Quick answer: The liquidation process under IBC starts when the NCLT passes a Section 33 order after a failed CIRP. The IBBI nominates a liquidator, who collects claims, sells the assets and pays creditors under the Section 53 waterfall. Since 26 May 2026, the liquidator must finish within 180 days, extendable once by 90 days.
The liquidation process under IBC is the last stop for a company that no plan can rescue. For banks and NBFCs, it fixes their final recovery. The IBC (Amendment) Act, 2026 has rewritten several rules, and most of its liquidation changes took effect on 26 May 2026. This guide explains each stage, the new timelines and key rulings.
When Does the Liquidation Process Under IBC Begin?
Under Section 33, the NCLT orders liquidation in four main situations:
- The CIRP period ends without a resolution plan.
- The NCLT rejects the resolution plan.
- The committee of creditors (CoC) votes for liquidation with at least 66% of voting share.
- The debtor breaches an approved resolution plan.
However, the 2026 Amendment adds a safety valve. Before the NCLT passes a liquidation order, the CoC can now seek restoration of the CIRP once, with a 66% vote. Reports suggest up to 120 days for this. The new law also lets the NCLT declare a moratorium with the liquidation order, so recovery suits cannot drain the estate.
Step-by-Step Liquidation Process Under IBC
- Liquidation order: The NCLT passes the Section 33 order and may declare a moratorium.
- Liquidator appointment: The NCLT refers the matter to the IBBI, which nominates a liquidator. The resolution professional from the CIRP cannot take this role.
- Claims: The liquidator invites claims, and creditors file proof of their dues.
- Secured creditor election: Each secured creditor has 14 days to decide whether to realise its own security under Section 52.
- Asset sale: The liquidator values and sells the assets, often as a going concern or through e-auction.
- Distribution: The liquidator pays stakeholders in the Section 53 order of priority.
- Dissolution: Finally, the liquidator applies to the NCLT, which dissolves the company under Section 54.
What Changed in 2026: Timelines and CoC Supervision
First, the CoC now survives into liquidation. Section 21(11) and Section 35(2) let it supervise the liquidator’s conduct. In addition, new Section 34A allows the CoC to replace the liquidator. Most commentators put the threshold at 66% of voting share.
Second, Section 54 now sets a 180-day deadline to complete liquidation. The liquidator can seek one extension of up to 90 days.
Third, the Act omits Sections 38 to 42. Notably, some changes do not apply to liquidations that began on or before 26 May 2026.
Section 53 Waterfall: Who Gets Paid First
The liquidator distributes sale proceeds in this order:
- CIRP costs and liquidation costs.
- Workmen’s dues for 24 months, and secured creditors who relinquished security, paid equally.
- Employee wages (other than workmen) for 12 months.
- Unsecured financial creditors.
- Government dues for two years, and the unpaid balance of secured creditors who enforced security.
- Remaining debts and dues.
- Preference shareholders, then equity shareholders.
The 2026 Amendment also clarifies that a “security interest” must arise from an agreement. A charge created only by statute does not count. As a result, tax authorities cannot claim secured status in the waterfall.
Key Case Law on IBC Liquidation
- State Bank of India v. Moser Baer Karamachari Union (SC, 7 February 2023): The Supreme Court held that provident fund, pension and gratuity dues sit outside the liquidation estate.
- Paschimanchal Vidyut Vitran Nigam v. Raman Ispat (SC, 17 July 2023): The Court held that the IBC overrides the Electricity Act. It placed secured creditors above electricity dues in the waterfall and confined the earlier Rainbow Papers ruling.
- Meenachil East Urban Co-operative Bank v. CA Mahalingam Suresh Kumar (NCLT Kochi, 2026): The Tribunal treated the 2026 Explanation to Section 53(1)(b) as clarificatory. It held that a relinquishing secured creditor shares by the value of its security, not its admitted debt. The rule applied even to a pending liquidation.
For the earlier stages before liquidation, see our complete guide to NCLT insolvency proceedings in Delhi NCR.
Frequently Asked Questions
What is the liquidation process under IBC?
It is the NCLT-supervised sale of a corporate debtor’s assets after a failed CIRP. The liquidator sells assets, pays creditors under Section 53 and seeks dissolution.
How long does liquidation take under IBC?
After the 2026 Amendment, the liquidator must finish within 180 days. The NCLT can extend this once by up to 90 days.
Who appoints the liquidator under IBC?
The IBBI nominates the liquidator on a reference from the NCLT. The CoC can later replace that liquidator under new Section 34A.
Can a secured creditor stay outside liquidation?
Yes. A secured creditor can realise its own security under Section 52, but it must make that choice within 14 days.
Who ranks first in IBC liquidation?
Insolvency and liquidation costs rank first, followed by workmen’s dues and relinquishing secured creditors.
Can the CoC stop liquidation and restore the CIRP?
Yes, once. Before the liquidation order, the CoC can seek restoration of the CIRP with a 66% vote.
Lex Pleaders advises banks, NBFCs and businesses on liquidation claims, Section 52 elections, liquidator disputes and NCLT strategy. Write to us at lexpleadersindia@gmail.com to discuss your matter.
Disclaimer: This article offers general information only and does not constitute legal advice.