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Understand how an application for the liquidation of a corporate debtor is filed, including the triggers and procedural requirements. So, for all the insolvency professionals and legal practitioners, this article will help simplify the process to initiate liquidation.

Introduction 

The revival ship had sailed. 

I still remember sitting with my client, Mr Krishan, across the table from the resolution professional, the CIRP clock ticking in the background, symbolically, of course, but we could feel the pressure. The last CoC meeting had been unforgiving: no resolution plan in sight, no knight on the horizon, and a debtor whose assets were shrinking faster than our belief.

And the unsettling truth hit me: this company is not getting rescued.

I was not a stranger to corporate apprehensions, but liquidation? That was an unknown territory. I had read the Insolvency and Bankruptcy Code 2016 (“Code”), sure, knew the law well, could even quote a few provisions. But when it came to drafting an application for liquidation, anxiety set in. What should be included? What documents should I rely on? Would the NCLT expect a novel or a neatly structured three-pager?

That is why I am writing this, not just to explain the law on liquidation, but to take you through the process the way I wish someone had done for me. So, here is a guide built from the ground up, with real questions, real stumbles, and eventually, an application that got admitted.

What exactly happens during liquidation?

Think of it like this. 

A shopkeeper named Rahul runs a mobile phone store. He took a business loan from the bank to stock up on phones and their accessories, but due to low sales, he could not repay the loan. The bank gave him time, but unfortunately, his situation did not improve. 

Rahul was a clever chap. So, instead of accumulating debts, he closed his business and sold everything (quite literally)- shelves, furniture, leftover stock, etc. With the money he got, he repaid his loan and paid off the outstanding salary of the salesman at his shop. 

That is essentially liquidation, but on a larger scale in a corporate. 

Liquidation is the process of shutting down a business, selling off its assets and using that money to repay/pay off debts. After clearing off its dues, the company is officially dissolved, meaning it ceases to exist.

What is the legal framework for drafting a liquidation application?

So, before you sit down to draft an application for liquidation, run through the following provisions of the Code quickly. 

Section 33 deals with the initiation of liquidation. 

• When no resolution plan is received within the CIRP period or the CoC decides to liquidate the company before approval of a resolution plan, the NCLT shall pass an order of liquidation, issue a public announcement to this effect and intimate about the liquidation order to the authority with which the company is registered. 
• Another trigger is, when the CoC passes a resolution to liquidate, the resolution professional must apply to the NCLT for liquidation.
• If the approved resolution plan is violated by the corporate debtor, the NCLT may order liquidation upon application by the RP or any affected person.
• As soon as the liquidation order is passed, the corporate debtor goes into liquidation. Once the RP becomes the liquidator (unless replaced), a public announcement of liquidation is made.
• During the liquidation, no legal action or proceeding can be initiated or continued against the corporate debtor without prior approval of the NCLT. 
• For all officers, employees and workmen of the corporate debtor, the liquidation order will be treated as a notice of termination unless the liquidator opts to continue the business during the liquidation process.

Section 34 deals with the appointment of a liquidator. 

• Appointment
  When the NCLT passes a liquidation order under section 33, it appoints the resolution professional as the liquidator (unless replaced). 
  
• Replacement

The Adjudicating Authority may replace the RP if he is found to be ineligible, the IBBI recommends replacement of the RP to the NCLT, or he fails to furnish his written consent to act as a liquidator. 

• Once the liquidator is appointed, all powers of the board of directors and key managerial personnel shall vest in him.
• Liquidator’s fees shall be paid from the proceeds of the liquidation estate and in proportion to the value of the liquidation as specified by the IBBI. 

Section 35 deals with the powers of the liquidator. 

The liquidator shall have the power to:

1. Verify claims of all the creditors.
2. Take into custody or control all the assets, property, effects and actionable claims of the corporate debtor.
3. Evaluate the assets and property of the corporate debtor for the composition of the liquidation estate.
4. Protect and preserve the assets and properties of the corporate debtor.
5. Carry on the business of the corporate debtor for its beneficial liquidation, if required.
6. Sell the movable and immovable property, assets, actionable claims and business of the corporate debtor by public auction or private contract.
7. Draw, accept, make and endorse negotiable instruments like bills of exchange and promissory notes in the name and on behalf of the corporate debtor.
8. Institute, defend or continue legal proceedings by or against the corporate debtor.
9. Invite and settle claims of creditors and distribute proceeds according to the provisions of the Code.
10. Investigate the financial affairs of the corporate debtor to determine undervalued or fraudulent transactions.
11. Take all actions as may be necessary for the liquidation of the corporate debtor and distribution of assets.

