Appellate Tribunal affirms that Section 12A of Insolvency and Bankruptcy Code, 2016, is confined to CIRP stage, not applicable during liquidation
In a significant decision rendered by the National Company Law Appellate Tribunal (NCLAT), Chennai, the tribunal dismissed the appeal filed by Narayan Maheshwari challenging the applicability of Section 12A of the Insolvency and Bankruptcy Code, 2016 (IBC) at the liquidation stage. The judgment, delivered on December 17, 2025, by Justice Sharad Kumar Sharma and Member Jatindranath Swain, categorically held that Section 12A is exclusive to the Corporate Insolvency Resolution Process (CIRP) stage under Chapter II and cannot be extended to Chapter III, which deals with liquidation.
The case involved M/s. Shri Veerganapathi Steels (P) Ltd., a corporate debtor subjected to CIRP proceedings initiated under Section 7 of the IBC. Despite efforts by the promoters to settle debts through a One Time Settlement (OTS) scheme post-liquidation initiation, the tribunal held that the legislative framework did not permit withdrawal of proceedings under Section 12A once liquidation commenced.
The judgment emphasized the clear legislative intent to restrict Section 12A to the CIRP stage, highlighting that no amendment was made to Chapter III to include withdrawal provisions during liquidation. The tribunal underscored that judicial innovation or inherent powers could not override express provisions of the law. It cited precedent, affirming that binding rulings of larger benches prevail when divergent views are expressed by co-ordinate benches.
The tribunal referred to previous judgments, including Asha Chopra v. Hind Motors India Limited, which established that Section 12A does not apply during liquidation, reinforcing the decision with similar findings from other cases. It emphasized the need for adherence to the procedural framework of the IBC, cautioning against judicial interference that could disrupt the legislative scheme.
This ruling reaffirms the integrity of the IBC's structured approach to insolvency and liquidation, ensuring that statutory processes remain undistorted by external influences. The decision serves as a reminder of the limitations on judicial interpretation, upholding the primacy of legislative intent in insolvency proceedings.
Bottom Line:
Section 12A of the Insolvency and Bankruptcy Code, 2016 is not applicable at the liquidation stage under Chapter III of the Code, as it is confined to the CIRP stage under Chapter II. Withdrawal of proceedings at the liquidation stage cannot be permitted based on inherent powers.
Statutory provision(s): Section 12A of Insolvency and Bankruptcy Code, 2016
Narayan Maheshwari v. Ms. Kavitha Surana, (NCLAT)(Chennai) : Law Finder Doc Id # 2823330
