While the Insolvency and Bankruptcy Code (IBC) has significantly improved the framework for resolving distressed companies, liquidation continues to be the most complex, time-consuming, and under-discussed phase of the process. Nearly half of all CIRPs in India end in liquidation, and the challenges RPs face in liquidation are often far more operational, legal, and administrative than those faced during CIRP.
Here are the ground realities and real-life case study insights from the liquidation trenches.
1. Non-Cooperation by Ex-Promoters & Management
Even after passing of the liquidation order, many promoters:
- do not hand over books of accounts
- stall asset access
- hide information about inventories or properties
- avoid providing statutory login credentials
Case Study: “Company A – Missing Books & Invisible Inventory”
The liquidator took charge of a manufacturing company only to realise:
- stock register was completely missing
- GST login credentials were not shared
- invoices for the last 6 months were untraceable
This delayed asset listing by nearly 45 days, and forensic work had to be redone.
Ground Reality: Despite Section 19 obligations and NCLT directions, cooperation is often a myth.
2. Claims Verification – The Most Time-Consuming Compliance
Claim verification seems procedural on paper, but on the ground:
- documents are incomplete
- banks submit contradictory claims
- related-party claims hide behind operational claims
- government authorities file inflated claims without documentary proof
Case Study: “Company B – 900+ Claims in Liquidation”
A real estate company went into liquidation with hundreds of homebuyer claims.
Issues included:
- multiple agreements for the same unit
- different payment records
- litigation in RERA, Consumer Forum, and NCLT simultaneously
The verification took 6 months, resulting in delays across the entire timeline.
Ground Reality: Claims verification consumes more time in liquidation than CIRP.
3. Asset Valuation & Sale: The Biggest Bottleneck
Liquidation assets often have:
- encumbrances
- pending litigations
- environmental issues
- incomplete land documents
- lack of interested bidders
Case Study: “Company C – 14 Failed E-Auctions”
An engineering company in a Tier-3 city saw repeated auction failures due to:
- outdated machinery
- unclear land title
- unrealistic reserve prices
- zero local buyer interest
It took 14 auctions and 3 reductions in reserve price before the asset sold for 28% of original valuation.
Ground Reality: E-auctions are unpredictable, and valuation mismatch is common.
4. Avoidance Applications Continue Independently – But Recovery is Uncertain
Sections 43–51 & 66 avoidance applications:
- take years to conclude
- require heavy documentation
- require financial reconstruction of old data
- involve cross-examination of promoters
Case Study: “Company D – 66 Application Filed, Recovery Still Pending After 3 Years”
A liquidator filed a Section 66 fraudulent trading application worth ₹48 crore.
Despite a strong forensic report, the matter is still pending because:
- data was incomplete
- respondents filed repeated adjournments
- NCLT had backlog
Ground Reality: Avoidance recoveries look good on paper but take years to materialise.
5. Lack of Buyers for Distressed Assets
Many liquidation cases involve:
- obsolete assets
- land with legal disputes
- specialised machinery
- remote locations
These dramatically reduce buyer interest.
Case Study: “Company E – No Buyer for Plant Despite Zero Reserve Price”
A liquidator reduced the reserve price to ₹0 (free purchase model).
Even then, no bidder participated due to environmental clearance issues.
Ground Reality: Even “zero reserve price” does not guarantee buyer interest.
6. Employee & Labour Issues – High Sensitivity, High Litigation
Liquidators face:
- PF/ESI disputes
- challenges in retrenchment
- union pressure
- claims reconciliation problems
- pending labour court matters
Case Study: “Company F – 220 Workers, No Settlement”
The workers demanded 100% dues upfront.
When liquidation assets could not cover costs, workers blocked factory access, delaying sales.
Ground Reality: Worker relations require tact, empathy, and legal prudence.
7. Handling Statutory Authorities – A Long Bureaucratic Journey
Government departments frequently:
- submit inflated claims
- refuse to modify claims even after NCLT orders
- attach assets despite moratorium
- demand dues prior to issuance of NOCs (e.g., pollution, electricity, factories dept.)
Ground Reality: Statutory compliance delays liquidation closure significantly.
8. High Cost of Liquidation vs. Low Realisation
Liquidation is expensive due to:
- security costs
- insurance
- professional fees
- valuation & auction charges
- litigation costs
In many cases, recoveries don’t justify the effort.
Case Study: “Company G – Liquidation Running Cost = 40% of Realisation”
By the time assets were sold, a large chunk went into:
- factory guards
- electricity for preservation
- legal hearings
- valuations
Ground Reality: Liquidation often yields low value relative to running costs.
9. Multiple Legal Forums = Multiple Delays
Liquidators handle proceedings in:
- NCLT
- DRT
- Civil Court
- RERA
- Consumer Court
- High Court
- Pollution authorities
- Labour commissioner
This creates parallel litigation, inconsistent orders, and delays.
Ground Reality: Liquidation requires multi-disciplinary legal management.
10. Slow NCLT Disposal – The Systemic Challenge
Despite fast-track expectations, many liquidation applications take:
- months for listing
- years for disposal
This affects:
- dissolution
- avoidance recoveries
- distribution timelines
- closure of accounts
Ground Reality: Liquidation is only as fast as the courts that adjudicate it.
Conclusion: Liquidation Needs Structural Reforms
Liquidation in India is far more complex than CIRP, given the operational, legal, documentation, and sequencing challenges. To improve outcomes, India needs:
- faster disposal of liquidation applications
- NCLT benches dedicated to liquidation
- simplified claim verification
- better digital data access from promoters
- streamlined government claim processes
- a national distressed-asset marketplace
As we move towards the IBC Amendment Bill 2025, liquidation reforms must be central for unlocking efficiency and achieving the true objective of the Code — timely value maximisation.
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Author Note: The author is an Insolvency Resolution Professional with extensive experience in managing multiple CIRP and liquidation assignments. For queries or professional discussions related to the Insolvency and Bankruptcy Code (IBC), you may reach out to: Krit Narayan Mishra at kritmassociates@gmail.com | +91 99108 59116.
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