Are there any restrictions on his powers? 

Yes, the liquidator shall not sell any asset to a person who is ineligible under section 29A, unless approved by the NCLT. 

You also need to go through the IBBI (Liquidation Process) Regulations 2016 (“the Regulations”) to understand the process of liquidation. I have covered key aspects of the Regulations dealing with the procedure in the latter part of this article under the heading “How does the liquidation process work?”.

How to draft an application for liquidation?

Let us take a case- 

Sixth Ocean Coffee Pvt. Ltd. is a startup operating in the food and beverage industry. Despite its best efforts to establish a hold in the market, the company failed to generate revenue and faced cut-throat competition. Over time, it accumulated debts to the tune of Rs. 11 crore.

Failing to pay off its debt, FIB Bank Ltd. filed an application initiating a corporate insolvency resolution process against Sixth Ocean Coffee Pvt. Ltd. Once admitted under the Code, a resolution professional was appointed to oversee the company’s operations, and a Committee of Creditors (CoC) was constituted to evaluate and vote on proposals aimed at reviving the business.

The Code provides a maximum of 270 days (including permitted extensions) to complete the Corporate Insolvency Resolution Process (CIRP). During this period, potential investors, financial institutions or strategic buyers can submit resolution plans to take over or restructure the company. Unfortunately, in the case of Sixth Ocean Coffee Pvt. Ltd., no resolution plan was received or approved within the given timeframe.

As a result, the CoC resolved to initiate liquidation proceedings. 

Pursuant to the CoC’s resolution, the resolution professional is filing a liquidation application. 

The application begins with the cause title and name of the parties. This being an interlocutory application, it is filed in your main petition itself. Thus, we also need to give the number of the main petition as well. 

BEFORE THE NATIONAL COMPANY LAW TRIBUNAL

MUMBAI BENCH AT MUMBAI

            IA No.            of 2022

   IN

       C.P. (IB) No. 101/MB//2020

In the matter of:

The Insolvency and Bankruptcy Code, 2016;

And

In the matter of:

FIB Bank Ltd. 

having its registered office at 

Vishwakarma, 

versus

Sixth Ocean Coffee Pvt. Ltd., 

having its registered office at 

In the matter of:

T. Shankaran, 

Having his office address at 

89, 2nd Floor, IT Business Park, 

State the provision under which you are filing an application, along with its purpose. 

APPLICATION ON BEHALF OF THE RESOLUTION PROFESSIONAL UNDER SECTION 33(2) OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016 FOR APPROPRIATE DIRECTIONS FROM THE ADJUDICATING AUTHORITY

MOST RESPECTFULLY SHOWETH:

By whom and why is this application filed? State it here. 

1. The present application is being filed by the Applicant, Mr. T. Shankaran, who has been appointed as the RP for the Corporate Debtor seeking an order and direction for the liquidation of the Corporate Debtor under section 33(2) of the Code. 

Give a brief background of the CIRP proceedings- when was it initiated, and the appointment of the IRP. 

2. The CIRP of the Corporate Debtor was initiated vide order dated 4^th October 2021 by this Hon’ble Tribunal. Through the same order, Mr. T. Shankaran was appointed as the Interim Resolution Professional. Hereto annexed and marked as “Annexure 1” is a copy of the order dated 4th October 2021.

In order to show compliance with the procedure, you also need to convey to the presiding authority that the IRP published a public announcement regarding the CIRP in local newspapers. This is done to inform stakeholders of the proceedings. 

3. The IRP published Form A i.e. Public Announcement of the initiation of the CIRP of the Corporate Debtor via two local newspapers namely Dainik Herald in Marathi and Deccan Herald in English on 22^nd October, 2021.

The IRP constituted the CoC after collating claims against the debtor. Give a schedule of CoC meetings that were held to discuss the case. 

