One of the main objects of the IBC is permitting the Corporate Debtor to continue as an on going concern and at the same time, paying the dues of the creditors to the maximum. There is possibility for the creditors to reach to a consensus with the debtor outside of the insolvency resolution process in such situation CIRP application has to withdrawn, this can achieve a better outcome for the creditor than the resolution plan would.

Settlements also ensure that the creditor gets paid in a timely manner, before the Corporate Debtor's assets deteriorate to a great extent, and they also protect Corporate Debtor from the risk of liquidation. In This article through various provisions under Code and Prominent Case Laws I will analyze the provision related to withdrawal of CIRP application at various stage.

1. After filling but before admission

   There may be situation when applicant after filling the application for insolvency under section 7,8 or 10 of Insolvency and Bankruptcy Code, 2016 wants to withdraw the application before it has been admitted as they may have arrived to a settlement, in such situation Rule 8 I&B (Application to Adjudicating Authority) Rules, 2016 of the CIRP Rules, provides for the provision for allowing the withdrawal if the application has not been yet admitted, the NCLT may permit withdrawal of the CIRP application on a request by the applicant before its admission.
    

2. Withdrawal pre constitution of committee of creditors

   The prime objective of the code is not recovery but revival[1], therefore even after the insolvency application has been admitted by the adjudicating authority and if subsequently both party i.e. creditors and debtors have arrived at a settlement at any stage where the committee of creditors is not yet constituted, a party can approach the NCLT directly through interim resolution professional, seeking withdrawal of application and Tribunal may, in exercise of its inherent powers Under Rule 11 of the NCLT Rules, 2016, allow an application for withdrawal or settlement.
   
   The Hon'ble Apex court has validated that NCLT under Rule 11 of NCLT Rules, 2016 has inherent powers to allow the withdrawal of insolvency application when the committee of creditors is yet to constituted. The Hon'ble Supreme Court in 'Swiss Ribbons Pvt. Ltd. and Ors.[2]' has clearly discussed the stage and has observed that 'we make it clear that at any stage where the Committee of Creditors is not yet constituted, a party can approach NCLT directly, which Tribunal may, in exercise of its inherent powers under Rule 11 of NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement.
   
   Hon'ble Supreme Court and the NCLAT had allowed withdrawal of applications in various cases without the consent of the Committee of creditors[3] when committee is yet to be formed. To recognize this dictum of the Supreme Court, regulation 30A was subsequently amended to reflect the law as it stands today. Thus, the regulation creates a distinction in the manner in which an application may be made. This is based on whether the application is made before or after the constitution of the CoC.
    

3. Withdrawal post constitution of committee of creditors

   IBC, as originally enacted, did not permit withdrawal of insolvency proceedings once admitted by the Adjudicating Authority. Later, pursuant to various rulings of the Apex Court, section 12A[4] was inserted in the Code to allow for withdrawal of applications made under sections 7, 9, or 10. The section requires that the withdrawal application can be made with approval of 90% of CoC, and the Adjudicating Authority may allow such application.
   
   Section 12A of the IBC reads as follows:
   The Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety per cent. voting share of the committee of creditors, in such manner as may be specified
   
   Section 12A of IBC read with regulation 30A of the CIRP Regulations specifically deals with withdrawal of CIRP after admission. Section 12A provides that an application for withdrawal may be made by an applicant after obtaining consent from the committee of creditors (CoC). It further allows the Insolvency and Bankruptcy Board of India to make regulations to prescribe the manner in which such an application may be made.
   
   It is well known that the section was inserted after the Supreme Court ruling in Lokhandwala Kataria Construction Private Limited v. Nisus Finance and Investment Managers LLP[5], where the Apex Court had to use its plenary powers under Article 142 of the Constitution of India to permit withdrawal after admission of resolution process.
   
   The SC subsequently eased out the process of withdrawal by its ruling in Brilliant Alloys Private Limited v. Mr. S. Rajagopal & Ors[6]. Post this ruling, there has been a spate of withdrawals under Section 12A. Data from IBBI shows that out of the 142 cases closed, 63 have been withdrawn under Section 12A.
   
