Settling an IBC Case Through Section 12A Withdrawal

Can an IBC case be settled and withdrawn?

Yes. The Code has always allowed settlement, and section 12A was added in 2018 specifically to let an admitted insolvency be withdrawn when the debt is settled. What the law controls is who must agree and when. The reason is simple: once a company is admitted into the corporate insolvency resolution process (CIRP), every creditor files a claim, a moratorium protects the company, and the process exists for all of them. Letting one creditor and the promoters end it privately would leave everyone else stranded.

So the answer has three parts. Before admission, the petition is still a dispute between the applicant and the company, and the applicant can withdraw it. After admission, withdrawal needs the committee of creditors, by a 90% vote, and under the 2026 amendment it can only happen in a defined window. After that window, a settlement cannot end the CIRP through section 12A at all; the company's future is decided by a resolution plan or by liquidation.

The Supreme Court has been firm about this. In Swiss Ribbons v Union of India (2019), it upheld section 12A and explained why the 90% requirement exists. In Glas Trust Company v BYJU Raveendran (2024), it set aside an NCLAT order that had approved a settlement between the company and the applicant creditor outside the section 12A route, holding that once a CIRP is admitted it is a collective proceeding and the statutory procedure for withdrawal must be followed.

Settlement routes at each stage

The stage your case has reached decides the route. This table reflects section 12A as substituted by the 2026 amendment, in force from 26 May 2026.

The new creditor-initiated insolvency resolution process introduced by the same amendment, in Chapter IV-A, has its own withdrawal rule with a 90% vote and a 14-day decision period. This post deals with the regular CIRP.

Settling before the petition is admitted

This is the cheapest and simplest stage to settle. Until the NCLT admits a section 7 or 9 petition, there is no moratorium, no resolution professional, no committee of creditors and no CIRP costs. Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016 lets the NCLT permit the applicant to withdraw the petition before admission. The applicant files a short withdrawal application or makes a statement at the hearing, the bench records it, and the petition is dismissed as withdrawn.

For an operational creditor's section 9 petition, the window is often wide. Many section 9 petitions spend months at the notice and reply stage before the bench is ready to decide admission, and companies frequently pay or agree instalments in that period. Benches in New Delhi regularly grant short adjournments where parties say they are negotiating, though they do not like the Code being used purely as a recovery tool and will not wait indefinitely.

The risk for the company is that the 2026 amendment tightens admission timelines. The NCLT is now required to admit or reject a section 7 petition within 14 days, and to record reasons if it does not decide a section 9 or 10 petition within that time. In practice that shortens the time a debtor has to negotiate. A promoter who is served with a petition should treat the first hearing as the moment to settle, not the third. When a section 7 or 9 petition reaches Advocate B.K. Singh on behalf of a company, the first conversation is about money, not defences: what can be paid, from where and by when, because a credible offer made before admission is worth far more than the same offer made after it.

What section 12A now says, and the cases behind it

Why can't we withdraw before the committee of creditors is formed?

Because the 2026 amendment closed that route. Under the earlier law and regulation 30A of the CIRP Regulations, a withdrawal application could be moved through the interim resolution professional even before the committee existed, and the Supreme Court in Swiss Ribbons had accepted that the NCLT could allow withdrawal at that stage. Promoters used this to settle quickly with the applicant creditor in the first few weeks after admission.

The concern was that early withdrawal let a promoter pay off the creditor who had filed, while other creditors, who had not yet had the chance to file claims and be heard, were left out. The amended section requires the committee to exist first, so that the decision is made by the financial creditors as a body, on the basis of verified claims. In practice, the committee is usually constituted within about a month of admission, once claims have been collected and verified.

If your CIRP was admitted before 26 May 2026 and a withdrawal application was already pending, the position may depend on the transitional effect of the amendment. Take advice on that specific point, because the answer can decide whether an application survives.

How long is the section 12A window in practice?

The window opens when the committee of creditors is constituted and closes when the resolution professional issues the first invitation for resolution plans. Under the IBBI's model timeline in the CIRP Regulations, the committee is in place roughly three to four weeks after admission, and the invitation for expressions of interest in Form G is due around day 75. That gives a promoter something like six to seven weeks, sometimes more if the process runs late, to put together a settlement acceptable to 90% of the committee.

