No income tax NOC/NDC is necessary for voluntary liquidations : IBBI

The Insolvency and Bankruptcy Board of India (IBBI) has clarified that insolvency practitioners will not be required to get a non-objection or no dues certificate from the Income Tax Department while handling the voluntary liquidation procedure, easing some compliance load.

“The procedure of applying for and receiving such NOC/NDC from the Income Tax Department takes a long time and thus violates the Code’s specific provisions, as well as defeating the goal of time-bound process completion under the Code,” IBBI added.

A liquidator is required to comply with certain income tax obligations under Section 178 of the Income-tax Act of 1961. Except for the provisions of the Code, the section expressly stipulates that its provisions “shall have effect despite anything to the contrary contained in any other law for the time being in force.”

IBBI emphasized that liquidators were requesting these certificates despite the fact that neither the Code nor the Regulations required them.

“This clarification is critical since many voluntary liquidation cases are dragging on due to the delay or non-availability of an Income Tax No Objection or No Dues letter. Liquidators are concerned that if a claim occurs after the dissolution, it will fall on their shoulders. This clarification will significantly speed up the process,” said Manoj Kumar, a partner at Corporate Professionals.

Many liquidators had been submitting these questions to the IBBI, according to industry experts. “With the change, the principles that the Code has supremacy and that the Code strives to attain the goal of being time-bound are reaffirmed. This will make the voluntary liquidation procedure easier from an operational standpoint,” said Veena Sivaramakrishnan, partner at Shardul Amarchand Mangaldas & Co.

The liquidator must make a public notice within five days of his appointment, and stakeholders must submit claims within thirty days of the liquidation’s start date, according to Regulation 14 of the IBBI voluntary liquidation process.

It also requires all financial creditors, operational creditors, including the government, and other stakeholders, to submit claims within a certain time frame. If the claims are not filed on time, the corporation may be dissolved without having to deal with them.

968 businesses had filed for voluntary liquidation as of June 30, 2021. According to the IBBI’s bulletin, final reports had been presented in 438 cases, and nine processes had been withdrawn.

The majority of these businesses were small. Only approximately a hundred of them had a paid up capital of more than Rs 5 crore, while over 530 had a paid up capital of less than Rs 1 crore.