This article is written by Trisha Prasad, The article discusses the concept of liquidation of a Company and the process of liquidation under the Insolvency and Bankruptcy Code, 2016 and the Companies Act, 2013.

This article has been published by Shashwat Kaushik.

Table of Contents


Liquidation of a company refers to a financial process that is undertaken by a company that is unable to pay its debts. The process of liquidation results in a formal end to the affairs of the company. Liquidation of a company is dealt with under the Companies Act, 2013 (hereinafter referred to as Companies Act) and the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as IBC).

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Prior to the commencement of IBC, the laws and regulations governing liquidation of companies in India were largely fragmented under various laws including the Companies Act, Sick Industrial companies Act, 1985, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act,2002 (SARFAESI) etc. The introduction of IBC was a welcome move as it was a comprehensive code that extensively dealt with the complex issues faced by financially distressed companies and reduced delays that were earlier caused due to the fragmented system of laws that governed the process of liquidation in the country.

Liquidation is a final recourse available to creditors. The primary focus under IBC is for the company to first undergo a resolution process. Initially, there is an attempt to revive the company by way of a corporate insolvency resolution process. The creditors resort to liquidation only on account of failure of the resolution process.

It is also important to understand that the grounds for liquidation under IBC and Companies Act are different and do not overlap. While IBC specifically deals with companies that are unable to pay their debts, winding up under the Companies Act does not include the inability to pay debts as a ground. The grounds and procedure for liquidation or winding up under both the IBC and Companies Act will be elaborately discussed in this article.

What is liquidation of a company

The term “liquidation” in simple words refers to the process initiated by, on behalf of or in relation to a company, usually in order to pay off outstanding debts. The assets of the company are sold and the proceeds of the sale are used to repay or clear any outstanding debts and monetary liabilities of the concerned company. 

It is a process triggered either when the company is unable to pay debts or when it is ascertained that it is not beneficial to continue the business of the company. Once the process of liquidation is officially initiated, the appointed liquidator will carry forward the process of liquidation. In the end, after all the assets of the company are liquidated and the proceeds are distributed among the creditors, members, employees, shareholders, etc., the company will be wound up or dissolved. This means that the company will cease to exist as a legal entity.

Types of liquidation of a company

A company can go into liquidation either voluntarily or mandatorily as ordered by any competent authority for the following reasons:

  • There are outstanding dues and debts that the company cannot pay. In such a case, a company may be declared as insolvent and a process of liquidation can be initiated against the company. 
  • The owner or major shareholders and members of the company decide that there is no benefit in continuing the business of the company. This step can be taken in various situations, including;
    •  when there is a decline in the market and the company is not as profitable as it was when it was first incorporated.
    • When major customers of the company have shifted to the company’s competitors or have ceased to exist as a legal entity.
  • Business owners who wish to exit from the business may deem it fit to liquidate the company rather than selling it to another entity.
  • Even before becoming insolvent or bankrupt, the company can be liquidated with the aim of avoiding a situation of insolvency or bankruptcy.
  • Companies may be liquidated as a result of legal procedure initiated against them for failure to comply with legal compliances and regulatory requirements like filing of annual returns and paying taxes. 

Liquidation process can be categorised into two main categories on the basis of the reason for liquidation and the process of initiation of liquidation.

Voluntary liquidation of a company

Voluntary liquidation refers to the procedure when a company decides to undergo liquidation on its own terms, voluntarily and without experiencing the inability to repay debts. A company may simply decide to voluntarily liquidate itself if it is determined that there is no reason to carry on with the business of the company, or it is not feasible for the company to continue to exist. The liquidation and dissolution of the company is not ordered by the National Company Law Tribunal (Hereinafter referred to as Tribunal).

  • Creditor’s voluntary liquidation

A voluntary liquidation procedure initiated by the creditors occurs when the members or shareholders of the company are of the opinion that the company does not have sufficient assets and may fail to pay outstanding debts. In such cases, the majority of the shareholders or members determine that the company has become insolvent and must hence be voluntarily liquidated.

  • Member’s voluntary liquidation 

Unlike a creditor’s voluntary liquidation, a member’s voluntary liquidation process usually occurs when the company is solvent, but the members of the company are of the opinion that the business or company should not continue.

Compulsory liquidation of a company

Compulsory liquidation or involuntary liquidation refers to the formal procedure when a company is, by the order of a competent tribunal, forced to undergo liquidation and formally shut down. The process is usually initiated by a creditor or a regulatory authority.

Definitions of important terms 

  1. Claim- Claim is defined in Section 3(6) of IBC. It refers to either a right to payment or a right to remedy as a result of breach of any law that is in force.
  2. Corporate debtor (Section 3(8)]- Any Corporate person or entity that owes a debt to another person or entity is a Corporate Debtor.
  3. Any person to whom a debt is owed is a Creditor (Section 3(10)).  A creditor can be of the following types:
  • A Financial Creditor (Section 5(7)) is any creditor to whom any debt that is of purely financial nature is owed. It may also include assignees or transferees of the said debt.
  • An Operational Creditor (Section 5(20)) is any creditor to whom any operational debt or claim in relation to any goods and services is owed. This may include claims related to employment or anything due to the creditor as a result of any law that is in force.
  • A creditor becomes a Secured Creditor (Section 3(30)) when a security interest is created in favour of them in relation to the debts owed to them.
  • The term Unsecured Creditor is not defined in the IBC. It however refers to those creditors who do not have security or collateral in their favour in relation to any debt owed to them.
  1. Liquidation Cost (Section 5(16)) refers to the expenses or cost incurred by the liquidator during the liquidation process. 
  2. Liquidation Commencement Date (Section 5(17)) refers to the date on which the procedure for liquidation as initiated either under Section 33 of IBC which deals with initiation of compulsory liquidation or Section 59 of IBC which deals with initiation of voluntary liquidation began or commenced.
  3. Corporate Insolvency Resolution Process or CIRP is not expressly defined under the IBC. CIRP can be understood as a process of resolving the insolvency of the company in accordance with the rules provided under IBC. If a CIRP is successful, liquidation proceedings need not be initiated. CIRP essentially refers to a mechanism for creditors of a corporate debtor to recover the amount due to them. The procedure and rules to be followed for a CIRP are provided under Chapter II of IBC. 