4. The IRP, in pursuance of section 21 of the Code, constituted a CoC after collation of all claims received against the Corporate Debtor and determination of the financial position of the Corporate Debtor. During the CIRP of the Corporate Debtor following meetings of the CoC were held:-

Sr. No.	CoC Meeting	Date of Meeting
1.	1st CoC Meeting	16-11-2021
2.	2nd CoC Meeting	21-12-2021
3.	3rd CoC Meeting	19-03-2022
4.	4th CoC Meeting	24-06-2022

Now, state that the IRP was appointed as the RP with 100% approval from the CoC, as documented in the minutes of the first CoC meeting.

5. That Mr. T. Shankaran has been appointed as the RP for the Corporate Debtor, as approved by the CoC in the First Meeting of the CoC by 100% votes in favour of the resolution to that effect. Hereto annexed and marked as “Annexure 2” are the minutes of the 1st CoC.

As per the IBBI (CIRP) Regulations 2016, the RP is required to appoint two valuers to assess the value of the corporate debtor’s assets. Also, reproduce relevant extracts from the valuation report and annex the said reports. 

6. The Applicant submits that pursuant to Regulations 27 read with Regulation 35, Regulation 34 and Regulation 31 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the Applicant appointed two valuers, namely [insert names of the valuers]. Here is the valuation summary of the valuations done by both valuers. Hereto annexed and marked as “Annexure 3 “. 

Sixth Ocean Coffee Pvt. Ltd.
CIRP Commencement date: 04-10-2021
Resolution Professional: T. Shankaran
Valuation Summary
Sl No.	Asset Class	Valuer 1		Valuer 2		Summary of Valuation		(In INR)
		Fair Value	Liquidation Value	Fair Value	Liquidation Value	Avg. Fair Value	Avg. Liquidation Value
1	Land & Building
2	Plant & Machinery
3	Securities & Financial Assets
Total

Before we proceed any further, let us understand the concept of fair value and liquidation value. 

Fair value

For instance, Sixth Ocean Coffee Pvt. Ltd. owns an office. 

• The current market value is ₹1,00,00,000
• And there is no pressure to sell.
• Both buyer and seller are negotiating fairly.

Fair value = ₹1,00,00,000 (or close to it)

Now, liquidation value 

• Fair value of the office premises Rs. 1,00,00,000
• But the company is closing down and must sell it in 30 days.
• Fewer buyers, less negotiation time.
• A buyer offers only ₹70,00,000 quickly.

So this value of Rs. 70,00,000 becomes the office premises’s liquidation value. 

Next up, talk about the delays that occurred during the CIRP period and reasons for extension due to delays in the process, including time lost in uploading the order and prospective resolution applicants. These delays were excluded from the CIRP timeframe by the Tribunal.

7. The Applicant submits that the CIRP had to be extended and certain time during the CIRP had to be excluded because of a prospective resolution applicant coming forward and due to the difference of time between the pronouncement and uploading of the CIRP order, and because of a prospective resolution applicant. Firstly, as resolved by the CoC (with 100% voting), the extension of 90 days was sought and applied for. Secondly, the period from 4^th October, 2021 to 20^th October, 2021 was sought to be excluded from the CIRP as 17 days were lost because of the delay in uploading the order. Extension owing to both the aforesaid reasons was granted vide the order dated 12th April 2022.  Hereto annexed and marked as “Annexure 4” is the order of this Hon’ble Tribunal to that effect.

This paragraph shall form the basis of CoC’s resolution to opt for liquidation. So, emphasise how the Expression of Interests were published multiple times to attract potential resolution applicants. Despite some expressions of interest, no resolution plan was received.

8. That the RP published the Expression of Interest(“EOI”) in terms of Form G on 24^th December 2021, in two newspapers, i.e. the Financial Express- an English daily and Dainik Herald- a Marathi daily and the last date of filing under the said Form G was 8^th January 2022. It was published again on 11^th January, 2022, 21^st January 2022, and lastly on 1^st February 2022, wherein a few prospective resolution applicants were enlisted, but no resolution plan was received.

Why did CoC deem this necessary? State here with a concrete reason. Since no resolution plan was submitted, the CoC unanimously decided to put the CD into liquidation as per section 33(2) of the Code.

