Liquidation of the company in India

The process of closing a company in India can take place under three main cases, each with its own licit setup and needs.

The first and most straightforward option is known as "Strike Off." This method is applicable to firms that have stopped their tasks, have settled all outstanding dues, and are not involved in any licit disputes. It is a quick and simple administrative sequence where the firm’s name is eliminated from the authorized directory by the RoC.

The second route is voluntary elimination under the Insolvency and Bankruptcy Code (IBC). This is a formal sequence where a solvent firm—meaning it can fully remit its dues—opts to close its mercantile. This method asserts that creditors are paid in full and is often pursued by mercantiles that want to close tasks in a setup and lawful manner.

The third and more complex option is elimination via insolvency. This route is used when a firm is no longer able to meet its fiscal onuses. It comprises the intervention of the National Company Law Tribunal (NCLT), which oversees the sequence. Although it is a mandatory sequence due to the firm’s fiscal distress, it can also be instigated by the firm’s proprietors. This form of elimination comprises designating an insolvency expert who handles the firm’s affairs under court oversight.

We will explore each of these options in greater detail, examining the specific licit needs, key features, and procedural phases involved in closing a mercantile in India.

Closure of a firm via Strike Off

This method gives a streamlined and economical way to close a firm in the polity without the need for designating an executor, publishing public notices, or partaking in lengthy court affairs. This easy sequence is much faster than traditional methods, often fulfilled within 60 to 120 days, and helps reduce both direct and indirect licit expenses.

To qualify for this method, the mercantile must have entirely halted all tasks. This comprises refraining from signing new contracts, making sales, concluding any deals, or undertaking any fiscal deals via the firm’s bank accounts. Even the slightest scheme, such as a single deal, can be interpreted as occurring mercantile tasks, disqualifying the firm from this closure method.

Prior to enrolling for Strike Off, the firm must settle all its fiscal responsibilities. This comprises remitting any outstanding levies, loans, rent, salaries, and dues to suppliers or service providers. The overseers also consider potential dues, such as levies from previous years, not just existing dues.

Also, all statutory filings—comprising annual fiscal and abidance records—must be fulfilled and conveyed from the time of the firm’s incorporation. Failure to meet these filing needs results in automatic rejection of the Strike Off enrollment.

This option is not available to firms currently involved in any licit disputes, comprising pending cases in civil, arbitration, or administrative courts. Even if a debt recovery sequence or an excise-related matter has been instigated, the firm becomes ineligible for this closure route.

Overall, this method is known as the most affordable method to shut down an inactive firm in the polity, provided all abidance and fiscal onuses are fully met and no licit affairs are underway.

Removing obstacles

Prior to the formal sequence, it is imperative to first address and resolve any outstanding matters that may impede the progression of the enrollment. Failure to do so will result in the outright rejection of the request for closure. Among the crucial preliminary phases comprises asserting that all firm holdings have been outrightly eliminated from the balance sheet.

These holdings may comprise, but are not constrained to, cash balances in corporate bank accounts, unpaid customer receivables, real estate holdings, office equipment, and unsold inventory. Such holdings must be either sold at fair market value, properly allocated to financiers, or written off with full aiding records in the firm's accounting books. It is vital that no asset—regardless of its perceived value—remains listed on the firm’s fiscal records at the time of submission.

In order to qualify for a streamlined or fast-track elimination, the mercantile must be entirely free from any form of licit or fiscal encumbrance. The supervisory overseers will not only examine the firm’s abidance with annual filings and fiscal reporting onuses, but will also scrutinise its adherence to excise responsibilities across numerous critical domains. These comprise the full settlement of corporate income excise dues from previous fiscal years, the closure of all GST onuses, and the absence of any fines related to delays in statutory abidance.

Moreover, the firm must not have any active loan arrangements, lease agreements, or unresolved dues. The presence of even a minor fiscal obligation or pending contract may lead to disqualification from the simple closure route.

Government bodies, particularly the Ministry of Corporate Affairs (MCA), will conduct comprehensive verifications via internal databases and the digital platforms of the excise overseers. It is strongly recommended that the firm obtains approved excise clearance credentials and no-dues confirmations from the relevant fields. In addition, all company bank accounts should be formally closed, with recorded evidence retained for submission. Any unresolved administrative, fiscal, or operative matters should be fully settled prior to filing the closure enrollment.

It is also vital to understand that the closure of a firm is not necessarily permanent. Under Indian statute, a firm may be revived for up to 20 years following its dissolution if any previously undisclosed or unsettled dues come to light. In such instances, overseers and financiers could find themselves personally accountable to creditors or excise bodies for these unresolved onuses, thereby reinforcing the importance of thorough due diligence prior to closure.

