Distribution of assets
Section 53 of the Insolvency and Bankruptcy Code, 2016 deals with distribution of assets. Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may The Act was enacted on 28 May 2016.
(1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely:—
(a) the insolvency resolution process costs and the liquidation costs paid in full;
(b) the following debts which shall rank equally between and among the following:—
(i) workmens dues for the period of twenty-four months preceding the liquidation commencement date; and
(ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52;
(c) wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date;
(d) financial debts owed to unsecured creditors;
(e) the following dues shall rank equally between and among the following:—
(i) any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date;
(ii) debts owed to a secured creditor for any amount unpaid following the enforcement of security interest;
(f) any remaining debts and dues;
(g) preference shareholders, if any; and
(h) equity shareholders or partners, as the case may be.
(2) Any contractual arrangements between recipients under sub-section (1) with equal ranking, if disrupting the order of priority under that sub-section shall be disregarded by the liquidator.
(3) The fees payable to the liquidator shall be deducted proportionately from the proceeds payable to each class of recipients under sub-section (1), and the proceeds to the relevant recipient shall be distributed after such deduction.
Explanation.— For the purpose of this section—
(i) it is hereby clarified that at each stage of the distribution of proceeds in respect of a class of recipients that rank equally, each of the debts will either be paid in full, or will be paid in equal proportion within the same class of recipients, if the proceeds are insufficient to meet the debts in full; and
(ii) the term “workmen’s dues” shall have the same meaning as assigned to it in section 326 of the Companies Act, 2013 (18 of 2013).
Section 53, The Insolvency and Bankruptcy Code, 2016 (Act 31 of 2016).
Cross-references
Extracted from the operative text of the enactments themselves. Every destination below exists in our corpus.
This section refers to
Referred to by 9
- s. 30 Submission of resolution plan
- s. 34 Appointment of liquidator and fee to be paid
- s. 35 Powers and duties of liquidator
- s. 43 Preferential transactions and relevant time
- s. 52 Secured creditor in liquidation proceedings
- s. 54K Consideration and approval of resolution plan
- s. 59 Voluntary liquidation of corporate persons
- s. 67 Proceedings under section 66
- s. 240 Power to make regulations
Related judgements & precedents
These are some judgments that construed this section, and hold precedence value. They hold authority on how to read, interpret and use this section.
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State Tax Officer v. Rainbow Papers Limited
Court's Decision & Legal Precedent
Judgment of Main Case order-13.pdf 2022-09-06. CA 1661/2020. Indira Banerjee. Digitally signed 2022.09.06. DATE-CHECK false positive (NCLAT 19-12-2019 / NCLT 27-02-2019 / company 1990 dates in the facts); body is the named reportable. Isolates IBC 53: a GVAT s.48 statutory first charge makes the State a secured creditor under IBC 3(30)/(31); the s.53 waterfall does not let the CoC waive those first-charge tax dues. Map insolvency-bankruptcy-code-2016 53 cited only. Do not pad IBC 30/31 (already filled by Sashidhar) or IBC 7/9.
On this section: A statutory first-charge tax debt makes the State a secured creditor; IBC 53’s waterfall cannot let the CoC waive those dues (Rainbow Papers). Do not pad IBC 30/31 (already filled).
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Moser Baer Karamchari Union Thr. President Mahesh Chand Sharma vs Union of India
Court's Decision & Legal Precedent
The Insolvency and Bankruptcy Code 2016 represents an organic evolution of insolvency law through a consultative process involving multiple committees and expert bodies. The waterfall mechanism under Section 53 of IBC, which ranks workmen's dues for 24 months preceding liquidation commencement date pari passu with secured creditors who relinquish security, is a carefully balanced framework that adequately protects workmen's interests while promoting revival of insolvent companies and maximizing asset value for all stakeholders. This framework is not arbitrary or violative of Articles 14 and 21 of the Constitution. The two regimes - liquidation under Companies Act 2013 and liquidation under IBC - deal with different situations and cannot be compared for constitutional purposes. In economic legislation, courts should defer to legislative judgment unless the exercise of legislative judgment appears to be palpably arbitrary. The sacrifices required from workmen under IBC are not manifestly unjust or arbitrary, and the exclusion of Provident Fund, Pension Fund and Gratuity Fund from liquidation estate, combined with the 24-month protection and Regulation 21A safeguards, adequately protect workmen's dues.
