Many insolvency cases are filed to force payment, and many companies would rather pay than lose control. So the question of settlement comes up in almost every case: can the parties settle and end the insolvency, and when? The answer depends on the stage. Before admission, an applicant can withdraw. After admission, the process becomes collective, and other creditors' interests come in. Section 12A of the Insolvency and Bankruptcy Code governs withdrawal after admission, and it was recast with effect from 26 May 2026.
This guide explains when settlement can end an insolvency case, the conditions under the amended Section 12A, the procedure, and what to do if your case is at a stage where Section 12A does not help. It is written for promoters, creditors who have been offered settlement, and anyone trying to understand the options.
हिंदी में सारांश
दिवाला याचिका सà¥à¤µà¥€à¤•à¤¾à¤° होने से पहले आवेदक समà¤à¥Œà¤¤à¥‡ के बाद याचिका वापस ले सकता है। सà¥à¤µà¥€à¤•à¤¾à¤° होने के बाद, 26 मई 2026 से लागू धारा 12A के तहत वापसी तà¤à¥€ हो सकती है जब कमेटी ऑफ कà¥à¤°à¥‡à¤¡à¤¿à¤Ÿà¤°à¥à¤¸ (CoC) बन चà¥à¤•à¥€ हो, उसके 90% वोट मिलें, और रेज़ोलà¥à¤¯à¥‚शन पà¥à¤²à¤¾à¤¨ के लिठपहला आमंतà¥à¤°à¤£ जारी न हà¥à¤† हो। सà¥à¤µà¥€à¤•à¤¾à¤° होने और CoC बनने के बीच, समà¤à¥Œà¤¤à¤¾ आम तौर पर NCLAT में अपील के ज़रिठकिया जाता है।
Settlement at each stage
Before admission
The applicant can withdraw the application, usually after settlement, with the NCLT's leave.
Admitted, CoC not yet formed
Section 12A does not allow withdrawal at this stage. Settlement is usually pursued through an appeal before the NCLAT.
CoC formed, before first invitation for plans
Withdrawal is possible under Section 12A with approval of 90% of the CoC's voting share.
After invitation for plans
Withdrawal under Section 12A is not available. The process moves towards a plan or liquidation.
All creditors matter
After admission, settling with the applicant alone is rarely enough. Other creditors' claims must be dealt with.
Costs must be paid
The costs of the process incurred so far must be met as part of any withdrawal.
Why the law changed
When the Code began, there was no provision for withdrawal after admission, and settlements were allowed by the Supreme Court using its special powers under Article 142. Parliament added Section 12A in 2018, allowing withdrawal with 90% of the committee's vote. The Supreme Court upheld it in Swiss Ribbons (2019), and the IBBI added Regulation 30A setting out the procedure, including withdrawal before the committee was formed with the NCLT's approval.
In Glas Trust Company v Byju Raveendran (2024), the Supreme Court held that once the committee is constituted, withdrawal must follow the Section 12A route, and tribunals cannot bypass it through their inherent powers. The 2026 amendment went further, recasting Section 12A so that withdrawal after admission is possible only after the committee is formed, with 90% of its vote, and before the first invitation for resolution plans. The aim is to stop promoters settling privately with one creditor while others are left behind, and to stop late withdrawals that waste the work of the process.
How a Section 12A withdrawal works
Check the stage
Confirm that the committee has been constituted and that the first invitation for expressions of interest or plans has not been issued.
Deal with all creditors
Prepare a settlement that addresses every admitted claim, or at least enough financial creditors to reach 90% of the vote, with fair treatment for others.
Arrange funds and costs
Arrange the settlement money and provide for the costs of the process incurred so far, including the professional's fees.
Submit the application through the professional
The applicant files the withdrawal request in Form FA with the resolution professional, with a bank guarantee or other security as required by the regulations.
CoC vote
The resolution professional puts the application to the committee, which must approve it by 90% of the voting share.
NCLT order
The professional files the application with the NCLT, which passes an order allowing withdrawal. The company is released from the process.
Settling in the gap after admission
The hardest stage is the one between admission and the committee's formation, often a few weeks. Under the amended Section 12A, withdrawal is not available then. Promoters who can pay often want to settle immediately, before more claims come in.
The usual route is an appeal to the NCLAT against the admission order, filed within 30 days of pronouncement, with the settlement placed before the appellate tribunal. Where the applicant is the only creditor affected, the settlement is genuine and the professional's costs are paid, the NCLAT has in many cases set aside admission orders on the basis of settlement. Whether this route remains as open after the 2026 amendment is something tribunals may refine; it depends on the facts and on whether other creditors' claims have been filed. If you are in this gap, act quickly and take advice the same day. See NCLAT appeal in IBC cases.
