How Does Withdrawal of a CIRP Work Under Section 12A?

Section 12A of the Insolvency and Bankruptcy Code, 2016, inserted by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, allows the National Company Law Tribunal to permit withdrawal of an admitted corporate insolvency resolution process, but only where the applicant creditor and at least ninety percent of the Committee of Creditors by voting share agree. That threshold is the highest consent requirement anywhere in the Code, since other creditors and stakeholders also have an interest once the process has begun. This article examines the withdrawal procedure under Regulation 30A, the scope of the Tribunal's discretion once the threshold is met, and the judicial trends emerging from withdrawal applications.

The Statutory Text and Regulation 30A

Section 12A provides that the NCLT may allow withdrawal of an application admitted under Section 7, 9, or 10 on the application of the applicant, with the prior approval of 90% of the voting share of the Committee of Creditors. The operative word is 'may': withdrawal is not a right but a discretionary power exercisable by the NCLT on specified conditions. The procedure for applying for withdrawal is governed by Regulation 30A of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Under Regulation 30A, an application for withdrawal may be submitted to the Resolution Professional before or after the constitution of the CoC. If submitted before the CoC is constituted, the RP places it before the NCLT immediately. If submitted after CoC constitution, the RP places the application before the CoC within three days of receipt, and the CoC must vote on it within seven days. If the CoC approves the withdrawal by 90% voting share, the RP files an application with the NCLT for approval. If the CoC does not achieve the 90% threshold, the application fails at that stage.

Who May Apply for Withdrawal Under Section 12A?

Section 12A specifies that the application must be made by 'the applicant': the party who originally filed the insolvency petition under Section 7, 9, or 10. This means the applicant is the financial creditor, operational creditor, or corporate debtor who initiated the CIRP, as the case may be. A non-applicant creditor (including a financial creditor admitted to the CoC after the CIRP commenced) cannot independently move for withdrawal under Section 12A, though such a creditor's vote within the CoC is determinative of whether the 90% threshold is met.

The requirement that the original applicant seek withdrawal creates practical complications. Where the original applicant creditor has assigned its debt to a third party, or where the original applicant is a financial institution that has been amalgamated or restructured, the identity of the 'applicant' for Section 12A purposes may itself be contested. Practitioners should address this issue at the time of any assignment or restructuring of the creditor's position.

Why Is the Withdrawal Consent Threshold Set at Ninety Percent?

The 90% threshold for CoC approval of a withdrawal is the most restrictive voting requirement in the IBC. CIRP decisions ordinarily require 66% (for resolution plans), 75% (for certain procedural matters), or 51% (routine committee decisions). The 90% floor for withdrawal reflects a specific legislative concern: once CIRP commences, other creditors (including operational creditors not on the CoC, homebuyers, and employees) have interests in the process continuing to a resolution. Withdrawal at the behest of a single creditor who has settled privately with the corporate debtor could deprive other stakeholders of their claims.

The high threshold also serves to prevent collusive withdrawals in which the controlling promoter arranges settlement with the largest creditor to derail the CIRP and recover control of the company, bypassing the competitive resolution plan process. The Supreme Court in Swiss Ribbons Pvt. Ltd. v. Union of India [(2019) 4 SCC 17] acknowledged the rationale for stringent consent thresholds in the IBC, observing that the Code's overarching objective is maximisation of asset value for all creditors, and not merely the bilateral resolution of a dispute between the applicant creditor and the corporate debtor.

The NCLT's Role: Discretion After 90% CoC Approval

CoC approval at 90% is a prerequisite for withdrawal but not sufficient by itself. The NCLT retains discretion under Section 12A to allow or decline the withdrawal even after CoC approval. In practice, NCLT benches have declined to approve withdrawal where the proposed settlement does not account for all creditors, where the withdrawal appears designed to restore control to a disqualified promoter, or where operational creditors and workmen whose claims are not on the CoC would be left without recourse.

The NCLT's discretion has generated tension with the CoC's commercial judgment. Courts have generally held that where the CoC, exercising its commercial wisdom, has approved a withdrawal by 90%, the NCLT should not substitute its own assessment of the wisdom of the settlement. However, the NCLT retains the power to reject a withdrawal that is contrary to law, violates the rights of creditors not represented on the CoC, or amounts to an abuse of the insolvency process.

