Chapter I: General Provisions

Chapter II: Bankruptcy Court

Chapter III: Bankruptcy Procedure

Chapter IV: Trusteeship

Chapter V: Reorganisation

Chapter VI: Winding Up And Liquidation

Part I – General Provisions

Part II – Winding Up Proceedings

Part III – Realisation Of Assets

Part IV – Voluntary Winding Up

Part V - Winding Up On Insolvency

An act to amend, consolidate and codify law and practice on corporate reorganisation, winding up and liquidation.

Chapter I

General Provisions

1. Short title, commencement and extent.

1. This Act may be called the Corporate Bankruptcy and Winding Up Code, 2001.
2. It shall come into force on such date as the Union government may, by notification in the Official Gazette, appoint.
3. It extends to the whole of India.

2. Repeal of certain Acts, and savings of certain provisions

1. The Sick Industrial Companies (Special Provisions) Act, 1985 is hereby repealed.
2. Part VII to Part X of the Companies Act, 1956 is hereby repealed.
3. Part III and Part III A of the Banking Regulation Act, 1949 is hereby repealed.

3. Definitions

Unless the text otherwise stipulates, in this code –

1. "accountant" means and includes –

1. Chartered Accountant within the meaning of Chartered Accountant Act 1949;
2. Costs Accountant within the meaning of Costs and Works Accountant Act 1959;
3. any person having equivalent qualification as may be prescribed from time to time by the Union Government;

2. "affiliate" means –

1. entity that directly or indirectly owns, controls, or holds with power to vote, 15 percent or more of the outstanding voting securities of the debtor, other than an entity that holds such securities –

1. in a fiduciary or agency capacity without sole discretionary power to vote such securities; or
2. solely to secure a debt, if such entity has not in fact exercised such a power to vote;

2. corporation 15 percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by the debtor, or by an entity that directly or indirectly owns, controls, or holds with power to vote, 15 percent or more of the outstanding voting securities of the debtor, other than an entity that holds such securities –

1. in a fiduciary or agency capacity without sole discretionary power to vote such securities; or
2. solely to secure a debt, if such entity has not in fact exercised such power to vote;

3. person whose business is operated under as lease or operating agreement by the debtor, or person substantially all of whose property is operated under an operating agreement with the debtor; or
4. entity that operated the business or substantially all of the property of the debtor under a lease or operating agreement;

3. "asset" means a resource controlled by the enterprise as a result of past events from which future economic benefits are expected to flow to the enterprise;

4. "banking company" has the same meaning as in the Banking Companies Act, 1949 (10 of 1949);

5. "bankrupt" means a situation where a company is unable to pay a claim on demand within three weeks from the date of such demand provided that the claim is not less than rupees one lakh;

6. "bankruptcy proceedings" means a proceedings initiated by either the debtor or the creditor for corporate restructuring on renegotiation, failing which to set in motion winding up proceedings as stipulated under this Code to liquidate the company;

7. "bankruptcy court" means a bench constituted in each High court to deal with bankruptcy and winding up proceedings including reorganisation, liquidation, dissolution and all other related matters;

8. "board of directors" or "Board", in relating to a company, means the Board of directors of the company;

9. "claim" means –

1. right to payment, whether or not such right is reduced to judgment, liquidated , unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or

2. right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgement, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured;

10. "corporation" means private and public limited companies, government companies and corporations established by special act of parliament;

11. "creditor" means –

1. person or entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor;
2. person or entity that has a claim against the estate; or
3. person or entity that has a community claim;

12. "court" means the Bankruptcy Court;

13. "debt" means liability on a claim;

14. "deposit insurance corporation" means a corporation established under section 3 of the Deposit Insurance and Credit Guarantee Corporation Act, 1961;

15. "depository receipt" means a receipt issued by a depository of securities to its members;

16. "disinterested person" means person that –

1. is not a creditor, an equity security holder, or an insider;

2. is not and was not an investment banker for any outstanding security of the debtor;

3. has not been, within three years before the date of the filing of the petition, an investment banker for a security of the debtor, or an attorney for such an investment banker in connection with the offer, sale, or issuance of a security of the debtor;

4. is not and was not, within two years before the date of the filing of the petition a director, officer or employee of the debtor or of an investment banker specified in subparagraph (b) or (c) of this paragraph; and

5. does not have an interest materially adverse to the interest of the estate or of any class of creditors or equity security holders, by reason of any direct or indirect relationship to, connection with, or interest in, the debtor or an investment banker specified in subparagraph (b) or (c) of this paragraph, or for any other reason;

17. "entity" includes person, estate, trust, governmental unit and the trustee;

18. "equity security" means shares or stock of a company, whether listed or unlisted;

19. "equity security holder" means holder of an equity security of the debtor;

20. "establishment" means any place of operation including liaison office, branch, permanent establishment, where the debtor carries out his activities;

21. "financial institution" means

1. bank as defined in the Banking Regulation Act 1949;
2. public financial institution as defined by the Companies Act, 1956;
3. non banking financial institutions, chit funds, nidhi as defined by the relevant legislation governing them; or
4. as may be notified by the Reserve Bank of India from time to time.

22. "foreign main proceeding" means foreign proceeding taking place in the State where the debtor has the centre of its main interests;

23. "foreign non-main proceeding" means a foreign proceeding, other than a foreign main proceeding, taking place in a State where the debtor has an establishment;

24. "foreign proceeding" means a collective judicial or administrative proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purposes of reorganisation or liquidations;

25. "foreign representative" means a person or body including one appointed on an interim basis, authorised in a foreign proceeding to administer the reorganisation or the liquidation of the debtor’s assets or affairs or to act as an representative of the foreign proceeding;

26. "foreign court" means judicial or other competent authority to control or supervise a foreign proceeding;

27. "insolvency" means a financial position of a company in which its total payable debt is more than its total realisable assets;

28. "insurance company" has the same meaning as in the Insurance Act, 1938;

29. "intellectual property" means intangible property and includes patent, copyright, trademark, industrial design, geographical appellation, integrated circuit, and trade secret;

30. "letter rogatory" means a letter of request communicated through diplomatic channel for transfer of documents submitted to the court, records of court proceedings and judgement of a foreign court;

31. "liability" means a present obligation or the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits;

32. "lien" means continuing with lawful possession on the property against the owner for the non-payment of dues. When for the non-payment of dues any property remaining in the possession of the creditor can be retained by the creditor, the lien is called general. When on non-payment of dues on specific property, lien can be exercised only on those goods the lien is called particular;

33. "petition" means a petition addressed to the court submitting such information as may be stipulated by the rules, to initiate bankruptcy proceedings;

34. "prescribed" means as prescribed by rules;

35. "public auction" means sale of properties and goods through bidding process in the public either orally or through quotes in writing;

36. "recognised stock exchange" means stock exchanges recognised under the Securities Contract(Regulation) Act, 1956;

37. "scheduled bank" means a bank defined as scheduled bank under the Reserve bank of India Act 1934;

38. "secured creditor" means a creditor whose claim is secured by creation of a security interest on any collateral assets by way of pledge, hypothecation, mortgage, assignment or by any other means through a security agreement;

39. "security" has the same meaning as in Securities Contract (Regulation) Act, 1956;

40. "security agreement" means an agreement that creates or provides for security interest;

41. "security interest" means a right or an interest created on a collateral security against a debt, created by an agreement;

42. "trustee" means a trustee appointed under section 19 of this Code;

4. Interpretation of words and expressions

Terms which are not defined in this Code but are defined in the General Clauses Act, Companies Act, 1956, Securities Contract (Regulation) Act, 1956, Banking Regulation Act, Securities and Exchange Board of India Act, 1992 or any other statute ex pari materia shall have the same meaning unless the text otherwise stipulates.

5. Calculation of time schedule

Any schedule of time mentioned in this Code be calculated from the date of filing of the petition for bankruptcy, in the case of bankruptcy matters and from the date of filing of the winding up petition in the case of winding up matters the text of any provision otherwise requires.

Chapter II

Bankruptcy Court

6. Bankruptcy Court

There shall be a permanent division bench in each High court to deal with bankruptcy and winding up petitions, and to oversee reorganisation, winding up and liquidation proceedings of a company.

7. Powers of the Courton bankruptcy and winding up petitions

1. In the case of a bankruptcy petition, the Court shall have, subject to the specified time schedule which may be extended for reasons to be recorded in exceptional circumstances, the powers of,

1. Appointing the trustee forthwith if the petition is made by the debtor company;
2. Allowing the petition with 8 weeks from the date of receiving the petition, if it is made by a creditor or group of creditors and if after preliminary enquiry the court finds reasonable ground for such a petition to be allowed;
3. Allowing not more than 4 weeks time to the trustee, from the date of his appointment, for preparing the statement of affairs, inventory of assets and list of secured and unsecured creditors and other liabilities along with the preliminary report which shall be approved by the court within 2 weeks from the date of submission of the report and statements;
4. Allowing 20 weeks time to the trustee from the date of his appointment, for conducting renegotiation and preparation of the scheme of reorganisation, if possible with the participation and consent of the creditors on voluntary basis and submission of the same before the court for approval.

