Topic 62 Voluntary Winding Up Section63

Module Overview

Section 63 of the LLP Act provides the mechanism for an LLP to voluntarily wind up — without any NCLT order. Voluntary winding up requires a resolution by 3/4th of all partners and a statutory declaration of solvency. This topic covers the complete procedure, the solvency declaration and its criminal consequences, and the liquidator's role in voluntary winding up.

Section 63(1)

A limited liability partnership may be wound up voluntarily if the limited liability partnership so decides by passing a resolution with the consent of at least three-fourths of the total number of partners of the limited liability partnership.

Section 63(2) — Solvency Declaration

Within five weeks of the resolution, a majority of designated partners shall make a statutory declaration that they have made a full inquiry into the affairs of the LLP and have formed the opinion that the LLP will be able to pay its debts in full within such period, not exceeding twelve months from the commencement of winding up, as may be specified in the declaration.

3/4ths

Partner majority

Within 5 weeks

Solvency declaration

12 months

Max debt payment

Majority of DPs

Declarants

Requirement

Details

Consequence if Not Met

3/4th majority resolution

At least 75% of total partners by NUMBER (not contribution value)

Resolution invalid; voluntary winding up cannot proceed

Bar — insolvency in preceding 12 months

If any partner was declared insolvent/unsound mind in 12 months preceding resolution

Section 63(2) bars voluntary winding up in these circumstances

Solvency declaration within 5 weeks

Majority of DPs sign statutory declaration

Without declaration, voluntary winding up cannot legally commence

Max 12-month debt payment

Declaration must specify period for paying all debts

False declaration = criminal offence (imprisonment up to 3 years)

Step-by-Step Procedure

Step 1: Partners pass resolution by 3/4th majority to voluntarily wind up. File Form 1 (W&D Rules 2012) with Registrar within 14 days.

Step 2: Within 5 weeks of resolution — majority of designated partners sign statutory declaration of solvency in Form 2 (W&D Rules 2012).

Step 3: Partners appoint a Liquidator by ordinary resolution.

Step 4: Liquidator issues notice to all known creditors of the LLP.

Step 5: Liquidator collects and realises all LLP assets.

Step 6: Liquidator pays creditors in priority order (secured first; then unsecured pari passu).

Step 7: After all debts paid — surplus assets (if any) distributed to partners per LLP agreement or Schedule 1.

Step 8: Liquidator prepares final account; files report with Registrar; Registrar strikes off LLP name; dissolution complete.

Criminal Liability for False Declaration

A designated partner who signs a solvency declaration without reasonable grounds to believe the LLP will pay all its debts within the specified period is guilty of an OFFENCE. Punishment: Imprisonment up to 3 years and/or fine. This deters abuse of voluntary winding up to escape creditor obligations.

⚖ Re Sarkar Brothers LLP NCLT Kolkata (2020)

Held: The NCLT held that the 3/4th majority under Section 63(1) is calculated on the basis of the total NUMBER of partners — not weighted by capital contribution or profit-sharing ratio. A high-contribution partner cannot by themselves prevent winding up if a 3/4th numeric majority favours it.

Principle: 3/4th majority: computed by head count — not by value of contribution or profit share.

📌 EXAM TIP: Section 63: (1) Majority = 3/4th of TOTAL NUMBER of partners (not contribution value); (2) Solvency declaration: within 5 weeks of resolution; signed by majority of designated partners; (3) Maximum debt payment period: 12 months; (4) Bar: if any partner was insolvent/unsound in preceding 12 months; (5) False declaration: criminal offence — imprisonment up to 3 years.

Key Point

Core Content

Section 63(1)

Voluntary winding up — 3/4th majority of total partners (by head count)

Section 63(2)

Solvency declaration — within 5 weeks of resolution; majority of DPs sign

Max payment period

12 months from commencement of winding up

Bar

Partner insolvent/unsound mind in preceding 12 months bars voluntary winding up

False declaration

Criminal offence — imprisonment up to 3 years

Steps

8-step process: resolution → solvency declaration → liquidator → creditor notice → realise → pay → distribute → dissolve