Furthermore, a firm is ineligible to enroll for a Strike Off if it is currently involved in any form of litigation, arbitration, or administrative review. This comprises pending civil suits, unresolved excise audits—particularly those concerning GST and corporate excise—or any occurring investigations under the Companies Act of 2013. These issues must be conclusively resolved Prior to proceeding with the enrollment. This may involve obtaining a court judgment to dismiss the case, negotiating a formal settlement, or acquiring an approved communication indicating the conclusion of an excise audit. Even if an excise investigation is partially fulfilled, it can still obstruct the Strike Off sequence, making the swift and fulfilled judgement of such matters absolutely critical.

Preparing records for closure of a firm via Strike Off

The first phase is to fulfill and convey Form STK-2. This form comprises vital details about the firm, a formal confirmation that the mercantile has halted tasks, and a proclamation of the absence of occurring licit affairs involving the firm.

Along with the STK-2 enrollment, numerous aiding records must be conveyed. Among these is a notarised affidavit from each firm director. This affidavit confirms that the mercantile is no longer operative, has cleared all dues, and is not involved in any lawsuits. Another key record is the special judgement passed by the financiers, asserting the firm’s closure. This judgement must be consented by at least 75% of voting financiers and accompanied by records such as the notice of the meeting and a list of attendees.

Also, overseers are needed to supply an indemnity bond, committing to cover any pecuniary dues or claims that may surface after the firm has been officially dissolved.

In abidance with corporate reporting regulations, the firm must also file its Annual Return using Form MGT-7 and convey its fiscal records via Form AOC-4 for every fulfilled pecuniary year up to the date of enrolling for Strike Off.

While not licitly needed, it is highly advisable to comprise certain optional records to streamline the sequence and avoid delays. These comprise no-dues credentials from relevant government fields such as the Income Tax and GST overseers, and letters from banks confirming the closure of all firm accounts and the absence of outstanding onuses.

If the firm’s most recent pecuniary records reflect any remaining holdings, a detailed report outlining how these holdings were distributed among financiers must be conveyed. If there are no holdings, a certified record confirming a zero balance as of the filing date is needed. This serves as final proof that the firm has halted all mercantile schemes and carries no undisclosed dues, helping assert a smooth Strike Off sequence.

Filing for simplified closure

Once all prime records are arranged and any outstanding issues are resolved, you can proceed to enroll for a firm strike-off via the MCA portal in the polity. The first phase is to assert that all overseers have valid and active Digital Signature Certificates (DSC), which must be registered on the MCA platform.

You must then fulfill and convey Form STK-2 on the MCA21 portal. This form needs you to supply the firm’s licit details, comprising its full name and Corporate Identification Number (CIN). You must also declare that the mercantile has halted all tasks, has no outstanding dues, and is not involved in any licit disputes.

Numerous aiding records must be uploaded in PDF format, comprising a sworn affidavit from the overseers, an indemnity bond, a copy of the special judgement passed by financiers, the latest annual return (MGT-7), and pecuniary records (AOC-4). These files must be clear, full-sized scans with a judgement of at least 300 dpi and must not be password-protected or encrypted. The data provided must align precisely with the firm’s previously conveyed records; any discrepancies could lead to immediate rejection.

All records, comprising the STK-2 form, must be digitally signed by all overseers—unless the firm's charter permits only two to sign. Once uploaded, the system will automatically verify the validity of the digital signatures.

A government filing fee of INR 10,000 (approximately USD 120) must be paid via the MCA remittance gateway at the time of submission. It is vital to save proof of remittance and download a copy of the conveyed STK-2 form, which will comprise the Service Request Number (SRN) for tracking.

You should regularly check the enrollment’s progress using the “Track SRN Status” feature on the MCA portal. Prior to filing, assert there are no errors such as incorrect firm names, wrong CIN entries, mismatched scheme closure dates, unreadable or altered PDF files, or missing digital signatures. Any of these mistakes will lead to the enrollment being rejected, forcing the firm to restart the sequence and pay the fee again.

Once the enrollment is conveyed, records are signed, and remittance is fulfilled, the Registrar of Companies (RoC) will review the enrollment. From this stage onwards, no changes can be made to Form STK-2 or its aiding records.

Getting the status " Pending for ROC approval" and its meaning

Once the STK-2 form is conveyed along with the applicable fee, the enrollment admits the status of “Pending for ROC approval.” During this review period, the firm is still considered licitly active and must progress to meet all statutory onuses. If a new pecuniary year begins prior to the RoC has given its approval, the mercantile is needed to file its Annual Return and Financial Statements. Failure to do so can lead to penalties and possible rejection of the strike-off enrollment.

