In short. Under the IBC, liquidation follows a failed CIRP. The NCLT passes a liquidation order under section 33, a liquidator takes over and sells the assets, and the proceeds are paid out under the section 53 waterfall: process costs first, then workmen's dues and secured creditors who gave up their security, then employees, unsecured lenders, government dues, other creditors and finally shareholders.
This post is for creditors, workers, directors and shareholders of a company that has been ordered into liquidation, or is close to it. It explains what the liquidation order does, who runs the company afterwards, what each class of creditor can realistically expect, and the decisions that have to be made in the first few weeks. For the earlier stage, when the company is still in CIRP and a resolution plan is possible, see our insolvency lawyer in Delhi page.
The law changed this year. The IBC (Amendment) Act 2026 received assent on 6 April 2026, and most of its provisions, including several on liquidation, took effect on 26 May 2026, while a few parts still await notification. Many liquidations that began before that date continue partly under the old rules. Where the change matters, this post says so, and in a live case the first job is to check which version applies.
- Law
- Sections 33 to 54, Insolvency and Bankruptcy Code 2016
- Ordered by
- NCLT, on a failed CIRP or a CoC decision
- Run by
- A liquidator, an insolvency professional, under the CoC's supervision since 2026
- Payment order
- Section 53 waterfall
- Time to finish
- 180 days plus up to 90 under the amended s.54, for new liquidations
- Appeal
- NCLAT within 30 days, plus up to 15 (s.61)
When does a company go into liquidation under the IBC?
The NCLT orders liquidation under section 33 in four situations. First, when the CIRP period ends, including extensions, without a resolution plan being placed before it. Second, when the NCLT rejects a resolution plan because it does not meet the requirements of section 30(2). Third, when the Committee of Creditors decides, by at least 66% of the voting share, to liquidate the company at any time during the CIRP before a plan is approved. Fourth, when an approved resolution plan is contravened and an affected person applies to the NCLT.
The 2026 amendment added a last chance before liquidation. Under the new section 33(1A), the CoC can, by a 66% vote and only once, ask the NCLT to restore the CIRP for up to 120 days, to look for a plan again. If that fails, liquidation follows, and the amended law directs the NCLT to pass the liquidation order within 30 days.
Liquidation under the IBC is different from winding up by a court under the Companies Act, and different again from voluntary liquidation under section 59, where a solvent company chooses to close itself. This post is about liquidation after a failed CIRP, which is by far the most common route in the NCLT benches in Delhi.
What happens to the company the day the liquidation order is passed?
The company does not disappear on the day of the order. It continues to exist as a legal person until the NCLT passes a dissolution order, but its management changes completely. The powers of the board of directors, key managerial personnel and partners vest in the liquidator under section 34(2). Directors who were suspended during the CIRP remain without power, and must hand over records and cooperate with the liquidator.
Section 33(5) bars any new suit or legal proceeding by or against the company once the liquidation order is passed, except a proceeding filed by the liquidator with the NCLT's prior approval. This replaces the CIRP moratorium described in our post on the section 14 moratorium. Under section 33(7), the liquidation order is treated as a notice of discharge to the officers, employees and workmen of the company, unless the liquidator continues the business during liquidation.
The liquidation order also fixes the liquidation commencement date, which matters later: workmen's dues are counted for 24 months before it, employees' dues for 12 months, and government dues for two years. Creditors should note the date from the order or the liquidator's public announcement as soon as it is issued.
Who is the liquidator, and who supervises him?
The liquidator is an insolvency professional registered with the IBBI. Under the old section 34, the resolution professional who ran the CIRP usually became the liquidator unless the NCLT replaced him. The 2026 amendment changes this for new cases: the NCLT refers the appointment to the IBBI, which recommends a professional, and the person who was resolution professional in the CIRP cannot be appointed liquidator of the same company. The idea is a fresh pair of eyes on the assets and on any suspicious transactions.
Supervision has also shifted. Under the old liquidation regulations, a stakeholders' consultation committee advised the liquidator, but its views were not binding. The amendment gives the Committee of Creditors a supervisory role over the liquidator's conduct, and provides for the CoC to replace the liquidator by a 66% vote with the NCLT's approval. Not every part of the new liquidator provisions was brought into force on 26 May 2026, so in a live case the current notification has to be checked.
