Liquidation of Corporate Person under IBC, 2016 | Supreme Court Guide

• 16 Jan 2026

Liquidation of Corporate Person under IBC, 2016

A Complete Legal & Practical Guide

Blog By:
Jayprakash B. Somani
Advocate, Supreme Court of India & Insolvency Professional
Cell: PA 9322188701
www.jayprakashsomani.com

1. Introduction to Liquidation under IBC

Liquidation under the Insolvency and Bankruptcy Code, 2016 is the last resort when revival of a corporate debtor is not feasible.

Objectives of Liquidation:

• Orderly winding up of the corporate debtor

• Maximisation of value of assets

• Fair and equitable distribution to stakeholders

• Transparency and time-bound completion

Unlike the Companies Act regime, liquidation under IBC is creditor-driven, professionally managed, and strictly time-bound.

2. Statutory Framework

Governing Provisions:

• Sections: 33 to 54 (Part II, Chapter III of IBC)

• Regulations: IBBI (Liquidation Process) Regulations, 2016

• Adjudicating Authority: National Company Law Tribunal (NCLT)

3. When Does Liquidation Commence? (Section 33)

Liquidation of a corporate person may be ordered by the NCLT in the following situations:

A. Failure of CIRP

Liquidation is ordered if:

• No resolution plan is received within the CIRP period

• The resolution plan is rejected by NCLT

• Committee of Creditors resolves to liquidate with 66% voting share

B. Contravention of Resolution Plan

Where an approved resolution plan is violated, liquidation proceedings may be initiated.

Key Case Law

K. Sashidhar v. Indian Overseas Bank (2019) 12 SCC 150
The Supreme Court held that the commercial decision of the CoC to liquidate is non-justiciable unless it violates statutory provisions.

4. Consequences of Liquidation Order (Section 33)

Upon passing of a liquidation order:

• CIRP comes to an end

• Resolution Professional becomes Liquidator (Section 34)

• Moratorium under Section 14 ceases

• Fresh liquidation moratorium under Section 33(5) begins

• Powers of the Board of Directors stand suspended

5. Appointment of Liquidator (Section 34)

• Resolution Professional ordinarily continues as Liquidator

• NCLT may replace the Liquidator for valid reasons

• Liquidator must be an IBBI-registered Insolvency Professional

6. Powers and Duties of Liquidator (Section 35)

The Liquidator has wide statutory powers, including:

• Taking custody and control of assets

• Valuation and sale of assets by auction or private sale

• Instituting or defending legal proceedings

• Carrying on business for beneficial liquidation

• Verification, admission, or rejection of claims

• Distribution of proceeds under Section 53

• Preparation of statutory reports and accounts

The Liquidator acts as a fiduciary for all stakeholders.

7. Liquidation Estate (Section 36)

Included in Liquidation Estate:

• All assets owned by the corporate debtor

• Assets recovered through avoidance proceedings

• Intangible assets and actionable claims

Excluded from Liquidation Estate:

• Assets held in trust

• Personal assets of shareholders

8. Claims Process (Sections 38–42)

Submission of Claims:

• Creditors must submit claims within the prescribed period

• Claims may be financial, operational, secured, or unsecured

Verification of Claims:

• Liquidator verifies all claims

• Claims may be admitted or rejected with reasons

• Appeal against rejection lies to NCLT under Section 42

9. Secured Creditors in Liquidation (Section 52)

Secured creditors may choose either of the following options:

1. Relinquish security interest to the liquidation estate and receive payment as per Section 53 waterfall

2. Realise security interest outside liquidation, subject to remitting surplus (if any) to the estate

Key Case Law

Indian Overseas Bank v. Ashok Saw Mill (2009)
The principle that secured creditors’ rights are preserved, subject to insolvency framework, stands reaffirmed under IBC.

10. Distribution of Assets – Waterfall Mechanism (Section 53)

Section 53 prescribes a mandatory statutory priority:

Order of Priority:

1. Insolvency resolution and liquidation costs

2. Secured creditors (who relinquish security) and workmen dues (24 months)

3. Employees’ dues (12 months)

4. Unsecured financial creditors

5. Government dues (2 years) and remaining secured creditors

6. Other debts and dues

7. Preference shareholders

8. Equity shareholders or partners

Landmark Judgment

Committee of Creditors of Essar Steel v. Satish Kumar Gupta (2019) 16 SCC 479
The Supreme Court upheld the supremacy and mandatory nature of the Section 53 waterfall.

11. Avoidance Transactions (Sections 43–51)

The Liquidator may avoid certain transactions entered prior to insolvency:

Purpose:

To prevent asset stripping and protect creditors’ interests.

Key Case Law

Anuj Jain v. Axis Bank (2020) 8 SCC 401
The Supreme Court clarified the scope and strict interpretation of preferential transactions and the look-back period.

12. Dissolution of Corporate Debtor (Section 54)

• Upon completion of liquidation

• Liquidator submits final report to NCLT

• NCLT passes dissolution order

• Corporate debtor ceases to exist

13. Timelines in Liquidation

The IBC strongly discourages delays and prioritises speed.

14. Judicial Principles from Supreme Court

• Swiss Ribbons Pvt. Ltd. v. Union of India (2019)
  Liquidation is a last resort; resolution is always preferred.

• K. Sashidhar v. IOB
  CoC’s commercial wisdom includes liquidation decisions.

• Sundaresh Bhatt v. CBIC (2022)
  IBC overrides recovery proceedings under other statutes.

• Anuj Jain v. Axis Bank
  Avoidance provisions require strict statutory compliance.

15. IBC Liquidation vs Companies Act Winding Up

16. Key Takeaways

• Liquidation under IBC is structured and transparent

• Liquidator plays a central fiduciary role

• Section 53 waterfall is mandatory

• Judicial interference is minimal

• Supreme Court jurisprudence supports IBC objectives

17. Conclusion

Liquidation under the Insolvency and Bankruptcy Code, 2016 represents a paradigm shift from traditional winding-up laws. It ensures predictability, fairness, and speed while protecting creditor rights and enforcing market discipline. The Supreme Court has consistently affirmed that the IBC is a complete code, and liquidation must strictly follow statutory priorities and timelines.