2. In the case of a winding up petition, the Court shall have, subject to the specified time schedule which may be extended for reasons to be recorded in exceptional circumstances, the powers of,

1. Approving the petition for winding up within 2 weeks from the date of application by the trustee on the failure of renegotiation;
2. Allowing the petition for voluntary winding up submitted by the company within 2 weeks from the date of submission of such petition and appointing a trustee;
3. Allowing the petition within2 weeks, if the petition is submitted by the Registrar within the power assigned to him, and appointing the trustee;
4. Allowing the petition submitted by any person authorised by the Union Government under section 243 of the Companies Act within 2 weeks and appointment of the trustee;
5. Allowing not more than 4 weeks time to the trustee, from the date of his appointment, for preparing the statement of affairs, inventory of assets and list of secured and unsecured creditors and other liabilities along with the preliminary report which shall be approved by the court within 2 weeks from the date of submission of the report and statements. Provided that in the case of an application by the trustee for winding up under clause (a) of this subsection, this provision shall not be applicable;
6. Approving the time schedule and plan for winding up as submitted by the trustee, the period of time required for completing the winding up procedure for completion and realisation of assets and payment of debt shall in ordinary circumstances not to exceed a time limit of 30 weeks.

8. Interlocutory matters

All interlocutory claims and counter-claims are to be decided by the same Court at appropriate stages. In all matters of fact the decision of the Court shall be final.

9. Jurisdiction

The situation of registered office of the company shall determine the jurisdiction of the Court excepting in the case of cross-border insolvency petition in which case the place of the establishment shall determine the jurisdiction.

10. Access to public records

1. Except as provided in subsection (2) of this section, a paper filed in a case under this title and the dockets of a Court are public records and open to examination by any person according the rules prescribed.
2. On request of a party in interest, the Court shall, and on the Court’s own motion, the Court may –

1. protect a company with respect to a trade secret or confidential research and development, or commercial information; or
2. protect a person with respect to scandalous or defamatory matter contained in a paper filed in a case under this code.

Chapter III

Bankruptcy Procedure

11. When can a bankruptcy petition lie

1. The debtor company having passed a special resolution in the Annual General Meeting to that effect, file a bankruptcy petition at any time if it has an a reasonable apprehension of a claim against the company not being able to pay its debt on demand.
2. A creditor may file a petition for bankruptcy against the debtor company if;

1. the company is unable to pay its debt of a sum exceeding rupees one lakh on demand after the debt falls due and the company having served a notice by registered post or by a courier or through electronic means requiring company to pay the sum so due and the company having failed to pay the sum or make it secured or compounded to the reasonable satisfaction of the creditor within a period of 3 weeks from the date of service of notice; or
2. The company is unable to pay a debt on the execution of a decree for a claim exceeding Rupees one lakh by a court in favour of the creditor of a company; or
3. if it is proved to the satisfaction of the court that the company is unable to pay its debt, and, in determining whether a company is unable to pay its debt, the court shall take into account the contingent and prospective liabilities of the company.

12. Inability of a debtor to present the bankruptcy petition

1. Where the managing director or the whole time director or executive director or manager having the ultimate responsibility for managing the company is of the view that the total liability of the company cannot be met from the total realisable assets, he shall place the matter before the Board of directors immediately.
2. When the Board of directors having such information from managing director or the whole time director or executive director or manager or on its own motion having made independent inquiries comes to the conclusion that the company is unable to pay its total liability from its total realisable assets, the board of directors shall direct the managing director or the whole time director or executive director or manager to submit a bankruptcy petition to the Court forthwith.
3. Whosoever violates the provision of subsection (1) or (2) as the case may be or wilfully neglects or delays the petition as stipulated in subsection (2) shall be jointly and severally liable to compensate the company for any erosion of value of assets on account of not filing the petition at the proper time soon after knowing that the realisable assets are insufficient to redeem the liabilities.
4. If the Court decides that the negligence on the part of the member of the Board of directors or the management is gross and intentional, the court may impose disqualification of such members of the board and management for such term as may be decided by the court asking them to vacate from the office of directorship or management as the case may be, from all companies for such term as may be prescribed, in addition to the compensation payable to the company.

13. Power of court to stay or restrain proceedings against companies

At any time after the petition for bankruptcy, the company or the creditor may:

1. where a suit or proceeding against the company is pending in the Supreme Court of India or in any Court apply to the court in which the suit or proceeding is pending for a stay of proceedings therein; and
2. where any suit or proceeding is pending against the company in any other court, apply to the court in which the bankruptcy petition has been filed, to restrain further proceedings in the suit or proceedings;

and the court to which application is so made may stay or restrain the proceedings accordingly on such terms as it thinks fit.

14. Revision and Appeal (s. 483)

1. Any revision petition or appeal against the order of the Court in the matter of bankruptcy, winding up, liquidation and dissolution proceedings of a company shall lie in the same Court to which in the same manner, and subject to the same conditions under which, revision petition lie.
2. Any appeal against the decision and judgement of the court in bankruptcy and winding up proceeding shall lie with the Supreme Court in such manner and under such conditions as may be prescribed.

15. Penalty for persons who negligently or fraudulently submit bankruptcy petitions

If a bankruptcy petition is rejected due to the petition being filed negligently or fraudulently, the petitioner may be directed to pay a compensation equal to:

1. actual damage caused to the debtor company; and
2. all reasonable costs that the debtor company had to pay for contesting the petition.

In calculating the actual damage caused the Court may take into consideration the loss of reputation and harassment caused.

Chapter IV

Trusteeship

16. Panel of Trustees

Each Court shall prepare a list of trustees who are qualified to become a trustee for bankruptcy and winding up proceedings having such qualification and following such procedures as may be prescribed.

Provided that the panel is to be revised biannually.

17. Who can apply to be trustee

The following may apply to the court for being empanelled as trustee:

1. a company engaged in financial business and whose promoters or directors or officials have proficiency in business management but who are both institutionally and individually disinterested persons in the affairs of the company to which it may be appointed as trustee;
2. a professional firm with partners from the profession of Chartered Accountants or Cost Accountants or Company Secretaries or solicitors or advocates as qualified under the respective Acts;
3. a trust constituted under the Indian Trust Act,1882 with the trustees having such professional qualification and experience from finance, business management, corporate liquidation, public auction and law, as may be prescribed;
4. a Joint Venture of more than one professional firms or any two or more other institutions with a specific agreement to act as such and the members having such qualifications and experience as may be prescribed;
5. a society, registered under the Societies Registration Act, 1860 for the purpose, in which the members having such professional qualification and experience as may be prescribed; and
6. a person who is professionally qualified and experienced to have expertise in the matters of conducting bankruptcy and winding up proceedings, as may be prescribed.

18. Qualification and disqualification

1. The qualification of persons or institutions who can function as a trustee shall be prescribed by rules provided that the trustee is a disinterested person.
2. Any person or institution shall be disqualified on any of the following grounds to function as the trustee of a company:

1. any member or official of the trustee having any financial relations either as a share holder or as a creditor or as a contributor or in any other manner having a conflict of interest;
2. in case of an individual an undischarged insolvent;
3. a person incompetent to enter into contract;
4. a person or an entity against whom any charge sheet is submitted before a court in a criminal case;
5. any other disqualification as may be prescribed.

19. Appointment of trustee

1. The Court shall appoint the trustee within 4 weeks from the date of filing of the bankruptcy petition or the petition of winding up as the case may be.

Provided that if the function of the company is regulated by a regulatory authority, the court shall take the advice of the concerned regulatory authority for the appointment of the Trustee.

2. If the bankruptcy petition is filed by the creditor the court shall hear the petition to ascertain the merit of the petition by providing opportunities for the contesting parties to deposit written submissions in the manner and with such particulars as may be prescribed, within a period not exceeding 4 weeks.
3. On assessing the written submissions, the Court may either dismiss the petition with or without costs in the event that there is no prima facie case or may allow the petition to be heard in which case the court may hear the parties within such time but not exceeding 4 weeks after the written submission have been received, determine whether the petition is to be allowed or to be rejected with or without costs. In the event of the petition being allowed, the court shall appoint the trustee immediately.
4. In the case of winding up petition by any other person the court shall appoint the trustee on the petition being allowed within 4 weeks from the date of allowing the petition.

20. When can a trustee be removed

The court may remove a trustee on any of the following grounds:

1. the person has become disqualified to hold the position of a trustee; and
2. the court is of the opinion that such a person is unable or not competent to perform the function of a trustee.

The court may also impose penal compensation necessary for wilful neglect of duty to be paid by the trustee if the court deems such imposition of penal compensation necessary.

21. Power to fill vacancy in office of trustee (s. 492)

In the case of any casual vacancy by way of resignation or removal or death, the court shall appoint another trustee from the panel immediately within 2 weeks from the date of vacancy being caused on such terms and conditions as the court may determine.

22. Role and capacity of the trustee

The trustee shall immediately take charge of the company after being appointed as such and may either dispense with the board of directors or continue with the existing board. Provided that the board cannot alienate or transfer or put under charge any assets of the company in any manner without the consent of the trustee.

23. Functions of the Trustee appointed on a bankruptcy petition

The following are the functions of the trustee in relation to the company put under the charge of the trustee, under bankruptcy petition:

1. take over the charge and management of the company forthwith after his appointment with all the properties and assets of the company and shall immediately prepare an inventory of assets to ensure existence and protection of such properties and assets within one week from the date of assuming the charge;
2. submit a preliminary report within 4 weeks from the date of assuming charge to the court which shall, inter alia, include

1. statement of affairs, list of free and charged assets and list of secured and unsecured creditors;
2. fair assessment about the realisable value of the assets;
3. an assessment whether the company can be reorganised based on the voluntary efforts of the creditors and other claimants or whether the company should go for immediate liquidation;
4. recommendation about continuation of the Board or its suspension.

3. negotiate with the existing creditors, other stakeholder and any other institutions for the purpose of

1. drawing a scheme of reorganisation in consultation and agreement with the creditors;
2. secure expert advice, if necessary, for the purpose of drawing such scheme and
3. submission of the scheme before the court for approval.

