Chapter III Liquidation Process
Section 33. Initiation of liquidation.
(1) Where the Adjudicating Authority, –
- (a) before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process under section 12 or the fast track corporate insolvency resolution process under section 56, as the case may be, does not receive a resolution plan under sub-section (6) of section 30; or
- (b) rejects the resolution plan under section 31 for the non-compliance of the requirements specified therein, it shall –
- (i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this Chapter;
- (ii) issue a public announcement stating that the corporate debtor is in liquidation; and
- (iii) require such order to be sent to the authority with which the corporate debtor is registered.
(2) Where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors 1[approved by not less than sixty-six per cent. of the voting share] to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).
2[Explanation. – For the purpose of this sub-section, it is hereby declared that the committee of creditors may take the decision to liquidate the corporate debtor, any time after its constitution under sub-section (1) of section 21 and before the confirmation of the resolution plan, including at any time before the preparation of the information memorandum.]
3) Where the resolution plan approved by the Adjudicating Authority 3[under section 31 or under sub-section (1) of section 54L,] is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii), (iii) of clause (b) sub-section (1).
(4) On receipt of an application under sub-section (3), if the Adjudicating Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).
(5) Subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor:
Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority,
(6) the provisions of sub-section (5) shall not apply to legal proceedings in relation to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.
(7) The order for liquidation under this section shall be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator.
1. Ins. by Act No. 26 of 2018, sec. 25 (w.e.f. 6-6-2018).
2. Ins. by Act No. 26 of 2019, sec. 8 (w.e.f. 16-8-2019).
3 Ins. by Act No. 26 of 2021, sec. 6 (w.e.f. 04-04-2021).
CASE LAWS
1. Once the application under Section 33 of the ‘I&B Code’ was moved before the Adjudicating Authority, in the given circumstances, it was left with no option but to order the liquidation of the Corporate Debtor.
2. In the absence of a resolution plan, the Committee of Creditors would have no option but to recommend liquidation of the Corporate Debtor.
The Committee of Creditors may take the decision to liquidate the Corporate Debtor at any time after its constitution and before the confirmation of the Resolution Plan, including at any time prior to preparation of the information memorandum.
After recommending a Resolution Plan for approval of the Adjudicating Authority, the Committee of Creditors can retract it and withdraw the decision in regard to approval of such Resolution Plan by the Committee of Creditors.
3. There is no illegality in the decision of CoC in liquidating the Corporate Debtor before taking any steps for inviting Expression of Interest for submission of Resolution Plan.
4. In the event of liquidation , the amount to be paid to the central and state government should not be less than the amount paid to the operational creditor.
5. Taxes and duties payable to the Government are “crown debt” and can never be treated as “Operational debt” as defined in Section 5(21) of IBC, 2016-Madras High Court
(Reference: Article by the IBC Law Reporter)
6. The dues owed to the State Government and Central Government would come within the definition of ‘operational debt’,
7. The CoC has no role to play after the order of liquidation. They are mere claimants, whose matters are to be determined by the Liquidator. They cannot move an application for the removal of the liquidator.
8. After completion of the CIRP period, ordering liquidation, will not have any bearing on PMLA proceedings.
9. The Adjudicating Authority directed the liquidation of the CD without CIRP admission and appointment of IRP. The AA mentioned that there is hardly any possibility of any Resolution Plan likely to be received during the first stage of CIRP if initiated, and thus it would be just and proper to put CD under the Liquidation Process, rather than to put it in CIRP in the first instance.
10. During the Liquidation Process, it is necessary to take important steps for revival and continuance of the CD, during the liquidation process, by protecting it from its management and from a death by liquidation.
The NCLAT directed the Liquidator to first take steps for compromise or arrangement with the creditors, or class of creditors or members or class of members in terms of Section 230 of the Companies Act, 2013.
On failure, the liquidator is required to take step to sell the business of the ‘Corporate Debtor’ as going concern in its totality along with the employees.
The Adjudicating Authority should follow the same principle and should allow the ‘Liquidator’ to constitute a ‘Committee of Creditors’ for its opinion to find out whether the arrangement of Scheme is viable, feasible and having appropriate financial matrix.