Yes, the shelf company (also referred to as a dormant company) can be shut down in India. The shelf company represents a legal entity that was incorporated at a given time in the past, with the purpose of being sold. This type of business represents a simpler way for a businessman to start a local business, as the incorporation process has already been completed. 

However, such companies can also be shut down, provided that there is no demand for them on the local market. A dormant company in India, which is also characterized by the fact that it did not enter any commercial activities, can be shut down as stipulated under the Companies Act 2013. Since this type of business did not enter commercial activities, there are no financial documents that need to be audited, in order to estimate its current situation. 

Thus, the Indian government offers the possibility of a fast liquidation procedure. In this sense, the owners of a dormant company have to complete a form, the Form STK-2, with the Registrar of Companies, this being the main step in order to complete the liquidation of the business.  

The document will need to be signed by the company’s director and in order to benefit from this faster liquidation procedure (known in India as the Fast Track Exit Scheme), the company is required to be dormant (meaning, not to have any commercial activities) for at least a year prior to starting the liquidation. 

The compulsory liquidation procedure is also prescribed under the Insolvency and Bankruptcy Code of India. The procedure can be started when one of the company’s creditors requests the payment of a debt of at least INR 100,000. The creditor can request the beginning of the compulsory insolvency procedure at the National Company Law Tribunal.

Under the Indian legislation, a period of 180 days is prescribed once the creditor entered his or her application with the National Company Law Tribunal, a period in which the recovery of the assets or the enforcement procedures can’t be started. It is necessary to know that the 180 days period can be extended with an additional 90 days.  

As a general rule, the liquidation procedure in India can last up to two years (it can be completed in two years since the application was made), but this is the case of compulsory liquidation, as the voluntary liquidation can take much less time.

The voluntary liquidation in India can be started by the following parties: creditors and members. However, another type of liquidation can apply against the wish of the company’s directors, namely – the compulsory liquidation, if the respective legal entity can no longer pay its financial obligations. The compulsory liquidation is a procedure which falls under the supervision of the local courts and our team of specialists in company registration in India can assist with more details.