The Insolvency and Bankruptcy Code (IBC), 2016 is designed to streamline how businesses, partnerships, and individuals handle financial difficulties and insolvency in a timely way. Section 33, found in Part II (Insolvency Resolution and Liquidation for Corporate Persons) and Chapter III (Liquidation Process), explains when and how a company (called a corporate debtor) must go through liquidation. Liquidation happens when efforts to save the company through a resolution plan fail or are not possible. This article explains Section 33 in a simple, clear way, based on reliable legal sources, to help business owners, legal professionals, students, and others understand this important law. Section 33 became effective on December 15, 2016, and has been updated over time to address real-world challenges and court rulings.
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What Does Section 33 of IBC Do?
Section 33 outlines the steps to start liquidation, which means selling a company’s assets to pay off its debts when it cannot continue operating. It has seven subsections with each explaining a specific aspect of the liquidation process. Here’s a clear breakdown of each part:
Section 33(1): Starting Liquidation
This part allows the Adjudicating Authority, usually the National Company Law Tribunal (NCLT), to order liquidation in two main situations:
If no resolution plan (a plan to save the company) is submitted by the deadline, as set out in Section 12 (for regular cases) or Section 56 (for faster cases).
If a submitted resolution plan does not meet the legal requirements and is rejected under Section 31.
When this happens, the Authority must:
Issue an order to liquidate the company following the rules in Chapter III.
Make a public announcement that the company is in liquidation.
Send the order to the authority where the company is registered (like the Registrar of Companies) to ensure transparency.
Section 33(2): Creditors’ Decision to Liquidate
This part covers cases where the committee of creditors (people or entities the company owes money to) decides to liquidate the company during the resolution process but before a resolution plan is finalized.
The resolution professional informs the Adjudicating Authority of this decision, which needs approval from at least 66% of the creditors’ voting share. This rule was added by an amendment in 2018, effective from June 6, 2018.
The Authority then issues a liquidation order, following the same steps as in Subsection (1). The law also clarifies that creditors can choose to liquidate at any point after their committee is formed (under Section 21) and before a resolution plan is approved, even before preparing an information memorandum (a document detailing the company’s finances).
Section 33(3): Liquidation Due to Plan Violation
This part, added by an amendment in 2021 (effective April 4, 2021), allows people affected by a company’s failure to follow an approved resolution plan to request liquidation. This applies if the plan, approved under Section 31 or Section 54L(1), is not followed. The process follows the same steps as in Subsection (1).
Section 33(4): Authority’s Action on Plan Violation
If someone applies under Subsection (3) and the Adjudicating Authority confirms that the resolution plan was violated, it must order liquidation by following the same steps as provided in subsection (1). This ensures fairness for those who are affected by the violation.
Section 33(5): Stopping Legal Actions
Once a liquidation order is issued, this part stops all lawsuits or legal actions against the company, unless allowed under Section 52. However, the liquidator (the person managing the liquidation) can start legal actions on behalf of the company with the Authority’s approval, balancing the rights of creditors with the need to keep the process running smoothly.
Section 33(6): Exceptions to Stopping Legal Actions
This part allows certain financial transactions, which is approved by the Central Government and a financial regulator to continue despite the ban on legal actions in Subsection (5). This provides flexibility for specific financial operations.
Section 33(7): Employee Discharge
The liquidation order acts as a notice that employees, officers, and workers of the company are discharged (let go), unless the liquidator decides to keep the business running during liquidation. This helps ensure a clear and smooth process for workers.
Changes to Section 33 of IBC Over Time
Section 33 has been updated several times to make it work better:
In 2018 (effective June 6, 2018), the law added the 66% voting requirement for creditors to decide on liquidation.
In 2019 (effective August 16, 2019), minor improvements were made.
In 2021 (effective April 4, 2021), Subsections (3) and (4) were added to address violations of resolution plans.
These changes show that the law evolves based on real-world needs and court decisions.
Judicial Interpretations on Section 33 of IBC
Court decisions have helped clarify how Section 33 works:
In Arcelormittal India Pvt. Ltd. vs. Satish Kumar Gupta and Ors. (2018), the Supreme Court emphasized that liquidation must happen quickly if resolution fails.
In Manish Kumar v. Union of India and Anr. (2021), the Court confirmed the 66% voting rule for creditors.
In Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes and Customs (2022), the Court clarified the rules about stopping legal actions, balancing creditor and regulatory needs.
These rulings ensure Section 33 is applied fairly and efficiently.
Related Rules and Real-World Impact
Section 9 of the Insolvency and Bankruptcy Board of India (IBBI) Regulations, 2016, supports Section 33 by explaining how public announcements and notifications should be made, ensuring everything follows legal timelines.
In practice, Section 33 is a key point where a company either moves to liquidation or continues resolution efforts. It affects creditors, employees, and others, influencing economic recovery and job preservation. The option to keep the business running during liquidation (Subsection 7) helps maximize the company’s value, supporting the IBC’s goals.
Summary
Section 33 of the IBC, 2016, explains how liquidation starts for a company in India when resolution efforts fail. Liquidation is triggered if no resolution plan is submitted by the deadline, a plan is rejected, creditors vote to liquidate (with 66% approval), or a resolution plan is violated. The Adjudicating Authority orders liquidation, announces it publicly, and notifies the relevant authority. Legal actions against the company stop, except with approval, and employees are discharged unless the business continues under a liquidator. Updates to the law ensure it protects stakeholders and works efficiently.
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Section 33 of IBC: FAQs
Q1. What is Section 33 of the IBC Code?
Section 33 of the IBC, 2016, explains when and how a company enters liquidation, such as when no resolution plan is received, a plan is rejected, or creditors vote to liquidate.
Q2. What is Section 33 of the Insolvency Act?
There is no separate “Insolvency Act” in India. Section 33 is part of the IBC, 2016, and covers the rules for starting liquidation (see above).
Q3. What is Regulation 33 of the IBBI Liquidation Process Regulations 2016?
Regulation 33 requires the liquidator to create a preliminary report within 75 days, listing the company’s assets, debts, and liquidation plan.
Q4. Under which scenarios can liquidation be approved?
Liquidation can be approved when no resolution plan is submitted by the deadline, a resolution plan is rejected for not meeting legal requirements, creditors, with a 66% vote, decide to liquidate before a plan is finalized and when an approved resolution plan is violated, affecting stakeholders.
Q5. What are the three types of liquidation?
Compulsory Liquidation: Ordered by a court due to insolvency or legal issues, Creditors’ Voluntary Liquidation: Started by creditors when resolution fails, like under Section 33 of the IBC and Members’ Voluntary Liquidation: When a solvent company’s shareholders choose to close it voluntarily.
