Home ／ Insights on entering the Indian market
2026.03.26
Exiting the Indian market has long been one of the most difficult challenges for foreign companies, including Japanese firms. Complex legal procedures, negotiations with tax authorities, constraints under labor law, and administrative delays — the combination of these factors meant that cases taking more than two years to complete an exit were not uncommon. However, thanks to institutional reforms by the Indian government since 2025, the exit process has been greatly streamlined.
C-PACE (Centre for Processing Accelerated Corporate Exit), established by the Ministry of Corporate Affairs (MCA), is making a digitalized, speedy exit process a reality. Now, when India's business environment — long described as "easy to enter, hard to leave" — is undergoing structural change, is precisely the time to understand the full range of exit options and build an exit strategy into your business plan from the entry stage itself. This article thoroughly explains all the options for exiting India, the legal requirements, practical procedures, and the points Japanese companies should keep in mind.
There are mainly four ways to exit a business in India. Because the applicable conditions, time required, and costs differ greatly between them, the starting point is choosing the method best suited to your company's situation.
Strike-off is the simplest closure procedure, based on Section 248 of the Companies Act, 2013. It applies to dormant companies that have effectively ceased business activity and have close to zero assets and liabilities. The main requirements are that the company must not have conducted business activity for at least two years (zero revenue), that its assets and liabilities must be effectively zero, and that all statutory obligations (annual filings, tax returns, etc.) must have been fulfilled.
With the introduction of C-PACE, if the documentation is complete, closure can be completed within 60-110 days. Costs are also relatively low, at around 100,000-300,000 rupees (about 170,000-520,000 yen), combining government fees and the fees of a CA (Chartered Accountant) and CS (Company Secretary).
Voluntary liquidation is a procedure under the Insolvency and Bankruptcy Code (IBC) 2016, and its use is mandatory when there are assets to be distributed, such as bank deposits, real estate, or intellectual property. It proceeds through the stages of a special resolution at a shareholders' meeting (approval of 75% or more of shareholders), the appointment of a liquidator (Insolvency Professional), filing with the Registrar of Companies (ROC) and IBBI within 7 days, notifying and repaying creditors, distributing remaining assets to shareholders, and submitting a final report and striking off the company's registration.
法令上は、債権者が清算の決議を承認した場合は開始から270日、それ以外は90日以内の完了に努めることが求められており、実務上の所要期間は12 to 24 months, though it can be extended further depending on negotiations with creditors or dealings with tax authorities. Costs, including the liquidator's fee, legal fees, and government fees, run at roughly 500,000-3 million rupees (about 870,000-5.22 million yen).
Compulsory liquidation by order of the NCLT is a procedure applied to companies in default. It is rare for a foreign company to choose this voluntarily, but there are cases where a company transitions to compulsory liquidation after its Corporate Insolvency Resolution Process (CIRP) under the IBC fails.
This is a method of selling your shares to a buyer within India without closing the company. If the business has value, it can be expected to yield a higher recovery than liquidation. Compliance with Reserve Bank of India (RBI) regulations under FEMA (the Foreign Exchange Management Act), a proper share valuation (using the DCF or NAV method), and consideration of tax implications (such as capital gains tax) are all necessary. Local partners are the most common buyers when you sell your shares.
Amendments to the IBBI (Insolvency and Bankruptcy Board of India) Liquidation Process Regulations, which took effect on January 2, 2026, have a significant impact on companies considering an exit.
The amendments set clear deadlines for each stage of the liquidation process. Four reporting forms have been established. LIQ-1 (from commencement to public notice) is the initial report after liquidation begins, LIQ-2 (quarterly progress report) periodically reports on the progress of the liquidation, LIQ-3 (from the final report to the dissolution application) is the final report at the completion of liquidation, LIQ-4 and (post-dissolution details) reports on residual matters after dissolution. Liquidators are now required to report progress periodically, greatly improving the transparency of the process.
All reports and filings are now made through an online platform, greatly reducing paper-based procedures. This makes it possible to track the progress of procedures in real time, making administrative delays visible.
As a precondition for closing a company, every director's DIN (Director Identification Number) must be active and their digital signature (DSC) up to date. If a director has not completed DIN KYC or is in a state of disqualification, the system will automatically block the application. To avoid stumbling at the very first step of the exit process, it is essential to check directors' compliance status in advance.
An exit requires obtaining a No Objection Certificate (NOC) from multiple tax authorities. This includes cancellation of GST registration (filing GST REG-16), completing final corporate tax filings and tax audits, addressing transfer pricing regulations (final settlement of related-party transactions), final settlement of TDS (tax deducted at source), and state-level tax clearance. Negotiating with tax authorities is one of the most time-consuming processes, making it essential to engage an experienced tax advisor.
Terminating employees when closing a business must be carried out in accordance with India's labor laws. Under the new Labour Codes that took effect in November 2025, establishments with 300 or more employees require prior approval from the state government for layoffs. Terminated employees must be paid retrenchment compensation based on years of service (15 days' wages per year of service), a buyout of unused paid leave, gratuity (for those with 5 or more years of service, 15 days' wages per year of service), and a reskilling fund payment (15 days of final wages).
Remittance of funds from India by foreign companies is subject to reporting obligations to the RBI under FEMA regulations. Overseas remittance of residual assets from liquidation and proceeds from share sales requires prescribed procedures and documentation. In particular, remittance is not permitted without documentation proving that capital gains tax has been paid in full.
