Liquidation Order and CIRP Restoration: Case Studies

Liquidation follows when resolution fails, but the 2026 Amendment added a second chance: the committee may restore the CIRP once, for up to 120 days, before the liquidation order is passed. Questions test which ground in section 33 applies, whether restoration is available, and what changes once the order is made: the moratorium, the liquidator, employees and pending suits. The four questions below cover each step.

1. The Law in Brief

Figure 1: The grounds for a liquidation order

• Restoration, section 33(1A) and (1B). Before a liquidation order on a ground in section 33(1), the committee may apply, by 66 per cent, to restore the CIRP for up to 120 days, or to the stage of inviting plans if a plan was rejected; this is allowed only once.
• Timing, section 33(2A). The NCLT must pass the liquidation order within thirty days, recording reasons for any delay.
• Effects. A moratorium for section 14(1)(a) and (c) subject to section 52; suits against the debtor only with the NCLT's leave (section 33(6)); the order is a notice of discharge to employees unless the business continues; a liquidator recommended by the IBBI who is not the resolution professional (section 34(4))

2. Can the CIRP Be Restored When No Plan Is Received?

• Issue. Whether the CIRP may be restored after the period has expired without a plan, and for how long.
• Law. Section 33(1)(a) requires a liquidation order where no plan is received within the CIRP period. Section 33(1A), inserted in 2026, allows the NCLT, before passing that order, on the committee's application approved by 66 per cent, to restore the CIRP for up to 120 days. Section 33(1B) allows this only once.
• Application. The ground in section 33(1)(a) is made out, but no liquidation order has been passed. The committee has voted 70 per cent, and the CIRP has not been restored before.
• Conclusion. The NCLT may restore the CIRP for up to 120 days to allow the investor to submit a plan. If no plan is approved in that time, the NCLT must order liquidation or dissolution, as no further restoration is possible.

3. What Follows the Rejection of a Resolution Plan?

• Issue. What follows the rejection of a plan, and to what stage the CIRP may be restored.
• Law. Under section 33(1)(b), rejection of a plan under section 31 is a ground for liquidation. The 2026 proviso to section 31(2) allows the NCLT to give notice to rectify before rejecting. Under section 33(1A), where a plan was rejected, the CIRP may be restored to the stage of inviting resolution plans, for up to 120 days, on the committee's application by 66 per cent.
• Application. The NCLT gave notice to rectify, and the defect was not cured. The committee has the required majority and has not used restoration before.
• Conclusion. The NCLT may restore the CIRP to the stage of inviting plans for up to 120 days. The earlier applicant's plan stands rejected, and it may bid again only if eligible and if the committee allows.

Figure 2: Restoring the CIRP under section 33(1A)

4. Can the CoC Choose Dissolution over Liquidation?

• Issue. Whether the committee may end the CIRP early, and whether it may choose dissolution instead of liquidation.
• Law. Section 33(2) allows the committee, by 66 per cent, to decide to liquidate the corporate debtor at any time before confirmation of a plan, including before the information memorandum is prepared. After 2026, the committee may instead decide to dissolve, subject to conditions specified by the IBBI, and the NCLT may order dissolution under section 54(2A). Pending avoidance and section 66 proceedings continue as the committee decides.
• Application. The vote of 80 per cent exceeds 66 per cent. EF Ltd is a shell with negligible assets, for which liquidation would mainly add cost.
• Conclusion. The committee may resolve to dissolve EF Ltd, and the NCLT may order direct dissolution if the IBBI's conditions are met, with any surplus going to the Insolvency and Bankruptcy Fund. If any avoidance or section 66 claims exist, the committee should decide how they will be pursued.

5. What Are the Effects of a Liquidation Order?

• Issue. The effects of a liquidation order after the 2026 Amendment.
• Law. Section 34(4) bars the resolution professional who conducted the CIRP from being appointed liquidator, who is now appointed on the IBBI's recommendation. Section 33(6) requires the NCLT's leave for any suit or legal proceeding against the corporate debtor. The liquidation moratorium covers section 14(1)(a) and (c), subject to section 52, which lets a secured creditor realise its security. The liquidation order is a notice of discharge to officers, employees and workmen unless the business is continued.
• Application. Each person's position follows directly from these provisions.
• Conclusion. The resolution professional cannot be the liquidator. The supplier needs the NCLT's leave to sue. The bank may realise its security outside the waterfall under section 52, following the notice procedure, or relinquish it. The workmen are deemed discharged, unless the liquidator continues the business, and their dues rank under section 53.

6. Frequently Asked Questions

Does restoration apply to CIRPs that began before 2026?

Yes. The Explanation applies it to CIRPs that began earlier where no liquidation order has yet been passed.

Can the committee seek restoration after the liquidation order?

No. Section 33(1A) operates before the order; after it, the 2026 proviso to section 33(4) allows reinstatement only in cases of contravention of an approved plan.

Who supervises the liquidation after 2026?

The committee of creditors, under section 21(11), which may also replace the liquidator by 66 per cent (Topic 54).

7. Related Topics

• Topic 53: Section 33. Initiation of liquidation and restoring the CIRP.
• Topic 54: The Liquidator. Appointment, powers and duties.
• Topic 126: Liquidation Estate under Section 36. What it includes.