4. appoint the required personnel including advisers for the purpose of carrying out bankruptcy and winding up proceedings;
5. enter into contract for and on behalf of the company;
6. to implement reorganisation scheme and handing over the reorganised company to its Board; and
7. any other power that the court may specify for discharging any special function as required by the court.

24. Functions of trustee in the winding up by the court (s. 457 and 458)

1. In the case of winding up by the court the trustee shall have the following inherent functions,—

1. to do all acts and to execute, in the name and on behalf of the company, all deeds, receipts, and other documents, and for that purpose to use, when necessary, the company's seal;
2. to prove, rank and claim in the insolvency of any contributory, for any balance against his estate, and to receive dividends in the insolvency, in respect of that balance, as a separate debt due from the insolvent, and rateably with the other separate creditors;
3. to draw, accept, make and endorse any bill of exchange, hundi or promissory note in the name and on behalf of the company, with the same effect with respect to the liability of the company as if the bill, hundi, or note had been drawn, accepted, made or indorsed by or on behalf of the company in the course of its business;
4. to take out, in his official name, letters of administration to any deceased contributory, and to do in his official name any other act necessary for obtaining payment of any money due from a contributory or his estate which cannot be conveniently done in the name of the company, and in all such cases, the money due shall, for the purpose of enabling the trustee to take out the letters of administration or recover the money, be deemed to be due to the trustee himself;
5. to appoint an agent to do any business in which the trustee is unable to do himself.

2. In the event of winding up by the court, the trustee shall have the following power with the sanction of the court,-

1. to institute or defend any suit, prosecution, or other legal proceeding, civil or criminal in the name and on behalf of the company;
2. to carry on the business of the company so far as may be necessary for the beneficial winding up of the company;
3. to sell the immovable and movable property and actionable claims of the company by public auction or private contract, with power to transfer the whole thereof to any person or body corporate, or to sell the same in parcels;
4. to raise on the security of the assets of the company any money required;
5. to do all such other things as may be necessary for winding up the affairs of the company and distributing its assets.

Provided that the Court may, by order, provide that the trustee may exercise any of the powers referred this sub-section without the sanction or intervention of the Court.

3. The exercise by the trustee in a winding up by the Court of the powers conferred by this section shall be subject to the control of the Court; and any creditor or contributory may apply to the Court with respect to the exercise or proposed exercise of any of the powers conferred by this section.

25. Powers and duties of Trustee in voluntary winding up(s. 512)

1. The Trustee may,—

1. in the case of voluntary winding up exercise any of the powers given by clauses (a) to (d) of sub-section (2) of section 24 to a trustee in a winding up by the court;
2. without the sanction referred to in clause (a) exercise any of the other powers given by this Act to the trustee in a winding up by the Court;
3. call general meetings of the company for the purpose of obtaining the sanction of the company by ordinary or special resolution, as the case may require, or for any other purpose he may think fit.

2. The trustee shall pay the debts of the company and shall adjust the rights of the contributories among themselves.
3. When several trustees are appointed, any power given by this Act may be exercised by such one or more of them as may be determined at the time of their appointment, or, in default of such determination, by any number of them not being less than two.

26. Board’s powers to cease on appointment of trustee (s. 491)

On the appointment of a trustee, all the powers of the Board of directors and of the managing or whole-time directors, managing agent, secretaries and treasurers, and manager, if there be any of these, shall cease, except for the purpose of giving notice of such appointment to the Registrar in pursuance of section 31 or in so far as the company in general meeting or the trustee may sanction the continuance thereof.

27. Special liability of the existing management and board of directors of the company

1. If the existing management has failed to put the trustee in charge of the company after the company has been served with the notice of appointment of the trustee or where the trustee has a reasonable apprehension that all books of accounts, records, correspondences and properties of the company has not been given to the trustee, the trustee may by writing request the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction such properties or book of accounts of the company be situate or be found, to take immediate measures for putting the trustee into possession of those property or assets.
2. For the purpose of securing compliance with the provision of subsection (1) the Chief Metropolitan Magistrate or the District Magistrate as the case may be, may take or cause to be take such steps, and use or cause to be used such force as may in his opinion be necessary and the same shall not be called in question in any court or before any authority.
3. The trustee shall file petition for drawing contempt proceedings against such official of the company who have not passed on books of account or properties of the company, in accordance with the requirement under section 24 of this Code.
4. Any director or officer of the company unlawfully withholding any records, books of accounts properties assets and receivables of the company shall be personally liable to indemnify the company for the loss sustained by the company on account of such act and abstinence in addition to any other liability of the party for committing such offence.

28. Duty and accountability to the Court

The trustee shall submit periodical reports before the court from time to time, at least once in every quarter of a year. The court may give such directions and guidelines, as the court may deem necessary from time to time. Subject to such instructions, directions and guidelines the trustee shall be independent to take all decisions. In the event of the trustee not complying with the time schedule or is found negligent the court may impose penalty which is deductible from his remuneration.

29. Remuneration

The court shall appoint trustee on such fee as may be proposed by the trustee which is based upon the nature of the functions of the trustee as per the rules prescribed, and the same is to be based upon percentage of realisation of assets and disbursement of claims keeping in view the cost and expenses of winding up which shall be borne by the trustee out of the amount receivable by the trustee.

[Illustration: A trustee may charge fees which is efficiency and incentive compatible such as (a) fixed remuneration for designing the scheme of reorganisation on voluntary basis; (b) percentage on the realisation of assets and payment of liabilities; and (c) an incentive percentage on additional realisation amount over the approved realisable value of the asset.]

30. Protection to the trustee

1. No provision of the Indian Trustee Act, 1882 shall apply against the trustee appointed under this Code and his power, functions and responsibilities shall be governed by this Code only.
2. No civil or criminal action shall lie against the trustee for an act done in good faith or intended to be done in pursuance of this Code or any rule, regulation or order made thereunder.
3. No civil suit or criminal case shall be filed against the trustee without the prior approval of the Court having jurisdiction over the trustee.

31. Notice of appointment of trustee to be given to Registrar (s. 493)

1. Whenever the court appoints a trustee, either in pursuance of a bankruptcy petition or on a petition on voluntarily winding up or winding up by the court, a copy of the order appointing the trustee shall be served to the registrar immediately in the manner prescribed.
2. In the case of removal, resignation or death of a trustee and the court appoints a new trustee, such an order shall be sent to the Registrar in the manner prescribed.

Chapter V

Reorganisation

32. Who may file the reorganisation proposal

1. The Board of the debtor company may file a reorganisation proposal to the trustee and the trustee may also prepare a reorganisation proposal within 10 weeks. On receipt of the same, forthwith, the trustee shall, by serving a 3 weeks notice enclosing a copy of the proposal, convene the meeting of the creditors.
2. During the meeting the trustee shall ascertain the opinion of the various interest groups of the creditors and hold negotiations with them for finalisation of the proposal, if possible, during the next 5 weeks which period shall be known as the negotiation period.
3. Any creditor or class of creditors or a contributory or a class of contributories may also submit alternative proposals during the negotiation period as stipulated in subsection (2).
4. When the trustee shall come to the opinion during the negotiation period that a proposal of reorganisation is so crystallised that it is likely to have the consent of the creditors, the trustee shall place such proposal before the meeting of the creditors. If 50% of the creditors attending the meeting having 70% of the total credit against the company have consented to the proposal in the manner prescribed and also approve a plan to secure further financial support to the company intending to reorganise on such terms and condition as agreed upon in the meeting of the creditors, such scheme shall then be placed before the court for its approval, by the trustee within 20 weeks.
5. If the trustee is of the opinion that the time for submission of the scheme and finalisation of negotiation require extension of time, the trustee shall place the matter before the court suggesting the reason for extension of time and quantum of time required for such extension. The court after consideration may extend such time as it deems fit.
6. If the scheme has been placed before the court for approval within 20 weeks the court may approve this scheme after ensuring that minority claim contesting against the scheme have been reasonably addressed to by the majority supporting the scheme.
7. If no scheme could be worked out the trustee shall submit his report to the court to that effect and file a petition for winding up under section 49(2).

33. Minority Interest

In the event of minorities disagreeing with the proposed scheme, even after negotiations, the interests of the minority is to be bought or made secure on the basis of an approved valuation of the assets as submitted by the trustee with the preliminary report and placed before the court.

[Illustration: Suppose the approved realisable value of all assets is Rupees one lakh. It covers an asset worth rupees eighty thousand put as a security against a claim of rupees sixty thousand rupees, can only fetch fifty thousand. Suppose the total claim amount is one lakh and twenty thousand of which creditors holding claim of rupees one lakh agree to go with the scheme. Creditors worth rupees twenty thousand, who are unsecured, do not agree to the scheme proposed by the majority. Total unsecured credit shall amount to Rupees sixty thousand plus rupees ten thousand of the secured credit not covered by the security. So the minority shall have to be paid or made secured the following amount:

20,000 X 50,000 = 1,00,000 = 14285.71]
      70,000                     7

34. Approval of scheme

The court shall then approve the scheme within 2 weeks from the date of filing of the scheme before the court, on such terms and in such manner, as may be necessary to implement the scheme.

35. Ongoing modification of the Scheme

The trustee may suggest suitable modification of the scheme from time to time if it is agreed by all the parties and place the recommendation for modification before the court which the court shall approve.

36. Committee of creditors and the power of the committee

On the recommendation of the trustee, the Court shall appoint a committee of creditors with proportionate representation from all classes of claimants for the following functions:

1. the committee shall meet periodically to review the implementation of the scheme;
2. advise the trustee and the reorganiser in proper implementation of the scheme; and
3. prepare a report for submission to the court along with the periodical report to be submitted by the trustee.

