No NDC/ NOC from the Income Tax Department required for voluntary liquidations under IBC

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

“The process of applying for and getting such NOC/NDC from the Income Tax Department requires significant time, which militates against the specific requirements of the Code, and also frustrates the goal of time-bound completion of process under the Code,” IBBI added.

Section 178 of the Income-tax Act of 1961 requires a liquidator to meet certain income tax criteria. 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 emphasised that liquidators had sought these certificates despite the fact that neither the Code nor the Regulations required them.

“This clarification is critical because many voluntary liquidation cases are dragging on solely due to the delay or non-availability of a No Objection or No Dues letter from income tax.” Liquidators are concerned that if a claim occurs after the dissolution, it will fall on their shoulders. “This clarity will significantly accelerate the process,” said Manoj Kumar, partner at Corporate Professionals.

According to industry experts, several liquidators have raised similar concerns with the IBBI. “The amendment reiterates the concepts that the Code has supremacy and that the Code strives to attain the goal of being time-bound.” “This will operationally simplify the voluntary liquidation procedure,” said Veena Sivaramakrishnan, partner at Shardul Amarchand Mangaldas & Co.

Regulation 14 of the IBBI voluntary liquidation process requires the liquidator to make a public statement within five days of his appointment, with stakeholders submitting claims within thirty days of the liquidation’s start date.

It also requires all financial creditors, operational creditors, including the government, and other stakeholders to submit their claims within the time frame stipulated. If the claims are not submitted on time, the corporate body may be dissolved without having to deal with the claims.

968 companies had begun voluntary liquidation as of June 30, 2021. According to the IBBI’s bulletin, final reports in 438 instances had been submitted, and nine processes had been discontinued.

The majority of these businesses were small. Over 530 of them had paid up capital of less than Rs 1 crore, with only a few hundred having paid up capital of more than Rs 5 crore.

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