No income tax NOC/NDC required for voluntary liquidations, says IBBI

In a move that will ease some compliance burden, insolvency professionals would not be required to obtain any non-objection or no dues certificate from the Income Tax Department while handling the voluntary liquidation process, the Insolvency and Bankruptcy Board of India (IBBI) has clarified.

“The process of applying and obtaining of such NOC/NDC from the Income Tax Department consumes substantial time and thus militates against the express provisions of the Code, and also defeats the objective of time-bound completion of process under the Code,” IBBI said.

Section 178 of the Income-tax Act, 1961 obligates a liquidator to fulfil certain income tax related requirements. The section explicitly also states that its provisions “shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force” except the provisions of the Code.

IBBI clarified that liquidators had been seeking these certificates even though the Code or the Regulations did not ask for such a requirement.

“This clarification is very important as many of the voluntary liquidation matters keep dragging on only because of the delay or non-availability of No Objection or No Dues letter from income tax. Liquidators fear that in case any claim arises after the dissolution, it will be on the head of the liquidators. This clarification would fast track the process substantially,” said Manoj Kumar, partner, Corporate Professionals.

Industry experts said that many liquidators had been raising these queries to the IBBI. “The principles that the Code enjoys supremacy and that the Code intends to achieve the objective of being time-bound are reiterated with the amendment. This would operationally ease the process of voluntary liquidation,” said Veena Sivaramakrishnan, partner, Shardul Amarchand Mangaldas & Co.

Regulation 14 of the IBBI voluntary liquidation process mandates the liquidator to make the public announcement within five days of his appointment, calling for submission of claims by stakeholders within thirty days from the liquidation commencement date.

It also obligates all the financial creditors, operational creditors including government, and other stakeholders to submit their claims within the specified period. If the claims are not submitted in time, the corporate entity may get dissolved without dealing with such claims.  

At the end of June 30, 2021, 968 companies had initiated voluntary liquidation. Final reports in 438 cases had been submitted and nine processes had been withdrawn, according to the IBBI’s newsletter.

Most of these companies were small entities. Over 530 of them had a paid up capital of less than Rs 1 crore and only about a hundred of them had a paid up capital of more than Rs 5 crore.