Answer By law4u team
Section 12A of the Insolvency and Bankruptcy Code (IBC), 2016 allows for the withdrawal of an insolvency application even after its admission by the National Company Law Tribunal (NCLT). This provision was introduced to accommodate genuine settlements between the debtor and creditors. However, the process involves strict conditions, particularly the approval of the Committee of Creditors (CoC), to ensure transparency and prevent abuse of the insolvency framework.
Withdrawal Process Under Section 12A
1. Filing of Form FA by Applicant
The original applicant (financial creditor, operational creditor, or corporate debtor) must submit Form FA to the Resolution Professional (RP).
Form FA includes reasons for withdrawal and details of any settlement.
2. Verification by the Resolution Professional
The RP verifies the contents of Form FA and ensures that it has been filed by the original applicant.
RP may seek supporting documents such as settlement agreement or payment proof.
3. Convening CoC Meeting
The RP convenes a meeting of the Committee of Creditors (CoC).
The withdrawal proposal is placed before CoC for voting.
4. 90% CoC Approval Required
At least 90% of the voting share of CoC members must approve the withdrawal.
This high threshold is to ensure only genuine settlements are accepted.
5. Application to NCLT
After CoC approval, the RP submits the withdrawal request along with:
CoC resolution approving the withdrawal,
Verified Form FA,
Settlement details,
Other supporting documents.
6. Final Order by NCLT
NCLT reviews the application and, if satisfied, passes an order allowing withdrawal under Section 12A.
Once approved, the CIRP is terminated.
Conditions and Notes
Only the original applicant can file for withdrawal under Section 12A.
Withdrawal is not allowed after approval of a resolution plan by the NCLT.
In exceptional cases, withdrawal may be permitted by Supreme Court under Article 142, even if Section 12A cannot be applied.
Best Practices
Ensure all creditors in CoC are well-informed about the settlement.
Document the terms of settlement clearly to avoid disputes later.
Engage legal counsel for filing Form FA and preparing supporting documents.
Complete the process promptly to avoid continuation of CIRP unnecessarily.
Example
A textile company enters into CIRP after a financial creditor files an application under Section 7. Post-admission, the creditor and the company reach a full settlement.
Steps taken:
The financial creditor submits Form FA to the Resolution Professional.
The RP verifies the claim and calls a CoC meeting.
The CoC votes in favor with 92% approval.
The RP submits the application to NCLT with all documents.
The NCLT allows withdrawal under Section 12A, and the CIRP is terminated.