Liquidation order of a company

The process of liquidation of a company begins with the passing of a liquidation order by the concerned tribunal. The concept of a liquidation order is mentioned under Section 33 of IBC, which deals with the commencement of a court ordered liquidation process. A liquidation order can be made by the tribunal upon receiving an application for the same during the pendency of insolvency proceedings of a corporate person, when it is determined that the corporate debtor cannot be revived. The liquidation order can be passed in the following situations:

  1. The resolution plan was not submitted within the specified or prescribed time limit.
  2. The proposed resolution plan is not approved by the committee of creditors of the corporate debtor.
  3. The approved resolution plan was rejected by the tribunal for not complaining with the rules and requirements.
  4. If, after the approval of the resolution plan, the corporate debtor acts out and carries out activities in a manner inconsistent with the resolution plan.

Process of liquidation of a company under IBC

The procedure for liquidation of a company is covered under Chapter III of IBC which contains provisions from Section 33 to Section 54. The process of liquidation begins with the initiation of the process under either Section 33 or Section 59 of the Code, as the case may be. The process ends with the dissolution of the company once the appointed liquidator values, liquidates and distributes the assets on the basis of claims that are filed by the creditors.

Initiating the process of liquidation 

Liquidation process can be initiated under either Section 33 of IBC for compulsory or court (tribunal) ordered liquidation or Section 59 of IBC for voluntary liquidation.

Initiation of a voluntary liquidation process (Section 59)

Any  company that wishes to undergo liquidation and has not committed any default can initiate voluntary proceedings under Section 59. The process is additionally governed by the IBBI (Voluntary Liquidation Process) Regulations, 2017 (hereinafter referred to as the Regulations of 2017) in case of a corporate person other than a company. Along with conditions and procedural requirements as laid down by the board of directors and the Insolvency and Bankruptcy Board of India (hereinafter, IBBI), Section 59 also lays down the following conditions that have to be fulfilled by any company that is initiating voluntary liquidation proceedings.

  • A declaration accompanied by an affidavit must be made by a majority of the directors of the company, confirming that:
    1. Pursuant to a thorough enquiry made by the directors, the company does not have debt or that the company will be able to repay any outstanding debts in full from proceeds received as a result of the liquidation process.
    2. The purpose of liquidation of the company is not to defraud any creditor or any other person.
  • The declaration must be further accompanied by:
    1. Audited accounts of the company as well as report of affairs of the company of the last 2 years or since its incorporation in case of a company that has not been in existence for 2 years.
    2. A valuation report (if prepared)
  • A special resolution must be passed by the company in a general meeting within 4 weeks of the declaration for voluntary liquidation. The special resolution must be for the purpose of initiating the process of liquidation and appointing a liquidator. Once the resolution has been passed, such date is considered as the commencement date for the initiated voluntary liquidation process.
  • In cases where the company was incorporated for a certain duration, as specified in the Article of the company and such a time period has expired; or if the articles of the company have provisions that require the dissolution of the company in certain situations or conditions, a resolution must be passed by the members to appoint a liquidator and initiate the liquidation process within 4 weeks of the above-mentioned declaration.
  • In case the company owes debts to any person, a resolution for voluntary liquidation, as mentioned above (under point 3 and 4) must be approved by creditors representing 2/3rd of the value of the total debt that is owed by the company.
  • It is essential for both the Registrar of Companies (hereinafter ROC) and the IBBI to be notified of such resolution within 7 days of passing of the resolution or within 7 days of approval of the creditors.
  • Once the process of voluntary liquidation under Section 59 is officially initiated, the general procedure for liquidation as provided under Sections 35 to 53 of IBC will be applicable, subject to such modification as may be necessary. 

Initiation of compulsory liquidation process (Section 33)

Section 33 of the IBC deals with initiation of compulsory or tribunal ordered liquidation of a company. In case, CIRP that was initiated by the creditors of the company fails, the court will initiate liquidation proceedings by passing a liquidation order. This can be done in the following situations:

Resolution plan not received within the maximum time of completion of CIRP

If the tribunal does not receive the resolution plan within the maximum time permitted for completion of CIRP (180 days) or before expiry of the prescribed period for the completion of the insolvency resolution process.The tribunal has the power to provide extension beyond the limit of 180 days if there is reasonable grounds to justify the delay in submitting the resolution plan. However, if the resolution plan is not submitted even after the frustration of the extended period, the tribunal shall pass a liquidation order. The NCLAT in the case of Dinesh Gupta v. Vikram Bjaja Liquidator M/s Best Foods Ltd, (2021) upheld the liquidation order of the tribunal. The resolution plan was not submitted even after the expiry of 180 day period prescribed for the CIRP process.There was no extension provided by the tribunal in the above mentioned case.

Rejection of proposed resolution plan on ground of non-compliance

If the proposed resolution plan is rejected on grounds of non-compliance with requirements provided under Section 31 of IBC.For a resolution plan to be approved under Section 31, the following conditions under Section 30(2) must be fulfilled:

  • The resolution plan must prioritise the payment of the liquidation costs over the other debts;
  • The provision in the resolution plan for the payment of debts of operational creditors must not be less than the amount that would be payable to the class of creditors as per Section 53 of IBC;
  • The provision in the resolution plan for the payment of debts of financial creditors who do not vote in favour of the resolution plan should not be less than the amount payable to them as per Section 53 of IBC;
  • The resolution plan must contain provision for management of the affairs of the corporate debtor after approval of the resolution plan;
  • There must be clear provisions related to the implementation and supervision of the resolution plan;
  • No provision in the plan must in any manner violate any law that is in force at the time.
  • The board may additionally provide for requirements from time to time. The resolution plan that is sought to be approved must comply with these requirements.

The tribunal may also pass an order of liquidation in the following cases:

Decision of Committee of Creditors to initiate liquidation

The Resolution Professional (hereinafter RP) may, at any point in time during the CIRP but before the final confirmation of the resolution plan, inform the tribunal of the decision made by the Committee of Creditors (hereinafter CoC) to liquidate the company. This decision must be approved by creditors holding at least 60% of the total voting power. The appellate tribunal in the case of Sunil S. Kakkad v. Atrium Infocom Ltd,(2020), had affirmed the CoC’s power to initiate the liquidation process. The same was upheld by the Supreme Court in 2021. In a more recent case of ACRE – 81 Trust v. Pawan Kumar Goyal (2024), the NCLAT reaffirmed the CoC has the power to decide on going for liquidation at any time before the resolution plan is approved.