After commencing the simple elimination sequence for a mercantile in the polity, it is vital to actively follow up on the progress. This comprises monitoring the enrollment status regularly via the "Track SRN Status" feature on the MCA portal and watching for any approved communication from the RoC or other overseers. Until a final decision is issued, the firm must progress to operate in full abidance with the statute. If the enrollment is denied, the firm is expected to resume full tasks without any breaches of corporate governance.

If the conveyed records are in order, the RoC will typically proceed to publish a strike-off notice in the Official Gazette without asking for additional records. However, if there are minor inconsistencies or missing details, the RoC may request clarifications or corrections. Applicants usually receive such feedback within 15 calendar days.

In cases where major errors are identified—such as missing pecuniary records from previous years—the enrollment is outrightly rejected, with no opportunity for rectification. When this occurs, the entire sequence must be restarted from the beginning.

Publication of notice

Once the technical review is fulfilled, the RoC assigns the status "Sent for Publication" to the enrollment. This indicates that the enrollment has been conveyed for the publication of a notice regarding the intention to close the firm. The RoC then publishes the notice in the Official Gazette and on the MCA portal, specifically in the Notices section. The notice comprises key records such as the full name of the firm, its enrollment number (CIN), the date the enrollment for striking off was made, and an invitation for any prospective parties to convey objections within a specified time frame.

It is prime to note that all parts of the notice publication are handled by the RoC, and the entrepreneur does not need to take any further action. Once the notice is posted, the mercantile admits a "limited operation" status, which imposes numerous restrictions. These restrictions comprise a prohibition on entering into new contracts or deals, making changes to the composition of the associates or overseers, or enrolling any changes to the firm's enrolled office. Alao, no new loans, liens, or encumbrances can be placed on the firm's holdings. Any violation of these restrictions could result in the cancellation of the elimination sequence and may lead to additional liability for the firm's overseers.

If no objections are conveyed within a month period, the RoC will proceed with the sequence of finalizing the exclusion of the firm from the directory. However, if objections are raised, the elimination sequence may be paused until the claims are resolved. Two possible scenarios can arise from this:

1. If the objections are deemed unfounded, the elimination sequence will progress as arranged.
2. If the objections are valid, the enrollment for striking off will be rejected, and the firm will be needed to settle any outstanding dues or bring its corporate records into abidance.

It is prime to note that unfounded or formal objections do not automatically halt the elimination sequence. Each objection is carefully reviewed and assessed on an individual basis.

Company liquidation order in India and licit implications

Once the month period has elapsed without any valid objections, the RoC will issue a formal order to close the business in India. This decision is then posted in the Official Gazette and updated in the government’s mercantile directory on the MCA portal.

With the publication of this order, the firm’s licit existence is effectively terminated. Internal tasks within the firm come to a halt, and any occurring deals, contracts, or banking schemes carried out on behalf of the firm become licitly invalid.

Even after the firm is formally dissolved in the polity, it remains vital for the overseers and associates to maintain the firm’s records for a minimum of 20 years. It is advised that this archive comprises key records such as the firm's founding records (Memorandum and Articles of Association), pecuniary records, excise returns, and as well as any paperwork that proves the firm has no outstanding dues and has fulfilled all needed sequences. Also, a copy of the RoC order for delisting the firm and the notice posted in the Official Gazette should also be kept.

Failure to retain these crucial records in case of company reinstatement or licit claims could hinder the safeguarding of financiers’ interests and elevate the perils of personal liability.

Voluntary liquidation of Indian business through IBC

Even when a firm is fully arranged for settlement, commencing the Strike Off sequence in the polity can only begin once all onuses have been fulfilled and the prime approved credentials have been obtained. In reality, this sequence often proves to be lengthy. Deregistering encumbrances from holdings can be delayed due to complex registration needs, while excise overseers carry out detailed checks prior to issuing no-dues credentials, often leading to considerable waiting times.

These formalities are largely outside the firm’s control, even when all paperwork is conveyed promptly. It is not uncommon for numerous months to pass prior to any progress being made. In certain cases, simple elimination is simply not feasible. For instance, when there are unresolved or contested dues, or if a creditor disputes the amount owed or refuses to accept a settlement, or if litigation is still occurring, the firm cannot proceed with a simple closure.

Also, if excise overseers have issued notices regarding pending audits, penalties, or have mandated further remittances, the elimination sequence is automatically stalled. Similarly, if the firm’s holdings—such as real estate—are subject to encumbrances or mortgages, they cannot be sold without undergoing a complicated approval sequence. In such cases, the balance sheet can only be cleared via a formal and fulfill elimination sequence under Indian statute.

