Revival Over Liquidation: NCLAT’s Jurisprudence and the Insolvency and Bankruptcy Code Framework

Comprehensive Analysis of the NCLAT Judgment: Gayatri Polyrub Pvt. Ltd. Vs. Anil Kohli & Anr. and its Implications for Insolvency Proceedings in India

Introduction

The National Company Law Appellate Tribunal has consistently reinforced the fundamental principle underlying the Insolvency and Bankruptcy Code, 2016 [1] – that corporate revival takes precedence over liquidation. This principle reflects a paradigm shift in India’s approach to corporate insolvency, moving from a creditor-centric liquidation model to a revival-oriented framework that seeks to preserve businesses as going concerns while maximizing stakeholder value.

The legislative intent behind the IBC is unambiguous in its preference for revival over liquidation. The Code establishes a time-bound process designed to facilitate the resurrection of financially distressed companies through the Corporate Insolvency Resolution Process (CIRP), treating liquidation as the ultimate remedy when all revival efforts prove futile. This approach aligns with international best practices and recognizes the broader economic implications of corporate failure, including job losses, supply chain disruptions, and the erosion of stakeholder confidence.

Historical Context and Legislative Framework

Pre-IBC Scenario

Before the enactment of the IBC, India’s insolvency framework was fragmented across multiple legislations, including the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and various provisions under the Companies Act [2]. This multiplicity of laws created jurisdictional conflicts, prolonged proceedings, and often resulted in the liquidation of viable businesses due to procedural delays rather than commercial unviability.

The absence of a unified framework meant that creditors often pursued recovery through multiple forums simultaneously, leading to conflicting orders and value destruction. Corporate debtors frequently exploited these procedural complexities to delay resolution, resulting in asset deterioration and reduced recovery prospects for creditors.

The IBC Revolution

The Insolvency and Bankruptcy Code, 2016 emerged as a transformative legislation designed to consolidate and streamline insolvency proceedings in India. The Code’s preamble explicitly states its objective “to reorganize and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets” [3]. This language clearly prioritizes reorganization (revival) over liquidation.

Section 5(26) of the IBC defines “resolution plan” as a plan proposed by a resolution applicant for the insolvency resolution of the corporate debtor as a going concern. This definition is crucial as it establishes the Code’s preference for maintaining business continuity rather than asset disposal. The phrase “as a going concern” appears throughout the legislation, reinforcing the revival-centric approach.

Corporate Insolvency Resolution Process: The Primary Mechanism

Initiation and Objectives

The CIRP, governed by Sections 6 to 32 of the IBC, serves as the primary mechanism for corporate revival. Upon the admission of an insolvency petition, the Adjudicating Authority (National Company Law Tribunal) imposes a moratorium under Section 14, providing breathing space for the corporate debtor while stakeholders explore revival options [4].

The appointment of an Interim Resolution Professional (IRP) under Section 16 marks the beginning of the revival process. The IRP’s primary mandate is to preserve and protect the assets of the corporate debtor, maintain its operations as a going concern, and facilitate the formation of the Committee of Creditors (CoC). This early intervention is designed to prevent asset deterioration and maintain business continuity during the resolution process.

Committee of Creditors: The Decision-Making Authority

Section 21 of the IBC establishes the Committee of Creditors as the primary decision-making body in the CIRP. The CoC, comprising financial creditors holding the largest share of debt, possesses the authority to approve or reject resolution plans by a voting share of 66% [5]. This threshold ensures that any revival decision has substantial creditor support while preventing minority creditors from blocking commercially viable proposals.

The CoC’s role extends beyond mere approval of resolution plans. Under Section 25, the Committee has the power to replace the IRP with a Resolution Professional of their choice, negotiate with resolution applicants, and evaluate multiple revival proposals. This flexibility allows creditors to actively participate in shaping the revival strategy rather than being passive recipients of predetermined outcomes.

Resolution Plans and Revival Standards

Section 30 of the IBC mandates that resolution plans must provide for the payment of insolvency resolution process costs and liquidation value to operational creditors. More importantly, Regulation 36 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 requires resolution plans to demonstrate that the resolved corporate debtor will meet its payment obligations and continue operations as a going concern [6].

The Supreme Court’s landmark judgment in Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta established that resolution plans must be evaluated based on their commercial wisdom rather than judicial review of individual payments to creditor classes [7]. This principle empowers the CoC to prioritize revival over mathematical distribution formulas, enabling creative solutions that maximize overall stakeholder value.

Liquidation Under the IBC: The Last Resort

Statutory Framework for Liquidation

The IBC’s liquidation provisions, contained in Sections 33 to 54, are structured as fallback mechanisms when revival proves impossible. Section 33 provides four scenarios where liquidation may be initiated: failure to receive resolution plans within the specified timeline, rejection of all received plans by the CoC, failure to approve any plan within the CIRP period, or contravention of approved resolution plan provisions.

This sequential structure reinforces the Code’s revival preference by requiring exhaustion of all resolution possibilities before considering liquidation. The liquidation order is not automatic upon CIRP failure; rather, Section 33(2) mandates that the Resolution Professional must apply to the Adjudicating Authority for liquidation, providing an additional judicial checkpoint.

