Voluntary Winding-Up Under IBC 2016 And Companies Act 2013
Aastha Rathi, Campus Law Centre, Faculty of Law, University of Delhi
ABSTRACT
India's corporate insolvency and winding-up framework currently offers two distinct pathways for dissolving a company: voluntary liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 ("IBC"), and voluntary winding-up under Sections 271(a) and 272 of the Companies Act, 2013. While the IBC route is time-bound, creditor-friendly, and free of tribunal interference, it is available only to solvent companies. Insolvent companies are left with the Companies Act route, which imposes no solvency requirement but subjects the process to open-ended National Company Law Tribunal (NCLT) oversight and offers weaker creditor protections. This divergence creates room for forum shopping, as illustrated by instances where companies have used the Companies Act route to bypass IBC scrutiny despite being eligible for insolvency proceedings. This article examines the statutory gap between the two regimes, argues that the lack of coordination between them undermines both creditor interests and procedural efficiency, and proposes reforms including mandatory tribunal referrals to the IBC, relaxation of the Section 59 solvency test, and stricter timelines under the Companies Act to harmonize the two frameworks and close the loopholes currently available to defaulting companies.
