This long article is written by Adv. Monica Madaan, Student from GHG Institute of Law, Ludhiana (Affiliated to Panjab University, Chandigarh) and co-authored by Arryan Mohanty,Student from Symbiosis Law School, Nagpur
Abstract
India’s insolvency framework was fundamentally restructured in 2016 through the enactment of the Insolvency and Bankruptcy Code (IBC), which unified and modernised the previously fragmented laws governing insolvency and restructuring of individuals, partnerships, and corporate entities. Under this consolidated statutory regime, liquidation refers to the formal termination of a corporate debtor’s business operations, accompanied by the systematic realisation and distribution of its assets among eligible stakeholders in circumstances where revival is no longer feasible. Liquidation may be triggered either upon a determination by the Committee of Creditors that winding up represents the most commercially prudent outcome or upon the failure of the corporate insolvency resolution process to yield an approved resolution plan. The process is conducted under the supervisory jurisdiction of the National Company Law Tribunal (NCLT), which ensures institutional oversight and procedural compliance. In accordance with Section 34 of the IBC, the liquidator assumes control over the corporate debtor’s estate and is entrusted with functions including the verification of claims, custody and preservation of assets, and their realisation in a manner aimed at maximising value. The allocation of proceeds from liquidation is regulated by the statutory priority framework set out in Section 53, which accords precedence to secured creditors and certain protected claims, including those relating to employees. By instituting a creditor-driven, time-bound, and rule-based mechanism, the IBC has substantially improved the transparency, predictability, and efficiency of liquidation proceedings as compared to the pre-IBC regime. Although liquidation is generally viewed as a measure of last resort due to comparatively lower recovery outcomes, it plays a critical role in enforcing credit discipline and resolving cases of sustained financial failure. Ongoing legislative amendments and judicial interpretation have further refined the liquidation process, particularly in relation to stakeholder entitlements, valuation standards, and the avoidance of preferential, undervalued, or fraudulent transactions. This paper examines the legal framework, procedural mechanics, and practical implications of liquidation under the IBC, 2016, underscoring its significance within India’s evolving insolvency system.