   The Hon'ble Supreme Court in the case of Brilliant Alloys Private Limited v. Mr. S. Rajagopal & Ors. held that Section 12A contains no time stipulation and allowed the settlement, even after issue of invitation for expression of interest, thereby annulling the CIRP proceedings
   
   However, there is a discretion of adjudicating authority, Section 12A stipulates that the Adjudicating Authority may allow the withdrawal on an application made with the approval of ninety per cent. voting share of the committee of creditors. While the pre-condition is approval of CoC members holding 90% share, the final discretion to allow or disallow vests with the Adjudicating Authority.
   
   The report of the Bankruptcy Law Reforms Committee also discussed that Once a bankruptcy petition is filed, it cannot be withdrawn without the leave of the Adjudicating Authority.
    

4. Withdrawal when resolution plan is pending before AA for approval

   So, another interesting situation is when the committee of creditors has approved the resolution plan with required votes and it is pending before Adjudicating Authority for approval and now the parties have arrived to a settlement and wants to withdraw the Insolvency application.
   
   In this situation also party can file the withdrawal application under section 12-A after obtaining 90% votes of the committee of creditors, and the adjudicating authority may approve the such applications.
   
   In Satyanarayan Malu v. SBM Paper Mills Ltd[7], NCLT Mumbai permitted withdrawal of CIRP at the stage when resolution plan was pending approval of the NCLT, after acceptance by CoC. The Bench took into account the offer of one-time settlement (OTS) made by the corporate debtor to the financial creditor, which was more economical than the resolution plan.
    

5. Withdrawal at the stage of Pendency of liquidation or settlement plan

   There may be situation when the party want to withdraw the insolvency application post the liquidation order has been passed by the Adjudicating Authority. Amended provisions of IBC lays down the provision for withdrawal of application post admission of insolvency application, although it does not provide clarity regarding withdrawal after the liquidation order has been passed. However, Hon'ble Supreme Court and NCLAT through orders in various cases has approved the withdrawal of application even during the stage of liquidation if the COC permits such withdrawal.

In V. Navaneetha Krishna v. Central Bank of India, Coimbatore & Another [8] the Hon'ble NCLAT observed that an application can be withdrawn under Section 12A even during the stage of liquidation if the CoC permits such withdrawal with 90% votes. National Company Law Appellate Tribunal observed:

In view of Section 12A even during the liquidation period if any person, not barred under Section 29A, satisfy the demand of COC then such person may move before the Adjudicating Authority by giving offer which may be considered by the COC, and if by 90% voting share of the COC, accept the offer and decide for withdrawal of the application under Section 7 of IBC, the order of liquidation passed by the Adjudicating Authority will not come in the way of Adjudicating Authority to pass appropriate order.

The Supreme Court of India (SC) by way of a judgment in Vallal RCK v. Siva Industries and Holdings Limited & Ors,[9] reaffirmed the legal position that an adjudicatory authority or an appellate authority cannot sit in appeal over the commercial wisdom of the Committee of Creditors (COC). The judgment affirmed the principle that when 90% and more of the committee of creditors, in their wisdom after due deliberations, approved a settlement and consequential withdrawal of the insolvency proceedings, the NCLT or the NCLAT ought not sit in appeal over the said decision.

Thus, a resolution plan can be withdrawn even at this stage, if the adjudicating authority permits withdrawal of application under Section 12A.

End-Notes:

1. Anuj Tejpal v Rakesh Yadav, Comp. App. (AT) (INS) No. 283 of 2019.
2. Swiss Ribbons Pvt. Ltd. and Ors.' Vs. 'Union of India and Ors.' (2019) 4 SCC 17
3. Kamal K Singh v Dinesh Gupta, Civil Appeal No. 4933 of 2021; Sunil Tandon v Manoj Kumar Anand, Comp. App. (AT) (INS) Np. 283 of 2019;
4. Ins. by the IBC (Second Amendment) Act, 2018, w.e.f. 06.06.2018.
5. Lokhandwala Kataria Construction Private Limited v. Nisus Finance and Investment Managers LLP, Civil Appeal No. 9279 of 2017
6. Special Leave to Appeal (C) No(s). 31557/2018
7. 2018 SCC OnLine NCLT 32358.
8. Company Appeal (AT) (Insolvency) Nos. 288 & 289 of 2018
9. Vallal RCK v. Siva Industries and Holdings Limited & Ors, Civil Appeal Nos. 1811-1812 of 2022 dated 03 June 2022