What works at which stage
| Stage | Route to end the case |
|---|---|
| Filed, not admitted | Withdrawal by the applicant, with the NCLT's leave |
| Admitted, CoC not constituted | Not under Section 12A; appeal to NCLAT with settlement |
| CoC constituted, no invitation for plans issued | Section 12A, Form FA, 90% CoC vote, NCLT order |
| Invitation for plans issued | Not under Section 12A; plan or liquidation |
| Plan approved by NCLT | The plan binds all; challenge only by appeal |
For creditors offered a settlement
If you are a creditor and the promoters offer settlement, look at three things. First, the stage of the case, because it decides whether a withdrawal is possible at all. Second, the certainty of payment: an upfront payment is worth more than a schedule, and a schedule should be secured by a bank guarantee, post-dated cheques, a mortgage or escrow. Third, what happens if the company does not pay: once the case is withdrawn, starting again means a fresh application. A well-drafted settlement provides for the creditor's position if payment fails, for example by recording consent to revival or by keeping security in place. See withdrawal under Section 12A.
A settlement inside the Section 12A window
Here's a made-up example. A Gurugram IT company was admitted into CIRP on a bank's Section 7 application. Within a month, the committee of creditors was formed: the bank held 70% of the vote and two NBFCs held 30%. The promoters raised money from an investor and offered to pay the bank 85% of its dues and the NBFCs 80%, over six months, secured by a bank guarantee, plus all costs of the process.
The offer was made before the resolution professional issued the invitation for plans. The application was submitted in Form FA through the professional, the committee approved it unanimously, and the NCLT allowed withdrawal. The company was out of CIRP within about three months of admission.
A settlement that came too late
Here's a second made-up example. A Jaipur hotel company was admitted into CIRP and, after the committee was formed, the resolution professional issued the invitation for expressions of interest. Several weeks later, the promoters found funds and proposed a settlement.
Under the amended Section 12A, withdrawal is not available after the first invitation for plans. The promoters could not withdraw the case. Their remaining options were to support a resolution plan, if they were eligible under Section 29A, or to work with a bidder. A settlement offered a few weeks earlier would have been possible.
What a settlement offer should include
- The amount for each creditor or class, and how it compares with their claims
- The payment schedule, with dates
- Security for deferred payments (bank guarantee, escrow, mortgage or post-dated cheques)
- Payment of the costs of the process, including the professional's fees
- Treatment of operational creditors, employees and statutory dues
- What happens if payment fails, including consent to revival or other remedies
- The source of funds, with proof
- The timetable for the Form FA application and committee vote
Settlements and the IBBI rules
The IBBI's regulations require a Section 12A application to be submitted through the interim resolution professional or resolution professional in Form FA, accompanied by a bank guarantee towards the estimated costs of the process. The professional puts it to the committee, which must vote within the time set, and then files it with the NCLT along with the committee's approval. The professional also places before the NCLT a statement of the costs incurred. Preparing these documents in advance, and agreeing the costs figure with the professional, avoids delay once the committee has voted.
Key rulings on withdrawal
| Case | What it decided |
|---|---|
| Swiss Ribbons v Union of India (2019) | Upheld Section 12A and the 90% threshold |
| Glas Trust v Byju Raveendran (2024) | Once the committee is formed, withdrawal must follow Section 12A; inherent powers cannot bypass it |
| Brilliant Alloys v S. Rajagopal (2018) | The deadline for withdrawal in the regulations was directory, not mandatory (decided before the 2026 amendment) |
Why 90% is hard to reach
The 90% threshold means that any creditor or group holding more than 10% of the vote can block a withdrawal. A single large lender who wants a resolution plan rather than a settlement, or a creditor who wants more than others, can hold out. Promoters should therefore map the committee's voting shares before making an offer, talk to the largest creditors first, and design the settlement so that each class sees a better outcome than it would expect from a plan or liquidation. Where one creditor insists on a premium, the others may accept a structure that pays that creditor more, provided it is disclosed and approved.
Frequently Asked Questions
Can an insolvency case be withdrawn before admission?
Yes. The applicant can withdraw with the NCLT's leave, usually after a settlement.
Can it be withdrawn after admission?
Under the amended Section 12A, only after the committee is constituted, with 90% of its vote, and before the first invitation for plans.
What if the committee has not yet been formed?
Section 12A does not apply. Settlement is usually pursued through an appeal to the NCLAT.
Is settling with the applicant alone enough?
Before admission, often yes. After admission, other creditors' claims usually need to be dealt with to reach 90%.
What form is used?
Form FA, submitted through the resolution professional.
Who pays the costs of the process?
The costs incurred so far must be met as part of the withdrawal.
What did Glas Trust v Byju decide?
That once the committee is constituted, withdrawal must follow Section 12A, and tribunals cannot bypass it.
Can a withdrawn case be revived?
A new application can be filed if the company defaults again. A settlement can also provide for the creditor's rights if payment fails.
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This page gives general information about the law as it stood when it was last reviewed. It is not legal advice on your case and does not promise any result. IBC rules and NCLT procedures change often, so outcomes depend on your own documents, dates and facts.
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