A Critical Analysis Of Waterfall Mechanism Under Insolvency And Bankruptcy Code, 2016
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Category: Corporate & Insolvency
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A CRITICAL ANALYSIS OF WATERFALL MECHANISM
UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016
Amee Shah, Unitedworld School of Law, Karnavati University Dr. Mayura Sabne, Assistant Professor of Law at Unitedworld School of Law, Karnavati University
ABSTRACT
This paper critically analyses the waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code, 2016, which governs the priority of claims during liquidation. While the provision establishes a structured distribution framework to promote legal certainty and financial discipline, it often results in inequitable outcomes for stakeholders with limited bargaining power. Secured creditors and resolution process costs receive the highest priority, whereas operational creditors, employees, government dues, and shareholders are relegated to lower tiers. The study examines the impact of this hierarchy on stakeholder recoveries, highlighting issues such as inadequate protection for unsecured creditors, ambiguity in inter se priority among secured creditors, and the inconsistent treatment of statutory employee benefits and government claims.
Judicial decisions have attempted to clarify these areas but have also introduced interpretative inconsistencies. Drawing on comparative practices from jurisdictions like the United Kingdom and the United States, the paper proposes reforms including ringfencing a prescribed asset portion for unsecured creditors, enhancing operational creditor participation, and allowing flexible, creditor-specific restructuring plans. These measures aim to balance efficiency with fairness. The research concludes that while Section 53 provides essential legal structure, evolving it into a more inclusive and balanced framework is imperative for the IBC’s equitable and effective application.
A Critical Analysis of Waterfall Mechanism under Insolvency and Bankruptcy Code,
At the heart of the liquidation framework under the Insolvency and Bankruptcy Code (IBC), 2016, lies a fundamental dilemma: how should the limited assets of an insolvent company be distributed fairly among competing stakeholders with different legal and economic claims? In simple terms, whose loss should be minimized, and whose claim should be prioritized when the value of the company is insufficient to satisfy all debts? The IBC resolves this tension through a hierarchical structure in Section 53, which prioritizes secured creditors and certain employee claims, while placing operational creditors, government dues, and shareholders lower in the order. 1 This reflects a deliberate choice in favour of legal predictability, credit discipline, and financial risk management. However, this prioritization raises ethical and economic concerns.
Should large financial institutions always recover more than small vendors or employees, simply because they held security interests? Should government dues, which fund public welfare, come after private debt? And where do workers and social security obligations stand when they are both critical and unsecured? This dilemma illustrates the inherent tension between equity and efficiency in insolvency law. While Section 53 promotes legal certainty and maximizes asset value, it may also create outcomes that feel unjust to stakeholders with limited power.
Balancing these conflicting objectives—fairness to the vulnerable versus reward for prudent risk-taking—remains one of the most contested aspects of the IBC’s waterfall mechanism Section 53 - Waterfall Mechanism “Under section 53 of the IBC, the proceeds from the sale of the liquidation assets are to be distributed in the following order of priority: (a) the Insolvency Resolution Process costs and the liquidation costs paid in full; (b) the debts which shall rank equally between and among the following:
1 Insolvency and Bankruptcy Code 2016, s 53
i. workmen’s dues for the period of 24 months preceding the liquidation commencement date, and ii. debts owed to a secured creditor in the event of him having relinquished security in the manner mentioned in section 52; (c) wages and any unpaid dues owed to employees, other than workmen, for a period of 12 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. government dues in respect of the whole or any part of the period of two years preceding the liquidation commencement date, and 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 Stakeholders in Asset Distribution Insolvency Resolution Process Cost and Liquidation Cost The Insolvency Resolution Process Cost (IRPC) and Liquidation Cost under the IBC are granted top priority during distribution under Section 53. 3 IRPC includes interim finance, which is debt raised during CIRP to maintain operations,4 subject to CoC approval and
2 Insolvency and Bankruptcy Code 2016, s 53
3 Insolvency and Bankruptcy Code 2016, s 53(1)(a)
4 Insolvency and Bankruptcy Code 2016, s 5(15)
restrictions on creating security interests.5 It also covers the fees of the Resolution Professional (RP), determined by IBBI regulations, including fixed and performance-based components.6 Operational costs such as employee wages, utilities, and raw materials are included if the debtor is functioning as a going concern.7 Other components of IRPC are government-facilitated costs and IBBI-specified expenses, including regulatory and statutory dues.8 IBBI Regulations 31–
34 further clarify these costs, emphasizing their approval by the CoC.9
The definition of liquidation cost was revised through a notification dated July 25, 2019. 10 As per the amended definition, it now encompasses the liquidator’s fees and remuneration, expenses incurred for safeguarding assets, operational costs of the business during liquidation, interest on interim finance, and other essential expenditures. However, it specifically excludes expenses related to any “compromise or arrangement” under Section 230 of the Companies Act. 11 Workmen and Employee Dues Employees and workmen are often the most vulnerable stakeholders during insolvency, facing delays in salary payments due to power imbalances. 12 The IBC addresses this by prioritizing their dues under Section 53’s waterfall mechanism.