37. Periodical report and return to the court

The trustee shall submit periodical report at least once in every quarter to the court, stating therein the progress made for the implementation of the scheme during the period. At the end of each annual year a periodical annual statement of account audited by a firm of chartered accountants and a progress report shall be placed before the joint meeting of the creditors and the shareholders and the same shall also be placed before the court for approval.

38. Failure of the Scheme

After giving a reasonable trial for the scheme, if the trustee comes to the conclusion that the scheme is not operating or it has failed or it is not implementable, the trustee shall submit his report recommending initiation of the winding up proceedings to the court which the court may approve.

Chapter VI

Winding up and liquidation

Part I – General Provisions

39. Modes of winding up (s.425)

1. The winding up of a company may be either –

1. by the court; or
2. voluntary; or
3. subject to the supervision of the court.

2. The provisions of this Act with respect to winding up apply, unless the contrary appears, to the winding up of a company in any of those modes.

40. Definition of contributory (s. 428)

The term "contributory" means every person liable to contribute to the assets of a company in the event of its being wound up and includes the holder of any shares which are fully paid up; and for the purposes of all proceedings for determining, and all proceedings prior to the final determination of, the persons who are to be deemed contributories, includes any person alleged to be a contributory.

41. Settlement of list of contributories (s. 467)

1. Soon after the appointment of the trustee, the court shall direct the trustee to settle a list of contributories and place the same before the Court, and rectify the register of members in all cases where rectification is required in pursuance of the Companies Act 1956 and this Code and shall cause the asset of the company to be collect and applied in discharge of its liabilities.

Provided that where it appears to the court that it will not be necessary to make calls on, or adjust the rights of the contributories, the court may dispense with the settlement of a list of contributories.

2. In settling the list of contributories, the trustee shall distinguish between those who are contributories in their own right and those who are contributories on any representative capacity.

42. Nature of liability of contributory (s. 429)

1. The liability of a contributory shall create a debt accruing due from him at the time when his liability commenced, but payable at the times specified in calls made on him for enforcing the liability.
2. No claim founded on the liability of a contributory shall be cognizable by any court of small causes sitting outside the presidency-towns.

43. Liability as contributories of present and past members (s. 426)

1. In the event of a company being wound up, every present and past member shall be liable to contribute to the assets of the company to an amount sufficient for payment of its debts and liabilities and the costs, charges and expenses of the winding up, and for the adjustment of the rights of the contributories among themselves, subject to the provisions of section 44 and subject also to the following qualifications, namely:—

1. a past member shall not be liable to contribute if he has ceased to be a member for one year or upwards before the commencement of the winding up;
2. a past member shall not be a liable to contribute in respect of any debt or liability of the company contracted after he ceased to be a member;
3. no past member shall be liable to contribute unless it appears to the Court that the present members are unable to satisfy the contributions required to be made by them in pursuance of this Code;
4. in the case of a company limited by shares, no contribution shall be required from any past or present member exceeding the amount if any, unpaid on the shares in respect of which he is liable as such member;
5. in the case of company limited by guarantee no contribution shall, subjects to the provisions of sub-section (2), be required from any past or present member exceeding the amount undertaken to be contributed by him to the assets of the company in the event of its been wound up;
6. nothing in this Code shall invalidate any provision contained in any policy of insurance or other contract whereby the liability of individual members on the policy or contract is restricted, or whereby the funds of the company are alone made liable in respect of the policy or contract;
7. a sum due to any past or present member of the company in his character as such, by way of dividends, profits or otherwise, shall not be deemed to be a debt of the company payable to that member, in a case of competition between himself and any other creditor who is not a past or present member of the company; but any such sum shall be taken into account for the purport of the final adjustment of the rights of the contributories among themselves.

2. In the winding up of a company limited by guarantee which has a share capital, every member of the company shall be liable, in addition to the amount undertaken to be contributed by him to the assets of the company in the event of its being would up, to contribute to the extent of any sums unpaid on any shares held by him as if the company were a company limited by shares.

44. Obligations of directors, and managers whose liability is unlimited (s. 427)

In the winding up of a limited company, any director, managing agent, secretaries and treasurers or manager, whether past or present, whose liability is, under the provisions of the Companies Act, 1956 and this Code, unlimited shall, in addition to his liability, if any, to contribute as an ordinary member, be liable to make a further contribution as if he were, at the commencement of the winding up, a member of an unlimited company:

Provided that –

1. a past director, managing agent, secretaries and treasurers or manager shall not be liable to make such further contribution, if he has ceased to hold office for a year or upwards before the commencement of the winding up;
2. a past director, managing agent, secretaries and treasurers or manager shall not be liable to make such further contribution in respect of any debt or liability of the company contracted after he ceased to hold office;
3. subject to the articles of the company, a director managing agent, secretaries and treasurers or manager shall not be liable to make such further contribution, unless the Court deems it necessary to require the contribution in order to satisfy the debts and liabilities of the company, and the costs, charges and expenses of the winding up.

45. Contributories in case of death of member (s. 430)

1. If a contributory dies either before or after he has been placed on the list of contributories, his legal representatives shall be liable in a due course of administration, to contribute to the assets of the company in discharge of his liability, and shall be contributories accordingly.
2. If the legal representatives make default in paying any money ordered to be paid by them, proceedings may be taken for administering the estate of the deceased contributory and compelling payment thereout of the money due.
3. For the purposes of this section, where the deceased contributory was a member of a Hindu joint family governed by the Mitakshara School of Hindu Law, his legal representatives shall be deemed to include the surviving coparceners.

46. Contributories in case of insolvency of member (s. 431)

If a contributory is adjudged insolvent, either before or after he has been placed on the list of contributories –

1. his assignees in insolvency shall represent him for all the purposes of the winding up, and shall be contributories accordingly, and may be called on to admit to proof against the estate of the insolvent, or otherwise to allow to be paid out of his assets in due course of law, any money due from the insolvent in respect of his liability to contribute to the assets of the company; and
2. there may be proved against the estate of the insolvent the estimated value of his liability to future calls as well as calls already made.

47. Contributories in case of winding up of a body corporate which is a member (s. 432)

If a body corporate which is a contributory is ordered to be wound up, either before or after it has been placed on the list of contributories,—

1. the trustee of the body corporate shall represent it for all the purposes of the winding up of the company and shall be a contributory accordingly, and may be called on to admit to proof against the assets of the body corporate, or otherwise to allow to be paid out of its assets in due course of law, any money due from the body corporate, in respect of its liability to contribute to the assets of the company; and
2. there may be proved against the assets of the body corporate the estimated value of its liability to future calls as well as calls already made.

48. Who can submit winding up petitions (s. 439)

1. An application to the Court for the winding up of a company shall be by petition presented, subject to the provisions of this section,—

1. by the trustee, on filing the bankruptcy petition the trustee submits in the preliminary report that there is no scope for reorganisation or on the failure of renegotiation or on the failure of the Scheme; or
2. by the company in the case of members voluntary winding up; or
3. by the Registrar; or
4. in a case falling under section 243 of the Companies Act 1956, by any person authorised by the Union Government in that behalf.

2. Except in the case where he is authorised in pursuance of clause (d) of sub-section (1), the Registrar shall be entitled to present a petition for winding up a company only on the ground specified in clauses (b), (c), (d) and (e) sub-section (1) of section 49:

Provided that the Registrar shall not present a petition on the ground specified in clause (e) aforesaid, unless it appears to him either from the financial condition of the company as disclosed in its balance-sheet or from the report of an inspector appointed under section 235 or 237 of the Companies Act 1956 that the company is unable to pay its debts;

Provided further that the Registrar shall obtain the previous sanction of the Union government to the presentation of the petition on any of the grounds aforesaid.

3. The Union government shall not accord its sanction in pursuance of the foregoing proviso, unless the company has first been afforded an opportunity of making its representations, if any.

49. Circumstances in which company may be wound up by court (s. 433) –

1. A company may be wound up by the court,-

1. if the company has by special resolution, resolved that the company be wound up by the court;
2. if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting;
3. if the company does not commence its business with in a year from its incorporation, or suspends its business for a whole year;
4. if the number of members is reduced, in the case of public company, below seven, and in the case of a private company, below two;
5. if the court is of opinion that it is just and equitable that the company should be wound up.

2. A company may be wound up by the court if on a bankruptcy petition against the company the court appoints a trustee on the company’s inability to pay its debt under section 11 and

1. trustee in his preliminary report submits that no reorganisation is possible on voluntary basis; or
2. renegotiation having attempted has failed; or
3. the reorganisation scheme approved by the court could not be implemented in the manner approved by the court due to change of circumstances or the trustee submits a final report to the court suggesting cancellation of the scheme for saving the company from further and heavier losses;

on the petition of the trustee.

50. Court or person before whom affidavit may be sworn (s. 558)

1. Any affidavit required to be sworn under the provisions, or for the purposes, of
   this chapter may be sworn—

1. in India, before any Court, Judge or person lawfully authorised to take and receive affidavits; and
2. in any other country, either before any Court, Judge or person lawfully authorised to take and receive affidavits in that country or before an Indian Consul or Vice-Consul.

Explanation — In this sub-section, "India" includes the State of Jammu and Kashmir.

2. All Courts Judges, Justices, Commissioners and persons acting judicially in India shall take judicial notice of the seal, stamp or signature, as the case may be, of any such Court, Judge, person Consul or vice-consul, attached, appended or subscribed to any such affidavit or to any other document to be used for the purposes of this Chapter.

Part II – Winding up proceedings

51. Powers of Court on hearing petition (s. 443)

1. On hearing a winding up petition, the Court may—

1. dismiss it, with or without costs; or
2. adjourn the hearing conditionally or unconditionally; or
3. make any interim order that it thinks fit; or
4. make an order for winding up the company with or without costs, or any other order that it thinks fit.