Contravention of approved resolution plan

If the approved resolution plan is not complied with by the corporate debtor, any other person whose interests are prejudicially affected by the resolution can file any application before the tribunal for a liquidation order. The tribunal will, if satisfied that the corporate debtor has contravened the resolution plan, pass an order of liquidation. In cases where the liquidation order is passed pursuant to an application under this subsection, the tribunal may also order the resolution applicant or contravening party to pay a fine on account of failure to implement the approved resolution plan. For example, in the application for liquidation of S.K Wheels Pvt. Ltd., filed by Edelweiss Asset Reconstruction Company Limited, the tribunal ordered for the liquidation of the corporate debtor on account of failure in implementing the approved resolution plan. Additionally, the resolution applicant was also directed to pay a fine of Rs.2,00,000/-.

While passing an order for initiation of the liquidation of the corporate debtor, the tribunal must also make a public announcement of the same and ensure that the order is sent to the concerned ROC.

According to Section 33(5), the passing of a liquidation order bars the institution of any legal proceeding by or against the corporate debtor unless the liquidator, with prior permission of the tribunal, institutes the suit on behalf of the corporate debtor. The Central Government can, in consultation with any financial sector regulator, notify certain transactions that will be exempted from this subsection.

Further, Subsection 7 states that once an order of liquidation is passed, it is deemed to be a notice discharging the employees and officers of the company unless the business is a going concern during the period of liquidation for the purpose of beneficial winding up or liquidation of the company.

Appointment of liquidator 

Liquidators are Insolvency professionals who are appointed to oversee and conduct the process of liquidation of the company pursuant to the commencement of liquidation proceedings under IBC.

A liquidator is appointed under Section 34 of IBC.In case of a proceeding initiated under Section 33, the insolvency professional who was appointed for the CIRP process will become the liquidator. A resolution professional is appointed under Section 22 of IBC by the CoC who decides to either appoint the interim resolution professional as the resolution professional or appoint a new resolution professional within 7 days of the constitution of the CoC. The resolution profession is to be appointed in case of both the general liquidation proceedings under chapter II of the IBC as well as for a pre-packaged insolvency process. The latter is an alternative and speedier insolvency mechanism that is available to micro, medium and small enterprises that are financially distressed.

The resolution Professional can only act as a liquidator after giving their written consent to the adjudicating authority. The adjudicating authority additionally has the power to choose to replace the resolution professional in three cases:

  • If the resolution plan submitted by the resolution professional was rejected due to failure to meet requirements;
  • If the IBBI, with reason, suggests the replacement of the resolution professional;
  • The resolution professional fails to give consent for being appointed as the liquidator.

If the resolution professional is replaced by the order of the tribunal, the tribunal may ask the IBBI to propose the name of another insolvency professional to be appointed as a liquidator. The IBBI must submit their proposed name along with a written consent within 10 days of the tribunal’s directions.

Fees of liquidator

According to Regulation 4 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulation, 2016, the fees of the liquidator will be decided by the CoC as per Regulation 39D of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. While approving the Resolution Plan or deciding to initiate proceedings under Section 33, the CoC will, in consultation with the Resolution Professional, decide the liquidator’s fee in case the liquidation order is passed. The Regulation 39D specifies that the fees will be calculated for the following periods of times, as the case may be:

  • Compromise or arrangement period under the Companies Act (if any);
  • Time used for the sale of assets;
  • The remaining liquidation period.

Further, in cases where Regulation 39D is not applicable, the fees of the liquidator will be  as follows:

  • Amount equivalent to the fees that the resolution professional was entitled to during the compromise and arrangement period under the Companies Act;
  • For the remaining period of liquidation, as the percentage of net of amount realised and distributed as provided under sub-regulation b of regulation 4 of IBBI(Liquidation Process) Regulations, 2016.

Upon the completion of liquidation of assets, the fees of the liquidator will be proportionately deducted and paid from the sums that will be distributed as per Section 53 of IBC.

Powers and duties of liquidator

The powers and duties of the appointed liquidator are listed under Section 35 of the IBC and are as follows:

  1. Verification of Claims;
  2. Custody or Control of assets and actionable claims of the Corporate debtor;
  3. Prepare an evaluation report of the assets of the corporate debtor;
  4. Measures to preserve the assets of the corporate debtor;
  5. For the purpose of beneficial liquidation, continue to carry on business on behalf of the corporate debtor;
  6. Sell moveable and immoveable properties of the corporate debtor, as well as actionable claims to effect the process of liquidation. This is either done by way of a public auction or a private contract based on the requirements;
  7. Draw, accept and endorse negotiable instruments on behalf of the corporate debtor in a manner as if the corporate debtor itself has drawn, endorsed or accepted the Negotiable instrument;
  8. To obtain professional assistance from various professionals or exports in order to discharge his duties and obligations;
  9. Invite, evaluate and settle claims of creditors;
  10. Institute and defend any legal proceedings on behalf of the corporate debtor;
  11.  Evaluate preferential or undervalued transactions made by the corporate debtor (if any) and avoid undervalued transactions;
  12. The liquidator is accountable to the concerned tribunal as per the directions of the IBBI. A report of the liquidation process must be presented to the tribunal. Additionally, the liquidator also has the power to make applications to the Tribunal for any orders of directions as required;
  13. Distribute the proceeds of liquidation as per Section 53 of IBC after consulting the entitled stakeholders. The consultation however, is not binding on the liquidator. Additionally, the records in relation to the consultation should be made available and accessible to those stakeholders who were not consulted by the liquidator;
  14. The IBBI may also make additional rules and give directions for other duties and powers of the liquidator.

Additionally, Section 37 of IBC provides the liquidator with the power to access any information or information system in order to either verify claims or identify assets for liquidations. The section specifies seven information systems or sources from which the liquidator can gain access to the relevant information including:

  • Information Utility that are registered with IBBI under Section 210 of the IBC;
  • Credit information systems which are regulated and provide accurate or dependable information about borrowers and credit scores;
  • Any government authority or registered authorities under the central, state or local governments;
  • Information systems for financial and non-financial liabilities;
  • Information systems for securities and assets;
  • Databases maintained by the IBBI; and
  • Any source that may be from time to time specified by the IBBI.