There may also be licit claims or liens that can only be lifted with a court order or explicit bank consent. The Strike Off route becomes unviable, or at best impractical, when licit or procedural obstacles interfere with the firm’s ability to resolve pecuniary or abidance issues. For example, any occurring court or arbitration affairs must reach a conclusion prior to the mercantile can be licitly closed. These licit sequences are often drawn out, especially when the issues involved are complex or subject to slow judicial handling.

In more intricate cases, the IBC supplies a comprehensive mechanism for closing a mercantile. Through the IBC, creditors can be settled in a unified sequence, asset sales can be executed under the oversight of an authorized liquidator, and final closure is sanctioned by the court. This route reduces the personal liability of overseers, eases the judgement of pecuniary onuses, and accelerates the closure of tasks in the polity.

It is prime to note that once a firm undergoes volitional elimination under the IBC setup, overseers are no longer responsible for routine corporate duties such as filing annual returns or pecuniary records, updating the MCA records, representing the firm prior to overseers, or responding promptly to excise officials and auditors. They are released from liability associated with breaches during the elimination sequence and are no longer needed to handle day-to-day tasks. The IBC also mandates that all creditors be formally informed, thereby mitigating the peril of future claims after the firm’s official closure.

Conditions and preparation for liquidation of Indian business through IBC

The metrics for liquidation via IBC are similar to Strike Off in the following respects:

• Refusal to conclude new deals, sales, remittances via bank accounts
• Submission of all annual records (Annual return and fiscal records) for fulfilled pecuniary periods
• Fulfilment of excise onuses and settlement of dues to government agencies.

In this case, the presence of holdings and dues at the time the procedure begins is permitted (provided that the value of the property allows for the full coverage of all firm onuses).

The basic package of records is similar to the needs for Strike Off: a declaration of absence of disputes, a judgement to close the mercantile, a guarantee obligation of overseers. But to liquidate an Indian firm through IBC, additional indentures will be needed:

• Declaration of Solvency - a notarized record by overseers of their ability to pay all dues.
• Valuation Report - a report from a licensed appraiser on the market value of a firm's holdings.
• Audited Financial Statements - pecuniary records for the last two years or for the entire period of the firm's existence, certified by a certified auditor.

And also Resolution for Appointment of Liquidator - a special judgement of the participants on the designation of a licensed liquidator (Insolvency Professional).

Closure via IBC

The sequence is contingent on the same principles as Strike Off:

• Filing a notice.
• Publication of details for interested parties.
• Restricting the firm's actions until the sequence is fulfilled.

But unlike Strike Off, the closure of a trade is handled by an executor (not the firm overseers). The executor is designated via a general meeting, subject to the following needs:

• Written notification of all participants about the training camp 21 days prior to it initiating.
• The presence of at least two proprietors to form a quorum.
• Passing a Special Resolution to close down a firm in the polity and designate an executor by a majority of not less than 75% of the votes of the associates,
• Recording the voting results in the official minutes of the meeting.

It is also prime to obtain the written consent of the selected liquidator to partake in the sequence, specifying the terms of his work. The executor must be registered with the Insolvency and Bankruptcy Board of India (IBBI) and have a valid license without restrictions. The position is not available to financiers of the firm, creditors, affiliated representatives of participants and other persons with a conflict of interest.

A liquidator performs the main tasks of closing a firm and completing its occurring sequences:

1. Notification of creditors (via publication in the media and personal notifications).
2. Maintaining a directory of settlements, interaction with government agencies.
3. Coordination of new deals, changes in capital structure and redistribution of holdings.

Business proprietors have limited involvement in the sequence. They supply corporate, accounting and registration records, supply access to bank accounts and holdings, and assist in meeting procedural needs. Any decisions on behalf of the firm are made exclusively via the executor.

• Key records about the progress of a firm’s closure: stage of consideration, asset deals, movement of funds, course of procedural actions.
• Interim records comprising records on receipts, settlements, asset sales and current status.
• Final report on the fulfilment of all onuses prior to filing for finalization of cancellation in NCLT.

In cases of abuse or gross violations, associates have the freedom to challenge the executor's actions in the NCLT or mandate his replacement.

After the designation, the executor notifies the interested parties. He publishes the text of the closure of the firm in the following media:

• Two printed publications (in English and in the authorized language of the polity).
• The official newspaper of India.
• On the MCA portal.

The notice must contain the particulars of the firm, the date of commencement of elimination and a call for claims within the stipulated time. Equally, written notices are sent to the creditors about closure of a trade in the polity.