There is some room for argument about exactly which document is the first invitation for resolution plans, because the process involves an invitation for expressions of interest followed by a request for resolution plans. Do not plan on the later of the two. Treat the publication of Form G as the practical end of the window unless your advocate has confirmed otherwise for your case. Once the window closes, section 12A is no longer available, and the promoter's options narrow to submitting a resolution plan, if eligible, or contesting the admission on appeal.

This compressed timeline changes how settlements are negotiated. Talks should start the day the petition is admitted, even though the application cannot be filed until the committee is formed. By the time the committee meets for the first time, the promoter should have a written offer, proof of funds and a draft settlement ready to place before it.

Getting 90% of the committee of creditors to agree

The 90% vote is the real hurdle. The committee is made up of financial creditors, voting in proportion to their admitted claims. If one bank holds 12% of the financial debt, it can block a settlement on its own. So a section 12A settlement is rarely a settlement with the applicant alone; it is usually a settlement with every significant financial creditor, or at least enough of them to cross 90%.

Creditors look at four things. First, the amount compared with what they would expect from a resolution plan or liquidation. Second, certainty: upfront payment, or instalments backed by security, escrow or guarantees. Third, the source of funds: the committee will want to know the money is not coming from assets the company should be keeping, and will look hard at any money the promoters took out before the insolvency. Fourth, whether the deal treats creditors of the same kind fairly. Creditors who see another lender being paid in full while they take a haircut tend to vote against.

Operational creditors do not vote, but they are not irrelevant. A settlement that pays the financial creditors and ignores a large supplier who has a strong claim may see that supplier file its own petition the week after withdrawal. Prudent promoters factor in the larger operational creditors, either by paying them or by agreeing terms, so that the company does not come out of one CIRP only to go into another.

How a section 12A withdrawal works, step by step

1. Open talks on admission

   Approach the applicant creditor and the main financial creditors as soon as the petition is admitted. Ask the interim resolution professional for the list of claims as soon as it is ready, so you know who will vote and with what share.

2. Prepare a written proposal

   Set out the amount for each creditor, the payment schedule, the source of funds, the security offered and the treatment of CIRP costs. Attach proof of funds, such as a bank letter or an escrow arrangement.

3. Place it before the committee

   Once the committee is constituted, ask the resolution professional to place the proposal before it. Creditors usually need internal approvals, which take time, so share the proposal in advance.

4. Obtain the 90% vote

   The committee votes on the withdrawal. Record the voting share in favour and keep the minutes. Dissenting creditors' objections should be answered on record where possible.

5. File the withdrawal application

   The application is filed before the NCLT with the committee's approval, the settlement terms and the resolution professional's report, in the manner the regulations prescribe.

6. Pay CIRP costs and fulfil upfront terms

   Arrange for the CIRP costs incurred so far, including the professional's fees and expenses, to be paid or secured, and make any upfront payments due under the settlement.

7. Obtain the NCLT's order

   The NCLT is to decide within 30 days. On withdrawal, the moratorium ends, the professional hands back management to the board and the CIRP closes.

Who pays the CIRP costs when a case is withdrawn?

The costs of the process up to the date of withdrawal must be met, and in practice the party seeking withdrawal pays them. These include the interim resolution professional's and resolution professional's fees, the cost of the public announcement, the cost of running the company as a going concern during the CIRP, and fees of valuers or other professionals appointed. Under the earlier regulations, a withdrawal application had to be accompanied by a bank guarantee covering estimated costs, and you should expect a similar requirement to be enforced under the current procedure.

Promoters often underestimate this figure. A CIRP that has run for two months has usually incurred meaningful costs, particularly if the company has a factory or many employees, or if valuers have already been appointed. Ask the resolution professional for a statement of CIRP costs incurred and estimated, and build that into the settlement from the start.

The applicant creditor's legal costs and the CIRP costs it advanced are a separate negotiation. A financial creditor that paid the professional's initial fee will expect to be reimbursed. Settle it expressly in the agreement rather than leaving it for argument after the order.

Writing a settlement that holds

A settlement agreement in an insolvency case has to do more than record an amount. It must say that it is conditional on the NCLT's withdrawal order, what happens to money paid if the NCLT refuses, and when the remaining payments fall due. It should state which other proceedings end with it: DRT applications, SARFAESI action against guarantors, section 138 cases, arbitrations. If those are not dealt with, the promoter may pay to end the CIRP and still face the same creditor elsewhere.

