Govt Plans to Wind Up Companies on Special Grounds Like National Security

Highlights

  1. The Indian Government plans to come up with new law and are already working on it, to wind up a company on the basis of national security, sovereignty and integrity of the nation
  2. This new rule will give authority to both the central and state governments to appeal for closing a company under  the Companies Act, 2013
  3. Once the firm decision is made over these rules, Section 270 to 303 and 324 to 365 of the Companies Act, 2013 will be notified.

The Indian Government is planning to come up with new law and are already working on it, to wind up a company on the basis of national security, sovereignty and integrity of the nation. The Ministry of Corporate Affairs (MCA) is looking forward to finalise this new law by next month.

This new law empowers the government to start winding up proceedings against any company, which intends to or done anything against the interest of security and integrity of the nation or try to harm the harmonious relations with other countries via its operations.

An official reported to be told “The other grounds on which a company can be wound up include just and equitable, non-filing of financial statements or annual returns for five consecutive years and the company’s affairs being conducted in a fraudulent manner,”

“However, the ministry is of the view that since the companies now have the option of seeking closure under the Insolvency and Bankruptcy Code (IBC), 2016, the new rules should do away with the provision that allows the government to close a company if a special resolution for winding up is passed by the firm.”

Once the firm decision is made over these rules, Section 270 to 303 and 324 to 365 of the Companies Act, 2013 will be notified.

This new rule will give authority to both the central and state governments to appeal for closing a company under  the Companies Act, 2013. If the company intends to wind up operations by its own then it shall file for winding up or resolution under the IBC.

Before the IBC existed, the Companies Act, 2013 was shouldered with responsibility of both incorporation and dissolution of companies. The very old version of the Companies Act in 1956 had 3 modes of shutting down a company, either voluntary, court-ordered or done under the supervision of the Court.

As IBC was established, Companies would wind up under it or under the Companies Act, 2013, based on the nature of the dissolution of the case.

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Important Links

  1. Govt working on rules to shut down firms on grounds of national security: Report
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