IBC vs Companies Act Winding Up: Two Ways a Company Ends

Before 2016, a company that could not pay its debts was wound up by a High Court under the Companies Act. The Code took insolvency out of company law: inability to pay debts is now dealt with only under the Code, and voluntary winding up moved to section 59 of the Code. Winding up under the Companies Act survives, but only for other grounds, such as fraud or acts against the State. This note compares the two regimes and explains which applies when.

1. How the Line Was Drawn

Figure 1: From the Companies Act, 1956 to the Code

• Companies Act, 1956. High Courts wound up companies on grounds including inability to pay debts, with official liquidators attached to the courts; proceedings were notoriously slow.
• Companies Act, 2013. Winding up was entrusted to the NCLT, but the provisions came into force only alongside the Code.
• The Code, 2016. Through its Eleventh Schedule, the Code amended the Companies Act, 2013 to remove inability to pay debts as a ground of winding up and omitted the provisions on voluntary winding up, which is now governed by section 59 of the Code (Topic 60)
• Pending cases. Winding up petitions pending in High Courts were dealt with under section 434 and the transfer rules, with transfer to the NCLT where the proceedings had not reached an irreversible stage (Topic 61)

2. Winding Up under the Companies Act Today

Figure 2: Grounds of winding up under section 271

• Section 271. The NCLT may wind up a company if it has resolved by special resolution to be wound up by the Tribunal; if it has acted against the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality; if, on an application by the Registrar or another authorised person, its affairs have been conducted fraudulently or by persons guilty of fraud or misconduct; if it has failed to file financial statements or annual returns for five consecutive years; or if it is just and equitable to do so.
• Section 272. A petition may be presented by the company, a contributory, the Registrar, a person authorised by the Central Government, or the Central or State Government in the case of acts against the State.
• Rules and summary procedure. The Companies (Winding Up) Rules, 2020, effective from 1 April 2020, govern the procedure; small companies within prescribed limits on paid-up capital, turnover, deposits and loans may be wound up by the Central Government under the summary procedure in section 361.

3. Side by Side

Figure 3: Winding up and IBC liquidation compared

• Officer. Companies Act winding up is conducted by an official liquidator or a company liquidator from a panel; IBC liquidation by an insolvency professional appointed on the IBBI's recommendation (Topic 54)
• Priorities. In Companies Act winding up, workmen's dues rank equally with secured creditors under section 326 and preferential payments follow under section 327; in IBC liquidation, section 327(7) disapplies these provisions and section 53 governs (Topic 57)
• Fraudulent conduct. Section 339 of the Companies Act makes persons responsible for fraudulent conduct of business personally liable in winding up; section 66 of the Code provides the corresponding remedy in insolvency (Topic 51)
• Creditor control. The Code gives the committee of creditors control of the process and, after 2026, supervision of the liquidator; Companies Act winding up remains largely court-supervised.

4. Choosing the Route

• Insolvent company. A creditor or the company itself must proceed under the Code; a winding up petition on the ground of inability to pay debts is no longer maintainable.
• Solvent company wishing to close. Voluntary liquidation under section 59 of the Code, or, for a defunct company, removal of its name from the register under section 248 of the Companies Act.
• Fraud or public interest. The Registrar or the Central Government may seek winding up under section 271 on grounds such as fraud or acts against the State, whether or not the company is solvent.
• Deadlock or oppression. Members may seek winding up on the just and equitable ground, or relief against oppression and mismanagement under sections 241 and 242, which the NCLT may prefer as less drastic.

5. Frequently Asked Questions

Can a supplier file a winding up petition against a company that has not paid its bills?

No. Inability to pay debts is no longer a ground under section 271. The supplier must use section 9 of the Code if the default meets the threshold.

Can the NCLT wind up a solvent company under the Companies Act?

Yes, on grounds such as fraud in the conduct of its affairs, acts against the State, or the just and equitable ground, since these do not depend on insolvency.

Which priority rules apply when an insolvent company is liquidated under the Code?

Section 53 of the Code. Section 327(7) of the Companies Act provides that sections 326 and 327 do not apply in liquidation under the Code.

How does a solvent company with no debts voluntarily close today?

Through voluntary liquidation under section 59 of the Code, or, if it has no assets or liabilities and has not been carrying on business, by applying to have its name struck off under section 248 of the Companies Act.

6. Related Topics

• Topic 60: Voluntary Liquidation. Section 59 of the Code.
• Topic 61: Transfer of Winding Up Cases. From High Courts to the NCLT.
• Topic 83: CIRP vs Liquidation. Resolution or realisation.