ROC-Initiated Strike-Off vs. Compulsory Winding Up: A Brief Introduction
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ROC-Initiated Strike-Off vs. Compulsory Winding Up: A Brief Introduction

In the corporate world, both ROC-Initiated Strike-Off and Compulsory Winding Up are legal processes that lead to the dissolution of a Limited Liability Partnership (LLP). However, these two processes are distinct in their nature, initiation, and procedures.

1. ROC-Initiated Strike-Off (LLP):

A strike-off refers to the removal of an LLP’s name from the Register of LLPs by the Registrar of Companies (ROC). This process is relatively quicker and less complex, primarily involving the Registrar or the Centre for Processing Accelerated Corporate Exit (C-PACE) after recent amendments. It can be voluntarily initiated by the LLP itself or by the ROC in cases of inactivity.

  • Purpose: The ROC-initiated strike-off when the ROC has reasonable cause to believe that LLPs is not carrying on business or its operation, in accordance with the provisions of Limited Liability Partnership Act, 2008, or are no longer in operation. It is a method of formally deregistering the LLP when it has become defunct.
  • Grounds for Strike-Off:
    • The LLP agree to wind up the business voluntarily.
    • The LLP has not conducted any business operations for a certain period, and there is no intention to resume.
  •  Procedure:
    In case the ROC initiate the strike-off process under Section 75 of the Limited Liability Partnership Act, 2008. The procedure includes:

      • Issue a notice to the LLP for striking of its name from the register and give a reasonable opportunity of being heard.
      • If applicable, publishing a public notice.
      • If no objections are received or if the LLP fails to respond or rectify the issues, the ROC will strike off the LLP’s name from the register.

    In case the LLP be wound up voluntarily under the Limited Liability Partnership Act, 2008. The procedure includes:

    • Passing a special resolution i.e., approval of at least three-fourths of the total number of its partners.
    • In case of insolvent LLP, NOC required from the creditors of value more than INR 1 lakh and the same should advertise in a newspaper within fourteen days of receipt of consent.
    • A copy of the resolution shall be filed with the Registrar within thirty days of passing of such resolution in Form No. 1.
  • Effect: Once the name is struck off, the LLP ceases to exist legally. However, any outstanding liabilities or dues may still exist, and creditors may pursue their claims.

2. Compulsory Winding Up (LLP):

Compulsory winding up is the formal dissolution process, where its affairs are liquidated, and its assets are distributed among creditors. This process is initiated by a tribunal (in this case, the National Company Law Tribunal (NCLT)). The winding-up process is governed by Section 65 of the LLP Act, 2008, which empowers the Tribunal to order compulsory dissolution.

  • Purpose: Compulsory winding up is primarily used to dissolve an LLP that is unable to pay off its debts, or when the LLP’s business operations cannot continue due to insolvency, mismanagement, or other severe issues.
  • Grounds for Winding Up:
    • The LLP is unable to pay its debts.
    • The LLP has acted against the interests of the sovereignty and integrity of India, the security of the State or public order.
    • The LLP has made a default in filing the Statement of Account and Solvency or annual return for any five consecutive financial years.
    • If the Tribunalis of the opinion that it is just and equitable to wound up the LLP.
    • If the limited liability partnership decides to be wound up by the Tribunal.
    • The number of partners of the LLP is reduced below two for more than six months.
  • Procedure: Compulsory winding up can be initiated by:
    • A tribunal (NCLT) upon a petition filed by creditors, partners, or the LLP itself, or the government.
    • The tribunal, may dismiss or make an order for the winding-up of LLP, if it thinks fit.
    • Appoint a ‘liquidator’ as provisional liquidator, and direct the LLP to cease its business activities.
    • Liquidator shall prepare a report in the Form No. 9, showing that the property and assets of the LLP have been disposed of, its debts fully discharged and distribute any remaining assets among the partners.
  • Effect: Once the NCLT orders winding up, the LLP is liquidated, and its affairs are settled under the supervision of the liquidator. Any remaining assets, after paying debts, are distributed to the partners. Once the liquidation is complete, the LLP ceases to exist.

Key Differences Between ROC-Initiated Strike-Off and Compulsory Winding Up of LLP:

Aspects ROC-Initiated Strike-Off Compulsory Winding Up
Initiation By the Registrar of Companies (ROC), typically for inactivity or voluntarily. By NCLT, on petition by creditors, partners, or government.
Reasons Not conducted any business operations for a certain period, and there is no intention to resume. Insolvency, failure to pay debts, fraud, or acted against the interests of its creditors or shareholders.
Process Relatively simpler and faster. The LLP needs to file an application with the Registrar for voluntary strike-off, or the Registrar can initiate the process. Complex and lengthy process. The tribunal (NCLT) assesses the situation, and once winding-up is ordered, a liquidator is appointed to manage the LLP’s affairs.
Role of C-PACE C-PACE now handles the strike-off process from the Registrar (as per the recent amendment). The LLP applies to C-PACE for the strike-off. C-PACE is not involved. The process is handled by the NCLT, which issues an order for compulsory winding-up.
Eligibility It is suitable for dormant or defunct LLPs that have no assets or liabilities to settle. It is suitable for LLPs with assets, liabilities, or ongoing disputes, often initiated due to insolvency or misconduct.
Impact on Creditors The LLP may settle its debts before applying for strike-off and in case of insolvent LLP, NOC required from the creditors. Creditors are directly involved in the process. The NCLT appoints a liquidator who sells assets and pays creditors.
Liability Liabilities may still exist and creditors can pursue claims Liabilities are cleared through liquidation and asset distribution

Key Sections and Rules Governing LLP Closure:

  1. Section 63 of the LLP Act, 2008: Winding up and Dissolution.
  2. Section 64 of the LLP Act, 2008: Circumstances in which limited liability partnership may be wound up by Tribunal.
  3. Section 65 of the LLP Act, 2008: Rules for winding up and Dissolution.
  4. Section 75 of the LLP Act, 2008: Power of Registrar to strike defunct limited liability partnership off register.
  5. Rule 5 of the LLP Act, 2008: Circumstances in which LLP may be wound up voluntarily.
  6. Rule 9 of the LLP Act, 2008: Publication of resolution to wind up voluntarily.
  7. Rule 19 of the LLP Act, 2008: Dissolution of LLP.
  8. Rule 27 of the LLP Act, 2008: Powers of Tribunal.