 190, Companies(Winding Up) Rules 2020

[xii] Cyril shroff- https://www.cyrilshroff.com/blog/

[xiii] Khaitan and Co- https://www.khaitanco.com/thought-leaderships

[xiv] Rosoboron Services (India) Ltd ,https://ibclaw.in/rosoboronservices-india-ltd-nclat-new-delhi/

[xv]Prakash Chandra Kapoor v. Vijay Kumar Iyer, (Liquidator) https://efiling.nclat.gov.in/nclat/order_view.php?path=L05DTEFUX0RvY3VtZW50cy9DSVNfRG9jdW1lbnRzL2Nhc2Vkb2Mvb3JkZXJzL0RFTEhJLzIwMjEtMTItMDgvY291cnRzLzMvZGFpbHkvMTYzODk0MTY4Mzg4NDMyNDUyOTYxYjA0M2YzNzFlMTUucGRm

[xvi] Sections 35(1)(e) of Insolvency Code

[xvii] Bhatpara Municipality v. Nicco Eastern Private Limited & Anr.

[xviii] Insolvency and bankruptcy- http://www.Insolvencyandbankruptcy.in

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