On this section: Distribution of liquidation assets in order of priority; waterfall mechanism; workmen's dues ranked pari passu with relinquishing secured creditors for 24 months
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Sundaresh Bhatt vs Central Board of Indirect Taxes and Customs
Court's Decision & Legal Precedent
Once moratorium is imposed under Sections 14 or 33(5) of the Insolvency and Bankruptcy Code, 2016, the Customs authority has only limited jurisdiction to assess and determine the quantum of customs duty and other levies. The Customs authority does not have the power to initiate recovery of dues by means of sale or confiscation as provided under the Customs Act. After such assessment, the Customs authority must submit its claims in accordance with the procedure laid down in the IBC and in strict compliance with prescribed time periods before the adjudicating authority. The Insolvency and Bankruptcy Code overrides the Customs Act to this extent, and the Liquidator can immediately secure goods from the Customs authority to be dealt with appropriately under the IBC. Additionally, the Liquidator has discretion in choosing the mode of sale of corporate assets (auction or private contract), and no vested right accrues to any bidder merely by participation in a bidding process; the Liquidator's commercial decisions regarding asset sales are not subject to judicial review.
On this section: Specifies priority order for distribution of liquidation proceeds; Customs dues treated as operational debt subject to this distribution mechanism
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Raman Prakash Mangla vs Anuj Jain
Court's Decision & Legal Precedent
The Adjudicating Authority has limited jurisdiction in approving a resolution plan, circumscribed by Sections 30(2) and 31 of the Insolvency and Bankruptcy Code, 2016. The Authority cannot interfere with the commercial aspects of the decision taken by the Committee of Creditors. If the Adjudicating Authority finds shortcomings in the resolution plan vis-à-vis the specified parameters of keeping the corporate debtor as a going concern, maximizing the value of its assets, and taking care of interests of all stakeholders, it must send the plan back to the Committee of Creditors for reconsideration, not modify the plan itself. Payment to dissenting financial creditors must be in monetary terms, not in kind or through transfer of equity or land. Once homebuyers as a class vote in favor of a resolution plan through their authorized representative, individual homebuyers cannot challenge the plan as dissenting creditors or aggrieved persons. The INR 750 crores deposited by the holding company pursuant to Supreme Court orders in Chitra Sharma is the property of the holding company, not the corporate debtor, and cannot be appropriated by the corporate debtor or the resolution applicant.
On this section: Distribution of assets in liquidation
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Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited vs Axis Bank Limited
Court's Decision & Legal Precedent
Mortgage transactions executed by a subsidiary to secure loans of its holding company constitute preferential transactions under Section 43 of the Insolvency and Bankruptcy Code 2016 when: (1) the transactions transfer the subsidiary's property for benefit of the holding company (a related party and creditor of the subsidiary) for antecedent debts owed by the subsidiary to the holding company; (2) the transactions put the holding company in a beneficial position compared to other creditors in liquidation distribution; (3) the transactions fall within the two-year look-back period for related party transactions; and (4) the transactions are not made in the ordinary course of business or financial affairs of the subsidiary, which requires reading the word 'or' in Section 43(3)(a) as 'and' to ensure both the subsidiary's and transferee's ordinary course of business are considered. Furthermore, lenders of a holding company cannot be categorized as financial creditors of a subsidiary merely by holding mortgages on the subsidiary's assets because financial debt requires disbursal against consideration for time value of money to the corporate debtor, and mortgage debt does not satisfy this essential requirement. The distinction between secured creditor and financial creditor must be maintained, with financial creditors being those with direct engagement in the corporate debtor's functioning from inception, involvement in assessing viability, and role in restructuring.
