Section 33 of IBC : Section 33: Initiation Of Liquidation

Explanation using Example

Imagine a company, XYZ Pvt. Ltd., is undergoing a corporate insolvency resolution process (CIRP). The CIRP has been in process for 180 days, which is the maximum period allowed for the resolution under the Insolvency and Bankruptcy Code (IBC), 2016.

Scenario 1: No Resolution Plan Received

The resolution professional handling the case of XYZ Pvt. Ltd. has failed to receive any resolution plan from potential resolution applicants within the stipulated 180 days. Consequently, the Adjudicating Authority (National Company Law Tribunal) exercises its power under Section 33(1)(a) of the IBC and orders the liquidation of XYZ Pvt. Ltd. The Authority also makes a public announcement that XYZ Pvt. Ltd. is under liquidation and informs the Registrar of Companies about the liquidation order.

Scenario 2: Rejection of Resolution Plan

Alternatively, let's say a resolution plan was submitted for XYZ Pvt. Ltd., but it did not comply with the necessary requirements. The Adjudicating Authority then rejects the plan under Section 31, triggering Section 33(1)(b) of the IBC. As a result, the Authority orders the liquidation of XYZ Pvt. Ltd., issues a public announcement, and informs the relevant registration authority.

Scenario 3: Committee of Creditors Decides to Liquidate

During the CIRP, but before the resolution plan is confirmed, the committee of creditors, holding at least 66% of the voting share, decides that liquidating XYZ Pvt. Ltd. is the best course of action. This decision is communicated to the Adjudicating Authority by the resolution professional, leading to a liquidation order under Section 33(2) of the IBC.

Scenario 4: Contravention of the Resolution Plan

Let's assume that the resolution plan for XYZ Pvt. Ltd. was approved and later contravened by the company. A stakeholder, adversely affected by this breach, petitions the Adjudicating Authority for liquidation under Section 33(3). The Authority confirms the contravention and, as per Section 33(4), orders the liquidation of XYZ Pvt. Ltd.

Following any of these liquidation orders, no legal proceedings can be initiated against XYZ Pvt. Ltd. as per Section 33(5), except by the liquidator with the Authority's approval or as per any exceptions notified by the Central Government (Section 33(6)). The liquidation order also serves as a notice of discharge to the employees of XYZ Pvt. Ltd. unless the liquidator decides to continue business operations during the liquidation process (Section 33(7)).