The liquidator's powers under section 35 are wide: to take custody of assets, verify claims, carry on the business if needed for a beneficial liquidation, sell property by public auction or private contract, raise interim finance, file and defend proceedings with approval, and investigate the company's past transactions. He must not sell assets to anyone who would be ineligible to submit a resolution plan under section 29A, which keeps most defaulting promoters out.
The sections that decide a liquidation
Section 33, IBC
When the NCLT must order liquidation, the bar on new proceedings (s.33(5)) and the deemed discharge of employees (s.33(7)). Amended in 2026 to allow a one-time restoration of the CIRP before liquidation and to set a 30-day time for the liquidation order.
Section 36, IBC
Creates the liquidation estate, held by the liquidator in trust for creditors, and lists what is excluded, including third-party assets, assets of subsidiaries, and provident fund, pension and gratuity funds of workers and employees.
Section 52, IBC
Gives a secured creditor the choice to relinquish its security to the estate or to realise it on its own. The 2026 amendment sets a 14-day window for that choice in new liquidations and requires creditors holding 66% of the claims on a shared asset to agree before it is realised outside the estate.
Section 53, IBC
The order in which sale proceeds are distributed. Each class is paid in full before the next receives anything, and creditors within a class share proportionately.
Section 54, IBC
Dissolution of the company once the assets are fully liquidated. As amended in 2026, liquidation is to be completed and dissolution applied for within 180 days of the liquidation commencement date, extendable by up to 90 days.
What is in the liquidation estate, and what is not?
The liquidation estate under section 36 is the pool of assets the liquidator sells for creditors. It includes everything the company owns: land, buildings, plant, stock, receivables, bank balances, intangible assets such as trademarks, shares in other companies, and any money recovered later through avoidance applications or claims against former directors.
Section 36(4) keeps several things out. Assets owned by a third party but in the company's possession, such as goods held in trust or under a bailment, are excluded, and the owner can claim them back with proof of ownership. Assets of a subsidiary, Indian or foreign, are not part of the parent's estate. Provident fund, pension fund and gratuity fund money due to workmen and employees is excluded altogether, so those amounts are not shared with creditors. The personal assets of shareholders or partners are also excluded, unless they were acquired through an avoidance transaction.
A common misunderstanding is that a promoter's house becomes part of the company's liquidation. It does not. What can reach the promoter personally is a personal guarantee he gave to the company's lenders, which is pursued separately, as our post on personal guarantor insolvency under section 95 explains, or an order under section 66 for fraudulent or wrongful trading.
The section 53 waterfall: who gets paid first
Each level must be paid in full before the next level receives anything. Creditors within the same level share in proportion to their admitted claims.
| Rank | Who | What to know |
|---|---|---|
| 1 (s.53(1)(a)) | CIRP costs and liquidation costs | Fees of the professionals, interim finance, costs of running the company during CIRP and of the sale |
| 2 (s.53(1)(b)) | Workmen's dues for 24 months before liquidation, and secured creditors who relinquished their security | These two rank equally. A secured creditor counts as secured only up to the value of its security; the rest is unsecured |
| 3 (s.53(1)(c)) | Wages and unpaid dues of employees other than workmen, for 12 months before liquidation | Managerial and office staff fall here, not with workmen |
| 4 (s.53(1)(d)) | Financial debts owed to unsecured creditors | Unsecured lenders, inter-corporate deposits, unsecured debentures |
| 5 (s.53(1)(e)) | Central and State Government dues for up to two years before liquidation; and the unpaid balance of secured creditors who realised security outside the estate | Tax and other statutory dues rank here; older government dues fall lower |
| 6 (s.53(1)(f)) | Remaining debts and dues | Most suppliers and other operational creditors |
| 7 (s.53(1)(g)) | Preference shareholders | Only after every creditor is paid in full |
| 8 (s.53(1)(h)) | Equity shareholders or partners | In practice rarely receive anything |
How the waterfall works in practice
The waterfall is strict. If the money runs out at level two, nobody below it receives anything, however large or old their claim. In most IBC liquidations the realisations are a small fraction of the admitted claims, so the practical question for a creditor is not how much he is owed but which level he sits in. An ordinary supplier at level six should expect little or nothing from a company whose secured debt is many times its asset value.
Government dues have been the subject of long argument. In 2022 the Supreme Court, in State Tax Officer v Rainbow Papers, treated a statutory charge for tax dues as making the State a secured creditor. The 2026 amendment responds to that. Its explanation to section 3(31) says a security interest arises only from an agreement or arrangement between parties, not merely by operation of law, and the amended section 53 makes clear that government dues, whether described as secured or not, rank at level five for the two years before liquidation and lower for older periods.