On this section: Benchmark for determining whether preferential transaction puts creditor in better position than in liquidation distribution
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Landmark Apartments Pvt. LTD vs Union of India
Court's Decision & Legal Precedent
The Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, which deems allottees of real estate projects as financial creditors under Section 5(8)(f) and provides for their representation on Committee of Creditors through authorized representatives under Sections 21(6A) and 25A, is constitutionally valid under Articles 14, 19(1)(g), and 300-A of the Constitution of India. The amendment does not violate Article 14 as allottees, who finance their own apartment projects and provide consideration for time value of money through installment-based advance payments, constitute a rationally distinct class of financial creditors similar to debenture holders and fixed deposit holders, with intelligible differentia bearing nexus to the Code's object of maximizing creditor recovery and protecting stakeholders in corporate rehabilitation. The amendment does not infringe Article 19(1)(g) as it is a reasonable restriction in public interest for protecting millions of home buyers with substantial invested amounts. The amendment does not deprive developers of property without constitutional authority as it operates through valid legal process respecting due process and defenses. The explanation to Section 5(8)(f) merely clarifies that allottees already fell within the definition's ambit and is not substantively enlarging the scope. The classification does not offend the UNCITRAL Legislative Guide as allottees are recognized as financial creditors based on genuine financing characteristics. The Code and RERA can harmoniously coexist as parallel remedies serving different purposes, with Code taking primacy due to its later non-obstante clause. Parliament's legislative judgment in treating allottees as financial creditors is entitled to judicial deference as an economic experiment within free play in joints doctrine.
On this section: Liquidation waterfall for distribution of proceeds in case of liquidation; relevant for determining creditor treatment
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Spaze Towers Private Limited vs Union of India
Court's Decision & Legal Precedent
Amendments to the Insolvency and Bankruptcy Code 2016 classifying allottees of real estate projects as financial creditors and allowing them to trigger insolvency proceedings against developers are constitutionally valid. These amendments do not violate Articles 14, 19(1)(g) read with Article 19(6), or 300-A of the Constitution. Allottees constitute a distinct class of financial creditors with intelligible differentia from operational creditors due to their role in financing real estate projects through installment payments, their vital interest in the company's well-being, and their similarity to other individual financial creditors like deposit and debenture holders. The amendments have rational nexus with the Code's objects of maximizing asset value and rehabilitating corporate debtors. Section 5(8)(f) as originally enacted already subsumed allottees within the definition of financial debt as a residuary provision covering transactions having the commercial effect of borrowing. The explanation added by the Amendment Act is merely clarificatory. The Code and RERA provide concurrent remedies and must be read harmoniously with the Code prevailing in case of conflict. Representation of allottees through authorized representatives under Section 21(6A) and 25A is constitutionally valid. The legislature has free play in the joints when enacting economic legislation and courts must accord deference to such experimentation.
On this section: As financial creditors, allottees now have specified priority in liquidation distribution
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Uppal Chadha Hi Tech Developers Pvt. LTD vs Union of India
Court's Decision & Legal Precedent
Real estate allottees are 'financial creditors' within the meaning of Section 5(8) of the Insolvency and Bankruptcy Code, 2016, as they advance money against consideration for the time value of money to finance real estate construction projects. The Explanation to Section 5(8)(f) inserted by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, is constitutionally valid as it is clarificatory of the original provision's language and does not infringe Articles 14, 19(1)(g), or 300-A of the Constitution. Allottees are entitled to trigger insolvency proceedings under Section 7 of the Code against real estate developers, and their inclusion as financial creditors does not violate principles of reasonable classification or legislative objects. The Code and RERA operate harmoniously in different spheres providing concurrent remedies to home buyers.
On this section: Financial creditors' claims are paid in a specified order in liquidation. This status is important for protecting home buyer interests.
