Successful Exit of European Ship Management Company from India

 

We are delighted to announce the legally compliant exit of a European - owned company engaged in ship management services, from the Indian market. The client engaged our services to navigate the exit strategy, closure of business operations, and facilitate the remittance of surplus funds to their shareholders in various parts of Europe.

Following a detailed evaluation of available exit routes for the Company, Liquidator finds Voluntary Liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 as the most suitable option with the company being financially stable and to also reclaim/recover the surplus funds through Voluntary Liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016.

Recognizing the subsidiary’s diminishing commercial viability, the Board approved the initiation of voluntary liquidation proceedings in accordance with the Insolvency and Bankruptcy Code, 2016.

The Distress: Bank Account

The foreign shareholder did not have a valid bank account capable of receiving the remittance, due to which the company was unable to transfer the funds directly to the shareholder concerned. This created substantial procedural and regulatory difficulties, as the remittance could not be processed through the conventional banking channels.

Role of the Firm and Strategic Execution

The Firm approached the engagement with a structured and detail-oriented methodology, combining conceptualization, documentation, legal advisory, technical expertise with strategic foresight.

The situation required extensive deliberations, multiple rounds of trial and error, and careful strategy formulation to ensure compliance with applicable regulatory and banking requirements. Considerable time was spent evaluating various alternatives and coordinating among stakeholders to identify a legally and operationally viable solution before a workable structure could be finalized.

Ultimately, the foreign shareholder transferred his shares to an eligible shareholder within the compliance requirement, upon completion of the share transfer and fulfillment of the relevant formalities, the remittance was successfully made to the eligible shareholder in accordance with the agreed structure and applicable regulations.

Conclusion

This case exemplifies how a well-planned exit strategy, backed by Firm’s technical expertise and disciplined execution, turned a complex business closure into a smooth and value-driven process. The Firm’s ability to align legal frameworks, financial restructuring, and stakeholder management underscores the importance of strategic advisory in corporate exits.

BUSINESS EXIT OF JAPANESE SUBSIDIARY

 

The successful closure of a Japanese company operating in the Indian market stands as a notable benchmark in cross-border voluntary liquidation. The company had previously acted as a corporate guarantor for financial facilities extended by Bank of India to Northern Railway and Southern Railway. These facilities were structured loans provided to support railway operations, with the company guaranteeing repayment obligations in the event of default.

Upon completion of the underlying obligations, the Board concluded that voluntary liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 represented the most appropriate and compliant exit route.

Role of the Firm and Strategic Execution

The Firm handled the process with a structured, detail-oriented approach, demonstrating technical expertise and strategic clarity. It began with a thorough verification of solvency and closure of guarantees, including obtaining repayment certificates confirming that all loan obligations had been discharged. This eliminated any residual liabilities and ensured a clean financial position.

Strict compliance with statutory requirements was central to the process. We ensured a declaration of solvency, confirmed the absence of creditors, updated statutory records, and issued public notices for claims. All timelines and documentation standards were adhered to, resulting in a smooth and uncontested process.

The asset realization was efficiently managed through recovery of unutilized deposits, ensuring complete financial closure. Transparent communication with stakeholders including the Japanese parent company, Bank of India, regulatory authorities, and project partners helped maintain trust and avoid disputes.

The final dissolution application submitted to the National Company Law Tribunal included a comprehensive report covering the liquidation process, extinguished guarantees, asset recovery, and compliance confirmations. The Tribunal noted the precision, absence of litigation, and strong compliance framework, and ordered immediate dissolution.

This case highlights a seamless, dispute-free liquidation under Section 59, with full discharge of guarantees. It sets a high benchmark for similar mandates, demonstrating how careful planning, legal rigor, and disciplined execution can achieve a compliant and dignified market exit.

Outcome and Significance

This case highlights a seamless, dispute-free liquidation under Section 59, with full discharge of guarantees. It sets a high benchmark for similar mandates, demonstrating how careful planning, legal rigor, and disciplined execution can achieve a compliant and dignified market exit.

COMPREHENSIVE EXIT STRATEGY EXECUTED FOR U.S PARENT’S INDIAN SUBSIDIARY

The client, a U.S.-based parent company, engaged us to design and execute a comprehensive exit strategy for its Indian subsidiary. The scope of the engagement included an orderly winding down of operations, recovery of assets, resolution of outstanding obligations, and distribution of any surplus funds to the shareholders based in the United States, in compliance with applicable legal and regulatory requirements.

Following a detailed evaluation of available exit routes for the Company, Liquidator finds Voluntary Liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 as the most suitable option with the company being financially stable and to also reclaim/recover the surplus funds through Voluntary Liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016.

Recognizing the diminishing commercial viability of the subsidiary, the Board approved the initiation of voluntary liquidation proceedings under the Insolvency and Bankruptcy Code, 2016.