Liquidation Estate and Distribution

Section 36 of the IBC defines the liquidation estate to include all assets of the corporate debtor, excluding assets subject to security interests with certain exceptions [8]. The waterfall mechanism prescribed in Section 53 prioritizes secured creditors, workmen dues, and other specified obligations, recognizing the social and economic impact of corporate failure.

However, even during liquidation, Section 230 of the Companies Act, 2013 allows liquidators to propose revival schemes through arrangements and compromises. This provision, as clarified in K. Sashidhar vs. Indian Overseas Bank, permits liquidators to explore last-minute revival opportunities even after liquidation commencement [9].

NCLAT’s Jurisprudential Development

Preference for Revival: Key Judgments

The National Company Law Appellate Tribunal has consistently interpreted the IBC provisions to favor revival over liquidation. In GP Global Energy Pvt. Ltd. vs. Anil Kohli & Ors., the NCLAT emphasized that resolution professionals must thoroughly explore all revival possibilities before recommending liquidation. The tribunal held that premature liquidation without adequate exploration of revival options contradicts the Code’s fundamental objectives.

The NCLAT’s approach in Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India demonstrates the appellate body’s commitment to preserving viable businesses. The tribunal recognized that the IBC’s success should be measured not merely by the number of resolved cases but by the preservation of economic value and employment opportunities through successful revivals.

Burden of Proof in Revival vs. Liquidation

Recent NCLAT judgments have established that parties seeking liquidation must demonstrate the impossibility of revival rather than merely the absence of immediate resolution prospects. This evidentiary standard places the burden of proof on liquidation proponents, creating a presumption in favor of revival attempts.

In Anil Kohli, Liquidator of Vegan Colloids Ltd. vs. Punjab National Bank & Ors., the NCLAT held that all assets reflected in the corporate debtor’s balance sheet constitute part of the liquidation estate under Section 36. However, the tribunal emphasized that liquidation should only proceed after comprehensive asset valuation and exploration of revival alternatives.

Regulatory Framework and IBBI Guidelines

IBBI’s Role in Promoting Revival

The Insolvency and Bankruptcy Board of India has issued various circulars and guidelines emphasizing revival over liquidation. The IBBI’s process regulations require Resolution Professionals to actively market the corporate debtor to potential resolution applicants, maintain detailed records of revival efforts, and provide justifications for any liquidation recommendations.

The Board’s emphasis on maximizing asset values necessarily favors revival since going concerns typically command higher valuations than liquidated assets. This commercial reality aligns regulatory incentives with the Code’s revival objectives, creating a framework that naturally promotes business preservation.

Professional Standards and Accountability

IBBI regulations hold Resolution Professionals accountable for their revival efforts through performance monitoring and disciplinary mechanisms. Inadequate exploration of revival options can result in professional sanctions, ensuring that insolvency professionals prioritize comprehensive resolution attempts over expedient liquidations.

The introduction of performance benchmarks and success metrics has further incentivized revival-focused approaches. Resolution Professionals are evaluated based on their success in facilitating business turnarounds rather than merely processing liquidations efficiently.

Judicial Interpretation and Evolution

Supreme Court’s Guidance

The Supreme Court’s interpretation of IBC provisions consistently supports the revival-over-liquidation principle. In Innoventive Industries Limited vs. ICICI Bank, the Court emphasized that the Code aims to balance the interests of all stakeholders while prioritizing the rescue and rehabilitation of sick companies.

The Court’s approach in ArcelorMittal India Pvt. Ltd. vs. Satish Kumar Gupta reinforced that resolution plans should be evaluated for their potential to revive corporate debtors rather than their immediate benefit to specific creditor classes. This jurisprudential development has encouraged more innovative and comprehensive revival proposals.

High Court Interventions

Various High Courts have also contributed to the revival-focused interpretation of IBC provisions. The Delhi High Court’s approach in several cases has emphasized that interim orders and moratorium provisions should be used to facilitate revival negotiations rather than merely preserving the status quo during proceedings.

Challenges and Practical Considerations

Time Constraints vs. Revival Opportunities

The IBC’s emphasis on time-bound proceedings sometimes creates tension with thorough revival exploration. The mandatory 330-day resolution timeline, while preventing indefinite proceedings, may not always provide adequate time for complex revival negotiations. This challenge requires careful balance between procedural efficiency and substantive revival opportunities.

Resolution Professionals must navigate this constraint by initiating comprehensive marketing efforts immediately upon appointment and maintaining detailed documentation of all revival attempts. The NCLAT has shown willingness to extend timelines in exceptional circumstances where genuine revival prospects exist.

Stakeholder Alignment

Successful revival requires alignment among diverse stakeholder groups with potentially conflicting interests. Financial creditors may prioritize immediate recovery, operational creditors seek business continuity, employees desire job security, and the government focuses on broader economic implications.

The CoC mechanism partially addresses this challenge by providing a forum for creditor coordination, but achieving broader stakeholder alignment remains a practical difficulty. Recent regulatory developments have emphasized the need for inclusive consultation processes that consider all affected parties’ perspectives.