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R. K. Industries (unit-ii) LLP vs Hr Commercials Private Limited
Court's Decision & Legal Precedent
Once a Liquidator, acting in consultation with stakeholders and with the permission of the Adjudicating Authority, decides to abandon an ongoing bidding process and opt for a private sale when a higher offer emerges that better serves the objective of maximizing asset value and expediting the liquidation process, such commercial decision is not amenable to judicial review by the Appellate Authority absent proof of mala fides or arbitrariness. The Liquidator's discretion to select the mode of sale and to change the sale strategy is protected by the express terms of the bidding documents and the provisions of the IBC, and no vested right accrues to a bidder merely by virtue of being selected as an Anchor Bidder in a Swiss Challenge Process.
On this section: Waterfall mechanism for distribution of proceeds from liquidation
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Rajesh Gupta vs Nbcc (india) LTD
Court's Decision & Legal Precedent
The Adjudicating Authority's jurisdiction in approving a resolution plan is limited to verifying compliance with the mandatory requirements specified in Section 30(2) of the Insolvency and Bankruptcy Code, 2016. The Authority cannot modify the commercial terms of a resolution plan approved by the Committee of Creditors by the requisite majority (66% or more of voting share). If the Authority finds that the resolution plan does not meet the specified parameters (keeping corporate debtor as going concern, maximizing asset value, protecting stakeholder interests), it must remit the plan back to the Committee of Creditors for reconsideration rather than modifying it itself. The commercial wisdom of the Committee of Creditors is non-justiciable and cannot be interfered with by the Adjudicating Authority or Appellate Authority on equitable or quantitative grounds. Dissenting financial creditors must receive payment in monetary terms (cash) equivalent to their liquidation value, not in kind through equity or land transfers. The INR 750 crores deposited by the holding company JAL pursuant to Supreme Court orders in the Chitra Sharma case remains the property of JAL and cannot be treated as an asset of the corporate debtor JIL for purposes of the resolution plan. Homebuyers as a class are bound by the decision of their authorized representative in the Committee of Creditors under Section 25A(3A), and individual homebuyers cannot maintain separate challenges to the resolution plan. The Insolvency and Bankruptcy Code prevails over the Real Estate (Regulation and Development) Act, 2016 in case of conflict, though both statutes must be interpreted harmoniously. Concession Agreements with statutory authorities are not statutory contracts and their material terms cannot be modified without the consent of the other contracting party. Security interests not avoided under Section 43 of the Code cannot be unilaterally extinguished through a resolution plan.
On this section: Distribution of assets in liquidation; order of priority for payment of different classes of creditors
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Vodafone Idea LTD vs Union of India Department of Telecommunications through Its Secretary
Court's Decision & Legal Precedent
The primary ratio decidendi are: (1) Spectrum constitutes a natural resource held by the government in sovereign trust and cannot be treated as property owned by corporate debtors subject to insolvency proceedings merely due to right to use granted under license; the question requires NCLT examination within two months as it is a substantial jurisdictional issue affecting the validity of insolvency proceedings initiated by telecom companies; (2) In spectrum sharing arrangements, the sharing operator has no liability for the original licensee's predecessor AGR dues as the sharing operator merely obtains right to use additional spectrum alongside its own spectrum - each operator remains liable only for AGR dues arising from spectrum it holds; (3) In spectrum trading arrangements, the buyer's liability for seller's predecessor AGR dues is determined by the Trading Guidelines - if entire spectrum is traded, buyer assumes seller's known past dues; if only partial spectrum is traded, buyer has no predecessor dues liability; any dues discovered after trade date are recoverable from buyer or seller jointly or severally at government discretion; (4) AGR dues determined by the Supreme Court judgment dated October 24, 2019 are final, binding and not subject to reassessment or fresh disputes; telecom operators must pay the determined amount through installment schedule without room for contesting the calculation; (5) The government as licensor retains sovereign privilege over spectrum allocation under Telegraph Act Section 4 and can enforce contractual conditions precedent (particularly payment of dues) before permitting license transfers or spectrum trading, notwithstanding IBC moratorium provisions, as these are conditions precedent to the right itself rather than post-right enforcement.
