12.18.10 (Dissolution of Companies)

A company is said to be dissolved when it ceases to exist as a corporate entity for all practical Purposes but it is not the extinction of the company. The company is kept, after dissolution, in ‘suspended animation' for 2 years. The dissolution of a company may be declared by the court, under s.559, within a period of two years from the date of dissolution. Thus, within a period of 2 years from the date of dissolution, the company can be revived by the court by declaring the dissolution void. The court will do so at the application by the liquidator of the company or by any other person who appears to the court to be interested in this [s.559 (1)]. It will be the duty of the applicant to file a copy of the above order of the court, with the Registrar, within 30 days after the making of the order [s.559 (2)].

Modes of Dissolution. Dissolution of a company may be brought about in any of

the following three ways:

(1) In case of defunct companies - By removal of its name from the Register of Companies(s. 560).If the Registrar has reason to believe that a company is not carrying on business, he is empowered to adopt the procedure prescribed by s.560 and strike out the company's name from the register as being 'defunct'. This may be done whether the company is a going concern or in liquidation.

(2) In pursuance of amalgamation or reconstruction. By order of the court without winding up, i.e., where a reconstruction or amalgamation is being carried under s.394(b)(iv),

(3) In pursuance of the winding up of the company.

Dissolution of defunct companies (s.560). A defunct company means a company which has never commenced business or which is not carrying on business. Section 560 lays down the procedure for the dissolution of defunct companies, without resorting to the winding up machinery. The procedure is as follows:

1. where the Registrar has reasonable cause to believe that a company is not carrying on business or is not in operation, he shall send to the company by post a letter inquiring whether the company is carrying on business or is in operation.

2. If the Registrar does not within one month of sending the letter receive any answer thereto, he shall, within 14 days after expiry of the month, send to the company by post a registered letter referring to the first letter and stating that no answer thereto has been received and that, if an answer is not received to the second letter within one month from the date thereof, a notice will be published in the Official Gazette, with a view to striking the name of the company off the Register.

3. If the Registrar either receives an answer from the company to the effect that it is not carrying on business or is not in operation, or does not within one month after sending the second letter receive any answer, he may publish in the Official Gazette and send to the company by registered post a notice tha!, at the expiration of 3 months from the date of that notice, the name of the company, unless cause is shown the contrary, be struck off the register and the company will be dissolved. The dissolution of the company in the above stated manner, shall not, however, Affect: (a) the liability, if any, of every director, manager or other officer who was exercising any power of management and of every member of the company. In other words, such persons shall be liable as if the company had not been dissolved; and ft) the power of the court to wind up a company.

Restoration of the name of the company. If a company or any member or any creditor feels aggrieved by the removal of the company's name from the Register of companies, the court may, on an application by the aggrieved party, any time within 20 years from the publication in the Official Gazette of the notice of striking off the name of the company, order that the name of the company should be restored in the Register. Power of the court to order for restoration of company's name is discretionary and will be given when the court is satisfied that: (1) after restoration, the company will be in a position to carry on its business; or (2) at the time of striking off, the company was carrying on business or was in operation; or (3) it is just and equitable that the company's name be restored.

The court may also, on passing such an order, give such directions and make such provisions as seem just for placing the company and all other persons in the same position, as nearly as may be, as if the name of the company had not been struck off.

A certified copy of the court's order must be delivered to the Registrar and upon such delivery the company shall be deemed to have continued in existence as if its name had not been struck off.

Dissolution in pursuance of amalgamation [s.394(7)]. The court may, either by the order sanctioning the compromise or arrangement or by a subsequent orde1, make provision for the dissolution, without winding up, of the company whose undertaking, property or liabilities, either wholly or in part, under the scheme of amalgamation or construction, is transferred to another company.

But no such order shall be made by the court unless the official liquidators has, on scrutiny of the books and papers of the company, made report to the court that the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to public interest. The court can, however, within 2 years declare the dissolution void (already explained).

Dissolution in pursuance of winding up. The corporate existence of a company continues through winding up till it is dissolved. It may be dissolved as follows:

(A) ln case of compulsory winding up (s.48L). The Court will make an order dissolving a company if: (i) the affairs of the company have been completely wound up (i.e. assets collected and liabilities paid as far as practicable); or (ii) the liquidator cannot proceed with the winding up for want of funds and assets or for any other reasons whatever; or (iii) it is just and reasonable in the circumstance of the case that an order of dissolution of the company should be made. on making of the order of the dissolution, the company shall be dissolved from the date of the order (s.48 (1). The official liquidator shall file a copy of the order of dissolution within 30 days of making of the order (s.497).

(B) In case of members' voluntary winding up (s.497): As soon as the official Liquidator, after scrutinizing the books, accounts and papers of the company, make a report to the court that the affairs of the company have not been conducted in a manner prejudicial to the interest of its members or to public interest, then from the date of the submission of the report to the court, the company shall be been deemed to be dissolved. where the liquidator reports that the affairs have not So conducted, the court shall direct him to make further investigation and submit His second report to the court and may order that the company Shall stand dissolved From a date specified in that order [s.497(b)].

(C) ln case of creditors voluntary winding up (s.509). same as above[s.509(6)].The Court can, however, declare the dissolution on void within 2years.

When a company has been dissolved according to the due process of law, except when such dissolution, is under s.560, on the expiry of 5 years from the date of dissolution of the company, the name of the company should be struck off the Register of Companies after. noting against its name that it has been dissolved' Thus in case of defunct companies, dissolution and extinction takes place at the same time but in other cases extinction follows 5 years  after.