NCLAT Upholds Withdrawal of Insolvency Proceedings Against West Bengal Agro Textile Corporation After Pre-Admission Settlement

May 25, 2026 : The National Company Law Appellate Tribunal (NCLAT) has upheld the withdrawal of corporate insolvency resolution proceedings (CIRP) initiated against West Bengal Agro Textile Corporation Limited, ruling that the withdrawal was carried out in accordance with the Insolvency and Bankruptcy Code, 2016 (IBC) and the applicable CIRP Regulations. The appellate tribunal dismissed challenges filed by two operational creditors who argued that their interests were overlooked when the insolvency proceedings were withdrawn following a settlement between the original operational creditor and the corporate debtor.

A Bench comprising Justice Ashok Bhushan, Chairperson, and Technical Member Indevar Pandey delivered the judgment on May 25, 2026, dismissing two appeals filed by Chandra Prakash Lohia and Basanti Devi Lohia against an order of the National Company Law Tribunal (NCLT), Kolkata Bench. The NCLT had allowed an application under Section 12A of the IBC and permitted withdrawal of the insolvency proceedings initiated under Section 9 of the Code.

The dispute arose from a Section 9 insolvency petition filed by operational creditor Jitendra Jain against West Bengal Agro Textile Corporation Limited, a wholly owned Government of West Bengal undertaking. Jain had claimed unpaid dues of approximately Rs. 1.19 crore. The NCLT admitted the insolvency petition on August 22, 2025, and appointed an Interim Resolution Professional (IRP) to commence the CIRP.

However, before the admission order was passed, the corporate debtor and the operational creditor had already entered into a settlement agreement dated August 18, 2025. Under the settlement, the parties agreed to resolve the dispute for Rs. 1.5 crore. Shortly after the CIRP admission order, the operational creditor submitted Form FA seeking withdrawal of the insolvency proceedings under Regulation 30A of the Insolvency Resolution Process for Corporate Persons Regulations, 2016. The IRP subsequently filed an application under Section 12A of the IBC seeking withdrawal of the CIRP.

The appellants contended that they had independently filed insolvency petitions against the same corporate debtor and therefore should have been heard before the insolvency proceedings were withdrawn. They argued that once a Section 9 application is admitted, the proceedings assume an “in rem” character, affecting all stakeholders and creditors. Relying on recent Supreme Court and NCLAT decisions, they asserted that the adjudicating authority was required to consider the interests of other creditors before approving the withdrawal application.

Rejecting these arguments, the NCLAT observed that the withdrawal application was filed strictly in accordance with Regulation 30A. The tribunal noted that the IRP received Form FA on August 23, 2025, and filed the withdrawal application within the statutory three-day period prescribed under Regulation 30A(3). Importantly, no Committee of Creditors (CoC) had been constituted, and no public announcement inviting claims had been issued because the withdrawal request was received immediately after the admission order.

The appellate tribunal emphasized that the statutory framework specifically allows withdrawal of insolvency proceedings before constitution of the CoC. It observed that in the present case, no objections had been filed before the NCLT by any creditor, including the appellants, when the withdrawal application was under consideration. Consequently, the NCLT acted within its jurisdiction in permitting the withdrawal.

The tribunal extensively examined the Supreme Court’s landmark judgment in GLAS Trust Company LLC v. BYJU Raveendran & Others and the subsequent ruling in Abhishek Singh v. Huhtamaki PPL Ltd. The NCLAT noted that the Supreme Court had clarified that where a withdrawal application is filed before constitution of the CoC and in compliance with Regulation 30A, the adjudicating authority may consider and approve the withdrawal. The tribunal further observed that the Supreme Court had recognised Regulation 30A as a complete statutory mechanism for dealing with such situations.

Referring to the principles laid down by the Supreme Court, the NCLAT stated that although insolvency proceedings become proceedings in rem after admission, each case must be assessed on its own facts. The tribunal highlighted that “the Adjudicating Authority is not a mere post office” and must apply its judicial mind while considering withdrawal applications. At the same time, it clarified that the mere existence of other creditors does not automatically justify rejection of a Section 12A application.

The appellate tribunal distinguished earlier NCLAT decisions cited by the appellants, including Himanshu Singh v. HDFC Bank Ltd. and Chikali Nagaraju v. MSTC Ltd., noting that those cases involved creditors who had already filed claims or raised objections before the adjudicating authority. In contrast, no such objections existed in the present matter when the withdrawal application was decided.

The NCLAT also relied upon the Supreme Court’s observation in Abhishek Singh that the rights of other creditors are not extinguished merely because a settlement is reached between the original operational creditor and the corporate debtor. Such creditors remain free to pursue remedies independently under the law.

Significantly, the tribunal noted that the settlement agreement had been executed even before the insolvency petition was admitted. The operational creditor promptly communicated its desire to withdraw the proceedings immediately after admission, and the IRP acted within the timeline prescribed by law. These facts, according to the tribunal, reinforced the legality of the withdrawal process.

Concluding that there was no procedural irregularity or legal infirmity in the NCLT’s order, the NCLAT dismissed both appeals and upheld the withdrawal of the CIRP. The ruling reinforces the legal position that insolvency proceedings may be withdrawn under Section 12A and Regulation 30A before constitution of the Committee of Creditors, provided the statutory procedure is followed and the adjudicating authority applies its judicial mind to the facts of the case.

The judgment is likely to have significant implications for insolvency jurisprudence, particularly in cases where settlements are reached immediately after admission of insolvency petitions. It clarifies that while insolvency proceedings become collective proceedings after admission, pre-CoC settlements remain legally permissible and can be approved without requiring participation from creditors who have neither filed claims nor raised objections before the adjudicating authority.

Case Title: Chandra Prakash Lohia @ Nitesh Lohia v. West Bengal Agro Textile Corporation Ltd. & Anr. and connected appeal Basanti Devi Lohia v. West Bengal Agro Textile Corporation Ltd. & Anr.