The creditors may, under Section 37(2) seek for any financial information about the corporate debtor from the liquidator who is expected to provide the requested information to the creditors within 7 days of receipt of the request. If the liquidator is unable to provide the information, the reason for such failure or refusal should be communicated to the creditor who requested the information.

Removal of liquidator

The appointed liquidator may be removed and replaced on the orders of the tribunal on grounds of failure to fulfil their duty. The IBC does not have any specific provision that deals with the removal of the liquidator. The tribunal has, however, exercised its power to remove a liquidator on the basis of Section 16 of the General Clauses Act which gives any authority that has the power to hire or appoint a person, the power to remove that person unless the governing law provides otherwise. For example, in the case of Subrata Maity v. Mr. Amit C Poddar & Ors (2022), the NCLT had removed the liquidator and the NCLAT upheld this decision as the liquidator in question was undergoing criminal proceedings and was hence deemed to be unfit to continue as a liquidator. 

Since the IBC does not provide any grounds for the removal of the liquidator, the NCLT and NCLAT in the case of IDBI Bank Ltd. v. Venkata Sivakumar (2022), the grounds for removal of a company liquidator under Section 276 of the Companies Act will also apply to removal of liquidators appointed under IBC. The tribunal also observed that the determination of the grounds and the removal of the liquidator will be done by the tribunal and the CoC does not have locus standi in the matter.

However, pursuant to the IBBI’s amendment to the liquidation regulations in 2021, the CoC will be given power to remove the liquidator. As per the amendment, the liquidator must constitute a Stakeholder’s Consultation Committee (SCC) which comprises the company’s creditors. The amendment gives the SCC the power to file an application, with a 66% majority, for the removal of the liquidator before the tribunal with written reasons for the same. Grounds on which such recommendation or application can be made is not provided. This amendment does not follow the earlier established position of law, which denied the locus standi of the CoC in matters related to removal of the liquidator. Various legal professionals and scholars have contended that the amendment is ultra vires the basic objective and feature of the IBC. It is also being contented that even if the amendment continues to be in force, the decision of the SCC should not be binding on the tribunal and that the grounds under Section 276 of the Companies Act must still be established.

Claims in liquidation process 

The next step of the liquidation process, after the liquidator is appointed, is the stage of calling for claims and consolidation of the received claims. At this stage, the creditors are expected to submit their claims along with the proof of claims within the prescribed time period as mentioned below. Subsequently, the liquidator will verify the claims and either accept or reject the claims in the manner mentioned below.

Consolidation of claims 

The process of consolidation of claims is necessary in order to ensure that all the creditors who are entitled to repayment of the outstanding dues are able to claim their share in the liquidated assets by the end of the liquidation process. Consolidation of claims, followed by the verification of the consolidated claims, allows the liquidator to efficiently determine the value of the outstanding debts that may be claims. It also eases the process of distributing the assets on the basis of the order of priority at the end of the process of liquidation.

According to Section 38, within 30 days of commencement of the liquidation process, the appointed liquidator will receive and collect the claims of various creditors against the corporate debtor.

The creditors, be it financial creditors, operational creditors or partly financial and partly operational creditors, have to submit their claims in the following manner:

  • A Financial Creditor must make claims by submitting any existing record of such claims with an information utility. Information Utilities are crucial players in the insolvency proceedings as they record and provide accurate and up-to-date financial information about the corporate debtors. However, if there is no record of claim with the Information Utility, the financial creditors are also permitted to submit their claims in the same manner as prescribed for the operational creditors.
  • An Operational Creditor must submit their claims with proof to the liquidator within the prescribed time and in the manner prescribed by IBBI.
  • Any partly financial and partly operational creditor is expected to submit their financial claims as per Sub-section (2) which deals with financial creditors and operational claims as per Sub-section (3) which deals with operational creditors.
  • This Section also allows for the creditor to either withdraw or vary their claims within 14 days from the date of submission of the claim to the liquidator.

Verification of claims 

The liquidator has the responsibility under Section 39 of IBC to verify the claims that were submitted and consolidated under Section 38 of IBC within a prescribed time period. For the purpose of verification, the liquidator may also ask the concerned creditors to submit additional documents or evidence of their claims.

Admission or rejection of claims 

After the claims have been verified, the liquidator has the option to either admit or reject the claims under Section 40 of IBC. The claims may be admitted or rejected, either as a whole or in part. Any such decision that is made must be communicated to both the creditors and the corporate debtor within a period of 7 days of such decision. If the liquidator decides to reject a claim, he is required to provide a written reason for the same. Once the claims are verified and either accepted or rejected, according to Section 41 of IBC, the liquidator must proceed with the valuation of the claim. This means that the liquidator should determine the value of those claims that have been admitted in accordance with the procedure or rules determined by IBBI.


Any creditor or member that is aggrieved by the liquidator’s decision to either accept or reject a claim has the recourse of appealing against the decisions. Section 42 of IBC allows for the creditor whose claim has been rejected by the liquidator to approach the tribunal and file an appeal against the decision of the liquidator.

Avoidance transactions

While analysing and verifying the transactions made by the corporate debtor, the liquidator can, avoid or undo certain classes of transactions. Avoidance transactions are dealt with under Section 43 to 51 of IBC, which include preferential transactions, undervalued transactions and extortionate credit transactions. 

Preferential transactions

According to Section 43(2), the term “preferential transactions” includes the transfer of property or interest in the property of a corporate debtor by the corporate debtor itself for the benefit of a creditor, guarantor or surety on account of any type of debt or liability of the said corporate debtor. These transactions are referred to as preferential transactions as it tends to put the said creditors at a beneficial position at the time of distribution of assets.

