The Insolvency and Bankruptcy Board of India (IBBI) issued a circular on 15 November 2021. This circular clarified that there is no requirement to obtain a 'no objection' or 'no dues' certificate from the Income Tax department during the voluntary liquidation process under the Insolvency and Bankruptcy Code, 2016 (the Code) and regulations made thereunder.
It states that Regulation 14 of the IBBI Voluntary Liquidation Process Regulations, 2017 (the Regulations) mandates insolvency professional to make a public announcement within five days of his appointment, calling for submission of claims by stakeholders within 30 days from the liquidation commencement date. Therefore, the Regulations obligate all 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 person may get dissolved without dealing with such claims, and the claims will stand extinguished.
The IBBI noticed that liquidators sought to gain a 'no objection' or 'no dues' from the Income Tax department even after providing an opportunity for filing claims. In contrast, the Code does not envisage the same.
In that regard, the IBBI invited attention to Section 178 of the Income Tax Act, which requires liquidators to fulfill certain tax-related requirements, and explicitly states that provisions of the Code will override effects from Section 178 in case of any inconsistency between them.
Therefore, the IBBI clarified that there is no need to obtain 'no objection' or 'no dues' from the Income Tax department in the voluntary liquidation process​.
Our Comments
The IBBI rightly clarified that the Code and the Regulations do not envisage obtaining a 'no objection' or 'no dues' certificate from the Income Tax department in the voluntary liquidation process. What the Code expressly expects from creditors is to submit their claim in a time-bound manner. If the claim is not submitted, it shall stand extinguished.
We believe that the whole crux of the Code is a time-bound process and maximizing the value of assets of interested persons. With that intent in mind, provisions of the Code set out an explicit process to deal with the liquidation of a corporate person. We have witnessed that the process of applying and obtaining a 'no objection' or 'no dues' certificate from the Income Tax department consumes substantial time. This process defeats the objective of time-bound completion under the Code.
Nexdigm has voiced this concern to the IBBI through liquidators/ Insolvency Professional Agencies. We have argued this before the Hon'ble NCLT in various voluntary liquidation cases, and in many instances, the Hon'ble NCLT were pleased to agree with this submission.
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