On this section: Sets priority order for payment to different creditor classes in liquidation; determines where government claims rank
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Tata Teleservices LTD vs Union of India through Its Secretary
Court's Decision & Legal Precedent
The core ratio decidendi is: (1) Spectrum is a natural resource held by Government under exclusive privilege per Section 4 of Telegraph Act, granted to licensees subject to contractual conditions including payment of AGR dues. While the question of whether spectrum can be subjected to IBC proceedings involves significant jurisdictional issues to be examined by NCLT, it is clear that AGR dues accumulated over nearly 20 years must be paid in full by all telecom service providers without dispute or reassessment. (2) Payment of these dues aggregating Rs. 1,43,271.74 crores (as calculated by Court) shall be made in 10 equal yearly installments commencing from April 1, 2021 to March 31, 2031, with 10% due by March 31, 2021. This represents modification of Government's proposal for 20-year timeline as inappropriate given the sovereign nature of spectrum rights. (3) For telecom service providers sharing spectrum under 2015 Guidelines, each operator remains liable for AGR dues proportionate to spectrum held; sharing operator bears no liability for past dues of original licensee. (4) For spectrum trading, seller must clear all pre-trading dues; buyer liable for post-trading dues except those discovered later and unknown at trading date, recoverable jointly or severally at Government's discretion. (5) All telecom service providers must pay dues without any reduction, waiver, or relief other than the approved 10-year installment schedule with NPV protection. No dispute, reassessment, or recalculation is permitted. Default in payment results in automatic interest, penalty and interest on penalty, and constitutes contempt of court. (6) The question of whether spectrum can be subjected to insolvency proceedings is a jurisdictional matter for NCLT to decide within two months, examining whether such proceedings constitute bona fide attempts at revival or subterfuge to avoid AGR payment.
On this section: Priority of creditors in liquidation; Court examined whether Government's dues have priority and whether they qualify as operational debt
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Bharti Airtel LTD vs Union of India through Secretary
Court's Decision & Legal Precedent
Spectrum, being a scarce recognized natural resource held in public trust by the Central Government under its exclusive privilege granted by Section 4 of the Indian Telegraph Act, 1885, cannot be treated as property owned by a corporate debtor and therefore cannot be subjected to insolvency proceedings under the Insolvency and Bankruptcy Code, 2016. A telecom licensee possesses only contractual usage rights over spectrum granted under the license agreement, not ownership rights. These contractual rights, being under agreement with a third party (the Government) retaining interest, fall outside the definition of 'assets' under Section 18 of the IBC as per the Explanation to that section. Accordingly, spectrum cannot be transferred in resolution plans or subject to resolution proceedings, and statutory Guidelines for Spectrum Sharing and Trading issued by the Department of Telecommunications must be adhered to. However, the jurisdictional question of whether spectrum can be subjected to insolvency proceedings and whether AGR dues are operational dues under the IBC requires consideration by the National Company Law Tribunal before any further determination.
On this section: Determines ranking of different creditor classes. Court examined whether AGR dues should rank higher than secured creditor claims and whether government dues are operational.
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Amrish Gandhi The Voluntary Liquidator of M/s. ASHUTOSH COTTON AND OIL MILL PRIVATE LIMITED vs NA
Court's Decision & Legal Precedent
When a corporate person undergoing voluntary liquidation has completed all mandatory compliances under Section 59 of the Insolvency and Bankruptcy Code 2016 and IBBI (Voluntary Liquidation Process) Regulations 2017, including proper Board and shareholder approvals, Declaration of Solvency, public announcements, preliminary and final reports, Income Tax clearance, and complete liquidation of assets with distribution to stakeholders, the NCLT has the power and duty under Section 59(8) to order the dissolution of the corporate person.
On this section: Priority of payments during liquidation process
The holding above is the ratio decidendi as extracted from the judgment by eCourts India, reproduced unaltered — it is a rendering of the court's reasoning, not a substitute for its words. Read the order itself before relying on it.
Judgments citing this section
These may be obiter dicta or a precedent, for you to study. These are the judgments where this section is quoted.