For the purpose of clearly establishing the purpose and meaning of preferential transactions, sub-section (3) provides a list of transactions that are not considered to be preferential transaction, including:

  • Transactions made in the ordinary course of business or general financial affairs of the corporate debtor
  • Any transfer that creates any security interest in property that is acquired by the corporate debtor to the extent that some new value in the form of money, equivalent value of credit, goods or services, was secured and that the same was given at the time of or immediately after signing a security agreement that includes the said property as security interest. It is also necessary, for the application of this subsection, for the transfer to be registered with an information utility within 30 days of the corporate debtor acquiring possession of the property. Transfer made in compliance with a court order is excluded from the scope of this subsection and can be deemed to be a preferential transaction.

According to subsection (1), Section 43 is constructed with the intention to avoid preferences given by the corporate debtor at the relevant time leading up to the insolvency proceeding. If the liquidator is of the opinion that the corporate debtor has made a preferential transaction, they shall apply to the tribunal for the avoidance of the preferential transaction.

Orders against preferential transactions

Upon receiving an application under Section 43 (1), the tribunal can pass the following orders under Section 44:

  • Ensure that the property connected with the preferential transaction is vested with the corporate debtor;
  • Release any security interest that was created in relation to the preferential; transaction that was created by the corporate debtor. The tribunal can order for the discharge to be either in whole or in part;
  • Direct the beneficiary of the preferential transaction to pay a certain sum of money, in tune with the benefits received, to the liquidator;
  • Direct any guarantor whose debt was discharged as a result of the preferential transaction to be under a new or revived debt;
  • Direct for the provision of any security on any property for the discharge of any debt under the order, equivalent to the security discharged as a result of the preferential transaction;

The tribunal must also ensure that any order passed must not affect the interest or derived interest of any person on the property that was acquired in good faith. Any person who benefited from the transaction, in good faith, must not be asked to pay any sum of money to the liquidator. A person is said to have acted in good faith if they are not a related party and did not have sufficient information about the commencement of the insolvency resolution process. A public announcement is considered as sufficient information.

Undervalued transactions

Section 45 of IBC deals with the concept of undervalued transactions. According to Sub-section 2, the following are considered to be undervalued transactions:

  • Gifts made or given by the corporate debtor to any person;
  • Any transaction involving one or more assets where the consideration is of a significantly lower value.

The application in relation to an undervalued transaction can either be made by the liquidator or any creditor or member in case the liquidator fails to make such an application to the tribunal. The tribunal shall then declare the transaction to be void and order for its effects to be reversed.

Relevant period for avoidable undervalued transaction

According to sub-section 4 of Section 43 for a preference transaction and Sub- section 3 of Section 46 for an undervalued transaction, transactions  made at “relevant time” includes the following:

  • Any such transaction made to a related party within the period of 2 years before the commencement of the insolvency proceeding.
  • Any such transaction made to an unrelated party within the period of 1 year before the commencement of the insolvency proceedings.
Order against undervalued transactions 

Section 48 of the IBC provides for the orders that can be passed by the tribunal pursuant to an application made under Section 45 as follows:

  • Any property that was transferred and is determined to be an undervalued transaction can be ordered to be vested on the corporate debtor;
  • Release any security interest that was created in relation to an undervalued transaction that was created by the corporate debtor. The tribunal can order for the discharge to be either in whole or in part;
  • Direct the beneficiary of the undervalued transaction to pay a certain sum of money, in tune with the benefits received, to the liquidator;
  • Require for the payment of consideration in relation to the undervalued transaction. The amount to be paid may be determined by an independent expert.

Further, as per Section 49 of IBC, if the tribunal is satisfied that the undervalued transaction was done with the intention to defraud the creditors or to adversely affect the interests of anyone related to the claim, the following orders may be passed:

  • Restore the position of the involved parties to before the transaction happened
  • Protect the interest of victims of such fraudulent transactions

The order passed by the tribunals shall not:

  • Effect any interest or derived interest in property acquired in good faith by any person other than the corporate debtor.
  • Require any person who, in good faith, benefited from the transaction to pay any sum of money unless that person was actually a party to the transaction.

Extortionate credit transactions

The term extortionate credit transaction refers to any transaction that required the corporate debtor to pay an exorbitant amount of money in exchange of any credit or debt that they received. When the corporate debtor has been a part of any transactions, the terms of which required the debtor to pay exorbitant amounts, not in compliance with existing laws, within the period of 2 years before the commencement of insolvency, the tribunal may set aside such transaction on any application made by the liquidator under Section 50 of IBC. Any debt extended by a person providing lawful financial services cannot be considered as an extortionate credit transaction. Pursuant to Section 50(2) which gives the board the power to determine what is considered as an extortionate credit transaction, Regulation 5 of the IBBI (Insolvency Resolution Process for a Corporate Person) Regulations,2016 provides for two transactions that will be considered as extortionate:

  • Requires exorbitant payments to be made by the corporate debtor for the credits;
  • Transaction considered to be unreasonable or in excess of the principles of contract law.
Order against extortionate credit transactions

In case an application is made to the tribunals under Section 50, the tribunal can pass the following orders in accordance with Section 51 of IBC:

  • Restore the pre-transaction position of the involved parties;
  • In case of any debt created as a result of the extortionate credit transaction, the tribunal can order for the debt to be wholly or partly set aside;
  • The tribunal can order for the terms of the transaction to be modified if deemed fit;
  • The tribunal can order for any person who is a party to the transaction to repay any amount that they received from the transaction;
  • Require for any security interest that was created as a result of the transaction to be relinquished.

Secured creditors in liquidation proceedings of a company

Section 52 of IBC provides for certain actions that the secured creditors of the corporate debtor can take during the liquidation proceedings in order to secure the amount that is due to them. Subsection (1) provides the secured creditors with the option of either relinquishing their security interests in the liquidation assets and then receiving their share from proceeds from the liquidation of the assets as per Section 53 of IBC or, they can realise the security interest, following the rules laid down in this section:

  • The secured creditor must inform the liquidator about the security interest that is sought to be realised and identify the asset that is subject to the security interest.
  • The existence of the security interest must be proved by way of any such records maintained by an information utility or by any other means that may be specified by IBBI.
  • The security interest can only be realised after the liquidator verifies the existence of the security interest and permits the secured creditor to realise that specific security interest.
  • Once the liquidator has permitted the realisation of the security interest, the secured creditor will deal with the same in accordance with any law that is applicable to the asset subject to the security interest. The proceeds will then be used to clear the debt that is due to the creditor.
  • In case, the proceeds are surplus and excesses remain even after the secured creditor’s debts are settled, the creditor has the responsibility to inform the liquidator of the same and tender the surplus amount to the liquidator.
  • Additionally, any liquidation cost that is due from the secured creditor will be deducted from the proceeds of the realisation of the security interest. The secured creditor must transfer this amount to the liquidator.
  • However, if the proceeds of realisation of the asset is not adequate to clear the amount due to the secured creditor, the unpaid dues will be paid as per section 53.

