NCLAT Clarifies Withdrawal of CIRP Not a Mere Settlement; Lays Down Factors for Section 12A Applications Before CoC Formation

April 6, 2026 : The National Company Law Appellate Tribunal (NCLAT), Principal Bench, has clarified that withdrawal of Corporate Insolvency Resolution Process (CIRP) under Section 12A of the Insolvency and Bankruptcy Code (IBC) cannot be treated as a simple bilateral settlement once insolvency proceedings are admitted. The Tribunal emphasised that CIRP assumes the nature of a proceeding in rem, impacting all creditors, and therefore requires a broader judicial assessment.

The ruling came in Suyog Suryakant Talekar v. Trivenimudrai Project Ltd. & Anr., where the appellant, a suspended director of the corporate debtor, challenged the admission of CIRP by the National Company Law Tribunal, Mumbai Bench. During the appeal, the appellant and the operational creditor reached a settlement and sought withdrawal of CIRP before constitution of the Committee of Creditors (CoC).

The Interim Resolution Professional (IRP) informed the Tribunal that while claims had been collated, the CoC had not yet been constituted. This placed the matter within the framework of Regulation 30A(1)(a) of the CIRP Regulations.

CIRP Not a Private Dispute After Admission

The Bench, comprising Justice N. Seshasayee, Arun Baroka, and Indevar Pandey, reiterated that once CIRP is admitted, it ceases to be a dispute confined between the operational creditor and the corporate debtor. Instead, it affects the entire creditor body, making judicial scrutiny essential before permitting withdrawal.

Relying on the Supreme Court’s ruling in Glas Trust Company LLC v. Byju Raveendran, the Tribunal held that adjudicating authorities must:

• Hear all “parties concerned,” including other creditors; and
• Consider “all relevant factors” before approving withdrawal.

“All Relevant Factors” – Tribunal Provides Guidance

Addressing the lack of clarity around what constitutes “relevant factors,” the NCLAT provided an illustrative framework to guide adjudicating authorities. These include:

• Whether any financial creditor has classified the corporate debtor’s account as a Non-Performing Asset (NPA) and the duration since such classification;
• Whether the corporate debtor has been declared a wilful defaulter or involved in fraud;
• Existence of any recovery decree or equivalent enforceable liability;
• The overall creditor matrix and status of defaults;
• Pending litigation impacting solvency; and
• Financial health indicators, including balance sheets and asset-to-debt ratio.

The Tribunal clarified that these factors are not exhaustive but are intended to ensure consistency, objectivity, and predictability in deciding withdrawal applications.

Balancing Interests of Creditors and Corporate Debtor

The Bench underscored that insolvency proceedings are not designed as recovery tools. It noted that the requirement to examine “all relevant factors” allows adjudicating authorities to assess the solvency of the corporate debtor and balance competing interests.

Importantly, the Tribunal observed that even if other creditors object, the adjudicating authority is not bound solely by such objections and must independently evaluate the overall circumstances.

Directions in the Present Case

On facts, the NCLAT directed the appellant to place the settlement before the IRP, who was instructed to file an application under Section 12A before the adjudicating authority for consideration in accordance with Regulation 30A(1)(a). The Tribunal also noted that issues such as IRP fees could be addressed by the adjudicating authority.

The appeal was disposed of with liberty to revive proceedings if withdrawal is not approved.