Workmen’s dues for the preceding 24 months rank second, equal to secured creditors who relinquish their security,13 while other employee dues for the preceding 12 months rank third, ahead of unsecured creditors but below workmen’s dues and secured creditors. However, these claims are time-bound, calculated from the date of the liquidation order. 14
5 Insolvency and Bankruptcy Code 2016, s 28(1)(a) & (b)
6 IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016, reg 34B
7 IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016, reg 31
8 Insolvency and Bankruptcy Code 2016, s 5(13)(d)
9 IBBI (Insolvency Resolution Process for Corporate Persons) Regulations 2016, reg 31-34
10 Ministry of Corporate Affairs, Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019, Notification No. IBBI/2019-20/GN/REG049, 25 July 2019 https://ibbi.gov.in/uploads/legalframwork/46961ac6956aa7d462fc022c2f40db0c.pdf accessed 12 April 2025.
11 Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations 2016, reg 2(1)(ea).
12 SCC Online, 'Have the IBC doors shut for workmen/employees?' (22 April 2020)
accessed
22 March 2025.
13 Insolvency and Bankruptcy Code 2016, s 53(1)(b)
14 Insolvency and Bankruptcy Code 2016, s 53(1)(c)
While the IBC does not define “employee,” general interpretation aligns it with individuals engaged in work for wages or salary.15 Workmen’s dues are defined by reference to Section
326 of the Companies Act, 2013, covering wages, holiday pay, compensation, and amounts due
from social security funds. 16 Section 3(36) of the IBC defines “workman” per the Industrial Disputes Act, 1947, covering a broad range of employment categories. 17 Section 36(4)(a)(iii) of the IBC excludes provident fund, gratuity, and pension fund dues from the liquidation estate, ensuring they aren’t used to pay other creditors. 18 Courts, including in Moser Baer Karamchari Union v. UOI,19 have upheld this exclusion to safeguard social security. In Alchemist v. Moser Baer,20 it was clarified that such statutory dues must be paid outside Section 53. However, in Savan Godiwala v. Lanco Infratech,21 the NCLAT held that if a statutory fund wasn’t established, the liquidator couldn’t use general assets to cover gratuity. Further, Sunil Kumar Jain v.
Sundaresh Bhatt22 clarified that wages during CIRP qualify as CIRP costs only if the corporate debtor was a going concern and employees worked during the period. While the waterfall mechanism gives priority to workmen, statutory dues like PF and gratuity must be separately ensured by the liquidator under applicable labour laws. Secured creditors Understanding the position of secured creditors under the IBC begins with their definition. A “secured creditor” is one with a security interest,23 which under Section 3(31) includes mortgages, charges, hypothecation. 24 These creditors are typically financial creditors as defined under Section 5(7), receiving financial debt against the consideration for the time value of money. 25 Secured creditors rank second in the waterfall mechanism, alongside workmen’s dues for the preceding 24 months.
26 Their importance lies in their strong representation in the 15 Maruthi Sabbani, 'Employees and Workmen Benefits under the IBC' (2024) IIIPI accessed 22 March 2025.