Distribution of assets of a company

Section 53 of the IBC lays down the order of priority to be considered while distributing the proceeds of the liquidated assets.

  1. Fully paid insolvency procedure costs.
  2. The following debts will be ranked equally
  • Any amounts due to be paid to the workmen and have been pending for up to 24 months preceding the commencement of the liquidation process.
  • Debts owed to a secured creditor who has relinquished security
  1. Any amount due to be paid to employees (not workmen) and have been pending for up to 12 months preceding the commencement of the liquidation process.
  2. Financial debts owed to unsecured creditors.
  3. As per the order of priority, the following  will be ranked equally:
  • Any amount due to be paid to the government
  • Debts owed to secured creditors for unpaid amounts that were not covered by the security.
  1. Remaining Debts and dues (if any)
  2. Preferential Shareholders (if any)
  3. Equity shareholders or partners

The liquidator’s fees will be proportionately deducted from each of the above-mentioned classes or categories before the eligible recipients are paid.

It is also important to note that any agreement or contract that is not consistent with or disrupts the order of priority provided in this section will be disregarded.

Dissolution of corporate debtor

The last step of the liquidation process is the dissolution of the corporate debtor. According to Section 54 of IBC, once the assets of the company are fully liquidated, the liquidator will approach the Tribunal with an application to dissolve the company. The tribunal will then proceed to pass an order of liquidation and a copy of the same must be sent to the concerned ROC within 7 days.

Furthermore, in case of a voluntary liquidation process that was initiated under Section 59, the liquidator must make an application to the tribunal for a dissolution order as per subsection 7 of Section 59 after the affairs of the company are wound up, and the assets are completely liquidated. The tribunal will then pass an order for dissolution. In case of dissolution of a company as a result of a voluntary liquidation process, the copy of the order must be sent to the concerned ROC within 14 days of passing of the order.

Process of liquidation of a company under Companies Act, 2013

The process of liquidation of a company under the Companies Act is referred to as “winding up” and is dealt with under Chapter XX of the Act. Part I under the Act deals with the provisions for winding up of a company by the tribunal. Part II of the Act that dealt with voluntary winding up has been replaced by the IBC.

Grounds for winding up

According to Section 271 of the Companies Act, the tribunal may, on receiving a petition, order for the winding up of a company on the following grounds:

  • If a special resolution was passed by the company to have the company wound up by an order of the tribunal;
  • If the company has acted in any manner that is against the sovereignty, integrity, security of India or in a manner that affects India’s friendly relations with other nations or against public decency and morality;
  • If, on the basis of an application made, the tribunal is satisfied that the affairs of the company are being carried out fraudulently or if the very purpose of setting up or incorporating the company was fraudulent or unlawful in nature. The company may also be wound up if persons involved in the incorporation or management of the company have been found to be guilty of fraud, misconduct, or misfeasance of any sort. In the above-mentioned cases, the application must be filed by ROC or any person authorised to do so by the central government;
  • If the company has, in the preceding five years, consecutively failed to comply with the requirement of filing their financial statements and annual returns;
  • The tribunal may also wind up the company on “just and equitable ground.”

In Hind Overseas Private Limited vs Raghunath Prasad Jhunjhunwalla And Anr (1975), the Supreme Court observed that “just and equitable grounds” includes the following:

  • Disappearance of Substratum or if the company had abandoned all of the objectives on the basis of which it was incorporated, or the objectives have become impossible to perform. In the case of Seth Mohan Lal v. Gran Chambers Ltd. (1968), the Supreme Court observed that when a company substantially fails to fulfil or perform the objects on which it was incorporated, there is a substantial loss of substratum. 
  • Deadlock in management, which is reflected by a division of voting power between two dissenting groups, which cannot be resolved. In the case of Etisalat Mauritius Limited vs Etisalat Db Telecom Pvt. Ltd (2015) , there was a major deadlock between the major shareholder and this led to an irretrievable breakdown of the management. The tribunal ordered for the winding up of the company.
  • Illegality of object and fraud. This also includes any object that has become illegal due to changes in law.
  • If the company is experiencing constant losses and the business cannot continue
  • If winding up of the company is in public interest.
  • When the company did not actually carry out any business after being incorporated.

Who can file a petition for winding up 

According to Section 272, a petition for winding up can be made to the tribunal by the following persons or entities:

  • The company can file a petition if a special resolution for winding up by the tribunal has been passed in the general meeting of the company. This petition must be accompanied by a statement of affairs of the company.
  • Any contributory or person who has held shares for 6 out of 18 preceding months and has had the shares devolved on them after the death of the former holder of the share can file a petition for winding up. A contributory and the company can also file a joint petition.
  • ROC can file a petition on the ground of failure to file financial statements and annual returns. The ROC however requires the sanction of the central government in order to directly approach the tribunal with a winding up petition.The central government is expected to provide the company with a reasonable opportunity to be heard before giving sanction to the ROC.
  • Any person authorised by the Central government 
  • Central or state government can file a petition for winding up if the company has acted against the security, integrity, sovereignty of India; friendly relations with other nations; public decency and morality.

A copy of the petition must be filed with the ROC who will submit his views to the tribunal within a period of 60 days from receiving the copy.

Orders of the tribunal

Once the petition for winding up is filed, the tribunal had the power to pass orders as provided under Section 273:

  • The tribunal can dismiss the petition with or without imposing costs if the tribunal is of the opinion that there is no merit in the case;
  • The tribunal can pass interim orders or injunctions as it deems fit;
  • Until the tribunal passes a winding up order, a provisional liquidator may be appointed. The tribunal must, however, inform the company before appointing a provisional liquidator and give the company sufficient opportunity to be heard. If the tribunal feel that the notice is not required or will cause delays, special reason must be recorded for the same;
  • The tribunal, if satisfied by the grounds alleged in the petition, can pass a winding up order;
  • The tribunal may pass any other order that it deems fit and is necessary for the benefit of the company and its members and creditors.

