NCLT Mumbai Orders Liquidation of Libra Fabric Designs After Resolution Plan Failure; CoC Decision Upheld

Key Facts and Tribunal Findings

The National Company Law Tribunal (NCLT), Mumbai Bench-III, has ordered liquidation of Libra Fabric Designs Private Limited under Section 33 of the Insolvency and Bankruptcy Code, 2016, following failure of the approved resolution plan. The Corporate Insolvency Resolution Process (CIRP) had commenced on 1 October 2024 pursuant to admission of a Section 7 application. The Committee of Creditors (CoC), comprising Pegasus Assets Reconstruction Pvt. Ltd. as the sole voting member, held 100% voting share.

During the CIRP, expressions of interest were invited and a resolution plan submitted by the promoter, Mr. Mehul Sedani, was approved by the CoC in June 2025. A Letter of Intent was issued requiring submission of performance security of ₹96.70 lakh within the stipulated timeline. The Tribunal noted that despite repeated follow-ups, the Successful Resolution Applicant (SRA) failed to deposit the balance performance security, having paid only ₹20 lakh as earnest money. The CoC, in its 12th meeting held on 5 January 2026, concluded that such non-compliance raised serious concerns regarding the feasibility and implementation of the resolution plan.

Accordingly, with 100% voting, the CoC resolved to treat the resolution plan as failed and decided to initiate liquidation proceedings under Section 33(2) of the Code. The Tribunal observed that the CoC’s decision was based on its commercial wisdom and was non-justiciable. As the resolution plan had failed due to non-compliance, the case squarely fell within the framework of Section 33.

The Tribunal ordered liquidation of the Corporate Debtor and appointed Mr. Nilesh Rajendra Kothari as the Liquidator. The earlier moratorium under Section 14 ceased, and a fresh moratorium under Section 33(5) came into effect.

Legal Analysis

The order reiterates that failure of a resolution applicant to comply with essential conditions—such as furnishing performance security—renders the resolution plan non-implementable. The Tribunal emphasized that the decision of the CoC to liquidate the corporate debtor, taken in exercise of its commercial wisdom, is not subject to judicial interference.

The ruling highlights that once a resolution plan fails before approval under Section 31, liquidation under Section 33(2) becomes the natural statutory consequence.