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… As such, they cannot be categorised as ordinary financial creditors to rank pretty low in the order of priority under Section 53. Corporate builder heavily counts upon the home buyers as stakeholders to sustain in the market. Section 53 of the Insolvency and Bankruptcy Code, 2016 is irrational and violates the rights of the home buyers guaranteed under Article 21 as by subjecting the home buyers to the liquidation proceedings of discriminatory nature. The very survival of home buyers has been seriously jeopardised. Not only they are going to lose …
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… As such, they cannot be categorised as ordinary financial creditors to rank pretty low in the order of priority under Section 53. Corporate builder heavily counts upon the home buyers as stakeholders to sustain in the market. Section 53 of the Insolvency and Bankruptcy Code, 2016 is irrational and violates the rights of the home buyers guaranteed under Article 21 as by subjecting the home buyers to the liquidation proceedings of discriminatory nature. The very survival of home buyers has been seriously jeopardised. Not only they are going to lose …
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… As such, they cannot be categorised as ordinary financial creditors to rank pretty low in the order of priority under Section 53. Corporate builder heavily counts upon the home buyers as stakeholders to sustain in the market. Section 53 of the Insolvency and Bankruptcy Code, 2016 is irrational and violates the rights of the home buyers guaranteed under Article 21 as by subjecting the home buyers to the liquidation proceedings of discriminatory nature. The very survival of home buyers has been seriously jeopardised. Not only they are going to lose …
Made under this section, and citing it
3 instruments name this provision in its title or its text without being made under it.
Questions about Section 53
What have the courts held on Section 53 of the Insolvency and Bankruptcy Code?
State Tax Officer v. Rainbow Papers Limited (06 Sep 2022) is the leading judgment on this section among those set out below: A statutory first-charge tax debt makes the State a secured creditor; IBC 53’s waterfall cannot let the CoC waive those dues (Rainbow Papers). Do not pad IBC 30/31 (already filled). Another 13 judgments on this section are set out below, 13 of them from the Supreme Court. They run from 2019 to 2023.
How do I find court cases under Section 53 of the Insolvency and Bankruptcy Code?
In judgments and charge sheets this section is written several ways, and each form finds a different set of orders. These search the full text of every order eCourtsIndia holds, best matches first: Insolvency and Bankruptcy Code 53, section 53 Insolvency and Bankruptcy Code, section 53 of the Insolvency and Bankruptcy Code. Each opens the full list of orders on eCourtsIndia, where it can be narrowed by court, year and outcome. 14 reported judgments on this section are set out on this page, beginning with State Tax Officer v. Rainbow Papers Limited (06 Sep 2022).
What should I read with Section 53 of the Insolvency and Bankruptcy Code, and has it changed?
Its own text turns on Companies Act 326 (Overriding preferential payments), section 52 (Secured creditor in liquidation proceedings), so none of them can safely be read on its own. 9 other provisions in this corpus refer back to it. 3 instruments name it without being made under it, most recently Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) (Amendment) Regulations, 2022 (2022), then The Insolvency and Bankruptcy Code (Amendment) Act, 2019 (2019).
When was Section 53 of the Insolvency and Bankruptcy Code enacted?
Section 53 of the Insolvency and Bankruptcy Code, cited as Insolvency and Bankruptcy Code 53, was enacted on 28 May 2016 as Act 31 of 2016. It is in force as at the date shown on this page.
Other sections of this Act
- 240. Power to make regulations2349 words
- 5. Definitions2326 words
- 3. Definitions1381 words
- 29A. Person not eligible to be resolution applicant1152 words
- 239. Power to make rules963 words
- 196. Powers and functions of Board942 words
Source and method. Compiled from the enactments of Parliament and of the State legislatures as published on India Code, and republished together with commentary and other original matter under section 52(1)(q)(ii) of the Copyright Act, 1957. Structured, cross-referenced and maintained by eCourtsIndia. Text as in force on 15 Oct 2026. This page is not a substitute for legal advice.