If the tribunal passes a winding up order or appoints a provisional liquidator, as per Section 279 of the Act, legal proceedings can neither be commenced nor continues by or against the company without the leave of the tribunal.

The section further imposes a time limit of 90 days for disposing the petition or passing any of the above-mentioned orders.

Company liquidator

Appointment of company liquidator

After passing a winding up order, the tribunal will appoint an official liquidator as a company liquidator. The appointment of a company liquidator is governed by Section 275 of the Companies Act. The tribunal will appoint the liquidator from a panel of insolvency professionals registered under IBC. The tribunal will also determine the terms and conditions of appointment as well as the liquidator’s fee on the basis of the task, experience, qualification and size of the company involved.

The section also requires the liquidator to file a declaration disclosing any conflict of interest or lack of independence. This declaration must be filed within 7 days from date of appointment.

For the purpose of the subsequent subheadings, the term liquidator includes both company liquidator and provisional liquidator.

Removal and Replacement of Company Liquidator

The tribunal also has the power to remove or replace the liquidator on the grounds provided under Section 276 of the Companies Act which includes misconduct, fraud, misfeasance, professional incompetence, conflict of interest, lack of independence and the inability to act as a liquidator. The liquidator must be given sufficient opportunity to be heard before he is removed or replaced by the orders of the tribunal.

If the tribunal removes a liquidator or if the liquidator dies or resigns, the tribunal has the option of transferring the work to a new company liquidator after recording the reasons for the same.

If the tribunal finds that the liquidator was responsible for loss or damage to the company on account of fraud, misfeasance or lack of due diligence and care, the loss or damage can be recoverable from the concerned liquidator.

Powers and Duties of Company Liquidator

Section 290 of the Act lists out the powers and duties that are vested on the appointed company liquidator. The powers and duties listed hereunder are subject to directions given by the tribunal. The tribunal may restrict some of the mentioned powers, or may direct the liquidator to perform some additional duties.

  • To the extent required for beneficial winding up, the liquidator must carry on the business or affairs of the company;
  • The liquidator must act and execute deeds and other documents on behalf of the company and use the company seal whenever necessary;
  • The liquidator has the power to sell the properties of the company, both movable and immovable as well as actionable claims of the company either  by way of a public auction or a private contract, in order to complete the liquidation process;
  • The liquidator may also sell the entire undertaking of the company as a going concern. This provides scope for better utilisation of the resources or the assets that will be transferred along with the business of the company when compared to selling off each asset independently;
  • The liquidator may, as required, raise any money on the security of the company’s assets;
  • Any suit can be instituted or defended by the liquidator on behalf of the company. Once the order for winding up is passed, the leave of the tribunal is necessary before instituting or defending a suit.
  • Like in case of the liquidator under IBC, the liquidator under Companies Act also has the power and the duty to call for claims from the creditors and employees, and settle the claims by distributing the proceeds of sale of assets in the order of priority;
  • For the purpose of efficient winding up, the liquidator is entitled to inspect the records and returns of the company;
  • The liquidator also deals with negotiable instruments on behalf of the company and liability in this case will be accorded in the same manner as it would have been if the company itself signed, drew or endorsed the instrument;
  • The liquidator may, in their official capacity and under their name, take out a letter of administration  to any deceased contributory and can take any action as required to obtain payment of any money due from the contributory;
  • In order to ensure a speedy and efficient winding up process and for the protection of the asset, the liquidator can obtain any professional assistance or appoint any professional  in discharge of the liquidator’s duties. In cases where the liquidator is unable to do a duty, he can appoint an agent to do any such required business;
  • The liquidator has the duty to take all necessary steps as may be required for the winding up of the company, distribution of assets and for the performance of all other duties and obligations connected with the official capacity of the liquidator;
  • The liquidator must, as and when required, apply to the tribunal for any order or direction that is required for winding up.

Report by company liquidator

One of the duties of the liquidator upon appointment is to submit a report under Section 281 to the tribunal within 60 days of the order of appointment. The report must contain particulars and details of the following:

  • Details about the assets of the company including the nature of the asset, its location, value, etc. The valuation of the assets must be done by a registered valuer only;
  • Details about the capital of the company including the issued capital, share capital, subscribed capital and paid-up share capital;
  • Details about the existing and contingent liabilities of the company, along with the details of the creditors of the company. It is also necessary to include details of all the debts of the company and the persons the debt is owed to;
  • Details about contributories of the company and any dues that they have to pay;
  • Details about all the intellectual property owned by the company;
  • If there are any subsisting contracts, collaborations or joint ventures, details of each of these must be included in the report;
  • Details of any holding or subsidiary company;
  • Details of any ongoing legal proceedings by or against the company must be included;
  • Details about the promotion of the company and its incorporation must be included, accompanied by the opinion of the liquidator as to whether any fraud was apparently involved in the process of promotion or at any point in time committed by any officer of the company since its incorporation;
  • The liquidator’s report must also contain details about the viability of continuing the business of the company, as well as suggested steps that may be taken to maximise the value of the assets;
  • The tribunal may also direct the liquidator to include certain other details or particulars in the report.

The liquidator’s report can be inspected by any creditor or contributory of the company at any reasonable time. Copies of the report can be taken after paying a fee for the same.

Subsequent to the submission of the report, according to Section 282 of the Companies Act, the tribunal will set the time limit within which the winding up proceedings must be completed, and the company must be dissolved. On  the basis of the report, and after hearing the relevant stakeholders or interested persons, the tribunal may order for the company to be sold as a going concern.

Further, if the tribunal or the central government receives a report that shows the commission of fraud, an order for investigation under Section 210 can be passed. The tribunal may also file a criminal complaint against the persons involved.

Lastly, on the basis of the repost, the tribunal may pass orders as is necessary for the preservation and enhancement of the value of the assets.

Dissolution of company

Once the affairs of the company are completely wound up, the liquidator will make an application under Section 302 for the dissolution of the company. If the tribunal is satisfied that it is just and reasonable to dissolve the company, an order to that effect will be passed, and the company will be dissolved as on the date of the passing of the order.A copy of the order has to be sent by the tribunal to the ROC within 30 days of the order and similarly, the tribunal will direct the company liquidator to forward the order to the ROC within 30 days of the passing of the order. The company officially ceases to exist once the Registrar registers or records the dissolution.

