Section 36 IBC: The Liquidation Estate

Everything the creditors of a company in liquidation will receive comes from one pool: the liquidation estate. Section 36 defines that pool. It draws in every asset the corporate debtor owns, wherever it is and whatever its form, and keeps out property that belongs to others or that the law sets aside for specific beneficiaries. Whether an asset falls inside or outside the estate decides whether creditors share in it at all. This note explains the composition of the estate and the leading decision on what lies outside it.

1. The Estate as a Trust

• Section 36(1). For the purposes of liquidation, the liquidator forms an estate of the assets mentioned in section 36(3), called the liquidation estate, in relation to the corporate debtor.
• Section 36(2). The liquidator holds the liquidation estate as a fiduciary for the benefit of all the creditors.
• Consequence. The liquidator must collect, preserve and realise the estate for the creditors as a body, not for any one of them, and is answerable for how the estate is dealt with (Topic 54)

2. What the Estate Includes, Section 36(3)

Figure 1: Inclusions and exclusions

• Owned assets. Any assets over which the corporate debtor has ownership rights, including all rights and interests in them as evidenced in its balance sheet or in the records of an information utility, and including shares held in any subsidiary.
• Possession not required. Assets that may or may not be in the possession of the corporate debtor, including encumbered assets.
• Tangible and intangible. Tangible assets, movable or immovable, and intangible assets such as intellectual property, securities, financial instruments, insurance policies and contractual rights.
• Disputed assets. Assets subject to the determination of ownership by a court or authority.
• Recoveries. Any assets or their value recovered through proceedings for avoidance transactions, fraudulent or wrongful trading, or under section 47, as the clause was widened in 2026 to match the new definitions (Topic 47)
• Relinquished security. Any asset of the corporate debtor in which a secured creditor has relinquished its security interest (Topic 56)
• Residuary. Any other property belonging to or vested in the corporate debtor at the insolvency commencement date, and all proceeds of liquidation as and when realised.

3. What the Estate Excludes, Section 36(4)

• Third party assets. Assets owned by a third party which are in the possession of the corporate debtor, including assets held in trust, assets held under bailment contracts, and assets under other contractual arrangements that give only a right of use without transfer of title.
• Employee funds. All sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund.
• Financial market collateral. Assets in security collateral held by financial services providers that are subject to netting and set-off in multilateral trading or clearing transactions.
• Shareholders and partners. Personal assets of any shareholder or partner, provided they are not held on account of avoidance transactions.
• Subsidiaries. Assets of any Indian or foreign subsidiary of the corporate debtor, since a subsidiary is a separate legal person; the shares in it remain in the estate.
• Notified and specified assets. Other assets notified by the Central Government in consultation with a financial sector regulator, or specified by the IBBI, including assets subject to set-off on account of mutual dealings.

Figure 2: Applying section 36 to common assets

4. Sunil Kumar Jain v Sundaresh Bhatt, 2022

• Question. Whether the liquidator could use the general liquidation estate to pay the provident fund and gratuity dues of workmen and employees.
• Holding. Decided on 19 April 2022, the Supreme Court held that provident fund, pension and gratuity dues are outside the liquidation estate under section 36(4)(a)(iii); they are to be paid from the funds maintained for that purpose, and not distributed out of the liquidation estate under section 53.
• Salaries during CIRP. Wages and salaries of workmen and employees for the period of the CIRP are payable as insolvency resolution process costs only if the business was actually run as a going concern during that period.
• Significance. The exclusion protects employees' retirement savings from other creditors, who cannot share in those funds (Topic 34)

5. Why the Boundary Matters

• Owners recover their property. A bailor, lessor or beneficiary of a trust recovers its own property outside the waterfall, while an unsecured creditor receives only a share under section 53.
• Group structures. Because subsidiaries' assets are excluded, the value of a group business often lies in the shares of subsidiaries; a separate insolvency of the subsidiary is needed to reach its assets, and the group insolvency framework introduced in 2026 is yet to be notified (Topic 63)
• Secured assets. Encumbered assets are included in the estate, but a secured creditor may still choose to realise its security outside the waterfall under section 52 (Topic 56)

6. Frequently Asked Questions

Are the shares a corporate debtor holds in its subsidiary part of the liquidation estate?

Yes. Section 36(3)(a) expressly includes shares held in any subsidiary. What is excluded is the subsidiary's own assets, under section 36(4).

A supplier's goods were lying in the corporate debtor's warehouse under a consignment arrangement. Can the liquidator sell them?

No, if title remained with the supplier. Assets owned by a third party and held under bailment or other contracts that do not transfer title are excluded by section 36(4)(a).

Does the liquidation estate include an asset the corporate debtor is litigating to recover?

Yes. Section 36(3) includes assets that are not in the debtor's possession and assets whose ownership is under determination by a court or authority.

Can the liquidator pay workmen's gratuity out of the sale proceeds of the factory?

Not by treating it as an excluded asset. Gratuity is payable from the gratuity fund, which is outside the estate; workmen's dues within section 53(1)(b) are paid from the estate in the waterfall (Topic 57).

7. Related Topics

• Topic 34: Workmen and Employees' Dues. Provident fund, gratuity and salaries.
• Topic 56: Section 52. Secured creditors in liquidation.
• Topic 57: Section 53. The waterfall mechanism.