16 Insolvency and Bankruptcy Code 2016, s 53
17 Insolvency and Bankruptcy Code 2016, s 3(36)
18 Insolvency and Bankruptcy Code 2016, s 36(4)(a)(iii)
19 Moser Baer Karamchari Union v. UOI & Ors (2023) ibclaw.in 59 SC
20 Alchemist Vs. Moser Bear India Private Limited (2023) ibclaw.in 14 SC
21 Savan Godiwala, Liquidator of Lanco Infratech ltd 2020 SCC OnLine NCLAT 191
22 Sunil Kumar Jain & Ors. V. Sundaresh Bhatt & Ors 2022 LiveLaw (SC) 382
23 Insolvency and Bankruptcy Code 2016, s 3(30)
24 Insolvency and Bankruptcy Code 2016, s 3(31)
25 Insolvency and Bankruptcy Code 2016, s 5(7)
26 Insolvency and Bankruptcy Code 2016, s 53 (1)(b)
Committee of Creditors (CoC) and their significant influence on recovery distribution. Under Section 52, they can either enforce their security interest outside liquidation or relinquish it to participate in collective distribution. If enforcement fails to satisfy the full debt, the balance is treated as an unsecured claim. 27 The 2020 ILC report clarified that secured creditors can recover only up to the value of their security; remaining dues must follow the general priority. 28 A major ambiguity exists regarding inter se priority—Section 53 does not differentiate between first and second charge holders. 29 The NCLAT rulings in J. M. Financial Asset Reconstruction Company Ltd. v. Finquest Financial Solutions Private Ltd (2019)30 and Technology Development Board v.
Anil Goel (2020)31 have created uncertainty for financial institutions regarding the priority of secured creditors in insolvency proceedings. The 2019 ruling established that only the firstcharge holder has the right to realize security, preventing other charge holders from further enforcement. However, the 2020 ruling contradicted this by stating that all secured creditors must be treated equally under Section 53, regardless of charge priority. This lack of clarity has made it difficult for lenders to determine whether holding a first charge guarantees superior recovery rights. Homebuyers as financial creditors Before the 2018 amendment to the IBC, homebuyers lacked legal standing in insolvency proceedings. 32 The IBC (Second Amendment) Act, 2018 recognized them as financial creditors by amending Section 5(8)(f), enabling them to initiate insolvency proceedings and vote in the CoC.
33 However, they remain unsecured creditors, lacking direct security interest in project
27 Insolvency and Bankruptcy Code 2016, s 52
28 Insolvency Law Committee, 'Report of the Insolvency Law Committee' (Ministry of Corporate Affairs, February 2020) accessed 25 March 2025
29 Fox Mandal, 'Inter-se Priority Among Secured Creditors in Liquidation: A Judicial Dichotomy'
accessed 22 March 2025. 30 J.M. Financial Asset Reconstruction Company Ltd. v. Finquest Financial Solutions Private Ltd 2019 SCC OnLine NCLAT 918 31 Technology Development Board v. Anil Goel (2021) Company Appeal (AT) (Insolvency) No. 731 of 2020, NCLAT Principal Bench, New Delhi. 32IRCCL, 'Unravelling the Labyrinth: Evolution of Homebuyers’ Status under IBC' accessed 22 March 2025.
33 Insolvency and Bankruptcy Code (Amendment) Act 2018
assets. In Pioneer Urban Land & Infrastructure Ltd. v. Union of India,34 the Supreme Court upheld this classification. Union Bank of India v. Rajasthan RERA35 further clarified their rights, affirming their importance in insolvency while prioritizing them under RERA over banks. Despite improved standing, their unsecured status poses recovery risks during liquidation. Unsecured Financial creditors The IBC does not define “unsecured creditor,” but by contrast to secured creditors, they lack a security interest over specific assets, making recoveries riskier. 36 The BLRC recommended giving unsecured creditors higher priority than government dues to promote unsecured financing, while still maintaining their subordinate status to secured creditors. 37 In Essar Steel v.
Satish Kumar Gupta,38 the Supreme Court ruled that equitable treatment applies only within the same class of creditors, reinforcing separate treatment of secured and unsecured creditors. Due to their lower recovery prospects and lack of collateral, unsecured credit remains unpredictable and unattractive, hindering the growth of bond and debenture markets. Government Dues Section 53 of the IBC now mandates that government dues and remaining debts owed to secured creditors are treated equally during liquidation, marking a significant departure from the pre-IBC regime where government claims enjoyed higher priority. 39 The shift aims to balance the interests of private creditors and government revenue needs; if government dues were prioritized excessively, it could reduce recoveries for financial and operational creditors, thereby discouraging lending.