The Crisis: Trade Payables Pile Up

Despite maintaining overall financial stability, the subsidiary encountered a significant operational challenge in the form of substantial trade payables owed to its parent company. These outstanding intercompany liabilities posed potential complications for an orderly and timely closure of operations. If not addressed appropriately, they could lead to delays in closure, issues in financial reconciliation, and regulatory or compliance concerns. Accordingly, it became essential to adopt a structured and strategic approach to settle and reconcile these dues, ensuring proper documentation and alignment, thereby facilitating a smooth and compliant closure process.

Role of the Firm and Strategic Execution

The Firm approached the engagement with a structured and detail-oriented methodology, combining technical expertise with strategic foresight. The key steps included:

• Set-off Trade Receivables against Trade Payables: Identifying and offsetting as per the provisions of Regulation 28 of the IBBI (Voluntary Liquidation process) Regulations, 2017, the Liquidator has made a mutual set off between the Trade receivables & Trade payables, effectively reducing the net liability burden of the Company.

This approach transformed what initially appeared to be a liability-heavy balance sheet into a manageable and compliant financial structure, enabling smoother liquidation proceedings.

Through Firm’s strategic financial adjustments, trade payables were effectively neutralized against Trade receivables, enabling the company to settle obligations without disputes. The subsidiary was subsequently dissolved in accordance with legal provisions. Importantly, the entire process avoided Prolonged litigation, regulatory penalties & d Disruptions to stakeholder relationships.

This engagement stands out as a success for No cash flow issued. Vendor relationships were preserved through professional handling of obligations, maintaining goodwill with service providers. The company achieved a clean financial closure, with the balance sheet systematically resolved and no residual liabilities remaining. Additionally, what began as a liability challenge was transformed into a compliant and efficient capital adjustment, creating strategic value. Throughout the process, strict adherence to the Insolvency and Bankruptcy Code ensured complete regulatory compliance.

Conclusion

This case exemplifies how a well-planned exit strategy, backed by Firm’s technical expertise and disciplined execution, turned a complex business closure into a smooth and value-driven process. The Firm’s ability to align legal frameworks, financial restructuring, and stakeholder management underscores the importance of strategic advisory in corporate exits.

Successful Closure Case: Managing Shareholder Deadlock through Preference Shareholder Rights

 Background:

The successful closure of a software company entered under the process of voluntary liquidation under the Insolvency and Bankruptcy Code, 2016. The company had two equity shareholders holding equal stakes (50% each) and one preference shareholder holding (100%).

During the process to approve voluntary liquidation, the Company faced a stalemate as both equity shareholders were required to pass a special resolution to approve liquidation process of the company. With equal control, neither side could secure the 75% being the majority required for passing special resolution. One equity shareholder persistently opposed every decision, stalling the process and risking asset value erosion.

As per the Articles of Association and Section 47 of the Companies Act, 2013, the preference shareholder was entitled to vote on resolutions concerning winding up of the company or any action affecting their rights.

 

Strategy and Resolution of deadlock for commencement of closure:

Recognizing the deadlock, the Firm strategically advised the promoter regarding their voting rights of the preference shareholders under Section 47(2) of the Companies Act, 2013, since the resolutions related directly to winding up. By engaging with the preference shareholder and ensuring his rights were properly represented, the Firm secured its affirmative vote breaking the impasse and enabling the passage of the required resolutions. We also relied on provisions under the IBC, 2016 specifically Sections 35 and 36 to exercise control over asset realization and distribution independently, once shareholders consent on key matters was achieved. Through transparent communication and compliance with statutory requirements, the process moved towards closure efficiently.

 

Outcome:

After the resolution was duly passed, the voluntary liquidation process was initiated and carried out in accordance with the prescribed procedures. Over precise execution timeline from the commencement of liquidation, all necessary steps including asset realization, settlement of claims, and compliance requirements were completed, leading to the closure of the company’s affairs. Subsequently, the matter was placed before the Adjudicating Authority (NCLT), which reviewed the entire process, verified that all legal and regulatory compliances had been met, and, upon satisfaction, issued the final order for the company’s dissolution, thereby bringing its legal existence to an end.

 

Key Takeaway:

By tactfully leveraging preference shareholder’ voting right and operating within the framework of the Companies Act, 2013 and IBC, 2016, the Firm effectively overcame a deadlock, safeguarded interest of shareholders, and ensured a smooth and successful voluntary liquidation.

PARTH MERCHANT V/S. DETOX INDIA PVT. LTD. & ORS. – NCLT DIVISION BENCH COURT-2, AHMEDABAD – ORDER DATED – 08.12.2025

 Who can seek investigation under Sections 212 & 213 of the Companies Act, 2013?

