Voluntary ‑ Winding up ‑ Declaration of solvency ‑ Effect of non‑filing of declaration of solvency on voluntary winding up - Companies Law - Letter : No. 42(139)‑CL‑II/59,

Circular Letter : No. 42(139) ‑ CL ‑ II/59, dated 13 ‑ 11 ‑ 1959. Subjects:- Voluntary ‑ Winding up ‑ Declaration of solvency ‑ Effect of non ‑ filing of declaration of solvency on voluntary winding up The question of effect of non‑filing of declaration of solvency on voluntary winding up had cropped in several cases. After due consideration of the matter it has been decided as under : 1. Where a resolution for members voluntary winding up has been passed but the provisions of section 488 have not been complied with, the winding up shall not be a members voluntary winding up‑Vasica v. Janda Rubber Works AIR 1950 Punj. 188 and Bhargava v. Rameshwar AIR 1952 MP 3. In such a case, the provisions contained in sections 490 to 498 which relate to members voluntary winding up cannot apply, and if, in spite of non‑filing of a declaration of solvency, a liquidator is appointed and/or winding up proceedings are continued under any of sections 490 to 498 , such appointment of liquidator or actions taken under any of those sections would be bad in law. 2. In the circumstances mentioned above, i.e., where a declaration of solvency has not been filed, the winding up should be made in the manner and in accordance with the provisions contained in sections 500 to 509. If, in a case indicated above, the procedure laid down in sections 500 to 509 is not followed, it would tantamount to non‑compliance with the provisions of law applicable in the matter, and, consequently, the proceedings relating to the voluntary winding up taken by the company shall be void ab initio ‑ M. Lakshmiah v. Registrar of Companies, unreported case, decided by the Kerala High Court. The court may, if moved by the company or its shareholders instead of treating the winding up proceedings as invalid, direct the company to convene the creditors meeting ‑ In re. Light of Asia Insurance Co. ILR 1940 2 Cal. 325. Default in complying with the requirements of section 500 will, however, continue to be punishable under sub‑section (6) of the section mentioned above, notwithstanding the fact that the proceedings of the winding up had become void ab initio. 3. If a company which had passed a resolution for its voluntary winding up fails to file a declaration of solvency and also fails to convene the creditors meeting on the ground of absence of creditors, the resolution for its voluntary winding up should be treated as void ab initio (because the company should not have had any difficulty in filing the declaration of solvency if it had no creditors) and the company should be asked to pass a fresh resolution for its winding up after complying with the requirements of section 488. In such a case, the company should not be treated to be in liquidation unless a fresh resolution for winding up has been passed after complying with the requirements of section 488.