Although government dues are generally unsecured, statutory charges may sometimes confer secured status. In State Tax Officer v. Rainbow Paper Mills,40 the Supreme Court held that government dues secured by law qualify as secured debts under
34 Pioneer Urban Land & Infrastructure Ltd. v. Union of India [2019] 10 S.C.R. 381
35 Union Bank of India v. Rajasthan Real Estate Regulatory Authority 2022 LiveLaw (SC) 171
36 Siddhi Singh, 'Liquidation Waterfall Mechanism Under Insolvency & Bankruptcy Code, 2016' (2022) 2(2) Indian Journal of Law and Legal Research accessed 22 March 2025.
37 Bankruptcy Law Reforms Committee Report, 2015
38 Committee of Creditors of Essar Steel (India) Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531
39 Natasha Mittal, 'Revitalising Revenue: A Critical Analysis of the Treatment of Statutory Dues in the Insolvency and Bankruptcy Code' (2024) CBLT RGNUL Blog accessed 22 March 2025.
40 State Tax Officer v. Rainbow Paper Mills Limited 2022 SCC OnLine SC 1162
Section 3(30) of the IBC, mandating their inclusion in the waterfall mechanism. However, in Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Private Limited,41 the Court ruled that electricity dues did not constitute a secured debt, as no recognized security interest was registered. Additionally, a January 2023 discussion paper by the Ministry of Corporate Affairs proposed that government debts be treated on par with other unsecured creditors unless a security interest is explicitly created through a transaction with the corporate debtor. 42 Overall, these legal interpretations and proposed amendments indicate an evolving, more balanced approach to treating government dues in insolvency proceedings. Operational Creditor An Operational Creditor (OC) under the IBC is one owed a debt arising from goods, services, employment, or statutory dues.
43 OCs face greater challenges than Financial Creditors (FCs) in insolvency proceedings. To initiate CIRP, OCs must submit a "Certificate of Truth" confirming unpaid invoices and are excluded from the Committee of Creditors (CoC) unless no FCs exist. 44 They also lack voting rights except when there are no FCs are included45 and rank lower in liquidation under Section 53 of the IBC. As per the IBBI, OCs recover only 0. 88% of claims during liquidation. Their claims fall under "remaining debts and dues," not explicitly prioritized in the waterfall. 46 In Swiss Ribbons v. Union of India,47 the Supreme Court upheld the distinction between FCs and OCs, confirming it does not violate Article 14. It highlighted that most FCs are secured creditors engaged in viability assessments and long-term restructuring, while OCs are typically unsecured vendors focused on payment recovery.
The BLRC and JPC reports supported this distinction, noting FCs’ ability to manage corporate distress. The Court emphasized that the 41 Paschimanchal Vidyut Vitran Nigam Ltd. Vs. Raman Ispat Private Limited & Ors 2023 SCC OnLine SC 842 42 Ministry of Corporate Affairs, 'Discussion Paper on Amendments to the Insolvency and Bankruptcy Code, 2016' (18 January 2023) para 14. 2 accessed 22 March 2025.
43 Insolvency and Bankruptcy Code 2016, s 5(20)
44 Insolvency and Bankruptcy Code 2016, s 9(3)(c)
45 Insolvency and Bankruptcy Code 2016, s 21(2)
46 Financial Express, 'Operational Creditors Continue to Get Little of Insolvency Proceeds' (2025) Financial Express accessed 22 March 2025.
47 Swiss Ribbons Pvt. Ltd v. Union of India AIR (2019) 4 SCC 17
procedural and substantive differences—like insolvency initiation under Sections 7 for FCs and 8–9 for OCs—are rational and aligned with the IBC's goals. While amendments have ensured a minimum liquidation value for OCs in resolution plans,48 they still face disadvantages in the distribution hierarchy. Despite being allowed to attend CoC meetings (if their dues exceed 10%), OCs remain without voting rights. 49 In conclusion, although the IBC has evolved, OCs continue to face systemic limitations compared to FCs, especially under Section 53. Shareholders Shareholders are the last to receive payouts during asset distribution, with preference shareholders prioritized over equity shareholders. This ensures creditors' interests are addressed first. In EPC Constructions India Ltd. v. M/s Matix Fertilizer and Chemicals Ltd.