KEY RATIO

Sections 212 and 213 of the Companies Act, 2013 (“Act”) are not “public interest” gateways for outsiders to demand investigations. Unless the applicant fulfills the statutory criteria mentioned under the Act, or is otherwise directly connected with the company’s affairs, the petition filed by the applicant is not maintainable. While delivering the order, the National Company Law Tribunal, Ahmedabad Bench (“NCLT Ahmedabad”) also held that an internal authorisation, such as a board resolution, may confer procedural authority to act on behalf of an entity; however, it cannot create or substitute the statutory locus standi required to invoke Sections 212 and 213 of the Companies Act, 2013 against a company. Further, the NCLT, Ahmedabad, also held that any ongoing disciplinary proceedings against the auditors of the company under the relevant professional framework by themselves do not establish the statutory nexus or eligibility necessary for seeking an investigation under Sections 212/213 of the Act.

FACTS

The matter stemmed from a petition filed by Mr. Merchant (Petitioner) seeking an investigation into the affairs of Detox India Pvt. Ltd. (Respondent) and others, alleging financial irregularities, unpaid statutory dues and siphoning of funds. The petition was for the first time dismissed by NCLT Ahmedabad by an order dated 23.11.2023, holding that the relief sought u/s 212 was premature since the Petitioner had not approached the Registrar of Companies for its prima facie report. The Petitioner challenged this order before the NCLAT which remanded the matter back to the Tribunal by an order dated 12.11.2024, with a specific direction to first determine the issues of locus standi and maintainability u/s 212 and 213(b).

On remand while the Respondent argued that private individuals cannot directly invoke Section 212 or qualify as “any other persons” under section 213. The Petitioner tried to justify his locus on the basis of a Board Resolution dated 31.08.2022 passed by M/s Rajdeep Boiler Pvt. Ltd., (one of the Respondents in the instant petition) authorizing him to pursue legal proceedings on behalf of that company to protect its interests.

TRIBUNAL’S REASONING AND FINDINGS

The NCLT in a detailed analysis held that Section 212 is triggered only after a Registrar of Companies report under section 208 and does not confer an independent / standalone right on private individuals to seek investigation directly before the Tribunal. The Tribunal also closely examined the phrase “any other person” used under section 213(b) and held that this expression cannot be interpreted expansively to include members of the general public or unrelated third parties.

The Tribunal also addressed the Petitioner’s reliance on a Board Resolution authorizing him to initiate proceedings. It clarified that such authorization does not amount to an assignment of debt, transfer of rights, or creation of any legal privity that could confer locus standi under Section 213 assertively holding that right to invoke Section 213 is personal, statutory, and non-transferable.

By applying the principle of ejusdem generis the Tribunal conclusively held that “any other person” refers only to persons who are directly or indirectly connected with the affairs of the company, such as resolution professionals, liquidators, administrators, or independent directors, and not strangers with no legal or financial nexus. In reaching this view, the Bench relied on NCLAT’s judgment dated 22.04.2025 in case of Itesh Sanmukhlal v. Corrtech International Ltd. & Ors. where the Appellate Tribunal observed that it was not the appellant’s case that the business of Respondent was being conducted for a fraudulent or unlawful purpose or that the persons managing the affairs of the company were guilty of fraud when the appellant was neither member nor shareholder or creditor of company.

Based on its findings, the Tribunal noted that the Petitioner was neither a shareholder, nor a member, or a creditor of Respondent and had produced no document to prove any such relationship. Accordingly, the petition was dismissed. The Tribunal has extensively held that even members seeking investigation under section 213(a) are required to meet strict statutory thresholds and support their application with evidence demonstrating good reasons for investigation. Allowing an unrelated individual to invoke Section 213 would dilute these safeguards and defeat legislative intent. The Petitioner’s attempt to expand the scope of Sections 212 and 213 to include public interest complaints was held to be impermissible under the statutory scheme.

SIGNIFICANCE OF THIS ORDER: -

This order of the NCLT, Ahmedabad Bench has significant implications on the interpretation of locus standi and maintainability u/s 212 and 213 of the Act. The Tribunal has clearly reaffirmed that the power to seek investigation into the affairs of a company is not open-ended and cannot be invoked by any person merely on the basis of allegations, however serious they may appear.

A key impact of this order is the clear demarcation of who can approach the Tribunal u/s 212 and 213 by clearly stating that private individuals or unrelated third parties cannot directly invoke these provisions unless they fall within the specific categories recognized by the statute. This brings clarity and certainty to the law by preventing misuse of investigation provisions by persons who have no legal, financial, or managerial connection with the company concerned.

The Tribunal has underlined that investigation provisions are not automatic remedies. This ensures that the process is invoked only in deserving cases and that companies are not subjected to unnecessary scrutiny based on unsupported allegations. Overall, this order strengthens procedural discipline under the Companies Act by clearly separating genuine statutory remedies from impermissible public interest claims.

 

This article is authored by Mr. Arun Gupta and Mr. Sanyam Kohli. Mr. Arun Gupta is the Managing Partner of Factum Legal. Mr. Sanyam Kohli is a Senior Associate at the Firm.