Sections 278, 279 and 280 of the Companies Act, 2013: Effect of Winding Up Order, Stay of Suits and Tribunal Jurisdiction
Sections 278, 279 and 280 form part of Chapter XX of the Companies Act, 2013 dealing with winding up. They explain the collective effect of a winding up order, restrictions on suits and other legal proceedings after winding up or appointment of a provisional liquidator, and the jurisdiction of the National Company Law Tribunal (NCLT) over matters arising out of or relating to winding up.
Section 278 - Effect of winding up order
A winding up order operates for the benefit of all creditors and all contributories of the company as though the order had been made on their joint petition.
Meaning: Section 278 gives the winding up order a collective character. It is not confined to the person who presented the winding up petition; creditors and contributories generally receive the benefit of the order in accordance with the statutory winding up process.
Section 279 - Stay of suits and other legal proceedings on winding up order
Sub-section (1): Once a winding up order has been passed, or a provisional liquidator has been appointed, a suit or other legal proceeding by or against the company cannot be commenced, and a pending proceeding cannot continue, except with leave of the Tribunal and subject to the terms imposed by it.
An application seeking such leave is to be disposed of by the Tribunal within sixty days.
Sub-section (2): The restriction in sub-section (1) does not apply to a proceeding pending in appeal before the Supreme Court or a High Court.
Meaning: The provision centralises control over litigation affecting a company in winding up. Leave of the NCLT is therefore material for proceedings covered by Section 279(1), subject to the express appellate exception in Section 279(2).
Section 280 - Jurisdiction of Tribunal
Section 280 begins with a non-obstante clause and confers jurisdiction on the Tribunal, notwithstanding anything contained in any other law for the time being in force, to entertain or dispose of matters connected with winding up.
The provision covers:
(a) any suit or proceeding by or against the company;
(b) any claim by or against the company, including claims involving its branches in India;
(c) any application under Section 233; and
(d) questions of priority and other questions of law or fact concerning assets, business, actions, rights, entitlements, privileges, benefits, duties, responsibilities, obligations, or any matter arising out of or relating to the winding up of the company.
The jurisdiction extends to covered suits, proceedings, claims, questions and applications whether they arose or were instituted before or after the winding up order.
How Sections 278, 279 and 280 work together
Section 278 makes the winding up order operate collectively for creditors and contributories. Section 279 regulates the commencement and continuation of litigation after a winding up order or appointment of a provisional liquidator. Section 280 identifies the broad jurisdiction of the Tribunal in suits, claims, applications and questions connected with winding up.
Official statutory source
For the authoritative and updated statutory text, see the India Code portal and the Companies Act, 2013 on India Code.
This article is a general explanation of the statutory provisions. The application of winding up provisions can depend on the facts, procedural history and other applicable insolvency or company law provisions.