Voluntary liquidation does not require NOC or NDC of Income Tax Department

MUMBAI: The Board of Insolvency and Bankruptcy of India (IBBI) has clarified that for the expeditious disposal of corporate bankruptcy cases, insolvency professionals have to obtain a certificate of any non-objection (NOC) or any outstanding debt from the income tax department while processing voluntary liquidation. NDC) will not be required.

The move is expected to reduce some of the burden of compliance in bankruptcy proceedings. The IBB said, "The process of applying for and obtaining such NOCs / NDCs from the Income-tax department takes a long time and thus goes against the clear provisions of the Act as well as thwarting the objective of timely completion of the process under the Act."

Section 17 of the Income-tax Act, 181 obliges the liquidator to meet certain income-tax requirements. This section also makes it clear that its provisions, apart from the provisions of this Act, "shall be effective even if contrary to any other law."

The IBBI clarified that the liquidators were seeking these certificates even though there was no such requirement in the law or regulation.

This clarification is very important as many voluntary liquidations are delayed only due to delay or unavailability of No Objection or No Deuse Letter from the Income Tax Department. Liquidators fear that if a lawsuit arises after going into liquidation, it will come at the head of the liquidators. This clarification will significantly speed up the process of corporate liquidation.

Rule 13 of the IBBI obliges the liquidator to make a public declaration of voluntary liquidation within five days of its appointment, stating that the claims must be submitted by the stakeholders within thirty days from the date of commencement of the liquidation.

By the end of June 30, 2021, 6 companies had started voluntary liquidation. According to the IBBI newsletter, final reports were submitted in nine cases and proceedings were withdrawn in nine cases. Most of these companies were small companies. The paid up capital of more than 20 companies is Rs. Less than one crore and out of which only 100 companies have paid-up capital of Rs. Was over five crores.