,50 the NCLT Kolkata clarified that preference shareholders are investors, not financial creditors. Preference shares grant priority over equity holders for dividends and capital during liquidation but do not constitute debt. As per Section 55 of the Companies Act, 2013, redemption only arises from profits or fresh issues, and until then, unpaid amounts cannot be treated as financial debt under IBC Sections 3(11) and 3(12). Enhancing the Indian Insolvency Waterfall Mechanism: Learning from Global Best Practices The Insolvency and Bankruptcy Code (IBC), 2016, has transformed India’s insolvency framework by introducing a structured waterfall mechanism for asset distribution. However, challenges persist—particularly regarding the treatment of unsecured and operational creditors, valuation transparency, and timely resolution.
Various jurisdictions around the world have implemented innovative practices aimed at improving fairness and efficiency in insolvency proceedings. This article examines five such practices and discusses how they could be adapted to enhance the Indian waterfall mechanism.
48 Insolvency and Bankruptcy Code 2016, s 30(2)(b).
49 Insolvency and Bankruptcy Code 2016, s 24
50 EPC Constructions India Limited v. M/s Matix Fertilizer and Chemicals Limited, (2023) ibclaw.in 598
1. Ring-Fencing a Prescribed Part for Unsecured Creditors
Practice in Other Jurisdictions: In the United Kingdom, the Insolvency Act includes the concept of a “prescribed part” of the assets from a floating charge. 51 Under this system, a fixed percentage of the debtor’s realizable assets is reserved exclusively for unsecured creditors. This ensures that, regardless of the recovery from secured creditors, unsecured creditors receive a minimum share of proceeds. The “prescribed part” is designed to balance the inherent risk of lending without collateral, encouraging more participation in the unsecured market. 52 Incorporation into Indian Mechanism: To strengthen the protection afforded to unsecured creditors in India, a “prescribed part” could be introduced into the IBC framework.
This would involve legislating a rule that mandates a fixed percentage (for example, 10–20% of the debtor’s non-secured assets) be set aside exclusively for unsecured creditors before any distribution to secured creditors or higherpriority claims. The benefits include: • Greater Certainty: Unsecured creditors would have a statutory guarantee of minimum recovery, reducing their risk in lending without collateral. • Stimulating Unsecured Financing: With improved recovery prospects, banks and financial institutions might be more willing to extend unsecured credit, ultimately enhancing credit availability in the market. • Reduced Litigation: With a clear reserved portion, disputes over asset distribution among unsecured creditors would diminish, expediting the liquidation process.
2. Enhanced Representation and Voting Rights for Operational Creditors
Practice in Other Jurisdictions:
51 Insolvency Act 1986, s 176A
52 LexisNexis, ‘The Prescribed Part under Section 176A of the Insolvency Act 1986’ (LexisNexis UK, no date) https://www.lexisnexis.co.uk/legal/guidance/the-prescribed-part-under-section-176a-of-the-insolvency-act-1986 accessed 15 April 2025.
In many advanced insolvency regimes, such as in the United States operational creditors are given a voice within the resolution process. Although U. S. Chapter 11 proceedings primarily involve financial creditors, there are special committees for unsecured operational creditors whose proposals must be considered. 53 This system not only bolsters transparency but also ensures that the interests of suppliers, vendors, and workers—often marginalized in the resolution process—are taken into account. Incorporation into Indian Mechanism: Operational creditors with 10% or more of aggregate claims can currently appoint an Authorized Representative (AR) to attend CoC meetings.
however enhancing their representation could involve: • Granting Limited Voting Rights: If a class of operational creditors is impaired (meaning they will receive less than full recovery in the resolution plan), they should be allowed to vote on restructuring proposals. If their collective claims exceed 25% of total claims, they should have weighted voting rights on key matters impacting their recovery. Operational creditors who are fully repaid under the resolution plan should be deemed to accept the plan without voting, similar to the U. S. model. • Cramdown Mechanism for Dissenting Creditors: If operational creditors reject a resolution plan, the Indian judiciary could adopt a cramdown provision ensuring that dissenting creditors receive a fair and equitable treatment, even if the plan is confirmed. Implementing these changes requires a careful legislative balancing act.