When Advocate B.K. Singh looks at a creditor's position in a liquidation, the first thing he works out is the creditor's level in the waterfall and how much sits above it: the likely costs, the workmen's dues and the secured debt. That one calculation usually tells the client whether to spend money contesting the claim amount, or whether the real recovery lies elsewhere, against a guarantor or through an avoidance application.
Secured creditors: relinquish the security or realise it yourself?
Section 52 gives a secured creditor two choices. It can relinquish its security interest to the liquidation estate and stand at level two of the waterfall, sharing equally with the workmen's dues. Or it can realise the security itself, for example by selling the mortgaged property under SARFAESI, keep the proceeds up to its debt, and claim any shortfall at level five. A secured creditor that realises outside the estate must still contribute towards the workmen's dues and process costs as the regulations require.
The choice depends on the value of the security compared with the claim, how many lenders share the same asset, and the time and cost of selling it alone. A lender with an exclusive charge over a valuable, easily sold property may do better realising it. A lender sharing a factory with five other banks usually relinquishes, because a joint sale through the liquidator is simpler.
For liquidations that began after the 2026 amendment took effect, the secured creditor must tell the liquidator within 14 days of the liquidation commencement date that it wants to realise the security outside the estate, identifying the asset, or it is treated as having relinquished it. Where several creditors share the asset, realisation outside the estate needs the agreement of creditors holding at least 66% of the claims secured by it. These rules do not apply to liquidations that started earlier.
How are claims dealt with in liquidation?
Under the procedure that applied before 2026, the liquidator made a fresh public announcement, creditors filed or updated their claims within 30 days of the liquidation commencement date, the liquidator decided them, and a creditor dissatisfied with the decision could appeal to the NCLT within 14 days under section 42. Claims already filed in the CIRP were considered, but creditors were expected to update them.
The 2026 amendment restructures this, moving towards carrying the claims collated during the CIRP into the liquidation instead of running a full fresh round. In practice, a creditor should read the liquidator's public announcement and any letter it receives, check whether its CIRP claim has been carried forward at the right amount and in the right class, and file whatever update is invited by the stated date. Our post on filing your claim with the resolution professional explains the forms and supporting documents.
If a claim is rejected or placed in the wrong class, act within 14 days of the decision, even if you are unsure which provision now governs the challenge. Delay in challenging a claim decision is one of the few mistakes in liquidation that cannot be corrected later.
What a creditor should do once liquidation is ordered
Read the liquidation order
Note the liquidation commencement date, the name of the liquidator, and any directions on the business, employees or assets. Get the full order, not just the cause list entry.
Check the public announcement
The liquidator announces the liquidation and any deadline for claims or updates. Diary every date in it.
Confirm your claim and class
Write to the liquidator to confirm your admitted claim amount and your class in the waterfall. Correct any error immediately with documents.
Secured creditors: decide on section 52
Decide whether to relinquish or realise the security. In liquidations under the amended law, the decision must be communicated within 14 days of commencement.
Follow the sale
Watch the auction notices and valuations. If you believe assets are being sold too cheaply or to an ineligible buyer, raise it with the liquidator and the CoC in writing before the sale closes.
Look beyond the estate
Check whether there are personal or corporate guarantees, avoidance applications or claims against former directors that offer a better recovery than the waterfall.
Track distributions and dissolution
Distributions are made as money comes in. Check each distribution statement against your class and the amounts above you.
A made-up example: where the money goes
Here's a made-up example. A packaging company in Ghaziabad goes into liquidation after its CIRP produces no viable plan. The liquidator sells the factory, machinery and stock for ₹40 crore in total. CIRP and liquidation costs come to ₹2 crore. Workmen's dues for the last 24 months are ₹3 crore. The only secured lender, a bank owed ₹60 crore with a charge over the factory, relinquishes its security. Office staff are owed ₹1.5 crore, a group company has an unsecured loan of ₹8 crore, GST dues are ₹4 crore, and suppliers are owed ₹15 crore.
The first ₹2 crore goes on costs, leaving ₹38 crore. At level two, the workmen's ₹3 crore and the bank's ₹60 crore rank equally, a total of ₹63 crore against ₹38 crore available. Each gets about 60% of its claim: the workmen roughly ₹1.81 crore and the bank roughly ₹36.19 crore. The money is then exhausted. The office staff, the group company, the GST department, the suppliers and the shareholders receive nothing from the estate.
