With easier norms spelled out in the new companies law, the winding-up time for over 4 lakh defunct, inactive and sick companies is expected to come down to less than one year compared to 4-10 years or more at present.

The new provisions have made it easier for companies to initiate ‘voluntary winding-up’ by passing a special resolution. Also, compared to the three modes of winding-up stated in the current Companies Act of 1956, Clause 270 in the new law (to be called Companies Act, 2013) spells out only two modes of winding up?voluntary or by the tribunal with specific timelines for completing all formalities.

The new law, in fact, has over 14 clauses and a complete chapter dedicated to winding up of companies. Corporate affairs minister Sachin Pilot termed the ease of forming and closing a company a highlight in the new Companies Bill 2012. In 2012, The new Companies Act of 2013 also proposes to bring thousands of liquidation cases — currently being heard across various courts — under one roof of the National Company Law Tribunal (NCLT) for speedier outcome. NCLT will now be set up as proposed in the new law.

As per the official data, the total numbers of companies under liquidation as on March 31, 2012 stood at 5,727 in various high courts of which 1,046 such cases were pending for over 20 years.

Till 2012, a total of 4.16 lakh companies, out of a total of 13 lakh registered in India, were identified as defunct or inactive.

Under clause 304 in the new law, a company may be wound up voluntarily if the company in general meeting passes a resolution to this effect or when the board or majority of its directors have formed an opinion that the company has either no debt or it will be able to pay its debts in full from the proceeds of assets sold in voluntary winding-up exercise.

The new law outlines a maximum of 60 days for company liquidators for submitting its report on the assets, valuation, cash-in-hand, if any, among others. The tribunal also have the powers to stay winding-up of a company for not more than 180 days if it feels the company can be revived financially.

As opposed to the current trend of filing suits and other legal proceedings thereby delaying the liquidation process, clause 279 in the new law states that no suit or any other legal proceeding shall be commenced on the winding-up order passed by the tribunal unless agreed by the tribunal itself Company law experts have welcomed this new provision. In fact, experts have cited the challenges in the current provisions listed in the Companies Act of 1956, which makes a winding up case drag on in courts for years. Speaking to FE, leading corporate lawyer Satinder Kapur said the liquidation process in courts is very lengthy.

“Sometimes a company takes 10 years or more for completing the liquidation process. Compare this to say England where it does not take more than 6-10 months or maximum a year to shut a company. New provisions should help in faster resolutions on winding up petitions,” said Kapur, the lead partner in Satinder Kapur & Associates.

According to T N Manoharan, former president of ICAI, India should review the rules and procedures under the fast track exit options to companies every decade, at least.