Tribunal holds that withdrawal of CIRP cannot be based on settlement with single creditor amidst substantial claims by others; emphasizes collective resolution and due process under Insolvency and Bankruptcy Code
In a significant judgment dated October 16, 2026, the National Company Law Tribunal (NCLT), Mumbai Bench, dismissed the application for withdrawal of the Corporate Insolvency Resolution Process (CIRP) initiated against Dharan Infra-EPC Limited. The application for withdrawal was filed by the Interim Resolution Professional (IRP) under Section 12A of the Insolvency and Bankruptcy Code, 2016 ("Code"), following a settlement between the original financial creditor, Tata Capital Housing Finance Limited, and the suspended director of the Corporate Debtor.
The Tribunal held that once a CIRP is admitted, the proceedings assume an in rem character, involving all creditors as necessary stakeholders. Withdrawal of CIRP cannot be permitted merely on the basis of a settlement with a single financial creditor, especially when substantial claims from other financial creditors remain unresolved. In the present case, while Tata Capital Housing Finance Limited settled its claim for Rs. 10 crores, other financial creditors had filed claims aggregating to approximately Rs. 600 crores, with one claim alone amounting to about Rs. 183 crores.
The Tribunal emphasized that the collective framework of the Insolvency and Bankruptcy Code is designed to protect the interests of all creditors, and not to allow individual settlements to override the collective insolvency resolution process. It noted that permitting withdrawal at this stage, before constitution of the Committee of Creditors (CoC), would lead to multiplicity of litigation, delays, and defeat the purpose of collective resolution.
The judgment further examined the legal provisions governing withdrawal under Section 12A of the Code and Regulation 30A of the CIRP Regulations, 2016. While the Code permits withdrawal of CIRP with the approval of ninety percent voting share of the CoC, in the absence of a constituted CoC, the Tribunal has discretion to permit withdrawal after hearing all concerned parties. Here, the CoC was not constituted, and the IRP had filed the withdrawal application prior to the amendment of Section 12A which now bars withdrawal before constitution of the CoC.
The Tribunal drew heavily on the Supreme Court's ruling in GLAS Trust Company LLC v. BYJU'S Raveendran, which clarified that after admission of CIRP, the proceedings are no longer confined to the original applicant creditor and the corporate debtor but become collective in rem proceedings involving all creditors. The Tribunal observed that it must apply judicial mind before approving any withdrawal application and cannot act as a mere post office approving any settlement without scrutiny.
In light of these principles, the Tribunal dismissed both the IRP's withdrawal application and the application filed by the suspended director seeking the same relief. It also disposed of intervention petitions filed by other financial creditors as academic in view of the dismissal.
This judgment underscores the importance of protecting the collective interests of creditors in insolvency proceedings and signals strict judicial scrutiny of withdrawal requests, especially where large unresolved claims exist. It clarifies that a settlement with a single creditor does not establish the corporate debtor's capacity to resolve its financial distress and cannot be a basis for terminating the CIRP.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Withdrawal of CIRP under Section 12A before constitution of CoC - After admission, CIRP becomes proceeding in rem - Withdrawal cannot be allowed merely on basis of settlement with one financial creditor when substantial claims of other financial creditors remain unresolved - Tribunal must hear concerned parties and consider all relevant factors.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Section 7, Section 12A; Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 Regulation 30A
