Withdrawing from Voluntary Liquidation: When and How to Do It

11 October 2023 • Shivam Khanna


Withdrawing from Voluntary Liquidation: When and How to Do It

11 October 2023 • Shivam Khanna

The Voluntary Liquidation (VL) process in India was introduced to streamline business closure, aligning with the Government of India’s objective of facilitating ‘ease of doing business.’ Despite this, there are situations post-commencement of VL where factors such as regulatory amendments, new government policies, or changes in market dynamics necessitate a business to reconsider its decision to liquidate. However, the absence of direct provisions under the Insolvency and Bankruptcy Code and Companies Act raises a pivotal question: Can a company withdraw from VL after initiation, and if so, what are the permissible stages for such withdrawal?

In this article, we delve into these questions seeking to unravel possible interpretations and provide insightful answers.


Recognizing the need for a withdrawal option, the Insolvency and Bankruptcy Board of India (IBBI) issued a discussion paper for public comments on 24th November 2020. This paper proposed a new regulation (4A) under the Voluntary Liquidation Regulations, 2017. This regulation outlines the conditions under which withdrawal from the liquidation process is permissible, subject to Adjudicating Authority approval.

‘’4A. Withdrawal from Liquidation Process

(1) Where the process of sale of assets of the corporate person has not been initiated, the members, partners or the contributories, as the case may be, of the corporate person may resolve to withdraw from the process by passing a resolution with a special majority.

Provided that where the corporate person owes any debt to any person, creditors representing two-thirds in value of the debt of the corporate person shall approve the resolution passed under the sub-regulation within seven days of such resolution.

(2) For processes, other than sub-regulation (1) above, the members, partners or the contributories, as the case may be, of the corporate person may resolve to withdraw from the process by passing a resolution with a special majority after the said resolution is either approved by all unpaid creditors or dues of all unpaid creditors have been settled.

(3) The liquidator shall submit an application to the Adjudicating Authority for withdrawal from the process along with a statement that –

(a) due process for withdrawal of voluntary liquidation process has been followed;

(b) the withdrawal process is not initiated to defraud any person and the corporate person is solvent.

(4) After the application to withdraw from the process is approved by the Adjudicating Authority, the liquidator shall forward the copy of the order of Adjudicating Authority to the corporate person and the Board.”


In the context of voluntary liquidation in India, the Adjudicating Authority (AA) assumes a minor role, distinct from the liquidation procedure. Notably, the AA normally remains uninvolved during the initiation of voluntary liquidation till completion of liquidation and filing of dissolution petition before the AA, a divergence from the post CIRP Liquidation process. The AA’s participation becomes essential only under specific circumstances.

Firstly, the AA’s involvement arises when the affairs of the Corporate Person (CP) have been concluded. In such instances, where the CP’s assets have been entirely liquidated and its affairs completely wound up, the liquidator submits a formal application to the AA, initiating the CP’s dissolution process.

Secondly, the AA steps in when there are concerns about the genuineness of the liquidation process. If the liquidator suspects fraudulent intent or questions the CP’s solvency, where it cannot fully pay its debts from the asset proceeds, the liquidator can approach the AA. This approach aims to suspend the ongoing liquidation process, preventing potential fraud and ensuring equitable treatment for creditors.


The proposed amendment by insertion of new Regulation 4A in the Voluntary Liquidation Regulations as contained in the IBBI Discussion Paper has still not been effected, so there are no provisions covering withdrawal as on date.

Up until October 2020, eight voluntary liquidation processes were withdrawn, suspended, or cancelled. The specifics of these cases are detailed in the discussion paper.

In 2023, notable cases such as M/s Biocad India Pvt Ltd vs. ROC Karnataka and Shawn Johny Mathew & Anr vs. Omprakash Joshi showcased successful withdrawal petitions under section 60(5) of the IBC 2016, where the National Company Law Tribunal (NCLT) accepted the withdrawal pleas.


Considering the legal developments under the Insolvency and Bankruptcy Code (IBC) 2016, the Adjudicating Authority (AA) permits the withdrawal of the Voluntary Liquidation (VL) process for corporate debtors, adhering to specific conditions. These conditions include no objections and agreement among stakeholders – the Voluntary Liquidator, any member, or creditors – indicating a collective decision for withdrawal.

Additionally, a special resolution for withdrawal must be passed, emphasizing the formal consent of the majority. Crucially, if assets are unsold, approval from all creditors is mandatory, or alternatively, approval from the unpaid creditor. Further, these consents and approvals should also cover the professional fees of the Liquidator.

Furthermore, it is imperative to note that the National Company Law Tribunal (NCLT) should find no objection to these withdrawal requests, given the overall objectives of the IBC 2016. The primary aim of the IBC is to prioritize the revival or rehabilitation of the corporate debtor. Therefore, withdrawal decisions aligning with these objectives should be viewed favourably by the NCLT, emphasizing the need for a practical approach in cases where the corporate debtor’s revival prospects are feasible.

This meticulous consideration of withdrawal criteria which should spell out how the withdrawal will be in the interest of the stakeholders, in line with the IBC’s objectives, ensures that the process remains fair, transparent, and aligned with the core principles of corporate rehabilitation. It underlines the importance of stakeholder agreement and NCLT’s judgement, supporting the IBC’s aim of fostering a healthier corporate ecosystem. Based on this narration, we can also conclude that the withdrawal application should be filed before distribution of proceeds and closure of liquidation bank account as part of the liquidation completion process to add substance to the criteria.


In the event of withdrawal, mutual agreement between the corporate debtor and the liquidator is crucial before applying for withdrawal. The liquidator initiates the withdrawal petition, ensuring there are no objections and that the liquidator’s professional fees are settled as may be decided mutually.

Subsequently, the liquidator submits the petition to the National Company Law Tribunal (NCLT) and advocates for the withdrawal of the Voluntary Liquidation (VL) process. To support the plea, the liquidator demonstrates the company’s potential for revival, along with confirming compliance and fulfilment of all necessary conditions.


Recent cases demonstrate the feasibility of withdrawal from VL, contingent on certain conditions. Unanimous agreement among members, non-objection from creditors, and a special resolution for withdrawal are imperative with a definitive understanding with the Liquidator. Significantly, the AA considers withdrawal pleas under section 60(5) of the IBC 2016, provided there are viable revival prospects and no objection from creditors, members, or the liquidator.

In essence, the ability to withdraw from voluntary liquidation adds a layer of flexibility to the process, acknowledging the dynamic nature of businesses and the need for adaptive legal frameworks.

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