Liquidation As A Legal Remedy: An Evaluation Of Its Effectiveness And Limitations Under Indian Law

Written by: Poni Lado Ariminio , B.A.LL.B (4th Year), Lovely Professional University

Abstract

This research examines liquidation as a legal remedy within Indian corporate and insolvency law,

focusing on its effectiveness, efficiency, and impact on stakeholders. Liquidation is a key process that determines how a company's remaining assets are realized and distributed when it becomes insolvent or unable to continue business. The study aims to explore the legal foundations, implementation methods, and institutional functioning of liquidation under Indian laws, mainly the Companies Act, 2013, and the Insolvency and Bankruptcy Code, 2016 (IBC). Under the previous Companies Act, 1956, liquidation was a largely court-driven process, characterised by delays and limited involvement from creditors. The introduction of the Companies Act, 2013, followed by the IBC, 2016, changed India’s approach to corporate insolvency by establishing time-bound procedures and allowing insolvency professionals to manage liquidation more effectively. This research critically assesses whether these reforms have truly succeeded in fostering fairness, transparency, and speed in the winding-up process.

Additionally, the study evaluates the roles of key stakeholders, including liquidators, creditors,

shareholders, and employees, and how well their rights and interests are protected during liquidation. It analyzes the priority of claims under Section 53 of the IBC, which sets the order of payment distribution, to see if it achieves a fair balance between secured and unsecured creditors.The paper also looks into practical and systemic challenges, such as asset undervaluation, lengthy proceedings, limited participation from bidders, and coordination issues between the National Company Law Tribunal (NCLT) and the Insolvency and Bankruptcy Board of India (IBBI). It examines how judicial interpretations and case laws, like Swiss Ribbons Pvt. Ltd. v. Union of India (2019) and ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta (2018), have influenced the understanding and application of liquidation as a last resort.Ultimately, this research seeks to offer a comprehensive assessment of liquidation as a legal tool, considering it not only as a final process but also as a means to strike a balance between economic efficiency, creditor recovery, and social justice. It also seeks to propose policy and procedural reforms to enhance the overall effectiveness of India’s liquidation system, drawing on insights from international jurisdictions such as the United Kingdom, Singapore, and the United States.

Keywords: Liquidation, Insolvency and Bankruptcy Code, Corporate Law, Creditors’ Rights, Judicial Interpretation

9th .pdf

Download PDF • 208KB

Volume 2 | Issue 1