Analysis of Withdrawal of CIRP Proceeding Pursuant to Settlement under Section 12A of Insolvency and Bankruptcy Code, 2016 (IBC)
The Insolvency and Bankruptcy Code, 2016 (IBC) is a comprehensive law that addresses insolvency and bankruptcy issues in India. One of the key features of the IBC is the Corporate Insolvency Resolution Process (CIRP), which allows creditors to recover their dues in a time-bound manner. However, there are instances where the parties may wish to withdraw of CIRP after it has been initiated. This article provides an analysis of such withdrawal under Section 12A of the IBC.
The Provision: Section 12A
Section 12A was inserted by the Insolvency and Bankruptcy (Second Amendment) Act, 2018 with retrospective effect from 06.06.2018. This provision allows for the withdrawal of an application made under sections 7, 9, or 10 on settlement even if CIRP has been initiated.
Stages for Withdrawal
The withdrawal of a CIRP application can occur at four stages:
- Before admission of application under Sections 7, 9, or 10.
- After admission but before the constitution of the Committee of Creditors (CoC).
- After the constitution of the CoC but before the issue of invitation for expression of interest.
- After the issue of the invitation for expression of interest.
Procedure for CIRP Withdrawal
Regulation 30A of CIRP Regulation, 2016 provides the procedure and compliance for the withdrawal of an application. If no withdrawal is made at these four stages in the absence of any settlement, then the Resolution Process continues.
Judicial Pronouncements for CIRP Withdrawal
Hon’ble Supreme Court in Arun Kumar Jagatramka Vs. Jindal Steel and Power Ltd. & Anr. (2021) held that an application for withdrawal under Section 12-A is not intended to be a culmination of the resolution process. This is at the inception of the process. Rule 8 of the Adjudicating Authority Rules contemplates a withdrawal before admission. Section 12-A subjects a withdrawal of an application, which has been admitted under Sections 7, 9, and 10, to the requirement of approval of ninety percent voting shares of the CoC.
The provision for withdrawal under Section 12A provides flexibility to parties involved in a CIRP. It allows them to settle their disputes outside the ambit of IBC even after initiation of CIRP. However, it’s important to note that such withdrawal requires approval from ninety per cent voting shares of the CoC and must comply with all procedural requirements as laid down by law.