Section 12A of the Insolvency and Bankruptcy Code, 2016 is one of those provisions that cannot be understood merely by reading its present wording. Its meaning has developed over time through judicial decisions, amendments to the CIRP Regulations and, most recently, the Insolvency and Bankruptcy Code (Amendment) Act, 2026.
The provision deals with a seemingly simple situation. What happens when an insolvency application has already been admitted, but the parties subsequently arrive at a settlement and no longer wish to continue with the corporate insolvency resolution process?
When the IBC was enacted in 2016, there was no Section 12A. The Code provided for withdrawal of an insolvency application before admission, but it did not contain a specific statutory mechanism for withdrawing an application after it had been admitted. This created an obvious practical difficulty because admission of a petition changes the nature of the proceedings. Once CIRP begins, the matter is no longer merely a dispute between the creditor who filed the application and the corporate debtor.
Over time, the law evolved to recognise settlements even after admission, but at the same time increasingly placed the interests of the wider creditor body at the centre of the withdrawal process.
The position before Section 12A
The original IBC did not expressly provide a mechanism for withdrawal of an admitted application under Sections 7, 9 or 10.
This did not mean that every settlement after admission had to necessarily result in the completion of CIRP. The Supreme Court, in Swiss Ribbons Pvt. Ltd. v. Union of India, recognised that a settlement could be considered even after admission and before the constitution of the Committee of Creditors.
The Court noted that such matters could be considered by the Adjudicating Authority by exercising the appropriate procedural powers, after hearing the concerned parties and considering the relevant circumstances.
This period is important because it shows that the idea of permitting settlement after admission existed even before Section 12A itself came into force.
The position was particularly relevant where the creditor who had initiated the insolvency proceedings subsequently settled the debt with the corporate debtor. In practical terms, if the very dispute which had resulted in the insolvency application was resolved before the CIRP had progressed substantially, there was little commercial logic in forcing the corporate debtor through the entire process.
However, the difficulty was that there was no clear statutory framework governing such withdrawals.
It was against this background that Section 12A was introduced.
Introduction of Section 12A in 2018
Section 12A was introduced with effect from 6 June 2018 through the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018.
The provision allowed the Adjudicating Authority to permit withdrawal of an application admitted under Sections 7, 9 or 10, subject to approval by 90% of the voting share of the Committee of Creditors, in the manner prescribed.
The 90% threshold was significant.
The same 2018 amendment reduced the voting requirement for approval of a resolution plan from 75% to 66%. Yet, for withdrawal of CIRP, the legislature retained a much higher threshold of 90%.
The Supreme Court in Vallal RCK v. Siva Industries and Holdings Ltd. explained the rationale behind this distinction. Once CIRP has commenced, the process is not intended to remain a private arrangement between the applicant creditor and the corporate debtor. The Insolvency Law Committee had specifically recognised that a settlement should ordinarily take into account the interests of all creditors. The 90% threshold was therefore intended to ensure that an overwhelmingly large majority of financial creditors agreed to the withdrawal.
Section 12A, therefore, introduced two important ideas at the same time.
It recognised that CIRP could be withdrawn after admission, but it also made withdrawal substantially more difficult once the insolvency process had moved into the collective stage.
Regulation 30A and the question of withdrawal before constitution of CoC
The next stage in the evolution of Section 12A came through Regulation 30A of the CIRP Regulations.
The original Regulation 30A provided the procedural mechanism for withdrawal under Section 12A. It was subsequently substituted on 25 July 2019.
The substituted provision made an important distinction between two stages of CIRP.
Before the constitution of the CoC, the withdrawal application could be made by the applicant through the Interim Resolution Professional.
After the constitution of the CoC, the application could be made by the applicant through the IRP or Resolution Professional, subject to the statutory requirements. This created an important practical window.
An application could be admitted, but if the CoC had not yet been constituted, the applicant creditor and the corporate debtor could still settle the underlying dispute and seek withdrawal through the mechanism prescribed under Regulation 30A.
This position was judicially recognised.
In Abhishek Singh v. Huhtamaki PPL Ltd., the insolvency application had been admitted, but the settlement took place before the constitution of the CoC. The Delhi High Court examined Section 12A along with the then applicable Regulation 30A and held that Section 12A did not prohibit consideration of a withdrawal application before constitution of the CoC. Regulation 30A provided the procedure for dealing with such a situation.