Withdrawal Before and After the 30-Day Window

The IBC's public announcement mechanism under Section 13 and Regulation 6 of the IBBI Regulations triggers a 30-day window for submission of claims. An application for withdrawal submitted before the constitution of the CoC (effectively before the full creditor universe is assembled) raises different considerations from a withdrawal sought after the CoC is constituted and the CIRP is well advanced.

Stage of Withdrawal	Procedure	Practical Consideration
Before CoC constitution	RP files directly with NCLT	Simpler; fewer creditors involved; risk of unidentified creditors being left out
After CoC constitution, before 90 days	CoC vote required (90%); RP files with NCLT	Creditor landscape known; easier to structure settlement covering all claims
After 90 days (extension period)	CoC vote required (90%); NCLT scrutiny heightened	Process advanced; courts examine settlement terms more carefully
After resolution plan submitted	Practically very difficult; NCLT unlikely to allow	Value destruction argument from competing resolution applicants

Judicial Trends in Section 12A Applications

Several recurring themes emerge from NCLTs and the NCLAT in Section 12A proceedings:

Operational Creditor Rights in Withdrawal Applications

Operational creditors are not members of the CoC and therefore do not vote on withdrawal applications. NCLTs have increasingly required that withdrawal applications demonstrate that the settlement between the applicant and the corporate debtor addresses operational creditor dues, at least to the extent of their admitted claims. A withdrawal that leaves operational creditors without any mechanism for recovery has been viewed with scepticism by some benches.

Can Section 12A Withdrawal Be Used to Restore Promoter Control?

A recurring concern in Section 12A jurisprudence is the use of withdrawal to restore promoter control over the corporate debtor. Where the proposed settlement involves the promoter repaying the applicant creditor privately and then seeking withdrawal, NCLTs have assessed whether Section 29A would bar the promoter from participating in the post-withdrawal corporate structure. The Section 12A withdrawal mechanism, if used to restore a Section 29A-disqualified promoter to management without completing the CIRP process, would frustrate the legislative design.

Multiple Applicants and Partial Withdrawal

Where the CIRP was initiated by multiple creditors (or where multiple applications were clubbed for hearing), the question arises whether settlement with one applicant can constitute grounds for withdrawal by that applicant alone, leaving the others' applications pending. Courts have generally taken the position that Section 12A contemplates withdrawal of the admitted application as a whole, not partial withdrawal by one of several applicants. Practitioners should structure multi-creditor settlements with this in mind.

Frequently Asked Questions

Can a Section 12A withdrawal application be filed at any stage of CIRP?

Yes. Regulation 30A permits withdrawal applications before or after CoC constitution. The procedure differs depending on the stage, but there is no statutory bar on timing. In practice, withdrawal becomes progressively more difficult as the CIRP advances, and NCLTs scrutinise late-stage withdrawals more carefully.

What happens if the CoC does not achieve 90% approval?

If the CoC does not approve the withdrawal by 90% of voting share, the application fails and the CIRP continues. The applicant creditor may, however, approach the NCLT directly by invoking its inherent powers under Rule 11 of the NCLT Rules, 2016, which courts have used in exceptional circumstances where the interests of justice require withdrawal notwithstanding the failure to achieve the 90% threshold.

Can the NCLT allow withdrawal under Article 142 of the Constitution?

The Supreme Court has invoked its powers under Article 142 of the Constitution to allow CIRP withdrawal in cases where strict application of the 90% threshold would produce an unjust outcome. This power is available only to the Supreme Court and cannot be exercised by the NCLT or NCLAT. Parties seeking withdrawal below the 90% threshold must approach the Supreme Court directly if they rely on Article 142.

Does withdrawal under Section 12A discharge all CIRP-related orders?

Withdrawal of the CIRP under Section 12A reverses the commencement of insolvency proceedings and terminates the moratorium, the CoC, and the RP's appointment. Orders passed during the CIRP period (including avoidance transaction orders and directions regarding asset management) are typically addressed in the withdrawal order itself. Practitioners should ensure the NCLT's withdrawal order addresses the status of any such orders before implementation.

