Sections 38 to 42 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Sections 38 to 42 take a creditor's claim in liquidation from filing to appeal: file with the liquidator within thirty days, have it verified, have it admitted or rejected, have it valued, and appeal to the Adjudicating Authority if aggrieved. This article explains the five sections as printed in the IBBI consolidated text of the Code amended up to 12 August 2021. The Insolvency and Bankruptcy Code (Amendment) Act, 2026 omits all five from a date to be notified, and keeps them for liquidations begun on and before its commencement.
The liquidator receives claims within thirty days of the start of liquidation (s.38), verifies them (s.39), admits or rejects them in whole or part, with reasons in writing for rejection, and tells the creditor and the corporate debtor within seven days (s.40), values admitted claims (s.41), and a creditor may appeal to the Adjudicating Authority within fourteen days of the decision (s.42). The 2026 Act omits these sections from a date to be notified and saves them for earlier liquidations.
Section 38: consolidation of claims
| Sub-section | Rule |
|---|---|
| (1) | The liquidator shall receive or collect the claims of creditors within a period of thirty days from the date of the commencement of the liquidation process |
| (2) | A financial creditor may submit a claim by providing a record of such claim with an information utility. If the information is not recorded there, the financial creditor may submit the claim in the same manner as the operational creditor under sub-section (3) |
| (3) | An operational creditor may submit a claim to the liquidator in such form and manner and with such supporting documents as may be specified by the Board |
| (4) | A creditor who is partly financial and partly operational submits claims to the extent of the financial debt under (2) and the operational debt under (3) |
| (5) | A creditor may withdraw or vary his claim within fourteen days of its submission |
The thirty-day period runs from the "date of the commencement of the liquidation process", which section 5(17) calls the "liquidation commencement date": the date on which proceedings for liquidation commence in accordance with section 33 or section 59. See our article on section 5(12) onwards. A creditor who may be late or unsure whether a claim sits in sub-section (2) or (3) can seek a recovery suit assessment before choosing between claiming in the liquidation and pursuing the debt directly.
Section 39: verification of claims
The text prints the heading as "39.Verification of claims.-" with no space; it is a printing slip and is noted, not corrected. Sub-section (1): the liquidator "shall verify the claims submitted under section 38 within such time as specified by the Board." Sub-section (2): he may require any creditor, the corporate debtor or any other person "to produce any other document or evidence which he thinks necessary for the purpose of verifying the whole or any part of the claim." Section 37 gives him access to information systems; see the section 37 article.
Section 40: admission or rejection
Sub-section (1): the liquidator "may, after verification of claims under section 39, either admit or reject the claim, in whole or in part, as the case may be", with a proviso that where he rejects a claim "he shall record in writing the reasons for such rejection." Sub-section (2): he shall communicate his decision of admission or rejection to the creditor and the corporate debtor "within seven days of such admission or rejection of claims."
Section 41: valuation of claims
"The liquidator shall determine the value of claims admitted under section 40 in such manner as may be specified by the Board."
Section 42: appeal
"A creditor may appeal to the Adjudicating Authority against the decision of the liquidator accepting or rejecting the claims within fourteen days of the receipt of such decision." The words "accepting or" were inserted into the text by an amendment shown in its footnote.
Example. Liquidation of Khanna Paper Mills Limited commences on 1 June. A supplier submits a claim on 15 June; it may vary or withdraw the claim within fourteen days of submission, that is by 29 June. The liquidator verifies, admits the claim in part and records written reasons for rejecting the rest; he communicates the decision within seven days. The supplier has fourteen days from receipt to appeal to the Adjudicating Authority.
What the Amendment Act, 2026 does to sections 38 to 42
Section 25 of the Amendment Act, 2026 (No. 6 of 2026) reads: "Sections 38, 39, 40, 41 and 42 of the principal Act shall be omitted." The omission takes effect on the date the Central Government notifies; the notification is not in the texts consulted, so check whether it has been notified.
The Act prints a saving in the Explanation inserted at the end of section 35(1) by section 23 of the Act: "For the purposes of this Chapter, it is hereby declared that the provisions of clauses (a) and (j) of this sub-section and sections 38 to 42 as amended by the Insolvency and Bankruptcy Code (Amendment) Act, 2026, shall not apply to the liquidation process and voluntary liquidation process initiated on and before the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2026."
Two things need care. First, the saving speaks of sections 38 to 42 "as amended" while section 25 of the Act omits them; the two wordings cannot be reconciled from the texts, and both are quoted as printed. Second, the saving also names clauses (a) and (j) of section 35(1), as amended. Under the new clause (a), the liquidator's duty is "to maintain an updated list of claims of creditors in such manner as may be specified", and the words "invite and" go from clause (j); see the section 35 article. The text of the Act does not say what replaces the verification, admission and appeal steps for liquidations to which the omission applies; the specified manner is left to the Board.
For the wider reforms see our post on liquidation framework reforms. The Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 carry the claims procedure; the copy consulted is amended up to 22-09-2026 as printed under its title. Amendments and notifications made after 12 August 2021, other than the Amendment Act, 2026, are not in the texts consulted and should be checked.
Practical reading
- Creditors in a liquidation begun on and before commencement, read sections 38 to 42 as printed above. For later liquidations, read the Act.
- Liquidators keep the thirty-day, seven-day and fourteen-day periods straight: claims in thirty days; withdrawal or variation within fourteen days; decision communicated in seven; appeal within fourteen.
- Operational and financial creditors use different routes in sections 38(2) and 38(3).
Need help with a claim in liquidation?
Missing the thirty-day window or a defective claim can cost a creditor. A recovery suit route, a claim in the liquidation, or both may be open; our team can compare them on your documents.
Key takeaways
- Claims go to the liquidator within thirty days of the liquidation commencement; a claim can be withdrawn or varied within fourteen days of submission.
- The liquidator verifies, admits or rejects (with written reasons), and communicates within seven days.
- Appeal to the Adjudicating Authority lies within fourteen days of receipt of the decision.
- The 2026 Act omits sections 38 to 42 from a date to be notified and saves them for liquidations initiated on and before commencement.
- The saving's wording ("as amended") cannot be reconciled with the omission from the texts.
Read next
- Section 37: liquidator's access to information
- Section 35: powers and duties of the liquidator
- Section 44: orders in preferential transactions
- Liquidation under the IBC: when CIRP fails
Disclaimer: Based on the IBBI consolidated text of the Insolvency and Bankruptcy Code, 2016 amended up to 12 August 2021 and on the Insolvency and Bankruptcy Code (Amendment) Act, 2026 (No. 6 of 2026), which comes into force on the date or dates notified by the Central Government, as consulted on 2 October 2026. It explains the words of the statute only; commencement notifications, other amendments made after 12 August 2021, notified thresholds, the rules and IBBI regulations, and the way tribunals and courts apply these sections should be checked. This article is general information, not legal advice; check the official text before acting.