Companies Act Section 357

Companies Act, Section 357: Commencement of Winding Up by Tribunal

Section 357 of the Companies Act, 2013 addresses a fundamental aspect of the corporate winding-up process initiated by the National Company Law Tribunal (NCLT) that is, the precise point in time at which the winding-up of a company is deemed to commence. This provision is crucial for determining the legal and procedural consequences that follow the initiation of winding-up proceedings. It helps establish the timeline for assessing transactions, liabilities, and the status of the company’s assets, creditors, and members.

Deemed Date of Commencement of Winding Up

Section 357 clearly states that:

This means that even though the Tribunal’s actual order to wind up the company may be passed at a later date, the effective date from which the winding-up process is legally recognized as having commenced is the date on which the winding-up petition is filed before the Tribunal.

Legal and Practical Implications of the Deemed Date of Commencement

The determination of the commencement date of winding-up proceedings is not a mere procedural formality, it has important legal consequences for the company, its stakeholders, and all involved parties:

1. Freezing of Company’s Financial Status

Once the winding-up petition is presented, the company enters into a different legal regime.
Any disposition of property, transfer of shares, or alteration in the status of members after this date may be void, unless otherwise ordered by the Tribunal (as per Section 334).
This ensures that no unauthorized or suspicious transactions take place to defeat the rights of creditors or to reduce the value of the company’s assets.
2. Transactions Post-Petition May Be Scrutinized

All transactions entered into by the company after the date of the petition may be closely examined to determine if they are in the interest of the creditors or are fraudulent/prejudicial in nature.
The liquidator and the Tribunal have the power to reverse or declare such transactions void, if necessary.
3. Calculation of Time Periods

Several legal and procedural timeframes under the Companies Act or under rules relating to liquidation are calculated from the date of commencement of winding up.
For example, the period for submitting reports by the liquidator, Filing of claims by creditors or contributories, Payment timelines into designated accounts, Filing statements under Section 348.
4. Priority of Claims and Ranking of Debts

The date of commencement helps in establishing the priority of claims and fixing the cut-off date for identifying outstanding liabilities, dues, and unpaid obligations.
Claims arising after the commencement date may be treated differently from those arising before, especially in terms of priority of payment.
5. Role of Liquidator Becomes Active

The role of the Company Liquidator or Official Liquidator is activated in relation to actions and events that occur post-petition filing, subject to the actual order of winding up.
The liquidator must take into account all matters effective from the deemed date of commencement while preparing reports and conducting investigations.
6. Stay on Other Proceedings

The date of commencement also triggers the applicability of other provisions that may stay, suspend, or restrict legal proceedings against the company.
It ensures a centralized approach to resolving the company’s financial and legal affairs under the supervision of the Tribunal.