Provided that the Court shall not refuse to make a winding up order on the ground only that the assets of the company have been mortgaged to an amount equal to or in excess of those assets, or that the company has no assets.

2. Where the petition is presented on the ground that it is just and equitable that the company should be wound up, the Court may refuse to make an order of winding up, if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.
3. Where the petition is presented on the ground of default in delivering the statutory report to the Registrar, or in holding the statutory meeting, the Court may—

1. instead of making a winding up order, direct that the statutory report shall be delivered or that a meeting shall be held; and
2. order the costs to be paid by any persons who, in the opinion of the Court are responsible for the default.

52. Appointment of Trustee in winding up (s. 444)

Where the Court makes an order for the winding up of a company, the Court shall forthwith, not later than four weeks, appoint a trustee from the panel of trustees on such terms and conditions as may be decided by the Court.

Provided that if the Court makes the order for winding up in a bankruptcy proceeding, the trustee who was appointed to conduct the bankruptcy proceeding shall continue to operate as trustee for the purpose of winding up.

53. Transfer of winding up proceedings

1. All winding up proceedings initiated in the District Court before the commencement of this Code and pending there shall be transferred to the Court having jurisdiction and shall be placed before such Court for continuing with the proceeding.
2. All winding up proceedings initiated in the High Court before the commencement of this Code and pending there shall be reallocated to the Court having jurisdiction by the Chief Justice of that High Court and shall be placed before such Court for continuing with the proceeding.

54. Commencement of winding up by Court (s. 441)

1. Where, before the presentation of a petition for the winding up of a company by the Court, a resolution has been passed by the company for voluntary winding up, the winding up of the company shall be deemed to have commenced at the time of the passing of the resolution, and unless the court, on proof of fraud or mistake, thinks fit it direct otherwise, all proceedings taken in the voluntary winding up shall be deemed to have been validly taken.
2. In any other case, the winding up of a company by the Court shall be deemed to commence at the time of the presentation of the petition for the winding up.

55. Power of Court to stay or restrain proceedings against company (s. 442)

At any time after the presentation of a winding up petition and before a winding up order has been made, the company may—

1. where any suit or proceeding against the company is pending in the Supreme court or in any court, apply to the Court in which the suit or proceeding is pending for a stay of proceedings therein; and
2. where any suit or proceeding is pending against the company in any other court, apply to the Court having jurisdiction to wind up the company, to restrain further proceedings in the suit or proceedings; and the Court to which application is so made may stay or restrain the proceedings accordingly, on such terms as it thinks fit.

56. Copy of winding up order to be filed with Registrar (s. 445)

1. On the making of a winding up order, it shall be the duty of the petitioner in the winding up proceedings and of the company to file with the Registrar a certified copy of the order, within 4 weeks from the date of the making of the order. If default is made in complying with the foregoing provision, the petitioner, or as the case may require, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to one thousand rupees for each day during which the default continues.
2. In computing the period of thirty days from the date of the making of a winding up order under sub-section (1), the time requisite for obtaining a certified copy of the order shall be excluded.
3. On the filing of a certified copy of the winding up order, the Registrar shall make a minute thereof in his books relating to the company, and shall notify in the Official Gazette that such an order has been made.
4. Such order shall be deemed to be notice of discharge to the officers and employees of the company, except when the business of the company is continued.

57. Suits stayed on winding up order (s. 446)

1. When a winding up order has been made and the trustee has been appointed and communicated with the order of the court to proceed for liquidation, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceed with, against the company, except by leave of the Court and subject to such terms as the Court may impose.
2. The Court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of:

1. any suit or proceeding by or against the company;
2. any claim made by or against the company (including claims by or against any of its branches in India);
3. any application made under section 391 of the Companies Act, 1956 by or in respect of the company;
4. any question of priorities or any other question whatsoever, whether of law or fact, which may related to or arise in course of the winding up of the company;

whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960 (65 of 1960).

3. Any suit or proceeding by or against the company which is pending in any court other than that in which the winding up of the company is proceeding may, notwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that Court.
4. Nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court.

58. Receiver not to be appointed of assets with trustee (s. 453)

A receiver shall not be appointed of assets in the hands of the trustee except by, or with the leave of, the Court.

59. Statement of affairs to be made to Trustee (s. 454)

1. Where the application has been made for winding up other than the reasons for which the bankruptcy petition is made and the court has made a winding up order and has appointed a trustee, the company shall make out and submit a statement as to the affairs of the company in the prescribed form, verified by an affidavit, and containing the following particulars, unless the court otherwise directs, namely:—

1. The assets of the company, stating separately the cash balance in hand at the bank, if any, and the negotiable securities, if any, held by the company;
2. its debts and liabilities;
3. the names, residences and occupations of its creditors, stating separately the amount of secured and unsecured debts; and in the case of secured debts, particulars of the securities given, whether by the company or an officer thereof, their value and the dates on which they were given;
4. the debts due to the company and the names, residences and occupations of the persons from whom they are due and the amount likely to be realised on account thereof;
5. such further or other information as may be prescribed, or as the Trustee may require.

2. The statement shall be submitted and verified by one or more of the persons who are at the relevant date the directors and by the person who is at that date the manager, secretary or other chief officer of the company, or by such of the persons hereinafter in this sub-section mentioned, as the Trustee, subject to the direction of the Court, may require to submit and very the statement, that is to say, persons—

1. who are or have been officers of the company;
2. who have taken part in the formation of the company at any time within one year before the relevant date;
3. who are in the employment of the company, or have been in the employment of the company within the said year and are, in the opinion of the Trustee, capable of giving the information required;
4. who are or have been within the said year officers of, or in the employment of, a company which is, or within the said year was, an officer of the company to which the statement relates.

3. The statement shall be submitted within 3 weeks from the relevant date, or within such extended time not exceeding three months from that date as the Trustee or of the Court may, for special reasons, appoint.
4. Any person making, or occurring in making the statement and affidavit required by this section shall be allowed, and shall be paid by the Trustee, out of the assets of the company, such costs and expenses incurred in and about the preparation and making of the statement and affidavit as the Trustee may consider reasonable, subject to an appeal to the Court.
5. If any person, without reasonable excuse, makes, default in complying with any of the requirements of this section, he shall be punishable with fine which may extend to one thousand rupees for every day during which the default continues.
6. The Court by which the winding up order is made, may take cognizance of an offence under sub-section (5) upon receiving a complaint of facts constituting such an offence and trying the offence itself in accordance with the procedure laid down in the Code of Criminal Procedure 1973, for the trial of summons cases by magistrates.
7. Any person stating himself in writing to be a creditor or contributory of the company shall be entitled, by himself or by his agent, at all reasonable times, on payment of the prescribed fees, to inspect the statement submitted in pursuance of this section, and to a copy thereof or extract therefrom.
8. Any person untruthfully so stating himself to be a creditor or contributory shall be guilty of an offence under section 182 of the Indian Penal Code (Act 45 of 1860); and shall, on the application of the Trustee, be punishable accordingly.

60. Report by Trustee (s. 455)

1. In a case where a winding up order is made, the trustee shall, as soon as practicable after receipt of the statement to be submitted under section 59 and not later than 12 weeks from the date of the order, or in a case where the Court orders that no statement need be submitted, as soon as practicable after the date of the order, submit a preliminary report to the Court—

1. as to the amount of capital issued, subscribed, and paid up, and the estimated amount of assets and liabilities, giving separately, under the heading of assets, particulars of (i) cash and negotiable securities; (ii) debts due from contributories; (iii) debts due to the company and securities, if any, available in respect thereof; (iv) movable and immovable properties belonging to the company; and (v) unpaid calls;
2. as to a working plan of paying claims on the basis of priorities;
3. if the company has failed, as to the causes of the failure; and
4. whether, in his opinion, further inquiry is desirable as to any matter relating to the promotion, formation, or failure of the company, or the conduct of the business thereof.

Provided that where the winding up order is given by the court in a bankruptcy proceeding the above provision shall not be applicable.

2. The Trustee may also, if he thinks fit, make a further report, or further reports, stating the manner in which the company was promoted or formed and whether in his opinion any fraud has been committed by any person in its promotion or formation, or by any officer of the company in relation to the company since the formation thereof, and any other matters which, in his opinion, it is desirable to bring to the notice of the Court.
3. If the Trustee states in any such further report that in his opinion a fraud has been committed as aforesaid, the Court shall have the further powers provided in section 80.

61. Custody of company’s property (s. 456)

1. Where a winding up order has been made, the trustee shall take into his custody or under his control, all the property effects and actionable claims to which the company is or appears to be entitled.
2. For the purpose of enabling the trustee to take into his custody or under this control, any property, effects or actionable claim to which the company is or appears to be entitled, the trustee may by writing request the Chief Presidency Magistrate or the District Magistrate within whose jurisdiction such property, effects or actionable claims or any books of account or other documents of the company may be found, to take possession thereof, and the Chief Presidency Magistrate or the District Magistrate may thereupon, after such notice as he may think fit to give to any party, take possession of such property, effects, actionable claims, books of account or other documents and deliver possession thereof to the trustee.
3. For the purpose of securing compliance with the provisions of sub-section (2), the Chief Presidency Magistrate or the District Magistrate may take or cause to be taken such steps and use or cause to be used such force as may in his opinion be necessary.
4. All the property and effects of the company shall be deemed to be in the custody of the Court as from the date of the order for the winding up of the company.

