Companies Act, 2013: Schemes and Winding-Up Provisions Operational

Although the Companies Act, 2013 was enacted more than three
years ago, its provisions have been brought into effect in a phased manner. One
of the important chunks of the new legislation relating to schemes of
arrangement and winding up were yet to be brought into force. However, this
position has since changed because the Ministry of Corporate Affairs (MCA) issued
a notification
on December 7, 2016 bringing into effect the provisions relating to schemes and
winding up from December 15, 2016.
Simultaneously, on December 7, 2016, the MCA issued the Companies
(Transfer of Pending Proceedings) Rules, 2016
, which provides for transfer
of pending legal proceedings relating to schemes and winding-up from the High
Court to the relevant bench of the National Company Law Tribunal (NCLT). These
Rules adopt a bifurcated approach for proceedings relating to winding-up and
those that do not involve winding-up. In case of proceedings not involving
winding-up, viz. compromise, arrangement, reconstruction and arbitration, they
shall all be transferred from the High Court to the NCLT. However, in case of proceedings
that are reserved for orders for allowing these proceedings (or otherwise),
they shall continue with the High Court and shall not be transferred to the
NCLT.
In case of winding-up proceedings, there is a more elaborate
treatment depending on the nature of the winding-up. In case of proceedings
initiated on account of inability of the company to pay its debts, where the
petition has not been served on the respondent, the proceedings shall be
transferred to the NCLT. In cases where an opinion has been forwarded by the
Board for Industrial and Financial Reconstruction (BIFR) for winding-up, and
where no appeal is pending, the winding-up proceedings shall continue to be
dealt with by the High Court. In case of winding-up proceedings other than for
inability to pay debts, they shall all be transferred to the respective benches
of the NCLT.
In order to operationalise the treatment of various types of
schemes by the NCLT, the MCA has also issued two sets of rules:
In the case of insolvent companies, these developments have
to be considered in the light of the repeal of the Sick Industrial Companies
Act, 1985 and also the effectiveness of the Insolvency and Bankruptcy Code,
2016, as discussed here.
All of these steps are significant in streamlining the provisions relating to
mergers, corporate restructuring and winding-up.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

1 comment

  • OFFHAND Not wishing to go into and make, rather avoid making, a conscious note of the introductory paragraph,- which makes for an amusing read of its kind, – the reported development is sure to pass muster and go down well with those who have all along been grieved about and persistently complaining against the inadequacies of the successively-in-governance government's so called EXIT Policy (ies).

    To be precise, the reported development is most certainly/quite likely to be taken kindly, and applauded by the above referred limited circle; and, add one more feather to the ministry of law and its authorities.

    To serve feed for 'serious' thoughts,if so inspired to, looking back and quickly selected,- "Why we need an effective exit policy for companies"

    KEY Note: One is tempted to instantly think of, subject to further explore, what is the likely reaction, or reservations the FM may have against the negative aspects /implications the winding -up procedure is potent with, from the more important viewpoint of the Exchequer; particularly in the current economic scenario,both national and global, intricately and inseparably intertwined! < ?????

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