Amendments to the IBC could be proposed to explicitly outline the rights of operational creditors, ensuring their interests are considered without diluting the overall efficiency of the insolvency process.
3. Flexible Restructuring Plans with Creditor-Specific Solutions
Practice in Other Jurisdictions: A Company Voluntary Arrangement (CVA) is a formal insolvency procedure that allows a
53 11 U.S.C. §§ 1102, 1103
financially distressed company to negotiate a legally binding agreement with its creditors to repay debts over time while continuing operations. It is widely used in the United Kingdom and has proven effective in preventing unnecessary liquidations. It requires 75% creditor approval for implementation and allows directors to retain control of the company while repaying debts. 54 Incorporation into Indian Mechanism: India’s IBC resolution process could benefit from incorporating more flexibility into its restructuring plans by: • Allowing Customized Recovery Packages: Amend the IBC to allow for restructuring plans that provide differentiated treatment for various creditor classes, rather than a uniform waterfall that may not capture the nuances of each creditor’s risk exposure.
• Independent Debt Restructuring Committees: Establish an independent body comprising financial experts and creditor representatives to facilitate structured repayment agreements for distressed companies. • Mandatory Creditor Negotiation Before Liquidation: Require debtors to negotiate repayment schedules with creditors before opting for liquidation. Ensure unsecured and operational creditors are part of the discussion. • Designing Hybrid Models: Consider models that merge resolution and liquidation processes to maximize recovery and preserve as much of the enterprise value as possible. • Facilitating Negotiation with Pre-Set Mediation Panels: Involve mediation panels early in the process to facilitate better negotiations among differing creditor groups, thereby streamlining the drafting of bespoke restructuring solutions.
By tailoring recovery to reflect the actual risk and investment profile of each creditor category, India can achieve outcomes that are both economically efficient and more equitable, enhancing overall stakeholder satisfaction
54 UK Government, 'Company Voluntary Arrangements' (Gov.uk, last updated 2024)
accessed 15 April 2025.
Conclusion The waterfall mechanism enshrined in Section 53 of the Insolvency and Bankruptcy Code, 2016, is a critical legal tool that determines the priority of claims during liquidation. While its design promotes predictability, financial discipline, and credit market efficiency, this research highlights its inherent inequities and evolving complexities. The prioritization of secured creditors, although grounded in economic rationale and global norms, often sidelines other vital stakeholders—particularly operational creditors, employees, government authorities, and unsecured lenders—who play indispensable roles in sustaining enterprise value and economic stability. The mechanism’s rigid hierarchy fails to account for the diverse nature of stakeholder contributions and the socio-economic consequences of exclusion or inadequate recovery.
Employees and workmen, despite being somewhat prioritized, face limitations when statutory funds are not maintained. Government dues, once privileged, now find themselves on equal footing with residual secured debts, reflecting a deliberate policy shift to promote private sector lending. Meanwhile, operational and unsecured creditors, especially MSMEs and homebuyers, continue to face systemic disadvantages, with minimal real recovery and limited involvement in insolvency proceedings. Judicial pronouncements have further complicated the landscape. Conflicting rulings on the inter se priority among secured creditors and the secured status of statutory dues have generated legal uncertainty. Procedural delays and value deterioration disproportionately affect stakeholders lower in the priority chain, undermining the very efficiency the Code seeks to uphold.
To remedy these structural gaps, the incorporation of global best practices is imperative. This includes reserving a fixed asset percentage for unsecured creditors (as in the UK), enhancing operational creditor representation and voting rights (as in the US), and permitting more flexible, creditor-specific restructuring plans (as seen in Singapore and the UK). These reforms can ensure that the IBC evolves into a more inclusive, equitable, and effective insolvency framework. In sum, while Section 53 has laid a solid foundation for liquidation priority, a recalibration is essential to ensure the law balances economic logic with social justice. Only then can India’s insolvency regime deliver on its dual promise of value maximization and fair distribution.