The workmen's provident fund and gratuity, if properly kept in separate funds, are not part of the ₹40 crore at all, so those amounts are paid to them in full outside the waterfall. The suppliers' only realistic chance of recovery is against any personal guarantor, or from money the liquidator later recovers through avoidance or fraudulent trading applications. This is an illustration only; real liquidations involve disputes over claims, costs and asset values.
What happens to workers and employees?
The liquidation order is treated as notice of discharge to employees and workmen under section 33(7), unless the liquidator keeps the business running. Their unpaid dues are split by type and period. Workmen's dues for the 24 months before liquidation rank at level two, alongside secured creditors who relinquished security. Salaries of other employees for the 12 months before liquidation rank at level three. Anything older falls to level six.
Provident fund, pension fund and gratuity fund amounts sit outside the estate altogether under section 36(4), so they are not reduced by the waterfall, provided the money was actually placed in those funds. Where the employer deducted contributions and never deposited them, the position is harder, and the employees' claim often has to be pursued through the EPFO and in the liquidation together. Employees whose salaries were paid during the CIRP while the company was run as a going concern may have that amount treated as part of the CIRP costs.
Directors, promoters and shareholders after liquidation
Shareholders stand last and in nearly every IBC liquidation receive nothing. Directors are not personally liable for the company's debts merely because it was liquidated, but liquidation is when the past is examined most closely. The liquidator can pursue applications for preferential, undervalued, fraudulent and extortionate transactions, and applications under section 66 for fraudulent or wrongful trading, which can lead to orders for personal contribution. Our posts on preferential and fraudulent transactions and director liability after insolvency explain these.
Promoters who gave personal guarantees remain liable on them. A promoter who wants to buy back the company's assets in the liquidation sale will be barred if he is ineligible under section 29A, for example because the company's account has been a non-performing asset for more than a year and the dues have not been cleared.
How long does liquidation take, and when is the company dissolved?
Older IBC liquidations have often taken several years, despite regulatory targets, because of litigation over claims, assets and sales. The amended section 54, for liquidations that start after the 2026 amendment took effect, requires the liquidator to complete the liquidation and apply for dissolution within 180 days of the liquidation commencement date, with one extension of up to 90 days for sufficient reasons. It remains to be seen how these timelines work out where assets are disputed or hard to sell.
Once the assets are sold and the proceeds distributed, the liquidator applies to the NCLT for dissolution, and the NCLT passes a dissolution order. From that date the company ceases to exist, and the order is sent to the ROC. Pending avoidance applications are dealt with as the law and the NCLT direct, and do not necessarily die with the company.
Can a liquidation order be stopped or reversed?
A liquidation order can be appealed to the NCLAT under section 61, within 30 days of pronouncement, plus a maximum of 15 days for sufficient cause. Section 61(4) limits appeals against a liquidation order to grounds of material irregularity or fraud relating to the order. Our post on NCLAT appeals, limitation and procedure explains how the time is counted, and why it often runs out before people realise.
Before the order is passed, the CoC can use the new one-time restoration under section 33(1A) to look again for a resolution plan. After the order, the liquidator can sell the company as a going concern, which keeps the business and its employees together under a new owner, free of old liabilities that are settled through the waterfall. The IBBI's liquidation regulations have, at different times, allowed or limited a compromise or arrangement under section 230 of the Companies Act during liquidation, so if that route is being considered, check the current regulations first.
Documents to keep ready in a liquidation
Creditors
- Copy of the claim filed in the CIRP and the resolution professional's acceptance
- Loan or supply agreements, invoices, ledgers and bank statements
- Security documents and charge registration, for secured creditors
- Any personal or corporate guarantee given for the debt
Workmen and employees
- Appointment letter and salary slips
- Attendance records for the period of unpaid wages
- PF and ESI statements showing deposits and gaps
- Proof of dues claimed, such as full and final settlement letters
Directors and promoters
- Complete company records, books and board minutes for handover
- List of assets, their location and any third-party goods held
- Guarantees given to lenders
- Records explaining major transactions in the two years before the CIRP
Mistakes creditors and promoters make in liquidation
- Missing the claim update or challenge date. A claim placed in the wrong class or at the wrong amount must be challenged quickly, or it stays that way.