Instalment settlements need protection for the creditor. The usual tools are escrow for upfront amounts, post-dated cheques for instalments, continuing personal guarantees until the last payment, security over specific assets and a clause that on default the entire original claim revives, with credit for amounts paid. Do not assume the NCLT will restore the withdrawn CIRP if the promoter defaults; the creditor may have to file afresh on the default, which takes time. Our post on settling a cheque bounce case covers instalment drafting from the cheque side, and our post on one-time settlement with a bank covers the bank's internal approval process.

Two further points. Stamp the agreement correctly under the applicable state Stamp Act. And take tax advice: a waiver of part of a loan can have tax consequences for the company, and the promoter should know of them before signing, not after the assessment.

What if the window has closed?

Once the first invitation for resolution plans is issued, section 12A is not available. The promoter's remaining options are limited. One is to submit a resolution plan. Many promoters are barred by section 29A, for example where the company's account has been a non-performing asset for a year or more and the overdue amounts are not cleared before the plan is submitted. Promoters of MSMEs have a partial exemption under section 240A, which disapplies some of the section 29A bars, and that makes a promoter's resolution plan a realistic option for many small companies.

The other route is the appeal. If the admission order is wrong on the facts or the law, for example because the debt was disputed before a section 8 notice, or the petition was time-barred, an appeal lies to the NCLAT within 30 days, extendable by 15, as our post on appeals to the NCLAT explains. An appeal is not a back door for settlement, however. After Glas Trust, appellate forums have been careful not to approve private settlements that bypass section 12A.

For small companies still outside insolvency, there is a third option that comes before all of this: a pre-packaged insolvency process for MSMEs, in which the company negotiates a plan with its financial creditors before it goes to the NCLT and keeps control of the business while the plan is approved.

Mistakes that sink settlements

• Settling with the applicant alone after admission. Once the CIRP is admitted, a private deal with the creditor who filed does not end the process. The committee must approve.
• Starting talks after the committee is formed. The section 12A window is short. Begin on the day of admission so that the proposal is ready for the first committee meeting.
• Ignoring a creditor with more than 10%. Any financial creditor above 10% of the voting share can block withdrawal. Know the numbers before you negotiate.
• Leaving out CIRP costs. The professional's fees and the costs of running the company must be paid. A settlement that forgets them stalls at the NCLT.
• Funding the settlement from the company's own assets. Committees and the NCLT look at where the money comes from. Paying creditors with the company's receivables during the CIRP is not a settlement.
• No default clause. If instalments are missed and the agreement does not revive the full claim, the creditor is left with a weaker position than before.
• Forgetting the other cases. A settlement that ends the CIRP but leaves DRT, SARFAESI or section 138 cases alive is incomplete.

Settlement checklist for a promoter

• Stage of the case confirmed: filed, admitted, committee constituted, or invitation issued
• List of financial creditors and their voting shares
• Settlement amount and schedule for each financial creditor
• Plan for significant operational creditors
• Statement of CIRP costs incurred and estimated
• Proof and source of funds, with escrow or a bank letter
• Draft settlement agreement conditional on the NCLT's order
• Clause ending related DRT, SARFAESI, section 138 and arbitration proceedings
• Default clause reviving the original claim
• Stamp duty and tax advice taken

When a settlement is not the right answer

Settlement is not always sensible. A creditor offered a small fraction of its dues, where the company has valuable assets and a resolution plan is likely to produce more, may do better staying in the process. A promoter who cannot fund a credible offer may waste the window chasing a deal that will never reach 90%, when the time would be better spent preparing a resolution plan or an appeal. And where a petition is plainly not maintainable, because of a genuine pre-existing dispute or a time-barred debt, the right course for the company may be to oppose admission rather than pay.

A point Advocate B.K. Singh often makes to promoters is that a settlement offer should be built around what the committee can approve, not around what the applicant creditor asked for, because after admission it is the committee's vote that decides. Creditors, for their part, should compare the offer with realistic recovery figures, not with the face value of the claim.

If you want an advocate to read the petition or the admission order and tell you which settlement route is still open and how long you have, the team of Advocate B.K. Singh at B.K. Singh & Associates can look at the papers through our online legal enquiry. More about our tribunal practice is on our NCLT lawyer in Delhi page, and settlement work generally on our alternate dispute resolution page.