Section 33 IBC: Initiation of Liquidation and Restoring CIRP

Liquidation is the outcome the Code tries hardest to avoid, but it is the inevitable result when no viable rescue emerges. Section 33 sets out when the NCLT must order liquidation, and what the order does. The 2026 Amendment made significant changes: it allows a failed CIRP to be restored once, sets a time limit for liquidation orders, gives the committee the option of dissolving the company directly, and recasts the effect of a liquidation order on legal proceedings. This note explains section 33 in its amended form.

1. Liquidation as a Last Resort

The Code's preamble speaks of resolution and maximisation of value, and in Swiss Ribbons (2019) the Supreme Court observed that liquidation is the last resort, to be ordered only when resolution fails. A company sold as a going concern keeps its employees, suppliers and customers; a company broken up into assets usually realises far less. The structure of section 33 reflects this preference.

2. Grounds for Liquidation

Figure 1: The four routes to liquidation

• Section 33(1)(a). Before the expiry of the insolvency resolution process period, or the maximum period permitted, the NCLT does not receive a resolution plan under section 30(6)
• Section 33(1)(b). The NCLT rejects the resolution plan under section 31 for non-compliance with its requirements.
• Section 33(2). The resolution professional intimates the NCLT of a decision of the committee of creditors, approved by not less than 66 per cent of the voting share, to liquidate the corporate debtor, or after 2026 to dissolve it, at any time during the CIRP before confirmation of a plan; the Explanation makes clear that this includes any time before preparation of the information memorandum.
• Section 33(3) and (4). Where the corporate debtor contravenes an approved plan, any person other than the corporate debtor whose interests are prejudicially affected may apply, and if the NCLT finds a contravention it passes a liquidation order; a proviso added in 2026 allows the NCLT instead to reinstate the CIRP if it deems fit (Topic 45)

3. Restoring the CIRP, Section 33(1A) and (1B)

Figure 2: The one-time restoration introduced in 2026

• The power. Before passing a liquidation order on a ground in section 33(1), the NCLT may, on an application of the committee of creditors approved by at least 66 per cent of the voting share, restore the CIRP.
• Stage of restoration. Where no plan was received, the CIRP is restored for up to 120 days; where a plan was rejected, it is restored to the stage of inviting resolution plans, also for up to 120 days.
• Only once. Section 33(1B) permits restoration only once, so a restored CIRP that fails ends in liquidation or dissolution.
• Pending matters. The Explanation applies the power to CIRPs that began before the amendment where no liquidation order has yet been passed.
• Purpose. Many CIRPs fail narrowly, for example because a late bidder emerges or a plan fails on a curable defect; restoration avoids value-destroying liquidation in such cases while keeping the time limit firm.

4. The Liquidation Order and Its Effects

Figure 3: What a liquidation order does

• Contents. The NCLT passes an order requiring the corporate debtor to be liquidated, issues a public announcement that it is in liquidation, requires the order to be sent to the registering authority, declares a moratorium and appoints a liquidator.
• Time limit. Under section 33(2A), inserted in 2026, the NCLT must pass the liquidation order within 30 days, and record its reasons if it does not.
• Moratorium. Subject to section 52, the NCLT declares a moratorium for the purposes of clauses (a) and (c) of section 14(1), read with section 14(3); unlike the CIRP moratorium, it does not prevent transfers of assets or recovery of property by owners and lessors in the same terms.
• Legal proceedings. Under the substituted section 33(6), after a liquidation order no suit or other legal proceeding may be instituted against the corporate debtor, and pending proceedings may be continued by the liquidator, only with the NCLT's leave and on the terms it imposes; the earlier section 33(5) has been omitted.
• Employees. The liquidation order is deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business is continued during liquidation by the liquidator.
• Liquidator. The liquidator is now appointed on the IBBI's recommendation and cannot be the resolution professional who conducted the CIRP (Topic 54)

5. Dissolution without Liquidation

• Option for the committee. Section 33(2) now lets the committee decide to dissolve rather than liquidate, subject to conditions specified by the IBBI; the NCLT may then order dissolution under the new section 54(2A)
• Remaining assets. Any assets that remain are disposed of as specified, and any surplus is credited to the Insolvency and Bankruptcy Fund under section 224.
• Pending proceedings. Dissolution does not end pending avoidance or section 66 proceedings, which continue in the manner decided by the committee (section 54(1A), (1B) and (2B))
• Use. Direct dissolution is intended for shell companies with no meaningful assets, where a full liquidation would only add cost (Topic 59)

6. Frequently Asked Questions

Can the committee of creditors decide to liquidate before inviting any resolution plans?

Yes. Section 33(2) allows the decision at any time during the CIRP before confirmation of a plan, and the Explanation expressly includes the period before preparation of the information memorandum.

A CIRP ends without a plan, but a credible bidder appears a week later. Is liquidation unavoidable?

Not after 2026. Before a liquidation order is passed, the committee may, with 66 per cent approval, apply to restore the CIRP for up to 120 days under section 33(1A). This can be done only once.

Can a creditor sue the corporate debtor after a liquidation order?

Only with the leave of the NCLT, under the substituted section 33(6). Secured creditors who opt to realise their security proceed under section 52 (Topic 56).

Do employees lose their jobs automatically on liquidation?

The liquidation order is deemed to be a notice of discharge to officers, employees and workmen, unless the liquidator continues the business, in which case they may be retained for that purpose.

7. Related Topics

• Topic 45: Implementation and Failure of Plans. Contravention under section 33(3)
• Topic 54: The Liquidator. Appointment, powers and duties.
• Topic 59: Going Concern Sale, Schemes and Dissolution. How liquidation ends.