In legal proceedings, ensuring justice is served fairly and promptly is crucial, especially in winding-up proceedings under the Companies Act, 2013 (Act), where the future of a company, its creditors, and employees are at stake. The Act outlines various grounds for winding up a company, including situations deemed ‘just and equitable’ by the court. While the winding-up process follows clear procedures and timelines, delays often arise due to third-party intervention applications (Interventions), where objections are raised before the statutory time for them to be heard. While third-party Interventions may be necessary in some cases, a ‘blanket / one size fits all’ kind of approach is not always appropriate.
This article explores the winding-up process under the Act, focusing on cases initiated by a contributory (generally a shareholder) before the Hon’ble National Company Law Tribunal (NCLT). It will also explore why Interventions should be disallowed in these specific proceedings, particularly before the advertisement of the petition is published, and how piecemeal Interventions can hinder the progress of the case.
Provisions for winding up under the Act
A petition to the NCLT for winding up a company can be filed by various parties, including the company itself, its shareholders or members (contributories), the Registrar of Companies (RoC), etc. For a contributory to initiate the winding up of a company in which it is a shareholder, it must meet certain criteria as set out under the Act.
Grounds for winding up include insolvency, inability to pay debts, or when it is ‘just and equitable’ to dissolve the company. The ‘just and equitable’ grounds allow the court to order winding up in circumstances where there is (i) a complete deadlock between the shareholders which is incapable of being resolved; (ii) no business / loss of substratum of the company; (iii) no scope for the company to overcome from its dire situation; (iv) lack of employees and on-ground managerial staff; (v) suspension of business for a prolonged period of time; (vi) no other alternate or plausible solution; etc., providing flexibility in cases where the company’s continued existence is deemed unfair or inequitable. Therefore, the company’s closure is necessary.
Once a petition is filed, the NCLT examines the case, and if it finds merit, it may issue an order for winding up. However, before any substantial action is taken, an advertisement is published to notify the public and all interested parties of such winding up petition. This advertisement is a crucial step in ensuring that stakeholders — such as creditors and employees — are informed and given a chance to file their objections with the NCLT.
Role of intervenors in winding up proceedings
Winding up proceedings are typically initiated by relevant parties mentioned above against the company whose dissolution is being sought. While the legal requirement is only for a copy of the winding up petition to be served to the RoC, it is advisable for the contributory to send a copy of the petition to the company to ensure transparency.
The Act allows intervenors to challenge the winding up, but objections must be filed within the prescribed timelines i.e., after the advertisement of the petition is published. Intervenors are parties with a genuine interest in the company’s outcome of the winding up but were not originally part of the petition. For example, if creditors file a petition to wind up the company, other creditors who were not part of the original group of petitioners or any other third party(ies) with a stake in the company’s assets or liabilities can also intervene. Their role is to present concerns to the NCLT if they believe the winding up could affect their rights or interests.
Interventions to winding up proceedings ensure that all relevant viewpoints are considered before a final decision is made by the NCLT. However, as opposed to general proceedings, Interventions in a winding up proceeding are not necessary, given the procedural protections already provided under law.
Concerns with allowing piecemeal Interventions
The NCLT typically adopts a flexible approach and is open to allowing early Interventions in winding-up proceedings, despite the Act setting specific timelines for objections. By addressing relevant claims and concerns upfront, the NCLT aims to avoid delays later in the process. This approach ensures that all critical facts and legal issues are considered from the outset, leading to more informed decision-making. In practice, early Interventions is seen as a way to streamline the process, providing all parties an opportunity to be heard and facilitating a more complete resolution.
However, while early Interventions can offer benefits, they must be permitted judiciously. A significant concern is the potential delay caused by piecemeal Interventions. Allowing multiple parties to intervene at different stages can lead to repeated adjournments, prolonged deliberations, and overall inefficiency. These disruptions could extend the legal proceedings, preventing the company from achieving a timely resolution, especially if the Interventions occur both before and after the petition advertisement is published.
A fragmented approach to allowing Interventions further complicates the proceedings. The NCLT would need to assess each Intervention separately, potentially resulting in inconsistent decisions and confusion over the timeline. Since the primary objective of winding-up proceedings is to reach a clear and timely conclusion, constant introduction of new claims and interests at various stages can hinder the process and make it more challenging to achieve a final resolution.
Discontinuing the practice of Interventions prior to advertisement
The Act and the relevant rules (Rules) outline the procedure a petitioner must follow when filing a winding-up petition, defining the NCLT’s role in handling the matter. Once the petition is filed, the NCLT must determine whether to allow the petition to be advertised for Interventions or to appoint a provisional liquidator until a winding-up order is made. If the NCLT approves the advertisement, a specific format must be followed, which includes the hearing date and a timeline for intervenors to submit their objections.
Under the current process, the Act already ensures that all interested parties are brought before the NCLT, with all objections being heard. Allowing separate, piecemeal Interventions creates unnecessary delays and does not contribute positively to the proceedings. In fact, such Interventions can often be counterproductive, causing more harm than benefit. As such, the practice of permitting Interventions prior to advertisement should be discontinued. Instead, stakeholders should submit their objections through affidavits as part of the standard process, saving both time and resources for all parties involved. This approach is in line with the framework laid out in the Act.
To streamline the process and improve efficiency, Interventions should be filed together after the advertisement is published, within the designated timeline. This approach allows the NCLT to address all concerns at once, preventing disruptions and unnecessary delays. By consolidating Interventions into a single stage, the NCLT can review them more effectively, make clear decisions, and ensure that the winding up process proceeds smoothly and reaches a timely conclusion.
Conclusion
In conclusion, while third-party Interventions in litigation can have benefits, their role in winding-up proceedings, particularly before the advertisement of the petition, does not serve justice or the intended goals. Early Interventions can disrupt the process and cause unnecessary delays. The Act clearly outlines that Interventions should occur only after the advertisement is published and within the prescribed timeline. This structured approach ensures fairness, transparency, and prevents piecemeal Interventions from derailing the process. By addressing all Interventions together at one stage, the NCLT can facilitate a smoother, more efficient winding-up process, benefiting both stakeholders and the company by ensuring a timely and informed resolution.
Authors: Priyanka Zaveri, Principal Associate and Ajay Joseph, Partner | Veyrah Law
The authors can be reached at [email protected] and [email protected], respectively.
Views expressed above are for information purposes only and should not be considered as a formal legal opinion or advice on any subject matter therein.