In the next month from the date of publication, creditors may send a written mandate for the return of the debt with aiding records attached: copies of contracts, invoices, bills or court decisions. Claims are classified depending on their status (secured, unsecured, priority).

After the deadline for accepting claims, the executor checks the validity of each claim. He has the freedom to:

• Acknowledge the claim in full.
• Partially authorize the amount of debt.
• Reject the claim in the absence of sufficient evidence.

All recognized claims are recorded in the list of creditors' claims. Dues are repaid using funds in the firm's accounts and money received from the sale of holdings.

After all calculations are fulfilled, the executor arranges a final report, comprising:

• List of recognized claims and their status of satisfaction.
• Records on the sale of holdings.
• Records on cash flow.
• Remaining undistributed amounts (if any).

The final report is sent to the NCLT along with the enrollment for fulfillment of the closure. The tribunal considers the materials and issues an order for the closure of the firm (if there is no objection).

Compulsory closure

This is practiced in cases of fiscal insolvency. There are clear criteria for commencing the sequence:

• The firm is unable to meet fiscal onuses of Rs 1 lakh (approximately US$ 1,200) and above.
• An analysis of the fiscal condition revealed that the value of holdings is insufficient to cover all dues.
• The firm failed to implement the recovery plan consented under the Insolvency Resolution sequence.

Forced closure of Indian firms is also instigated by creditors or government agencies via an enrollment to the court. The closure petition is filed with the NCLT, which verifies the facts of closure and decides on the initiation of elimination affairs.

Regardless of who starts the sequence, the final decision is taken by the NCLT. Once the sequence is instigated, an external executor is designated, who takes full control of the holdings and tasks of the firm.

Sequence, metrics and perils of forced closure of a firm in the polity

Once a firm is declared insolvent, the court designates an external liquidator. From this point on, all the firm's bank accounts are blocked for independent deals and the holdings are sold in accordance with the generated sequence. Any action with holdings, debt onuses or corporate structure is possible only with the approval of the court (NCLT).

Mercantile participants lose control over the firm's schemes. Their role is reduced to transferring corporate records to the executor and cooperating on his requests. Funds from the sale of the mercantile are sent in the following order:

• Reimbursement of expenses for closure.
• Extinguishing secured claims of creditors.
• Extinguishing unsecured claims.
• Dissemination of the possible remainder among the firm participants (if any remains, which is extremely rare in practice).

Forced closure of a firm increases the peril of vicarious liability. Directors and associates can be penalized for willful failure to pay dues, concealment of holdings or misrepresentation of fiscal records and even delay in filing for closure.

The sequence is under constant oversight of the NCLT. The court considers:

• Directory of creditors' claims.
• Liquidator's records on the sale of holdings.
• Dissemination of funds.
• Final report on the fulfillment of closure.

Each action needs separate judicial approval, making the sequence rigorous, lengthy, and almost independent of the will of the mercantile participants.

How to proceed when signals of insolvency are detected and closure proceedings are commenced in the polity

After signals of bankruptcy are identified, participants and overseers are obliged to:

• Conduct an internal fiscal assessment.
• Record the occurrence of perils with an authorized decision.
• Commence preparing records for filing an insolvency petition in the NCLT.

Failure to act promptly at this stage increases the likelihood of being held liable for the firm's dues.

If insolvency is confirmed, it is prime to promptly issue an internal fiscal record, stop any disposal of holdings without court permission, arrange full fiscal records and hand them over to the liquidator. The right initiative at this stage reduces the peril of sanctions and speeds up the liquidation procedure.

If the initiator of the bankruptcy affairs is a creditor, a government agency or a third party, mercantile participants are advised to:

• Immediately obtain licit support.
• Take part in the sequence by providing all needed records.
• Cooperate with the designated liquidator.

Verification of creditors' claims and their reasonable challenge must take place in the generated order. Violation of these onuses or an attempt to conceal records increases the peril of subsidiary liability and may lead to personal fiscal losses.

Conclusion

The form of company closure is known by objective cases. Strike Off (easy sequence) is possible in case of outright stoppage of activity, absence of dues and litigation. If the value of holdings allows to cover all dues without external intervention, the enterprise is closed via IBC (standard scheme). In all other cases, recognition of insolvency and forced cases are instigated.

Mistakes at the preparatory stage (unfinished calculations, reporting violations, unclosed onuses) exclude easy scenarios. And hidden dues or attempts to avoid proper closure lead to lawsuits and confiscation of personal property.

Closing a business in India needs timely elimination of corporate perils, transparency of all calculations and strict adherence to sequences. Only outright preparation allows you to close a firm without lengthy litigation, fiscal losses and the threat of personal debt collection.