9. That because no resolution plan was received by the CoC, it was left with no option but to resolve to put the Corporate Debtor into liquidation. Hence, the CoC in its 4^th meeting resolved to liquidate the Corporate Debtor, Sixth Ocean Coffee Pvt. Ltd. as per section 33(2) of the Code. 

Now, talk about the financial condition of the Corporate Debtor. 

10. The Applicant submits that financial condition of the Corporate Debtor has not been in good shape as can be seen from the financial statements of the 3 preceding financial years. Hereto annexed and marked as “Annexure 5 colly” are the statements above-mentioned.

The RP seeks directions from the NCLT under section 33(2) of the Code for the liquidation process and recovery of CIRP costs.

11. Accordingly, the Applicant humbly prays before this Hon’ble Tribunal to pass necessary orders under the relevant provisions of the Code for the recovery of unpaid resolution professional costs as may be deemed fit and proper by this Hon’ble Tribunal.

State some general averments. 

12. This Application is being made bona fide and in the interests of justice.

The RP argues that unless liquidation orders are passed, the creditors will face irreparable loss and harm.

13. Unless orders prayed for are passed, the creditors at large of the Corporate Debtor will suffer irreparable loss, injury and prejudice.

PRAYER

Request for the Tribunal’s order for liquidation of the Corporate Debtor under section 33(2) of the Code, appointment of T. Shankaran as the liquidator for the Corporate Debtor, and request for any other necessary orders or reliefs as deemed fit by the Tribunal.

It is most respectfully prayed that this Hon’ble Tribunal may be pleased to:

1. That this Hon’ble Tribunal may be pleased to order and direct Liquidation against the Corporate Debtor as per section 33(2) of the Code;
2. That this Hon’ble Tribunal may be pleased to appoint the Applicant, viz. Mr. T. Shankaran, [insert IBBI Registration Number], as the liquidator in respect of the Corporate Debtor company;
3. That this Hon’ble Tribunal may be pleased to issue such other necessary orders and reliefs as may be deemed fit in the present matter.

Mr. T. Shankaran 

Resolution Professional           

Sixth Ocean Coffee Pvt. Ltd. 

How does the liquidation process work? 

The liquidation process is embodied in the Regulations. 

The Regulations govern the liquidation of a corporate debtor when the resolution process fails under the Code. Here’s an outline of the liquidation process under these Regulations:

• Liquidation triggers when:

  – CoC fails to approve a resolution plan; 

– The resolution plan is rejected by the NCLT;  

– The corporate debtor contravenes an approved resolution plan;

NCLT passes a liquidation order under section 33 of the Code and appoints the RP as the Liquidator, unless replaced.

• Public announcement 

1. The liquidator makes a public announcement calling for the submission of claims within 5 days of the appointment.
2. Creditors to submit claims within 30 days.
3. An announcement is made in newspapers and on the IBBI website.

• Formation of the stakeholders’ consultation committee 

1. Constituted by the liquidator within 60 days from the liquidation commencement date; 
2. Includes representatives of financial creditors, operational creditors, shareholders, etc.

• Verification and admission of claims 

1. Claims are verified within 30 days from the last date of receipt.
2. The liquidator may admit or reject claims, with reasons.
3.  A list of stakeholders is prepared and filed with the NCLT.

• Preparation of asset memorandum & preliminary report 

Preliminary Report to NCLT within 75 days of LCD, touching aspects of capital structure, assets and liabilities, proposed plan of action for liquidation, asset memorandum includes details of assets to be liquidated.

• Mode of sale of assets 

1. Assets can be sold via public auction or private sale. 
2. Sale of corporate debtor as a going concern
3. Sale of business(s) as a going concern
4. Valuation by two registered valuers is required.
5. The stakeholders’ consultation committee’s advice is taken into account for the method of sale.

• Distribution of proceeds 

1. Realised proceeds are distributed in the following waterfall order:

1. Insolvency resolution and liquidation costs; 
2. Secured creditors and workmen dues (within 24 months); 
3. Employee dues (up to 12 months)
4. Unsecured creditors
5. Government dues and unpaid secured creditors
6.  Preference shareholders
7. Equity shareholders or partners

• Progress reports 

1. The liquidator must file quarterly progress reports with the NCLT.
2. The final report is submitted upon completion of liquidation.

