National Company Law Appellate Tribunal clarifies discretionary powers of Adjudicating Authority under Section 33(1A) of IBC; emphasizes resolution over liquidation as the Code's primary objective
In a significant ruling dated October 6, 2026, the National Company Law Appellate Tribunal (NCLAT), New Delhi Principal Bench, overturned the liquidation order passed by the National Company Law Tribunal (NCLT), Mumbai Bench, in the matter of Supreme Best Value Kolhapur (Shiroli) Sangli Tollways Private Limited. The appellant, Phoenix ARC Limited, acting as the trustee of Phoenix Trust FY 22-16 and financial creditor, challenged the NCLT order which rejected a restoration application under Section 33(1A) of the Insolvency and Bankruptcy Code, 2016 (IBC) and directed liquidation of the Corporate Debtor.
The appeal arose in the context of the recently inserted Section 33(1A) of the IBC, introduced by the Insolvency and Bankruptcy Code (Amendment) Act, 2026, effective from May 26, 2026. This provision permits the Adjudicating Authority to consider an application for restoration of the Corporate Insolvency Resolution Process (CIRP), approved by not less than 66% of the Committee of Creditors (CoC), before passing a liquidation order, for a period not exceeding 120 days.
In this case, the CoC had passed a unanimous resolution with 100% voting share on July 2, 2026, seeking restoration of the CIRP after rejecting all four resolution plans and unanimously rejecting liquidation. The CoC's resolution was well within the statutory framework and was supported by substantial market interest demonstrated by multiple Expressions of Interest (EOIs) and earnest money deposits in the fresh resolution process initiated post-restoration application.
The NCLAT bench, comprising Justice Mohammad Faiz Alam Khan and Member Naresh Salecha, analyzed the scope of discretion vested in the Adjudicating Authority under Section 33(1A). The Tribunal held that unlike the approval or rejection of resolution plans under Sections 30 and 31, which admit no judicial interference with the CoC's commercial wisdom, Section 33(1A) confers a limited but real discretion on the Adjudicating Authority. However, such discretion must be exercised judicially, on cogent reasons, and aligned with the objectives of the IBC emphasizing value maximization and resolution as a first priority.
The Tribunal found that the impugned NCLT order failed to provide specific and cogent reasons to override the unanimous and carefully deliberated decision of the CoC. The NCLT's reasoning rested largely on two grounds: first, the claim that continuation of the CIRP could lead to monetization of unabsorbed losses at the cost of the Government exchequer, and second, that the Corporate Debtor's principal asset, an arbitral claim against the Public Works Department, Maharashtra, could be pursued equally in liquidation.
NCLAT rejected the first ground as conjectural and unsupported by any material on record or submissions during the proceedings. It noted that treatment of carried-forward losses is governed by tax laws and falls outside the Adjudicating Authority's jurisdiction under the IBC. Further, there was no finding of fraud or abuse of the resolution process by the CoC or Resolution Professional.
Regarding the second ground, the Tribunal observed that the mere availability of liquidation as a route to realize the arbitral claim does not justify denial of restoration. The NCLAT underscored that liquidation is a measure of last resort and that the CoC's decision to pursue restoration was based on substantial market interest, including multiple EOIs and earnest money deposits, indicating a credible prospect of resolution. The Adjudicating Authority failed to undertake any comparative assessment of timelines, costs, and potential realizable values between restoration and liquidation options.
The Tribunal also criticized the NCLT for disregarding its own earlier Extension Order dated June 2, 2026, which had extended the CIRP period based on exceptional circumstances to avoid liquidation and promote resolution. The NCLAT held that any departure from a prior considered assessment on materially similar facts requires clear reasoning, which was absent in the impugned order.
Importantly, the NCLAT emphasized that the Adjudicating Authority's order was disproportionately brief and insufficiently reasoned, especially given that it overrode a unanimous CoC resolution approved under a statutory mechanism specifically designed to enable restoration of CIRP before liquidation.
While clarifying that the Adjudicating Authority retains discretion and may order liquidation despite contrary CoC recommendations in appropriate cases based on facts and circumstances, the NCLAT found no sufficient reasons for liquidation in the present case. The Tribunal set aside the NCLT order and remitted the matter for fresh consideration in accordance with law.
This judgment reaffirms the primacy of the Committee of Creditors' commercial wisdom in the insolvency resolution process, delineates the nature of judicial discretion under the newly inserted Section 33(1A), and reiterates the legislative intent to prioritize resolution over liquidation.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 Section 33(1A) Though Adjudicating Authority retains discretion while considering CoC's application for restoration of CIRP, such discretion must be exercised judicially and on cogent reasons - Unanimous CoC decision for restoration cannot be overridden on conjectural grounds such as possible monetisation of carried-forward losses or on bare observation that arbitral claim can also be pursued in liquidation - Liquidation remains last resort.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Section 33(1A)
