Just out of curiosity.

Assuming that I have dropped my instance by mistake is it possible to restore it back? (Ofcourse I have not removed the sqllib & its sub-directory)

which command
if db2idrop has been used, sqllib will be removed from instance owner homedir
the database is not lost..
db2icrt ... to create the instance again
db2 catalog db on /xxx/xx wherever the db was created initially
Hope this will help

oh, If I use db2idrop will it remove the folder as well. Thanks for alerting me about it. That solves lot of my questions. So the bottom line is if I use db2idrop and drop the instance then it cant be restored back. Am I right ?

If you drop an instance, the instance is gone, but the databases are still there. The instance is basically the DB2 code (or symbolic links to the DB2 install directory) along with a catalog of included databases.

So you would recreate the instance and catalog the existing database to the new instance.

May you could practice with a new instance that you drop.