• Dissolution of the corporate debtor

1. After asset realisation and distribution, the liquidator files a final report.
2. Applies to NCLT for dissolution.
3. NCLT passes an order to dissolve the company.

• Key timelines

1. The liquidation process is to be completed within 1 year (can be extended by NCLT);
2. Sale as a going concern may allow up to 90 additional days. 

Here is a snapshot of the same for your reference.

 

Orders that could be passed by the NCLT

1. Liquidation of the corporate debtor is ordered. 
2. A liquidator is appointed 

Now, as per IBBI vide its circular number Liq-12011/214/2023-IBBI/840 dated 18/07/2023, has recommended that an IP other than the RP/IRP may be appointed as liquidator in all the cases where a liquidation order is passed since the date of release of the said circular. In terms of the above circular of IBBI, an order appointing [name and registration number of the insolvency resolution professional] as the liquidator is passed. The liquidator must carry out the liquidation process subject to the following terms of the directions:

• The Corporate Debtor Sixth Ocean Coffee Pvt. Ltd. shall be ordered for liquidation in terms of the provisions of section 33(2) of the Code r/w Regulations made thereunder;
• The moratorium declared under section 14 of the Code shall cease to have effect from the date of the order of liquidation.
• All the powers of the board of directors and key managerial persons of the corporate debtor, as the case may be, hereafter cease to exist. All these powers henceforth vest with the liquidator.
• The personnel of the corporate debtor are directed to extend all cooperation to the liquidator as required by him in managing the liquidation process of the corporate debtor.
• The liquidator will charge fees for the conduct of the liquidation proceedings in proportion to the value of the liquidation estate assets as specified by IBBI and same shall be paid to the liquidator from the proceeds of the liquidation estate under section 53 of the Code.
• Once the liquidation process is initiated, subject to section 52 of the Code, no suit or other legal proceeding shall be instituted by or against the corporate debtor. The liquidator has the liberty to institute a suit and other legal proceedings on behalf of the corporate debtor with the prior approval of this NCLT, as provided under 33(5) of the Code. 
• This liquidation order shall be deemed to be notice of discharge to the officers and employees of the corporate debtor. 
• This NCLT directs the liquidator to issue a public announcement stating that the corporate debtor is in liquidation. The liquidator will also serve a copy of this order to the various government departments, such as income tax, GST, etc., who are likely to have any claim upon the corporate debtor, so that the authorities concerned are informed of the liquidation order timely. The liquidator will also provide a copy of this order to the trade unions/employee associations of the corporate debtor so that the workmen/employees can also be informed of this liquidation order through their association.
• The liquidator is directed to investigate the financial affairs of the corporate debtor in terms of the provisions of section 35(1) of Code read with relevant rules and regulations and also file its response for disposal of any pending company applications during the process of liquidation.
• The Registry is directed to communicate this order to the concerned Registrar of the Companies, the registered office of the corporate debtor, IBBI, the resolution professional and the liquidator by speed post as well as e-mail within one week from the date of this order, after completion of all the formalities.

What renders such an application defective? 

1. Incorrect or incomplete information

• Fails to mention essential facts or supporting legal grounds.
• Inadequate cause title or party details.
  
• The application was not signed by an authorised representative or liquidator.

2. Non-payment of application fees 
3. Lack of supporting documents such as liquidation commencement order, resolution professional’s appointment order, asset memorandum, valuation reports,  
4. Failure to make a public announcement 
5. Non-submission of the preliminary report 
6. Delay or Incomplete filing of claims 

• Creditors were not provided sufficient opportunity to file claims.
  
• Failure to verify or admit/reject claims within 30 days.

7. Improper sale or valuation process 

• Sale of assets without valuation from two registered valuers.
  
• Breach of the mode of sale rules (auction, private, going concern).
  

8. Failure to file quarterly progress reports, sales reports, and final reports before dissolution.
   

It is important to note that not all defects lead to rejection of the application. In some cases, the NCLT may return the petition if found defective, with an instruction to rectify and refile within a specified time.

What are the practical challenges that one may face during the process of liquidation?

You and I, we very well know that this process is not I a smooth sail. In reality, it is a lot messier. There are a bunch of practical issues that crop up, like legal hold-ups, employee troubles, and not getting the value you expected from assets. Now let us break down what happens behind the scenes and ways in which it can be combated with the help of an infographic.

