When the liquidity index (LI) of soil is greater than 1, it indicates that the soil is in a liquid state. The liquidity index is a measure of the consistency of soil and is calculated as the ratio of the difference between the natural water content and the plastic limit to the difference between the liquid limit and the plastic limit. A liquidity index greater than 1 signifies that the water content of the soil is higher than the plastic limit, causing it to behave like a liquid.

Here is a detailed explanation of why the correct answer is option 'D' - Soil is in a liquid state:

1. Liquidity Index (LI):
The liquidity index (LI) is calculated using the following formula:
LI = (w - wp) / (LL - wp)
where:
w = natural water content of the soil sample
wp = plastic limit of the soil sample
LL = liquid limit of the soil sample

2. Plastic State:
In the plastic state, the soil has a relatively high water content, but it still retains its shape when molded. The plastic limit is the water content at which the soil starts to exhibit plastic behavior. So, when the liquidity index is greater than 1, it means that the water content (w) is higher than the plastic limit (wp).

3. Liquid State:
When the liquidity index is greater than 1, it signifies that the water content of the soil is higher than the plastic limit. This excess water causes the soil particles to lose their inter-particle cohesion, resulting in a loss of shear strength. The soil behaves like a liquid under these conditions, flowing and deforming easily.

4. Semi-Solid and Solid States:
On the other hand, when the liquidity index is less than or equal to 1, it indicates that the soil is in a semi-solid or solid state. In the semi-solid state, the soil has a lower water content than the plastic limit, making it stiffer and less deformable. In the solid state, the soil has an even lower water content, leading to a rigid and non-deformable behavior.

In conclusion, when the liquidity index is greater than 1, it signifies that the soil is in a liquid state. This means that the water content of the soil is higher than the plastic limit, causing the soil to behave like a liquid and lose its shear strength.