62. Exclusion of certain time in computing periods of limitation (s. 458A)

Notwithstanding anything in the Indian Limitation Act, 1908 (9 of 1908) of in any other law for the time being in force, in computing the period of limitation prescribed for any suit or application in the name and on behalf of a company which is being wound up by the Court, the period from the date of commencement of the winding up of the company to the date on which the winding up order is made (both inclusive) and a period of one year immediately following the date of the winding up order shall be excluded.

63. Exercise and control of trustee’s powers (s. 460)

1. The trustee shall administer the assets of the company and distribute them amongst the creditors according to the preliminary report submitted to the Court. In the event of any contesting claims, the trustee shall give reasonable opportunity of hearing to the concerned creditors and follow the procedure of distribution as has been indicated in the preliminary report as well as instructions, if any, given by the Court.
2. The trustee—

1. may summon general meetings of the creditors or contributories, whenever he thinks fit, for the purposes of ascertaining their wishes;
2. shall summon such meetings at such times as the creditors or contributories, as the case may be, may, by resolution, direct, or whenever requested in writing to do so by not less than one-tenth in value of the creditors or contributories, as the case may be.

3. The trustee may apply to the Court in the manner prescribed, if any, for directions in relation to any particular matter arising in the winding up.
4. Subject to the provisions of this Act, the trustee shall use his own discretion in the administration of the assets of the company and the distribution thereof among the creditors.
5. Any person aggrieved by any act or decision of the trustee may apply to the Court, and the Court may confirm, reverse or modify the act or decision complained of, and make such further order as it thinks just in the circumstances.

64. Books to be kept by trustee (s. 461)

1. The trustee shall keep, in the manner prescribed, proper books in which he shall cause entries or minutes to be made of proceedings at meetings and of such other matters as may be prescribed.
2. Any creditor or contributory may, subject to the control of the Court, inspect any such books, personally or by his agent.

65. Audit of trustee’s accounts (s. 462)

1. The trustee, shall, at such times as may be prescribed but not less than twice in each year during his tenure of office, present to the Court an account of his receipts and payments as trustee.
2. The account shall be in the prescribed form, shall be made in duplicate, and shall be verified by a declaration in the prescribed form.
3. The Court shall cause the account to be audited in such manner as it thinks fit by a firm of Chartered Accountants whose report shall be placed before the court.
4. When the account has been audited, one copy thereof shall be filed and kept by the Court, and the other copy shall be delivered to the Registrar for filing; and each copy shall be open to the inspection of any creditor, contributory or person interested.
5. Where an account referred to in sub-section (4) relates to a Government company in liquidation, the trustee shall forward a copy thereof,-

1. to the Union Government, if that Government is a member of the Government company; or
2. to any State Government, if that Government is a member of the Government company; or
3. to the Union Government and any State Government, if both the Governments are members of the Government company.

6. The trustee shall cause the account when audited or a summary thereof to be printed, and shall send a printed copy of the account or summary by post to every creditor and to every contributory;

66. Appointment and composition of committee of inspection (s. 464)

1. The trustee shall, within 4 weeks from the date of the order for the winding up of a company, convene a meeting of its creditors (as ascertained from its books and documents) for the purpose of determining whether or not a committee of inspection shall be appointed to act with the trustee, and who are to be members of the committee, if one is appointed.
2. The trustee shall, within 2 weeks from the date of the creditors meeting or such further time as the Court in its discretion may grant for the purpose, convene a meeting of the contributories to consider the decision of the creditors’ meeting and to express the views of the contributories on the matter specified in subsection (1); and it shall be open to the meeting to accept the decision of the creditors’ meeting with or without modification or to reject it.
3. Except in the case where the meeting of the contributories accepts the decision of the creditors’ meeting in its entirety, it shall be the duty of the trustee to apply to the Court for directions as to whether there shall be a committee of inspection; and, if so, what the composition of the committee shall be, and who shall be members thereof.

67. Constitution and proceedings of committee of inspection (s. 465)

1. A committee of inspection appointed in pursuance of section 66 shall consist of not more than twelve members, being creditors and contributories of the company or persons holding general or special powers of attorney from creditors and contributories, in such proportions as may be agreed on by the meetings of creditors and contributories, or in case of difference of opinion between the meetings, as may be determined by the Court.
2. The committee of inspection shall have the right to inspect the accounts of the trustee at all reasonable times.
3. The committee shall meet at such times at it may from time to time appoint, and failing such appointment, at least once a month, and the trustee or any member of the committee may also call a meeting of the committee as and when he thinks necessary.
4. The quorum for a meeting of the committee shall be one-third of the total number of the members, or two, whichever is higher.
5. The committee may act by a majority of its members present at a meeting, but shall not act unless a quorum is present.
6. A member of the committee may resign by notice in writing signed by him and delivered to the trustee.
7. If a member of the committee is adjudged an insolvent, or compounds or arranges with his creditors, or is absent from five consecutive meetings of the committee without the leave of those members who, together with himself, represent the creditors or contributories, as the case may be, his office shall become vacant.
8. A member of the committee may be removed at a meeting of creditor if he represents creditors, or at a meeting of contributories if he represents contributories, by an ordinary resolution of which seven days' notice has been given, stating the object of the meeting.
9. On a vacancy occurring in the committee, the trustee shall forthwith summon a meeting of creditors or of contributories, as the case may require, to fill the vacancy; and the meeting may, by resolution, re-appoint the same, or appoint another, creditor or contributory to fill the vacancy:

Provided that if the trustee, having regard to the position in the winding up, is of the opinion that it is unnecessary for the vacancy to be filled, he may apply to the Court and the Court may make an order that the Vacancy shall not be filled, or shall not be filled except in such circumstances as may be specified in the order.

10. The continuing members of the committee, if not less than two, may act notwithstanding and vacancy in the committee.

68. Power of Court to stay winding up (s. 466)

1. The Court may at any time after making a winding up order, on the application of the Trustee and on proof to the satisfaction of the Court that all proceedings in relation to the winding up ought to be stayed, make an order staying the proceedings, either altogether for a limited time, on such terms and conditions as the Court thinks fit.
2. On any application under this section, the Court may, before making an order, require the Trustee to furnish to the Court a report with respect to any facts or matters which are in his opinion relevant to the application.
3. A copy of every order made under this section shall forthwith be forwarded by the company, or otherwise as may be prescribed, to the Registrar, who shall make a minute of the order in his books relating to the company.

69. Books and papers of company to be evidence (s. 548)

Where a company is being wound up, all books and papers of the company and of the
trustees shall, as between the contributories, of the company, be prima-facie evidence of the truth of all matters purporting to be therein recorded.

70. Inspection of books and papers by creditors and contributories (s. 549)

1. At any time after the making of an order of the winding up of a company by or subject to the supervision of the Court, any creditor or contributory of the company may, if the Union government, by rules prescribed so permit and in accordance with an subject to such rules but not further or otherwise, inspect the books and papers of the company.
2. Nothing in sub-section (1) shall be taken as excluding or restricting any rights conferred by any law for the time being in force—

1. on the Central or a State Government; or
2. on any authority or officer thereof; or
3. on any person acting under the authority of any such Government or of any such authority or officer.

71. Disposal of books and papers of company (s. 550)

1. When the affairs of a company have been completely wound up and it is about to be dissolved, its books and papers and those of the trustee may be disposed of as follows, that is to say:—

1. in the case of a winding up by or subject to the supervision of the Court, in such manner as the Court directs;
2. in the case of a members' voluntary winding up, in such manner as the company by special resolution directs; and
3. in the case of a creditors' voluntary winding up, in such manner, as the committee of inspection or, if there is no such committee, as the creditors of the company may direct.

2. After the expiry of five years from the dissolution of the company, no responsibility shall rest on the company, the trustee, or any person to whom the custody of the books and papers has been committed, by reason of any book or paper not being forthcoming to any person claiming to be interested therein.
3. The Union government may, by rules —

1. prevent for such period (not exceeding five years from the dissolution of the company) as the Union Government thinks proper, the destruction of the books and papers of a company which has been wound up and of its trustee; and
2. enable any creditor or contributory of the company to make representation to the Union government in respect of the matter specified in clause (a) and to appeal to the Court from any direction which may be given by the Union government in the matter.

4. If any person acts in contravention of any such rules or of any direction of the Union government thereunder, he shall be punishable with imprisonment for a term which may extend to six months; or with fine which may extend to five thousand rupees, or with both.

Part III – Realisation of Assets

72. Effect of winding up order (s. 447)

1. An order for winding up a company shall operate in favour of all the creditors and of all the contributories of the company as if it had been made out on the joint petition of a creditor and of a contributory.
2. All assets and properties must be vested with the trustee as stipulated in section 22 and in the event of the inability of the trustee to take charge of the company from the existing management, the trustee shall initiate action as stipulated in section 27.
3. In all future correspondences, records and in deployment of all sign boards, advertisements the name of the company must include the suffix of "in the process of winding up" as an abundant notice to all those who deal with the company.

73. Delivery of property to trustee (s. 468)

The Court may, at any time after making a winding up order, require any contributory for the time being on the list of contributories, and any trust, receiver, banker, agent, or officer of the company, to pay, deliver, surrender or transfer forthwith, or within such time as the Court directs, to the trustee, any money, property or books and papers in his hands to which the company is prima facie entitled.

74. Payment of debts due by contributory and extent of set-off (s.469)

1. The Trustee may, at any time after receiving the winding up order, direct any contributory for time being on the list of contributories to pay any money due to the company, from his or from the estate of the person whom he represents, exclusive of any money payable by him or the estate by virtue of any call in pursuance of this Code.
2. While making such direction, the Trustee may—

1. in the case of an unlimited company, allow to the contributory, by way of set-off any money due to him or to the estate which he represents, from the company, on any independent dealing or contract with the company, but not any money due to him as a member of the company in respect of any dividend or profit; and
2. in the case of a limited company, make to any director, managing agent, secretaries and treasurers manager whose liability is unlimited, or to his estate, the like allowance.

