Section 12A IBC: Withdrawal of CIRP and the 90 Per Cent Rule

Many insolvency applications end in settlement: the promoters pay the applicant, and the applicant no longer wishes to proceed. But once an application is admitted, the process belongs to all creditors, not only the one who filed. Section 12A, inserted in 2018, reconciles these interests by allowing withdrawal after admission only with the approval of 90 per cent of the committee of creditors. This note explains the stages at which withdrawal is possible, the procedure, the leading cases and the 2026 changes.

1. Withdrawal at Each Stage

Figure 1: Withdrawal at each stage of the process

• Before admission. Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 allows the NCLT to permit withdrawal of an application on a request by the applicant before its admission.
• After admission. Once admitted, the CIRP is a collective proceeding, and the original applicant cannot end it alone by settling its own claim.

2. The Problem before 2018

• Lokhandwala Kataria Construction v Nisus Finance, 2017. The NCLAT held that it had no power to allow withdrawal of an admitted application, and the Supreme Court, on appeal, used its powers under Article 142 to permit withdrawal following a settlement.
• Uttara Foods and Feeds v Mona Pharmachem, 2017. The Supreme Court again allowed withdrawal under Article 142 after the parties settled, observing that the NCLT should be given the power to allow withdrawal so that parties need not come to the Supreme Court each time.
• Insolvency Law Committee. Its report of March 2018 recommended a statutory route for withdrawal with the approval of 90 per cent of the committee of creditors.

3. Section 12A

• Text. The NCLT may allow the withdrawal of an application admitted under section 7, 9 or 10, on an application made by the applicant with the approval of 90 per cent voting share of the committee of creditors, in such manner as may be specified.
• Insertion. By the 2018 amendment, effective from 6 June 2018.
• Regulation 30A. The CIRP Regulations require the application to be made through the interim resolution professional or resolution professional, who places it before the CoC, and the applicant must provide for the costs incurred in the process, usually by a bank guarantee.
• Who applies. The original applicant, not the corporate debtor or its promoters on their own, though in practice the promoters' settlement is what prompts the application.

4. Swiss Ribbons v Union of India, 2019

• Validity. The 90 per cent threshold is valid: once admitted, the process is in rem and affects all creditors, so the decision to end it should be taken by almost all of them.
• Before the CoC is formed. Where the CoC has not yet been constituted, a party may approach the NCLT directly, which may allow or disallow withdrawal under its inherent powers in Rule 11 of the NCLT Rules, 2016, after hearing the parties.
• Arbitrary refusal. The CoC does not have the last word; if it arbitrarily rejects a just settlement, the NCLT and NCLAT may set aside its decision.
• Timing. The Court observed that the stipulation in Regulation 30A that withdrawal should be sought before the issue of an invitation for expressions of interest was directory, and could be relaxed in exceptional cases, a view also taken in Brilliant Alloys v S. Rajagopal (2018)

5. Vallal RCK v Siva Industries and Holdings, 2022

The CoC, by more than 90 per cent, approved a settlement proposal by the promoter and the withdrawal of the CIRP, but the NCLT and NCLAT refused withdrawal and ordered liquidation. The Supreme Court set aside those orders, holding that when the CoC has taken a commercial decision by the required majority, the tribunals should not sit in appeal over its commercial wisdom, and that the Code's objective of resolution was served by the settlement.

Figure 2: Leading cases on withdrawal

6. The 2026 Amendment

• Cut-off. Withdrawal is barred once the first invitation for resolution plans has been issued, putting the earlier regulatory timing rule on a statutory footing and removing the flexibility allowed by Swiss Ribbons.
• Approval. The 90 per cent approval of the CoC remains necessary.
• Timeline. The NCLT must dispose of an application for withdrawal within thirty days, recording reasons for any delay.
• Reason. Late withdrawals after bidders have spent time and money on due diligence discouraged resolution applicants and were often used by promoters to regain control after seeing the bids.

7. Effect of Withdrawal

• Process ends. The moratorium lapses, the board of directors is restored and the resolution professional is discharged.
• Debts survive. Debts of creditors who were not part of the settlement remain payable, and they may pursue their own remedies.
• Fresh process. A later default can found a fresh application; section 11 is generally not regarded as a bar, since a withdrawn process is not a completed CIRP in the sense of that section, though the NCLT will watch for abuse.

8. Frequently Asked Questions

Can an operational creditor withdraw its application after admission if it is paid in full?

Only with the NCLT's permission. If the CoC has not been constituted, the NCLT may allow it under Rule 11; once the CoC exists, section 12A requires the approval of 90 per cent of its voting share.

Can the NCLT refuse withdrawal approved by 90 per cent of the CoC?

Ordinarily not. In Vallal RCK (2022), the Supreme Court held that the tribunals should respect the commercial wisdom of the CoC in approving a settlement and withdrawal.

Can a CIRP be withdrawn after bids have been invited?

Not after the 2026 Amendment, which bars withdrawal once the first invitation for resolution plans has been issued.

Who bears the costs of the process when it is withdrawn?

The applicant seeking withdrawal must provide for the insolvency resolution process costs incurred so far, usually by a bank guarantee furnished with the application under Regulation 30A.

What happens to the debts of other creditors after withdrawal?

They remain payable. Withdrawal ends the collective process, not the liabilities of the corporate debtor, and other creditors may pursue their own remedies, including a fresh application on a later default.

9. Related Topics

• Topic 25: Committee of Creditors. Constitution and voting.
• Topic 28: Commercial Wisdom of the CoC. Judicial deference.
• Topic 45: Implementation, Withdrawal and Failure of Plans. Withdrawal by resolution applicants.