LIMITED LIABILITY PARTNERSHIP PART- XXXVIII - Winding up and Dissolution

[Dr. Sanjiv Agarwal]

 Section 63 to Section 65 of LLP Act, 2008 provides for provisions on winding up and dissolution of LLP  Section 63 provides that the winding up of an LLP may be of two kinds - voluntary or by Tribunal. Section 64 provides for the circumstances in which an LLP can be would up by the Tribunal. Section 65 grants power to the Central Government to make rules in relation to winding up and dissolution of LLPs under which the Government has issued LLP (Winding Up and Dissolution) Rules. The LLP (Winding up and Dissolution) Rules shall govern the procedure and proceedings for winding up and dissolution of a LLP.

Winding up and Dissolution (section 63)

 The winding up of a limited liability partnership may be either voluntary or by Tribunal and limited liability partnership, so wound up may be dissolved.

This section  seeks to provide that the winding up of an LLP may be either voluntary or by the Tribunal and a LLP so wound up may be dissolved. Section 63 provides that a LLP may be wound up either on a voluntary basis or by the Tribunal (or court till the Tribunal is set up). LLP  which is wound up may be dissolved .

Meaning of Winding up

Winding up means closing up of a company's concerns, which may be by reason of insolvency or otherwise . Section 46 of Indian Partnership Act, 1932 defines winding up

to settle the accounts and liquidate the assets of partnership or corporation for the purpose of making distribution and dissolving the corporation.

The expression 'winding up order has been made' occurring in Section 446 of Companies Act, 1956 refers to the winding up order passed by the Court hearing winding up petition [ Industrial Development Bank of India v Moradabad Syntex Ltd. AIR 1997 Bom 306, 308].

The words 'winding up' must be given the widest possible amplitude, viz, to control the proceedings of a textile company which is in liquidation by the Central Government. [MST Corporation v Official Liquidator, AIR 1978 SC 476, 479].

Dissolution of company means an end to corporate existence for all practical purposes but it is not an extinction of company until it is dissolved. [Employers' Liability Assurance Corpn. v. Sedgwick Collins Co., 1927 AC 95 : (1926) All ER Rep. 388 : 95 LJ KB 1015 : 136 LT 72].

Through winding up, a company is dissolved in a legal manner and its assets as and when realised under the process are applied in making payments of debts. After satisfaction of all debts, the balance, if any, is used for paying back to members in proportion to the contribution made by them to the capital of the said company which is being wound up.

A winding up order being final cannot be cancelled or withdrawn. An appropriate course is to apply for stay either altogether or for a limited period under provisions of section 466 and then present a fresh petition. [Re. lntermain Properties Ltd., 1986 BCLC 265 (Ch. D)]. A winding up order does not put an end to the existence of company. As observed by VISCOUNT CAVE: 'a company in liquidation, though the administration of its affairs has passed to the liquidator, retains its complete existence. If thy liquidation should be annulled the company will resume its powers'. [Employers Liability Assurance Corporation v. Sedgwick Collins & Co., 1927 AC 95].

Winding up is also called liquidation. In  simple words, it  is the beginning of the process to end the life of a company which stage is attained by 'dissolution' of the company by the Registrar of Companies after the winding up process is complete. This is similar to someone being told that he is  terminally ill. The diagnosis of the illness, like the beginning of the winding up, is .not the end of life. This continues until the moment of death which  in case of a company is its dissolution.

A LLP once incorporated can not be put to an end except through the machinery of winding up proceedings.

Meaning of Dissolution

Literally, dissolution means to dissolve, a break up or destroying. It is winding up of an entity by the legal process of liquidation; the extinguishment of existence of a corporation in the manner prescribed by law.

The legal process of dissolution can take place after commencement of the steps for winding up. Dissolution without winding up only means dissolution without completely winding up the company. [M. Philip v Malayalam Plantations (I) Ltd., (1994) 81 Comp Cas 38 referred in Sugarcane  Growers and Sakthi Sugars Shareholder's Association v Sakhti Sugar Ltd. AIR 1996 Mad 7,18].

In Kusum Kumari v Surendra (1971) 42 IC 455, it was held that a corporation does not become dissolved at the commencement of either a voluntary winding up or a compulsory winding up . By merely passing a resolution by the LLP that it be wound up voluntarily under the LLP Act, the LLP does not stand dissolved. It has to be dissolved in the manner prescribed in sections 63,64 and 65 and rules framed under section 65 of the Act.

Dissolution puts an end to the existence of a company. [Salton v New Beeston Cycle Company (1900) 1 Ch 43] It prevents and proceedings being taken against promoters, directors or officers of the company in respect of any misfeasance or breach of trust [Caxon v Gorst (1891) 2 Ch 73]. or a creditor proving a debt against the company [Westbournce G Drapery Company (1879) 39 LT 3].

Where the assets might be bona vacantia, upon an application on the ground that there were undistributed assets of the dissolved company, the Court held that the Attorney-General on behalf of the Crown should be served. [ Hendersons Nigel Ltd. (1912) WN 159] After winding-up of a company as the properties pass to the Government as bona vacantia, a shareholder or a creditor cannot maintain an action for recovery of the company's assets. [Prime Laslic & Company v Wapshare (V.O.) 2 Comp LJ 113 (SC]..

How a LLP could be wound up by the Tribunal has been provided in section 64 of the Act. It provides for the circumstances in which LLP can be wound up by Tribunal. Unlike the Companies Act provisions, there is no provision for sick LLPs or LLPs being subjected to revival and rehabilitation.  The provisions also states that a LLP which has been wound up may also be dissolved and a dissolution order issued by the Tribunal .

A LLP can also be wound up without going through the process of winding up under a scheme of amalgamation  by an order or the Tribunal. Refer section 62 where by the Tribunal may order for the dissolution, without winding up, of any transferor LLP .