3. In the case of any company, whether limited or unlimited, when all the creditors have been paid in full, any money due on any account whatever to a contributory from the company may be allowed to him by way of set-off against any subsequent call.
4. The Trustee shall submit the list of contributories who have failed to perform the responsibility as directed for the court to take a proper action there on and making such order as the court may deem fit.

75. Power of Trustee to make calls (s. 470)

The trustee at any time after receiving up order from the Court, and either before or after he has ascertained the sufficiency of the assets of the company

1. make calls on all or any of the contributories for the time being on the list of the contributories, to the extent of their liability, for payment of any money which the Trustee considers necessary to satisfy the debts and liabilities of the company, and the costs, charges and expenses of winding up, and for the adjustment of the rights of the contributories among themselves; and
2. direct for payment of any calls so made.

76. Payments into banks of money due to the company

1. The Trustee may direct any contributory, purchaser or other persons from whom any money is due to the company to pay the money into such account of the company as the Trustee may indicate.

Provided that in the case of a Government Company the amount is to be deposited with the public account of India.

2. Any such direction is enforceable in the same manner as if the Court has directed payment to the trustee.
3. Unless the respective contributor files an appeal against such direction in the same Court having jurisdiction, it shall be deemed that the direction to pay the amount due is the conclusive evidence that the money is due.

77. Power to exclude creditors not proving in time (s. 474)

The Trustee may fix a time or times within which creditors are to prove their debts or claims, or to be excluded from the benefit of any distribution made before those debts or claims are proved.

78. Adjustment of rights of contributories (s. 475)

The Trustee shall adjust the rights of the contributories among themselves, and distribute any surplus among the persons entitled thereto.

79. Power to summon persons suspected of having property of company, etc. (s. 477)

1. On the submission of the Trustee, the Court may summon before it any officer of the company or person known or suspected to have in his possession any property or books or papers, of the company, or known or suspected to be indebted to the company, or any person whom the Court deems capable of giving information concerning the promotion, formation, trade, dealings, property, books or papers, or affairs of the company.
2. The Court may examine any officer or person so summoned on oath concerning the matters aforesaid, either by word of mouth or on written interrogatories; and may, in the former case, reduce his answers to writing and require him to sign them.
3. The Court may require any officer or person so summoned produce any books and papers in his custody or power relating to the company; but, where he claims any lien on books or papers produced by him, the production shall be without prejudice to that lien, and the Court shall have jurisdiction in the winding up to determine all questions relating to that lien.
4. If any officer or person so summoned, after being paid or tendered a reasonable sum for his expenses, fails to appear before the Court at the time appointed, not having a lawful impediment (made known to the Court at the time of its sitting and allowed by it), the Court may cause him to be apprehended and brought before the Court for examination.

80. Power to order public examination of promoters, directors etc. (s. 478)

1. When an order has been made for winding up a company by the Court, and the Trustee has made a report to the Court under this Code, stating that in his opinion a fraud has been committed by any person in the promotion or formation of the company, or by any officer of the company in relation to the company since its formation, the Court may, after considering the report, direct that that person or officer shall attend before the Court on a day appointed by it for that purposes, and be publicly examined as to the promotion or formation or the conduct of the business of the company, or as to his conduct and dealings as an officer thereof.
2. The Trustee shall take part in the examination, and for that purpose may, if specially authorised by the Court in that behalf, employ such legal assistance as may be sanctioned by the Court.
3. Any creditor or contributory may also take part in the examination either personally or by any advocate, attorney or pleader entitled to appear before the Court.
4. The Court may put such questions to the person examined as it thinks fit.
5. The person examined shall be examined on oath, and shall answer all such questions as the Court may put, or allow to be put, to him.
6. A person ordered to be examined under this section —

1. shall, before his examination, be furnished at his own cost with a copy of the Trustee's report; and
2. may at his own cost employ an advocate, attorney or pleader entitled to appear before the Court, who shall be at liberty to put to him such questions as the Court may deem just for the purpose of enabling him to explain or qualify any answers given by him.

7. (a) If any such person applies to the Court to be exculpated from any charges made or suggested against him, it shall be the duty of the Trustee to appear on the hearing of the application and call the attention of the Court to any mattes which appear to the Trustee to be relevant.

(b) If the Court, after hearing any evidence given or witnesses called by the Trustee, grants the application, the Court may allow the applicant such costs as it may think fit.

8. Notes of the examination shall be taken down in writing, and shall be read over to or by, and signed by, the person examined; and may thereafter be used in evidence against him, and shall be open to the inspection of any creditor or contributory at all reasonable times.
9. The Court may, if it thinks fit, adjourn the examination from time to time.
10. An examination under this section may, if the Court so directs and subject to any rules made in this behalf, be held before any District Judge, or before any officer of the Court, being an Official Referee, Master, Registrar or Deputy Registrar.
11. The powers of the Court under this section as to the conduct of the examination, but not as to costs, may be exercised by the Judge or officer before whom the examination is held in pursuance of sub-section (10).

81. Power to arrest absconding contributory (s. 479)

At any time either before or after making a winding up order, the Court may, on proof of probably cause for believing that a contributory is about to quit India or otherwise to abscond, or is about to remove or conceal any of his property, for the purpose of evading payment of calls or of avoiding examination respecting the affairs of the company cause—

1. the contributory to be arrested and safely kept until such time as the Court may order; and
2. his books and papers and movable property to be seized and safely kept until such time as the Court may order.

82. Saving of existing powers of Court (s. 480)

Any powers conferred on the Court by this Code shall be in addition to, and not in derogation of, any existing powers of instituting proceedings against any contributory or debtor of the company, or the estate of any contributory or debtor, for the recovery of any call or other sums.

83. Order made in any Court to be enforced by other Courts (s. 482)

1. Any order made by a Court shall be enforceable at any place in India, other than that over which such Court has jurisdiction, by the Court which would have had jurisdiction in respect of the company if its registered office had been situate at such other place, and in the same manner in all respects as if the order had been made by that Court.
2. Appeals from any order made, or decision given, in the matter of the winding up of a company by the Court shall lie to the same Court to which, in the same manner in which, and subject to the same conditions under which, appeals lie from any order or decision of the Court in cases within its ordinary jurisdiction.

Part IV – Voluntary winding up

84. Circumstances in which company may be wound up voluntarily (s. 484)

1. A company may be wound voluntarily—

1. when the period, if any, fixed for the duration of the company by the articles has expired, or the event, if any, has occurred, on the occurrence of which the articles provide that the company is to be dissolved, and the company in general meeting passes a resolution requiring the company to be wound up voluntarily;
2. if the company passes a special resolution that the company be wound up voluntarily;
3. when the company in the General Meeting passes a resolution requesting the Court to appoint a trustee for the purpose of carrying on voluntary winding up proceedings;
4. when the Court on the petition of the company in pursuance of the resolution passed in the General Meeting as stipulated in clause (c) of subsection (1) shall appoint a trustee for conducting the voluntary winding up proceedings on such terms and conditions as may be stipulated by the court.

2. In this Act, the expression "a resolution for voluntary winding up" means a resolution passed under clause (a) or (b) of sub-section (1).

85. Publication of resolution to wind up voluntarily (s. 485)

1. When a company has passed a resolution for voluntary winding up, it shall, within 2 weeks of the passing of the resolution, give notice of the resolution by advertisement in the Official Gazette, and also in some newspaper circulating in the district where the registered office of the company is situate.
2. The copy of the resolution shall also be filed with the Registrar within 2 weeks.
3. If default is made in complying with sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to one thousand rupees for every day during which the default continues.

86. Commencement of voluntary winding up (s. 486)

A voluntary winding up shall be deemed to commence at the time when the trustee has been appointed by the court on the application by the company in the manner prescribed.

87. Effect of voluntary winding up on status of company (s. 487)

1. In the case of a voluntary winding up the company shall, from the commencement of the winding up, cease to carry on its business. Except so far as may be required for the beneficial winding up of such business:

Provided that the corporate state and corporate powers of the company shall continue until it is dissolved.

2. The property assets liabilities and affairs of the company has been entrusted to the trustee from the Board.

88. Declaration of solvency in case of proposal to wind up voluntarily (s. 488)

1. Where it is proposed to wind up a company voluntarily, its directors, or in case the company has more than two directors, the majority of the directors, may, at a meeting of the Board, make a declaration verified by an affidavit, to the effect that they have made a full inquiry into the affairs of the company, and that, having done so, they have formed the opinion that the company has no debts, or that it will be able to pay its debts in full within such period not exceeding 12 weeks from the commencement of the winding up as may be specified in the declaration. Provided that in a case where the assets could not be liquidated within the time period for special reasons, the court may extend the time on a petition filed by the trustee.
2. A declaration made as aforesaid shall have no effect for the purposes of this Act, unless—

1. it is made within the two weeks immediately preceding the date of the passing of the resolution for winding up the company and is delivered to the Registrar for registration before, that date; and
2. it embodies a statement of the company's assets and liabilities as at the latest practicable date before the making of the declaration.

3. Any director of a company making a declaration under this section without having reasonable grounds for the opinion that the company will be able to pay its debts in full within the period specified in the declaration, shall be personally liable to pay the debt.
4. If the company is wound up in pursuance of a resolution passed within the period of two week after making of the declaration, but its debts are not paid or provided for in full within the period specified in the declaration, it shall be presumed, until the contrary is shown, that the director did not have reasonable grounds for his opinion.