When a Japanese company in India Local partners withdraws from a joint venture with its partner, the exit clauses in the Shareholders Agreement (SHA) become extremely important.
A tag-along right is the right of one partner to join a sale on the same terms when the other partner sells its shares. A drag-along right allows a majority shareholder to compel minority shareholders to sell their shares as well when selling to a third party. A put option is the right to require a partner to buy back one's own stake under specified conditions, and is the most direct mechanism for an exit. A call option is the right to buy back a partner's stake under specified conditions.
If these clauses are not included in the agreement, exit negotiations become extremely difficult. Cases of Failed Exits are largely attributable to not having sufficiently examined exit clauses at the market-entry stage. Designing the SHA with exit scenarios in mind from before market entry is essential.
This section organizes the typical challenges Japanese companies face when exiting India, based on anonymized real cases.
Lesson 1: Prolonged Tax Investigations— There have been cases where, after the final corporate tax filing, additional investigations by the tax authorities continued for more than two years, significantly delaying the liquidation process. As soon as the decision to exit is made, it is necessary to engage a tax advisor immediately, conduct an advance assessment of tax risk, and begin early communication with the authorities.
Lesson 2: Labor Disputes— In this case, after the business closure was announced, the labor union went on strike, resulting in a factory shutdown and damage to assets. Disclosing the closure plan in stages and setting the employee compensation package above the statutory minimum can reduce the risk of disputes.
Lesson 3: Conflict with the Joint Venture Partner— In this case, the company was unable to reach agreement with its Indian partner over the exit terms (share valuation) and spent two years in arbitration. Prior agreement on the share valuation method and dispute resolution mechanism (seat of arbitration, governing law) in the SHA is essential.
The preparation period is 2 to 3 months (fulfilling statutory obligations, preparing documents), and approval takes 2 to 4 months from application (via C-PACE), for a total of 4 to 7 months as a guideline. Costs, including government fees and professional fees, are approximately 100,000 to 300,000 rupees (roughly 170,000 to 520,000 yen).
The preparation period is 3 to 6 months (tax clearance, employee matters), the liquidation process takes 6 to 12 months (asset disposal, creditor repayment), and final procedures take 3 to 6 months (final report, deregistration), for a total of 12 to 24 months as a realistic guideline. Costs are approximately 500,000 to 3,000,000 rupees (roughly 870,000 to 5,220,000 yen), varying significantly depending on company size and complexity.
With C-PACE in place, the IBC liquidation rules amended, and the process digitized, the conditions for exiting India have clearly improved. Paradoxically, that structural change also helps attract investment into India. Ease of closing a business was one of the scored items in the World Bank's Doing Business (discontinued in September 2021), and the Indian government has treated "making exit simple" as one of the pillars of improving the investment climate.
The strategic implications for Japanese food companies are clear. First, formulate a business plan that includes exit scenarios from the market-entry stage. Second, include comprehensive exit clauses in the joint venture agreement. Third, after deciding to exit, promptly assemble a team of experts (lawyers, CAs, and CSs) and run procedures that can be processed in parallel simultaneously. These preparations will smooth any eventual exit and help minimize cultural friction as much as possible.
The main methods are strike-off, a simplified closure procedure for dormant companies; voluntary liquidation, for companies with assets to distribute; compulsory liquidation, for companies in default; and a stake sale, which sells shares while keeping the business running. Since the applicable conditions, required time, and costs differ significantly among these, the starting point is selecting the method best suited to your company's situation.
Strike-off is the simplest closure procedure and applies to dormant companies that have not conducted business activity for a certain period, have effectively zero assets and liabilities, and have fulfilled their statutory obligations. With the introduction of a dedicated window, closure can be completed within a few months if the documentation is complete, and the cost is relatively low.
If there are assets to be distributed, voluntary liquidation under the Insolvency and Bankruptcy Code (IBC) is required. The process proceeds through a special resolution at the shareholders' meeting, appointment of a liquidator, application, repayment of creditors, distribution of residual assets, and a final report and deregistration. The required time is typically one to one and a half years, but it can be extended further depending on creditor negotiations and tax matters.
It is necessary to obtain no-objection certificates from multiple tax authorities, covering matters such as GST deregistration, the final corporate tax filing, and compliance with transfer pricing rules. Employee terminations must follow labor law, and severance pay and gratuity payments are required. Overseas remittance of residual assets or proceeds from share sales requires procedures under FEMA regulations and proof that capital gains tax has been paid in full.
When exiting a joint venture with a local partner, the exit clauses in the Shareholders Agreement become extremely important. If clauses such as tag-along rights, drag-along rights, and put options are not included, exit negotiations become difficult. Many cases of failed exits are attributable to not having sufficiently examined exit clauses at the market-entry stage.
The most important thing is to design the exit strategy at the point of entry. It is considered fundamental to comprehensively incorporate exit options, joint venture exit clauses, tax implications, and employee matters into the business plan from the market-entry consideration stage. Promptly assembling a team of experts after deciding to exit, and running procedures that can be processed in parallel simultaneously, can prevent time and costs from ballooning.
Exiting India is no longer "nearly impossible." However, complex legal requirements, tax challenges, and labor management obligations still exist, and without proper preparation there is a risk that time and costs will balloon. The most important message is that "the exit strategy should be designed at the point of entry." Comprehensively incorporating exit options, joint venture exit clauses, tax implications, and employee matters into the plan from the market-entry consideration stage is fundamental to risk management for business in India.
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