Final thoughts

How will you make your application count? 

Drafting a liquidation application is not just a legal requirement, it is a vital step in ensuring that the process begins on a structured and transparent note. A strong application reflects the corporate debtor’s commitment to following due process, safeguarding stakeholder interests, and closing operations responsibly. From financial disclosures to declarations/reports of insolvency, every detail matters.

In essence, a carefully crafted application can ease the path forward and minimise complications down the road as it is not just an end of the road, but a way to close one chapter responsibly so that others can begin afresh, with clarity, accountability, and integrity.

FAQs

1. Can a company in liquidation continue business operations?

Yes, as per the Regulations, the liquidator may carry on the business of the corporate debtor to maintain the company as a going concern or to enhance asset value.

2. Can a liquidation process be withdrawn once initiated?

Yes, liquidation can be withdrawn if 90% of the CoC approves and an application is filed before the NCLT within 90 days of the liquidation order.

3. What happens to ongoing contracts when a company enters liquidation?

The liquidator has the power to disclaim onerous property, including unprofitable contracts. However, the counterparty can claim damages for breach of contract, which would be treated as unsecured debt in the liquidation waterfall.

4. Who bears the cost of liquidation proceedings?

The liquidation estate of the corporate debtor bears the liquidation cost, and it is paid with the highest priority in the distribution waterfall. 

5. Can secured creditors opt out of the liquidation process?

Yes, secured creditors have the option to realise their security interest outside the liquidation process. However, if they choose this route, they must contribute to workmen’s dues and liquidation costs proportionately.

6. What is the role of the Stakeholder Consultation Committee (SCC)?

The SCC is purely advisory in nature and assists the liquidator in key decisions. While the liquidator must consult the SCC on certain matters, the final decision-making authority remains with the liquidator.

7. Can a liquidator sell assets to related parties of the corporate debtor?

Yes, but with restrictions. The liquidator cannot sell assets to related parties without a competitive bidding process, and the price must not be less than the reserve price determined through valuation.

8. Is there a time limit for completing the liquidation process?

Yes, the liquidation process should ideally be completed within one year from its commencement. However, the liquidator can seek extensions from the NCLT if necessary, explaining the reasons for delay.

9. What happens to unclaimed proceeds after liquidation?

Any unclaimed proceeds from liquidation or undistributed assets are deposited into the corporate liquidation account maintained with a scheduled bank. Stakeholders can claim these amounts for up to 15 years, after which they are transferred to the Consolidated Fund of India.

10. Can a company under liquidation be sold as a going concern?

Yes. This approach often results in better value realisation and preservation of the business entity despite the liquidation process.

11. Can a liquidator file for the proposal of compromise or arrangement? 

The liquidator shall file the proposal of compromise or arrangement only in cases where the CoC made a recommendation during the CIRP. Such a proposal can be filed after the expiry of thirty days from the liquidation commencement date.

12.  What is the tax treatment during liquidation?

The sale of assets during liquidation under the Code may attract taxes depending on the transaction. Capital gains tax applies to the sale of capital assets (e.g., land, buildings), calculated as the difference between sale proceeds and the cost of acquisition, and is treated as a liquidation cost with top priority in the waterfall mechanism. GST may apply to the sale of individual assets (e.g., machinery) as a taxable supply. However, the sale of the corporate debtor or its business as a going concern is exempt from GST. Input tax credits can be claimed for GST paid on liquidation expenses, and tax liabilities are settled from the liquidation estate.

13. What is a pre-packaged insolvency?

Pre-packaged insolvency under the Code is a hybrid resolution process primarily available for micro, small, and medium enterprises. It allows the debtor to pre-negotiate a resolution plan with creditors before initiating formal insolvency proceedings. The plan is then submitted to the NCLT for approval.

14. Are any ancillary documents required to be filed along with the application? 

The NCLT Rules, 2016 prescribed that only an affidavit in support of such an application is needed to be filed. This being a part of ongoing proceeding, one need not file any other documents. 

15. Is this application listed any differently from the main petition?

No. Rules for listing this application are the same as that of the main petition. You may refer to my article “The Ultimate Guide on initiating CIRP” for more information. 

16. What is the court fee payable on such an application?

Rs. 1000/-