Is there a limitation period for filing a Section 12A application?

There is no express statutory limitation period for Section 12A applications. However, the NCLT has found that applications filed at very late stages of the CIRP (after a resolution plan has been approved or submitted) are unlikely to be entertained. The practical limitation is the stage of the CIRP at the time of filing.

Can operational creditors block a Section 12A withdrawal application?

Operational creditors do not sit on the Committee of Creditors and cannot vote on a withdrawal application, but the National Company Law Tribunal has increasingly required that the underlying settlement address their admitted dues before approving withdrawal, so an unaddressed operational creditor claim can still influence the outcome even without a formal vote.

Can withdrawal be sought after a resolution plan has already been submitted to the NCLT?

It becomes considerably more difficult. Once a resolution plan has been submitted, and particularly once it has been approved, the National Company Law Tribunal is unlikely to permit withdrawal, since competing resolution applicants and the Committee of Creditors have already invested in the plan process, and withdrawal at that stage risks destroying the value that process has created.

Does the 90% threshold apply to the number of creditors or their voting share?

The ninety percent threshold under Section 12A is measured by voting share in the Committee of Creditors, which is based on the value of each creditor's admitted financial debt, not by a simple headcount of creditors. A small number of creditors holding a large proportion of the debt can therefore satisfy the threshold even if numerically outnumbered by dissenting creditors.

Does the Insolvency and Bankruptcy Board of India approve individual Section 12A withdrawals?

No. The Insolvency and Bankruptcy Board of India frames the regulations, including Regulation 30A, that govern the withdrawal procedure, but the decision to permit or refuse withdrawal in a specific case rests with the National Company Law Tribunal, following approval by ninety percent of the Committee of Creditors' voting share. The Board has no case-specific approval role.

Who bears the CIRP costs when a withdrawal is allowed?

The applicant seeking withdrawal is ordinarily required to account for the insolvency resolution process costs incurred up to that point, and the National Company Law Tribunal will expect to see that the resolution professional's fees and expenses have been provided for before permitting withdrawal. A withdrawal application that is silent on costs commonly attracts an adjournment rather than an order, and the omission is easily avoided by dealing with it in the application itself.

Must the settlement terms behind a withdrawal be disclosed?

The committee of creditors votes on withdrawal with knowledge of the proposed settlement, and the tribunal will want to understand the basis on which the ninety percent threshold was achieved. Settlements that favour some creditors over others within the same class attract the closest scrutiny, because the withdrawal mechanism is not intended as a route to preferential treatment outside the resolution framework the Code establishes.

Can a company whose CIRP was withdrawn be taken back into insolvency later?

Yes. Withdrawal ends that particular process; it confers no immunity. If the settlement supporting the withdrawal is not honoured, or a fresh default occurs, a creditor may file again, subject to the ordinary requirements of Section 7 or Section 9 of the Insolvency and Bankruptcy Code, 2016. Settlement agreements accompanying a withdrawal frequently provide expressly for what is to happen on default for exactly this reason.

What is the resolution professional's role in a Section 12A application?

Once the corporate debtor is in CIRP the application is filed through the resolution professional, who places it before the committee of creditors and reports the voting result to the tribunal. The professional is not the decision-maker on the merits of the settlement, but the application does not reach the tribunal properly without travelling that route, which is why applicants who approach the tribunal directly are usually sent back to do it correctly.

Vikrant D. Shetty | Vikrant D. Shetty leads the Insolvency and Arbitration Practice at Mumbai-based law firm Vikrant D. Shetty & Associates, Advocates & Solicitors. The firm advises financial creditors, operational creditors, and corporate debtors in proceedings before the National Company Law Tribunal (NCLT), Mumbai Bench, and represents parties in domestic and international commercial arbitrations seated in India and abroad, including enforcement and challenge proceedings before the Bombay High Court.

Related reading: Can Contracts Be Entered Into During a CIRP?.

This article is for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please seek direct consultation with an advocate.