The India experiment did not work. Revenue never arrived, the local team has been let go, and the parent company's finance lead now wants the entity "closed" before the next audit. The instruction that follows is almost always the same: stop filing, let the registration lapse, write off the investment. That instinct is wrong in India in a way it is not wrong in most jurisdictions — an Indian company does not dissolve through neglect. It stays on the register, accrues penalties that attach personally to its directors, and traps whatever capital is still sitting in the bank account. Worse, the foreign shareholder's ability to bring that money home is governed not by the Companies Act at all but by FEMA, and the FEMA exit is the part that gets discovered last.

What the regulation actually says

Two separate regimes apply, and they run on different clocks.

Corporate closure sits under the Companies Act, 2013. For a subsidiary that never really traded, the relevant route is striking off under Section 248(2) — a voluntary application by the company to the Registrar of Companies, made in Form STK-2, supported by a special resolution or consent of 75% of members by paid-up capital. The gating conditions in Section 248 and the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 are strict: the company must have no assets and no liabilities as at the date of the application, must have filed all overdue annual returns and financial statements (Forms MGT-7 and AOC-4) up to the financial year in which it ceased operations, and must not have carried on business for the preceding two financial years — or must have commenced no business at all since incorporation.

Rule 4 also bars STK-2 where, in the previous three months, the company has changed its name, shifted its registered office to another state, disposed of property held for gain, or applied to a tribunal. A company that is defunct on paper but did any of these recently must wait out the cooling period.

Where the company has real assets or creditors, striking off is unavailable and the route becomes voluntary liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 — appointment of an insolvency professional as liquidator, a declaration of solvency by the majority of directors, public announcement, claim verification, and a final dissolution order from the NCLT. That process runs 12 to 18 months and costs materially more. Most foreign parents want to reach STK-2, which means cleaning the balance sheet down to nil before they apply.

Capital repatriation sits under FEMA, 1999, and specifically the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 as amended, read with the RBI's Master Direction on Reporting under FEMA. Two provisions matter:

Rule 9 of the NDI Rules permits a non-resident holder to transfer or divest equity instruments, with sale proceeds repatriable net of taxes, provided pricing guidelines are met and reporting is complete.
Repatriation of the residual surplus on winding up is permitted through an authorised dealer (AD) bank on production of the order of the competent authority — the NCLT dissolution order in a liquidation, or the RoC strike-off confirmation for a Section 248 case — together with an auditor's certificate confirming that all liabilities in India have been fully provided for or discharged, and that the remittance is out of surplus assets. The AD bank will not release the funds on a director's assurance; it wants the certificate and the order.

Note the sequencing problem this creates. Striking off requires nil assets. Repatriation of surplus requires an order. If your only asset is cash and you cannot remit it until you are struck off, you cannot get struck off. The practical answer used by most advisers is to clear the account before filing STK-2 — either by repatriating the surplus as a dividend (subject to Section 123 distributable profits and 20% plus surcharge withholding under Section 195, reduced by treaty), by a capital reduction under Section 66 or buyback under Section 68 where there are no distributable profits, or by a share transfer to a resident buyer reported in Form FC-TRS. Each route has a different tax profile and a different form; none of them is "just wire it out."

Practical implications of getting this wrong

Directors are personally exposed. Non-filing of AOC-4 and MGT-7 attracts a late fee of ₹100 per day per form with no ceiling. A subsidiary abandoned for three years typically arrives at a six-figure rupee penalty per form before anyone opens the file. Worse, under Section 164(2), a director of a company that has not filed financial statements or annual returns for three continuous financial years is disqualified for five years — and that disqualification travels with the individual to every other Indian directorship they hold, including in a group company you did not intend to close.

The RoC can strike you off on its own terms. Section 248(1) allows the Registrar to remove a defunct company from the register suo motu. Founders sometimes treat this as a free exit. It is not: suo motu strike-off does not extinguish liabilities, does not release the bank balance, and leaves the directors' defaults on record. It also removes the corporate vehicle you needed in order to make the FEMA remittance application.

Trapped cash becomes permanently trapped. Once the company is struck off with money still in the account, the bank freezes it, and recovering it requires an application to the NCLT under Section 252 to restore the company to the register — a proceeding that can only be brought within three years of the strike-off order. Miss that window and the residual capital is, for practical purposes, gone.

FEMA contraventions compound separately. Unreported earlier transactions — an FC-GPR never filed on the original share allotment, an FC-TRS missed on an intra-group transfer, unfiled annual FLA returns — do not disappear because the company is closing. The AD bank reviews the FEMA compliance history before certifying the remittance, and unresolved gaps must be regularised through compounding under Section 13 of FEMA with the RBI before the money moves.

Step-by-step: what to do

Run a compliance diagnostic before anything else. Pull the company's MCA filing history, every FC-GPR and FC-TRS filed since incorporation, and the FLA returns for each year the entity had foreign investment on its books. Identify the gaps first — they set your true timeline.
Regularise FEMA defaults through compounding. File the compounding application with the RBI Regional Office, disclose the contravention, pay the compounding amount, and obtain the compounding order. Budget three to six months. Do not start the closure filings until this is in hand.
Clear all statutory filings. File overdue AOC-4 and MGT-7 for every pending year with additional fees. Close the GST registration (Form GST REG-16), surrender the PT and PF/ESI registrations, file the final ITR, and settle any TDS liabilities. Obtain no-objection or closure confirmations where the department issues them.
Empty the balance sheet deliberately. Settle every creditor, collect or write off receivables, and dispose of fixed assets. Then choose your repatriation mechanism — dividend, Section 66 capital reduction, Section 68 buyback, or share transfer to a resident under Form FC-TRS with a valuation report from a SEBI-registered merchant banker or chartered accountant. Withhold tax correctly and file the Form 15CA/15CB pair for each outward remittance.
Pass the special resolution and file STK-2. Attach the indemnity bond (Form STK-3), the affidavit from each director (Form STK-4), a statement of accounts certified by a chartered accountant made up to a date not more than 30 days before the application, and the CTC of the special resolution. Pay the government fee. The RoC publishes the proposed strike-off in Form STK-5/STK-6 for objections.
Wait for the STK-7 notice. The RoC issues the strike-off notice in Form STK-7 and publishes it in the Official Gazette. That is the date of dissolution. Retain it — it is the document the AD bank and the parent's auditors will ask for.
Close the bank account last, and only after the surplus has moved. Sequence matters: remit first, then strike off, then close the account.

FAQ

How long does closing a dormant Indian subsidiary actually take?
Six to twelve months for a clean entity with all filings current. Where FEMA compounding or several years of overdue MCA filings are involved, twelve to eighteen months is realistic. Where the company has liabilities and must go through Section 59 IBC liquidation instead, budget eighteen months or more.

Can we repatriate the remaining share capital without paying Indian tax?
Not automatically. Return of capital through a Section 66 reduction or a Section 68 buyback is taxed differently from a dividend, and the treaty position depends on where the shareholder is resident. What is consistent is the mechanism: a certificate from a chartered accountant in Form 15CB and a declaration in Form 15CA are required before the AD bank will process any outward remittance.

Does the foreign parent have residual liability after the strike-off?
The company's liabilities do not vanish. Section 248(7) preserves the liability of every director, manager and officer, and it may be enforced as if the company had not been dissolved. Striking off closes the register entry, not the exposure — which is why the indemnity bond in Form STK-3 is mandatory.

Planning India entry? Start with a free structure review at makeitlegit.in

Need help with this?

Our team handles the paperwork. You focus on your business.

Get Started →Talk to a CA