- Secured creditors not deciding on time. Under the amended law, silence for 14 days means the security is treated as relinquished.
- Spending on the wrong fight. A creditor at level six may spend more contesting its claim than it could ever receive from the estate.
- Ignoring guarantees. The guarantor is often the only realistic source of recovery, and limitation against the guarantor keeps running.
- Promoters hiding or withholding records. Non-cooperation invites applications against them and colours every later proceeding.
- Letting the appeal period pass. A liquidation order not appealed within 45 days at the outside is final.
How we approach liquidation matters
In liquidation, most of the value lies in getting a few decisions right early: the class of the claim, the section 52 choice for a secured creditor, the challenge to a wrong claim decision, and the pursuit of guarantors and avoidance recoveries. Advocate Sadhna Singh usually begins by collecting the claim papers, the liquidation order and the public announcement, so that the deadlines are fixed before anything else. Our insolvency work is described on the bankruptcy and insolvency advice and NCLT lawyer in Delhi pages.
If you are a creditor, worker or director of a company in liquidation and want to know where you stand in the waterfall and what can still be done, the team of Advocate B.K. Singh at B.K. Singh & Associates can look at the order and your papers. Send the details through our online legal enquiry page.
Frequently asked questions
What is the difference between CIRP and liquidation?
CIRP is the attempt to rescue the company through a resolution plan, during which the business usually keeps running. Liquidation follows if that attempt fails: the assets are sold, the proceeds distributed under section 53, and the company dissolved.
Who gets paid first in liquidation under the IBC?
The insolvency resolution process costs and liquidation costs are paid first. Next come workmen's dues for 24 months together with secured creditors who relinquished their security, ranking equally. Shareholders come last.
Are government tax dues secured in IBC liquidation?
After the 2026 amendment, a statutory charge arising only by operation of law is not a security interest under the IBC. Government dues for up to two years before liquidation rank at level five of the waterfall, below unsecured financial creditors, and older dues rank lower.
Do employees get their PF and gratuity in liquidation?
Provident fund, pension fund and gratuity fund amounts are excluded from the liquidation estate under section 36(4). They are not shared with creditors. Problems arise mainly where the employer deducted contributions but never deposited them.
Can directors be made to pay the company's debts in liquidation?
Not merely because the company is liquidated. They can be ordered to contribute under section 66 for fraudulent or wrongful trading, can face avoidance applications, and remain liable on personal guarantees they gave.
Can a promoter buy the company's assets in a liquidation auction?
Only if he is not ineligible under section 29A. The liquidator cannot sell assets to a person who would be barred from submitting a resolution plan, which excludes many promoters of defaulting companies.
What happens to pending cases against a company in liquidation?
Section 33(5) bars new suits or proceedings by or against the company after the liquidation order, except those filed by the liquidator with the NCLT's approval. Creditors pursue their claims through the liquidator instead.
How long does IBC liquidation take?
For liquidations under the amended section 54, the liquidator must finish and apply for dissolution within 180 days of the liquidation commencement date, extendable by up to 90 days. Older liquidations have often taken years.
Can the company be sold as a going concern in liquidation?
Yes. The liquidator can sell the business as a going concern, keeping its operations and workforce together under a new owner. The buyer must be eligible under section 29A, and the proceeds are distributed under section 53.
What should a secured creditor do when liquidation starts?
Decide quickly whether to relinquish the security or realise it outside the estate under section 52. In liquidations under the amended law, the choice must be communicated within 14 days of the liquidation commencement date, or the security is treated as relinquished.
Can a liquidation order be challenged?
Yes, by appeal to the NCLAT under section 61 within 30 days, with a maximum further 15 days for sufficient cause. Section 61(4) limits the grounds to material irregularity or fraud relating to the order.
Do operational creditors get anything in liquidation?
Ordinary suppliers and other operational creditors rank at level six, after secured creditors, workmen, employees, unsecured lenders and government dues. In most liquidations little or nothing reaches them from the estate, so guarantees and other remedies matter more.
Written and reviewed at B.K. Singh & Associates
Advocate B.K. Singh
Founder of B.K. Singh & Associates. MCA, LL.B., LL.M., with more than twenty years of practice before the Supreme Court, the Delhi High Court, district courts and tribunals across Delhi NCR. This article explains the general law as of 24 October 2026; it is not legal advice on your facts.