Page 199 - ES 2020-21_Volume-1-2 [28-01-21]

182 Economic Survey 2020-21 Volume 1

6.6 As an illustration of unnecessary regulation in India, take the case of voluntary closure
of a company. A study by Quality Council of India (done for Economic Survey) shows that the
time taken from point of decision of closure to actually the company getting struck off from the
Registrar of Companies is 1570 days (i.e. 4.3 years), even if all paperwork is in place and the
company is not involved in any litigation or dispute. This is the best possible case of a routine
activity. Interestingly, out of the total time taken, about 1035 days are taken for clearances by
Income Tax, Provident Fund, GST departments and in taking back security refunds from various
departments (Table 3). In contrast, voluntary liquidation takes about 12 months in Singapore, 12-
24 months in Germany and 15 months in UK. In Germany, for very large and active companies,
it takes 2-4 years. Given the likelihood of disputes and litigation, for the comparable large cases
it may take upto a decade in India.

Table 3: Timelines and procedures faced by companies in voluntary
liquidation in India (even when there is no litigation/dispute)

Timeline
(days) Procedures

T Company’s decision to close its business operations in India

T +16 Passing of Board resolution by the Company to close its business operations in India
T + 20 Public announcement, communication to employees and strategizing transition of legal
to entity to liquidator
T + 70

T + 70 • Exit by majority of employees; Communication to vendors
to • Identification of physical data and records and Digitization of key physical records
T + 110 • Introduction of professional firm for bookkeeping activity going forward
• Undertaking sale/ realization and disposal of movable assets

T + 110 • Discontinuance of business operations and termination of contracts
to • Intimating income tax authorities
T + 200 • Exit by remaining key employees; Completion of asset disposal process
• Completion of identified pending statutory compliances and closure process with
government bodies monitoring industrial functions.
• seeking no dues certificate from all the vendors
• Identification and appointment of resident Indian director during the period of
voluntary liquidation process till the order for dissolution is passed by NCLT*

T + 200 • Appointment of new Board members including Indian resident Director*
to • Cessation of banking operations in existing bank accounts to mitigate risk of financial
T + 270 misappropriation
• Undertaking compliances under secretarial law and IBC, towards commencement of
voluntary liquidation

T + 270 • Passing of shareholder’s resolution for commencement of voluntary liquidation and
appointment of liquidator