Relevant case laws

Pariman Enterprises Pvt. Ltd. v. Atlantis LifeSciences Pvt. Ltd (2018)

In this case of Pariman Enterprises Pvt. Ltd. v. Atlantis LifeSciences Pvt. Ltd, the Mumbai Bench of the National Company Law Tribunal passed a liquidation order against the corporate debtor on the grounds provided under Section 33(1)(a) of IBC. The corporate debtor was ordered to be liquidated as the adjudicating authority did not receive the resolution plan even after the expiry of the maximum prescribed period for the completion of CIRP (180 days).

Swiss Ribbons Pvt. Ltd. v. Union of India (2019)

The Swiss Ribbons case is a landmark case that upheld the constitutionality of IBC and specifically validated various provisions under the code. In relation to the topic of liquidation, Section 53 of IBC which deals with the distribution of assets during the liquidation process was challenged as being arbitrary and discriminatory. The petitioners in this case claimed that the order of priority of each class of creditors was in violation of Article 14 of the Constitution.

It was, however, observed that it is essential to distinguish between the operational debts which are often unsecured debts and financial debts that are generally secured debts which create flow of capital into the economy. Hence, the classification of creditors and order of priority Discharging the financial debts of banks and financial institutions will beneficially trigger the has a legitimate and justifiable reason. It was also affirmed by the Apex Court that the order of priority as provided under the impugned provision is to be followed only during liquidation of the corporate debtor.

In this context, the Hon’ble Supreme Court upheld the constitutional validity of the Section and observed that it was neither arbitrary nor discriminatory in nature.

Kridhan Infrastructure Pvt. Ltd. v. Venkatesan Sankaranarayan & Ors (2020)

The Supreme Court dismissed the appeal filed against the liquidation order that was upheld by the NCLAT. On the grounds of failure to implement the approved resolution plan, the NCLT had passed an order of liquidation. However, on appeal, the NCLAT provided a specific amount of time to the resolution applicant to make certain deposits instead of immediately resorting to liquidation. Subsequently, on the ground of failure to make the ordered deposits, the NCLAT upheld the liquidation order that was passed by the NCLT. While the Supreme Court had initially, in 2020 stayed the liquidation order and provided additional time for the implementation of the resolution plan, the resolution applicant failed to do so.

Ultimately, the Supreme Court, in 2021 held that the liquidation process must continue as permitting the process to lapse into delay will defeat the purpose of IBC.

Yavar Dhala v. JM Financial Asset Reconstruction Company Ltd. & Ors (2021)

In the above mentioned case, the National Company Appellate Tribunal ordered for the liquidation of the corporate debtor on the grounds specified under Section 33(3) of IBC. The resolution applicant in question had succeeded the corporate debtor in this case and was expected to fulfil certain obligations under the resolution plan, which they failed to fulfill. The Hon’ble NCLAT held that the corporate debtor should be liquidated and passed an order of liquidation. 

Sunil Kumar Jain and others v. Sundaresh Bhatt & Ors (2022)

The primary issue in this case was in relation to the categorization of the wages or salaries due to be paid to the workmen employed by the corporate debtor during the CIRP. The question arose as to whether the salaries of workmen who did not work during the CIRP period would fall under the category of “CIRP costs” or whether it should be distributed according to the order of priority provided under Section 53 of IBC.

The Apex Court held that, if the company was a going concern during the CIRP, the wages of those workers who worked during the process will be included under the category of CIRP cost. However, the pending wages or salaries of those workmen who did not work during the CIRP will be calculated and distributed on the basis of the order of priority as laid down under Section 53 of IBC.


In conclusion, the process of liquidation of a company is initiated either on a voluntary or compulsory basis. This happens when it is determined that the company’s business should not continue or that the company is insolvent. The liquidator is entrusted with the duty of collecting and verifying claims and liquidating the assets of the company before distributing the proceeds from the assets towards repaying the outstanding debts that were claimed by the creditors, members, and other relevant stakeholders. Once the process of liquidation of assets of the company is completed by the liquidator and the proceeds are distributed on the basis of the order of priority mentioned above, the company has to be officially dissolved.

Frequently Asked Questions (FAQs)

What happens to the employees and shareholders of a liquidated company?

An order of liquidation is deemed to be a notice of discharge of employees and officers of the company from service, unless the business of the company is continued during the liquidation process for the purpose of beneficial liquidation.

Who can initiate a voluntary and involuntary liquidation process?

In case of voluntary liquidation process:

  • The corporate person 
  • Members or shareholders of the company
  • Creditors of the company

In case of compulsory liquidation process:

  • Creditors of the company
  • The concerned regulatory authority

What is the prescribed time limit within which the liquidator must make a public announcement to call for claims?

According to regulation 12 of the Liquidation Regulations, the liquidator has to make a public announcement within 5 days of their appointment as a liquidator for the liquidation proceedings of the corporate debtor. Subsequently, the last day for submission of claims is usually provided as 30 days from the date of commencement of the liquidation proceedings.

Under which form does each type of creditor file their claims during the liquidation process?

The forms for submitting claims or proof of claims during the liquidation process are found under Schedule II of IBC.

  • Operational Creditors (other than workman or employee): Form C (Electronic mean, in person or by post)
  • Financial Creditor: Form D (electronic means only)
  • Workman or Employee: Form E (Electronic mean, in person or by post)
  • Authorised Representative of workman or employee: Form F (Electronic mean, in person or by post)
  • Any creditor or claimant who does not fall under the above-mentioned categories: Form G (Electronic mean, in person or by post)

How can creditors prove their claims?

Creditors can prove their claims using two sets of information:

  • Information or data available with Information Utility
  • Any other relevant document, including:
    • Contact with the corporate debtor for sale or purchase of goods and services
    • Invoice for payment for any goods and service that has been supplied.
    • Any financial statement that shows the debt
    • Any documentary evidence that demands for satisfaction of the claims
    • Bank statements that prove non-satisfaction of the claim.
    • Any order of a competent court or tribunal in relation to the non-satisfaction of the claim.



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