THE INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT) ACT, 2026 - PART – IV

Initiation of liquidation

Many changes have been made by the Act in Section 33 which are to be taken into consideration by the stakeholders in the liquidation proceedings, when they come into effect.

The Act proposed to insert Section 33(1)(b)(iv) and (v) to section 33.  The newly inserted Section 33(1)(b) (iv) provides that subject to the provisions of section 52, declare a moratorium for the purposes referred to in clauses (a) and (c) of sub-section (1) read with sub-section (3) of section 14, which shall, mutatis mutandis, apply to the proceedings under this Chapter.  The proviso to this section provides that the provisions of this sub-clause 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 or any other authority.

The newly inserted Section 33(1)(b)(v) provides that the Adjudicating Authority shall pass an order appointing a liquidator for the liquidation process in accordance with the provisions of Section 34. 

The Act inserted a new section 33(1A).  This section provides that notwithstanding anything contained in sub-section (1), where the Adjudicating Authority is satisfied that the grounds mentioned in clause (a) or clause (b) of sub-section (1) of this section exist, it shall, before passing the liquidation order, consider an application made by the committee of creditors, in such manner and subject to such conditions as may be specified, by not less than sixty-six per cent. of the voting share, for restoring the corporate insolvency resolution process, and after considering such application, it may, by an order––

1. if the ground mentioned in clause (a) of sub-section (1) exists, restore the corporate insolvency resolution process to be completed within such duration as it deems fit, but not exceeding 120 days; or
2. if the ground mentioned in clause (b) of sub-section (1) exists-

1. restore the corporate insolvency resolution process to the stage of invitation for submission of a resolution plan, which shall be completed in such manner and subject to such conditions as may be specified; and
2. provide the duration for completion of such restored corporate insolvency resolution process as it deems fit, but not exceeding 120 days.

The explanation to this section declared that on and from the date of commencement of the Act, the provisions of sub-sections (1A) and (1B) shall also apply to the CIRP of a corporate debtor initiated  before such date of commencement, where the Adjudicating Authority has not passed a liquidation order under sub-section (1) of this section, and shall not apply where the liquidation order is passed.

Section 33(2) of the Act undergoes many amendments.  After incorporating the amendments the said section reads as below-

33(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 approved by not less than 66% mof the voting share to liquidate or dissolve the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-clauses (i),  (ii), (iii), (iv) and (v) of clause (b)  of sub-section (1) or a dissolution order under sub-section (2A) of section 54, as the case may be:

Provided that the committee of creditors shall, before taking the decision to dissolve the corporate debtor, comply with such conditions, as may be specified.

The Act inserted a new section 33(2A).  The new section provides the time limit within which the Adjudicating Authority is to pass the liquidation order.  The time limit is 30 days from the date of receipt of an intimation or application to initiate the liquidation proceedings.  The proviso to this section provides that if the Adjudicating Authority does not pass order within the time prescribed then the authority shall record the reasons for delay in witing.

The Act inserted a proviso to Section 33(4) which provides that where an application under sub-section (3) is made, the Adjudicating Authority may, if it deems fit, reinstate the CIRP and pass appropriate orders.

The Act omitted Section 33(5) which provides that when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor.  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.

The Act substituted the section 33(6) by a new section.  The newly substituted section 33(6) provides that where a liquidation order has been passed, no suit or other legal proceeding shall be commenced, or if pending at the date of the liquidation order, shall be proceeded with by the liquidator, on behalf of the corporate debtor, except with the leave of the Adjudicating Authority and subject to such terms as the Adjudicating Authority may impose.

Appointment of liquidator

Section 34(1) provides for the appointment of liquidator.  The Act amended this section by substituting a new section.  The newly substituted section 34(1) provides that where the Adjudicating Authority passes an order for liquidation of the corporate debtor under section 33, it shall refer to the Board for making recommendation of an insolvency professional to be appointed as the liquidator and on receipt of the recommendation, appoint such insolvency professional as the liquidator.

Assistance to the liquidator

Section 34(3) was substituted by a new section.  The newly substituted section 34(3) provides that any person who is or has been personnel of the CD, or its promoter, or associated with the management of the CD, or engaged in a contract for service with the CD, shall extend all assistance and cooperation to the liquidator as may be required by him for the purposes of managing the affairs of the CD or performing the duties conferred on him under this Chapter and the provisions of section 19 shall apply in relation to liquidation and voluntary liquidation process as they apply in relation to CIRP with the substitution of references to the liquidator for references to the IRP and RP and references to the CIRP with liquidation and voluntary liquidation process, respectively.

RP not to be a liquidator

Section 34(4) was substituted by a new section.  This section provides that notwithstanding anything contained in this section and section 34A, an insolvency professional appointed as a RP for the CIRP, shall not be appointed or replaced as the liquidator for the liquidation process of such corporate debtor.   Currently the RP can be appointed as liquidator.

Section 34(5) was substituted by a new section.  This section provides that after an order of liquidation has been passed, the RP shall forward to the liquidator, all records relating to the conduct of the CIRP. 

Section 34(6) was also substituted by a new Section.  According to the new section the Board shall propose the name of an insolvency professional, other than the resolution professional appointed for the CIRP, along with written consent from such insolvency professional in the specified form, within 10  days of the reference made by the Adjudicating Authority.

Replacement of liquidator

The Act inserted a new Section 34A which prescribes the method of replacement of liquidator by CoC. 

Section 34A(1) provides that where, at any time during the liquidation process, the CoC is of the opinion that a liquidator appointed  is required to be replaced, it may, by a vote of not less than 66% of the voting share, resolve to replace the liquidator with another insolvency professional, subject to a written consent from such proposed liquidator in such form as may be specified.

Section 34A (2) provides that where the CoC resolves to replace a liquidator, it shall apply to the Adjudicating Authority for the appointment of the proposed liquidator, and if no disciplinary proceedings are pending against him, the Adjudicating Authority shall, by an order, replace the liquidator appointed under section 34 or this section and appoint the proposed

liquidator as the liquidator.

Powers of a liquidator

Section 35 of the Code provides the powers and duties of the liquidator.  Section 35(1) (a) to (o) provides the powers and duties of a liquidator.  The Act substituted Section 35(1)(a) for a new one.  The newly substituted section 35(1)(a) provides that the liquidator is to maintain an updated list of claims of creditors in such manner as may be specified. 

The Act omitted the words ‘invite and’ in section 35(1)(j) which provides earlier that the liquidator is to invite and settle claims of creditors and claimants and distribute proceeds in accordance with the provisions of this Code.

The Act substituted a new section for 35(1)(l).  The new section provides that the liquidator is to continue or institute proceedings in respect of an avoidance transaction or fraudulent or wrongful trading. 

The Act inserted an explanation to section 35.  The explanation declares that the provisions of clauses (a) and (j) of this sub-section and sections 38 to 42 as amended by the Act, shall not apply to the liquidation process and voluntary liquidation process initiated on and before the date of commencement of the Act. 

Supervision by CoC

Section 35(2), presently, provides that the liquidator shall have the power to consult any of the stakeholders entitled to a distribution of proceeds under section 53.  Any such consultation shall not be binding on the liquidator.  The records of any such consultation shall be made available to all other stakeholders not so consulted, in a manner specified by the Board.

Omissions of sections

The Act omitted Section 38 to 42.

• Section 38 – Consolidation of claims;
• Section 39 – Verification of claims;
• Section 40 – Admission of rejection of claims;
• Section 41 – Determination of valuation of claims;
• Section 42 – Appeal against the decision of liquidator.