This is an important phase in the evolution of Section 12A because it demonstrates that the statutory provision and the regulations were operating together.
Section 12A itself required 90% approval where the CoC had been constituted. Regulation 30A, however, provided a procedural mechanism for cases where the CoC had not yet come into existence.
In other words, the law recognised that the stage of CIRP mattered.
The Supreme Court and the commercial wisdom of the CoC
Another important aspect of the evolution of Section 12A has been the increasing recognition of the commercial wisdom of the CoC.
In Vallal RCK, the Supreme Court upheld the 90% requirement and made it clear that where 90% or more of the creditors had approved withdrawal after due deliberation, the Adjudicating Authority should not ordinarily sit in appeal over the commercial wisdom of the CoC.
At the same time, judicial scrutiny was not completely excluded. The Court noted that interference could still arise where the decision of the CoC was found to be wholly capricious, arbitrary or irrational, or contrary to the statute. This was an important clarification.
Section 12A was not intended to give the corporate debtor or the initiating creditor an automatic right to walk away from CIRP merely because they had reached a settlement. The provision was increasingly being understood as a collective exit mechanism.
This also explains why a simple payment of the debt owed to the original applicant creditor could not always be treated as equivalent to withdrawal of the CIRP itself.
Why the distinction between settlement and withdrawal matters
This distinction becomes particularly important in a case where the Original Creditor or Financial Creditor who initiated the insolvency proceeding receives payment from the corporate debtor.
There are really two separate questions.
- Whether the parties can settle the underlying debt.
- Whether the admitted CIRP can consequently be withdrawn.
The first question is contractual and commercial in nature. The second is governed by the IBC.
This distinction became increasingly important because an admitted CIRP affects more than the applicant creditor. Once the proceeding enters the collective insolvency framework, other creditors and stakeholders acquire an interest in its continuation.
The Supreme Court in Vallal RCK traced precisely this shift. The Insolvency Law Committee had observed that once CIRP is initiated, it is no longer merely a proceeding between the applicant creditor and the corporate debtor. It becomes a collective process involving the creditors of the corporate debtor.
That principle ultimately becomes central to understanding the 2026 amendment.
The 2026 amendment: a significant change in the statutory position
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 has significantly altered the framework of Section 12A.
The amended provision replaces the earlier Section 12A and now provides that, subject to the statutory restrictions, the Adjudicating Authority may allow withdrawal of an application admitted under Sections 7, 9 or 10 on an application made by the Resolution Professional, with approval of 90% of the voting share of the CoC.
But the more significant change is contained in the restrictions on timing.
The amended Section 12A expressly provides that an admitted application shall not be withdrawn before the constitution of the Committee of Creditors.
It also cannot be withdrawn after the Resolution Professional has issued the first invitation for submission of a resolution plan.
This changes the position that existed under the earlier Regulation 30A.
The law has effectively removed the earlier pre-CoC withdrawal window.
What does this mean for a settlement with the initiating creditor?
This is perhaps the most practical question arising from the amendment.
Consider a Section 9 application that has been admitted by the NCLT. The corporate debtor subsequently pays the operational creditor who initiated the proceedings. The parties execute a settlement, but the CoC has not yet been constituted.
Under the earlier framework, there was a recognised route for the applicant to seek withdrawal before constitution of the CoC through the IRP under Regulation 30A. Abhishek Singh is an example of the judicial recognition of that position.
The position has now changed.
The amended Section 12A expressly states that an admitted application cannot be withdrawn before the CoC is constituted. The earlier regulatory route can therefore no longer be relied upon to withdraw the admitted CIRP at that stage.
This does not necessarily mean that a corporate debtor and the original applicant creditor cannot enter into a settlement contract or discharge the underlying debt between themselves.
The important point is that settlement of the underlying debt and withdrawal of the admitted CIRP are now two distinct questions.
Payment may settle the debt. It does not, by itself, undo the admission of the insolvency application.
The statutory process must still be followed.
When does the Section 12A window close?
The 2026 amendment also answers another question that had been significant under the earlier framework: how late in the CIRP can a withdrawal under Section 12A be sought?