89. Power of trustee to accept shares, etc., as consideration for sale of property of company (s. 494)

1. Where —

1. a company (in this section called "the transfer company") is proposed to be, or is in course of being, wound up altogether voluntarily; and
2. the whole or any party of its business or property is proposed to be transferred or sold to another company, whether a company within the meaning of this Act or not (in this section called "the transferee company");

the trustee of the transferor company may, with the sanction of a special resolution of that company conferring on the trustee either a general authority or an authority in respect of any particular arrangement,—

1. receive, by way of compensation or part of compensation for the transfer or sale, shares, policies or other like interests in the transferee company; for distribution among the members of the transferor company; or
2. enter into any other arrangement whereby the members of the transferor company may, in lieu of receiving cash, shares, policies, or other like interests or in addition thereto, participate in the profits of, or receive any other benefit from, the transferee company.

2. Any sale or arrangement in pursuance of this section shall be binding on the members of the transferor company.
3. If any member of the transferor company who did not vote in favour of the special resolution expresses his dissent therefrom in writing addressed to the trustee, and left at he registered office of the company within seven days after passing of the resolution, he may require the trustee either —

1. to abstain from carrying the resolution into effect; or
2. to purchase his interest, at a price to be determined by agreement, or by arbitration in the manner provided by this section.

4. If the trustee elects to purchase the member's interest, the purchase money shall be paid before the company is dissolved, and be raised by the trustee in such manner as may be determined by special resolution.
5. A special resolution shall not be invalid for the purposes of this section by reason only that it is passed before or concurrently with a resolution for voluntary winding up or for appointing trustees; but if an order is made within a year for winding up the company by or subject to the supervision of the Court, the special resolution shall not be valid unless it is sanctioned by the Court.
6. The provisions of the Arbitration and Conciliation Act 1996 (26 of 1996), other than those restricting the application of that Act in respect of the subject matter of the arbitration, shall apply to all arbitration in pursuance of this section.

90. Duty of trustee to call creditors meeting in case of insolvency (s. 495)

1. The trustee shall convene a meeting of the creditors as soon as possible and finalise a list or secured and unsecured creditors and a schedule for settlement of accounts.
2. If the trustee is of the opinion that the company shall not be able to meet its liabilities shall move a bankruptcy petition before a Court of competent jurisdiction in which case the court shall appoint the trustee.
3. Any creditor may also apply for bankruptcy petition if the claim is not settled within the stipulated time.

91. Duty of trustee to call general meeting at end of each year (s. 496)

If a voluntary winding up proceeding continues beyond a year, the trustee shall call the General Meeting of the company within 4 weeks from the date of completion of each financial year and submit the audited annual accounts and also a progress report on the winding up.

92. Arrangement when binding on company and creditors (s.517)

1. Any arrangement entered into between a company about to be, or in the course of being, wound up and its creditors shall, subject to the right of appeal under this section, be binding on the company and on the creditors if it is sanctioned by a special resolution of the company and acceded to by three-fourths in number and value of the creditors.
2. Any creditor or contributory may, within 3 weeks from the completion of the arrangement, appeal to the Court against it and the Court may thereupon, as it thinks just, amend, vary, confirm or set aside the arrangement.

93. Power to apply to Court to have questions determined or powers exercised (s. 518)

1. The trustee or any creditor or contributory may apply to the Court specified in sub-section (3) for an order setting aside any attachment, distress or execution put into force against the estate or effects of the company after the commencement of the winding up, or effects of the company after the commencement of the winding up.
2. An application under sub-section (1) shall be made—

1. if the attachment, distress or execution is levied or put into force by any other Court, to the Court having jurisdictions to wind up the company;
2. if the attachment, distress or execution is levied or put into force by any other Court, to the Court having jurisdiction to wind up the company.

3. The Court, if satisfied on an application under sub-section (1) that the determination of the question or the required exercise of power or the other applied for will be the just and beneficial, may accede wholly or partially to the application on such terms and conditions as to thinks fit, or may make such other order on the application as it thinks just.
4. A copy of an order staying the proceedings in the winding up, made by virtue of this section, shall forthwith be forwarded by the company, or otherwise as may be prescribed, to the Registrar, who shall make a minute of the order in his books relating to the company.

94. Application of trustee to Court for public examination of promoters, directors, etc. (s. 519)

1. The trustee may make a report to the Court stating that in his opinion a fraud has been committed by any person in the promotion or formation of the company or by any officer of the company in relation to the company since its formations, and the Court may, after considering the report, direct that that person or officer shall attend before the Court on a day appointed by it for that purpose, and be publicly examined as to the promotion or formation or the conduct of the business of the company, or as to his conduct and dealings as officer thereof.
2. The provisions of sub-sections (2) to (11) of section 80 shall apply in relation to any examination directed under sub-section (2) as they apply in relation to an examination directed under sub-section (1) of section 80 with references to the trustee being substituted for references to the Trustee in those provisions.

95. Special power of the Trustee for compromise or arrangement (s. 546)

1. The trustee may—

1. with the sanction of the Court, when the company is being wound up by or subject to the supervision of the Court; and
2. with the sanction of a special resolution of the company, in the case of a voluntary winding up.—

1. pay any classes of creditors in full;
2. make any compromise or arrangement with creditors or persons claiming to be creditors, or having or alleging themselves to have any claim, present or future, certain or contingent, ascertained or sounding only in damages, against the company, or whereby the company may be rendered liable; or
3. compromise any call or liability to call, debt, and liability capable of resulting in a debt, and any claim, present or future, certain or contingent, ascertained or sounding only in damages, subsisting or alleged to subsist between the company and a contributory or alleged contributory or other debtor or person apprehending liability to the company, and all questions in any way relating to or affecting the assets or liabilities or the winding up of the company, on such terms as may be agreed, and take any security for the discharge of any such call, debt, liability or claim, and give a complete discharge in respect thereof.

2. In the case of a voluntary winding up, the exercise by the trustee of the powers conferred by sub-section (1) shall be subject to the control of the Court.
3. Any creditor or contributory may apply to the Court with respect to any exercise or proposed exercise of any such power.

Part V - Winding up on Insolvency

96. Winding up petition on insolvency

When the trustee appointed in a bankruptcy petition files a petition for an order for winding up under section 49(2), the winding up proceedings on insolvency commences.

97. Application of insolvency rules in winding up of insolvent companies (s. 529)

1. In the winding up of an insolvent company, the same rules shall prevail and be observed with regard to-

1. debts provable;
2. the valuation of annuities and future and contingent liabilities; and
3. the respective rights of secured and unsecured creditors; as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent.

Provided that the security of every secured creditor shall be deemed to be subject to a pari passu charge in favour of the workmen to the extent of the workmen’s portion therein and where a secured creditor, instead of relinquishing his security and providing his debts opts to realise his security;-

1. the trustee shall be entitled to represent the workmen and enforce such charge;
2. any amount realised by the trustee by way of enforcement of such charge shall be applied rateably for the discharge of workmen’s dues; and
3. so much of the debts due to such secured creditor as could not be realised by him by virtue of the foregoing provisions of this proviso or the amount of the workmen’s portion in his security, whichever is less, shall rank pari passu with the workmen’s dues for the purpose of section 100.

2. All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of the section.

Provided that if a secured creditor instead of relinquishing his security and probing for his debts proceeds to realise his security, he shall be liable to pay his portion of the expenses incurred by the trustee, if any, for the preservation of the security before its realisation by the secured creditor.

Explanation - For the purposes of this proviso, the portion of expenses incurred by the trustee for the preservation of a security which the secured creditor shall be liable to pay shall be the whole of the expenses less an amount which bears to such expenses the same proportion as the workmen’s portion in relation to the security bears to the value of the security;

1. For the purposes of this section, section 100 and section 102 -

1. "workmen" in relation to a company, means the employees of the company being workmen within the meaning of the Industrial Disputes Act, 1947 (14 of 1947);
2. "workmen’s dues", in relation to a company, means the aggregate of the following sums due from the company to its workmen, namely:-

1. all wages or salary including wages payable for time or piece work and salary earned wholly or in part by way of commission of any workman, in respect of services rendered to the company and any compensation payable to any workman under any of the provisions of the Industrial Disputes Act, 1947;
2. all accrued holiday remuneration becoming payable to any workman or in the case of his death to any other person in his right, on the termination of his employment before, or by the effect of, the winding up order or resolution;
3. unless the company is being wound-up voluntarily merely for the purposes of reconstruction or of amalgamation with another company, or unless the company has, at the commencement of the winding. Under such a contract with insurers as is mentioned in section 14 of the Workmen’s Compensation Act, 1923 (8 of 1923), rights capable of being transferred to an vested in the workman, all amounts due in respect of any compensation or liability for compensation under the said Act in respect of the death or disablement of any workman of the company;
4. all sums due to any workman from a provident fund, a pension fund, a gratuity fund or any other fund for the welfare of the workmen, maintained by the company;

provided that the trustee shall, on the date of assuming the charge of the company require the Board to specify the claim of the workers if not already incorporated in the previous audited balance sheet, as on the date of the order of winding up, the same claim can be notified to the workers according to the procedure prescribed and the trustee shall receive any complains regarding any claim ascertained by the management within 15 days and decide the actual claim providing opportunities of hearing to each party. Any decision for quantifying the claim of the workers by the trustee shall be final and such claim as on the day of winding up order shall stand pari passu with the secured creditors. After the finalisation of the claim or expiry of 15 days time if no counter claim is preferred, no further contest can be raised.

3. "workmen’s portion", in relation to the security of any secured creditor of a company, means the amount which bears to the value of the security the same proportion as the amount of the workmen’s dues bears to the aggregate of-

1. the amount of workmen’s dues; and
2. the amounts of the debts due to the secured creditors.