Settlement Between Operational Creditor and Corporate Debtor After CIRP Initiation Requires Adjudicating Authority's Approval Under Amended Insolvency and Bankruptcy Code
In a significant judgment dated August 24, 2026, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, delivered a detailed ruling in the matter of Aayush Prashant Agarwal v. Uma Export Limited, addressing the withdrawal of the Corporate Insolvency Resolution Process (CIRP) following a settlement between the operational creditor and the corporate debtor.
The case arose after the Mumbai Bench of the National Company Law Tribunal (NCLT) admitted the Corporate Debtor, M/s Epic Yarns Pvt. Ltd., into CIRP under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016 on July 23, 2026. Klass Insolvency Resolution Professionals Pvt. Ltd. was appointed as the Interim Resolution Professional (IRP).
Shortly after the commencement of the CIRP, the suspended director of the Corporate Debtor, Mr. Aayush Prashant Agarwal, informed the NCLAT that the parties had amicably settled their disputes, and the operational creditor had received the entire dues. This settlement was formalized through a tripartite agreement dated August 6, 2026, involving the Corporate Debtor, the operational creditor Uma Exports Limited, and Mr. Agarwal. The agreement acknowledged that any withdrawal or closure of the CIRP would be subject to compliance with the provisions of the IBC, including approvals from the Adjudicating Authority.
The Tribunal scrutinized the applicability of the recently amended Section 12A of the IBC, which came into force on May 26, 2026. The amendment introduced more stringent conditions for withdrawal of CIRP applications admitted under Sections 7, 9, or 10 of the IBC. Critically, withdrawal is not permitted before the constitution of the Committee of Creditors (CoC) or after the first invitation for submission of resolution plans has been issued. Moreover, withdrawal requires the approval of 90% of the CoC voting share and compliance with applicable rules and regulations.
The IRP’s status report confirmed that the public announcement regarding the CIRP commencement was duly made in accordance with Section 15(1)(c) of the IBC. It also noted that the CoC had not yet been constituted, and the only claim received was from the Employees Provident Fund Organisation (EPFO).
The NCLAT distinguished this case from earlier precedents such as Basant Kumar Upadhyay v. Kuber Shree Construction Company, where the settlement occurred prior to the initiation of CIRP. In contrast, the present settlement was reached post-initiation of CIRP, and under the amended Section 12A regime, withdrawal is subject to stricter procedural safeguards.
The Tribunal further noted reliance on the judgment in Jagmal v. Mangal Sales Corporation, which permitted withdrawal due to full settlement but emphasized that such precedents involved settlement before CIRP admission, unlike the present facts.
Ultimately, the NCLAT held that while the parties have amicably settled the dispute, the withdrawal of CIRP is conditional upon strict adherence to Section 12A of the IBC. The IRP was directed to file an appropriate application before the NCLT for withdrawal of the CIRP, which is to be disposed of within 15 days as per law.
This judgment underscores the importance of procedural compliance in insolvency matters and clarifies the legal position regarding withdrawal of CIRP post-settlement in light of recent legislative amendments.
Bottom Line:
Settlement of disputes between operational creditor and corporate debtor after initiation of Corporate Insolvency Resolution Process (CIRP) - Withdrawal of CIRP subject to compliance with Section 12A of Insolvency and Bankruptcy Code, 2016.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 9, 12A, 15(1)(c); Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016