Withdrawal is possible only after the constitution of the CoC and before the first invitation for submission of a resolution plan is issued. This means that the outer limit is not simply the date of liquidation.
A settlement cannot be held back until a much later stage of CIRP and then used as a basis to invoke Section 12A. Once the first invitation for submission of a resolution plan has been issued, the Section 12A route is closed.
This represents a clear departure from the earlier framework.
Under the substituted Regulation 30A of 2019, withdrawal could still be sought even after the issue of the invitation for expression of interest, although reasons justifying such withdrawal had to be stated.
The 2026 amendment has now converted what was previously a regulated possibility into a statutory prohibition beyond the prescribed point.
Why has the law become more restrictive?
The answer lies in the changing understanding of CIRP itself.
The IBC was never intended to be merely a debt recovery mechanism. Once CIRP begins, its purpose is to facilitate resolution of the corporate debtor as a going concern and maximise value for stakeholders.
A late withdrawal can therefore have consequences beyond the parties who initially settled the dispute.
By the time the CIRP reaches the stage of inviting resolution plans, prospective resolution applicants may already have spent time and resources evaluating the corporate debtor. Creditors and other stakeholders would also have invested in the process.
The IBBI has noted that the amendment seeks to address the disruption that can arise when withdrawal applications are filed at belated stages. It has also emphasised that because CIRP is an in-rem proceeding, the CoC should be involved before withdrawal or settlement brings the process to an end.
The amendment therefore appears to move the law towards greater certainty.
The question is no longer whether the settlement is commercially attractive.
The question is also whether the settlement has been reached within the statutory window.
Section 12A and liquidation
The question of whether Section 12A can be invoked right up to liquidation must also be considered in light of this evolution. The answer is no.
Section 12A operates within the CIRP framework. It is not a general mechanism to reverse the insolvency process after liquidation has commenced.
More importantly, the 2026 amendment places the statutory cut-off substantially earlier by prohibiting withdrawal once the first invitation for submission of a resolution plan has been issued.
Therefore, the debate is no longer simply about whether 90% of creditors are willing to settle even shortly before liquidation.
The more fundamental question is whether the Section 12A window was still open at that stage.
Under the amended provision, once the first invitation for submission of a resolution plan has been issued, the answer is no.
From flexibility to certainty
The evolution of Section 12A is ultimately a story of increasing structure.
Before Section 12A, settlements after admission were dealt with through judicial intervention and procedural mechanisms.
In 2018, Section 12A formally recognised withdrawal after admission and imposed the stringent requirement of 90% CoC approval.
In 2019, Regulation 30A expressly created a mechanism for withdrawal even before constitution of the CoC.
Judicial decisions then clarified the importance of the commercial wisdom of the CoC and the distinction between the interests of the initiating creditor and those of the wider creditor body.
The 2026 amendment has now taken the law one step further. The CoC must first be constituted.
The Resolution Professional must make the withdrawal application. The CoC must approve it with 90% voting share.
And the withdrawal must take place before the first invitation for submission of a resolution plan.
The result is a considerably narrower but more predictable statutory framework.
Conclusion
Section 12A has evolved significantly since the enactment of the IBC in 2016.
What started as a gap in the legislation was initially addressed through judicial intervention and subsequently given statutory recognition in 2018. The regulatory framework then provided a practical mechanism for withdrawal at different stages of CIRP, including before the constitution of the CoC.
The 2026 amendment marks another shift.
The law now clearly treats withdrawal as a collective insolvency decision rather than a consequence of a private settlement between the corporate debtor and the creditor who initiated the proceedings.
This is particularly significant in two situations.
Where a debt is settled with the initiating creditor before constitution of the CoC, the settlement may resolve the underlying commercial dispute, but the amended Section 12A does not permit the admitted CIRP to be withdrawn at that stage.
Similarly, after the first invitation for submission of a resolution plan has been issued, even a settlement supported by the requisite creditor majority cannot be used to invoke Section 12A.
The evolution of Section 12A therefore reflects a larger movement in Indian insolvency jurisprudence: from flexibility at the early stages towards greater creditor participation, procedural discipline and certainty.
For parties considering settlement after admission of CIRP, timing is no longer merely a matter of commercial convenience. Under the amended law, it can determine whether Section 12A is available at all.