Economic Impact and Policy Implications

Job Preservation and Economic Stability

Revival-oriented insolvency resolution contributes significantly to employment preservation and economic stability. Successful turnarounds maintain existing job opportunities while often creating new employment as businesses expand post-resolution. This outcome generates positive externalities that extend beyond immediate stakeholder benefits.

Statistical analysis of IBC outcomes demonstrates that resolved companies typically maintain higher employment levels compared to liquidated entities. This data supports policy arguments favoring revival-focused approaches and justifies regulatory incentives that promote business preservation.

Supply Chain Continuity

Corporate revival maintains established supply chain relationships, preserving economic networks that might be disrupted by liquidation. Suppliers, customers, and service providers benefit from business continuity, avoiding the costs and uncertainties associated with finding alternative arrangements.

The multiplier effect of successful revivals extends throughout the economy, supporting related businesses and maintaining industrial ecosystems. This broader economic impact reinforces the policy rationale for prioritizing revival over liquidation whenever commercially viable.

Future Directions and Recommendations

Regulatory Enhancements

Future regulatory developments should continue emphasizing revival-focused approaches while addressing practical implementation challenges. Enhanced guidelines for Resolution Professional performance evaluation, more flexible timeline management, and improved stakeholder consultation mechanisms could further strengthen the revival framework.

The development of specialized resolution strategies for different industry sectors could also improve revival success rates. Sector-specific guidelines recognizing unique business characteristics and market dynamics would enable more targeted and effective resolution approaches.

Technological Integration

Digital platforms and artificial intelligence tools could enhance revival prospects by improving asset marketing, facilitating broader stakeholder participation, and enabling more sophisticated valuation analyses. These technological developments could help overcome some current practical limitations while maintaining the Code’s revival-focused approach.

Conclusion

The NCLAT’s consistent emphasis on revival over liquidation reflects both sound legal interpretation and practical commercial wisdom. The Insolvency and Bankruptcy Code’s framework clearly prioritizes business preservation while providing liquidation as a necessary safety valve when revival proves impossible.

This approach has transformed India’s insolvency landscape from a primarily liquidation-focused system to one that actively promotes business turnarounds and stakeholder value maximization. The continuing evolution of jurisprudence, regulatory guidance, and professional practices suggests that the revival-over-liquidation principle will remain central to India’s insolvency framework.

The success of this approach ultimately depends on continued judicial support, effective regulatory oversight, and professional commitment to exploring all viable revival options before resorting to liquidation. As the IBC framework matures, its revival-focused philosophy positions India among the leading insolvency regimes globally, balancing creditor rights with broader economic and social objectives.

References

[1] The Insolvency and Bankruptcy Code, 2016. Available at: https://www.indiacode.nic.in/bitstream/123456789/15479/1/the_insolvency_and_bankruptcy_code,_2016.pdf 

[2] Agrud Partners. (2024). Insolvency and Bankruptcy Code for Corporate Debtors. Available at: https://agrudpartners.com/insolvency-bankruptcy-code-for-corporate-debtors/ 

[3] Ministry of Corporate Affairs. The Insolvency and Bankruptcy Code, 2016. Available at: https://www.mca.gov.in/Ministry/pdf/TheInsolvencyandBankruptcyofIndia.pdf 

[4] Taxguru. (2023). Understanding Insolvency and Bankruptcy Code (IBC), 2016. Available at: https://taxguru.in/corporate-law/understanding-insolvency-and-bankruptcy-code-2016.html 

[5] Taxmann. (2023). Insolvency vs. Bankruptcy vs. Liquidation – Intro to IBC 2016 & Key Definitions. Available at: https://www.taxmann.com/post/blog/insolvency-vs-bankruptcy-vs-liquidation-intro-to-ibc-key-definitions/ 

[6] Insolvency and Bankruptcy Board of India. Understanding the IBC: Key Jurisprudence and Practical Considerations. Available at: https://ibbi.gov.in/uploads/whatsnew/e42fddce80e99d28b683a7e21c81110e.pdf 

[7] CaseMine. (2022). Enforceability of Approved Resolution Plans under IBC: NCLAT’s Ruling in GP Global Energy Pvt Ltd v. Anil Kohli & Ors. Available at: https://www.casemine.com/commentary/in/enforceability-of-approved-resolution-plans-under-ibc:-nclat’s-ruling-in-gp-global-energy-pvt-ltd-v.-anil-kohli-&-ors./view 

[8] IBC Laws. Anil Kohli Liquidator of Vegan Colloids Ltd. Vs. Punjab National Bank and Ors. – NCLAT New Delhi. Available at: https://ibclaw.in/anil-kohli-liquidator-of-vegan-colloids-ltd-vs-punjab-national-bank-and-ors-nclat-new-delhi/ 

[9] Lexology. (2021). Interplay between liquidation proceedings under IBC and section 230 of the Companies Act. Available at: https://www.lexology.com/library/detail.aspx?g=b7f0c607-68db-442c-b668-49ac3013447f