No Exit After CIRP Starts: NCLAT Upholds CoC’s Supremacy Over Section 12A Withdrawal
- REEDLAW
- Aug 24
- 4 min read
REEDLAW Legal News Network reports: In a pivotal ruling, the National Company Law Appellate Tribunal (NCLAT) reaffirmed the supremacy of the Committee of Creditors (CoC) in the Corporate Insolvency Resolution Process (CIRP) by holding that once a Section 7 application is admitted and CIRP commences, the process attains the character of a proceeding in rem. The Tribunal clarified that withdrawal under Section 12A of the Insolvency and Bankruptcy Code cannot be permitted solely on the basis of a settlement with one financial creditor, particularly when other admitted claims exist, thereby emphasising the collective interest of all stakeholders.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, while adjudicating a batch of two Company Appeals, categorically held that after admission of a Section 7 application and commencement of CIRP, the process becomes a proceeding in rem. Consequently, any withdrawal under Section 12A cannot be allowed based merely on a bilateral settlement with a single financial creditor prior to the constitution of the CoC, especially when other admitted claims remain pending. This ruling reinforces the principle that the insolvency framework prioritises the rights and interests of all creditors over individual arrangements.
Two appeals were filed before the National Company Law Appellate Tribunal challenging separate orders dated 13.02.2025 passed by the NCLT, Allahabad Bench, Prayagraj in I.A. No. 200/2022 and I.A. No. 182/2022 in CP (IB) No. 33/ALD/2021. The proceedings arose from the Corporate Insolvency Resolution Process (CIRP) initiated against Kriti Prakashan Private Limited on an application filed by SIDBI under Section 7 of the Insolvency and Bankruptcy Code, 2016. The Section 7 petition was admitted on 13.06.2022, and CIRP commenced, following which an IRP was appointed and a public announcement was issued on 19.06.2022 inviting claims until 30.06.2022.
On 22.06.2022, the corporate debtor settled the outstanding dues of SIDBI amounting to ₹1,58,70,199/-, after which SIDBI issued a No Objection Certificate and submitted Form-FA to the IRP. Consequently, the IRP filed I.A. No. 182/2022 under Section 12A on 25.06.2022 seeking withdrawal of the CIRP. Meanwhile, HDFC Bank, another financial creditor, filed its claim of ₹4,30,74,985/- on 30.06.2022 and moved I.A. No. 200/2022 seeking intervention and rejection of the Section 12A application. The Adjudicating Authority, by orders of the same date, allowed HDFC’s intervention and rejected the IRP’s withdrawal application, prompting the present appeals by the suspended director of the corporate debtor.
The appellant argued that since the Section 12A application was filed before the constitution of the Committee of Creditors (CoC), the NCLT had no jurisdiction to entertain objections from any other creditor, relying on the Supreme Court decisions in Abhishek Singh v. Huhtamaki PPL Limited and Another, REEDLAW 2023 SC 03572 and GLAS Trust Company LLC v. BYJU Raveendran and Others (3), REEDLAW 2024 SC 10545. It was contended that the right to oppose such withdrawal arises only after the CoC is formed, whereas HDFC Bank was free to pursue its remedies independently but could not block a settlement reached with SIDBI.
NCLAT examined Section 12A of the IBC and Regulation 30A of the CIRP Regulations, along with the jurisprudence laid down in Swiss Ribbons Private Limited and Another v. Union of India and Others, REEDLAW 2019 SC 01504; Abhishek Singh v. Huhtamaki PPL Limited and Another, REEDLAW 2023 SC 03572, and GLAS Trust Company LLC v. BYJU Raveendran and Others (3), REEDLAW 2024 SC 10545. The Tribunal reiterated that once a Section 7 application is admitted, the CIRP becomes a proceeding in rem involving all creditors, and even before the CoC is constituted, the Adjudicating Authority is required to hear all concerned parties and consider relevant factors while deciding an application for withdrawal. The Appellate Tribunal noted that HDFC Bank’s claim was filed within the statutory period in response to the public announcement and that its objection could not be brushed aside merely because the 12A application preceded the CoC constitution.
The Tribunal held that permitting withdrawal based solely on a settlement with one creditor, while ignoring claims of other financial creditors, would amount to preferential treatment and undermine the collective nature of the insolvency process. Consequently, the NCLAT upheld the orders of the NCLT rejecting the Section 12A withdrawal application and allowing HDFC’s intervention, holding that the adjudicating authority acted within its jurisdiction and in conformity with the principles laid down by the Supreme Court.
Mr. Abhijeet Sinha, Sr. Advocate, with Mr. Harish Taneja, Ms. Srishti Agrawal, Ms. Shenaaz and Mr. Heena Kochar, Advocates, represented the Appellant.
Ms. Surabhi Sinha, Advocate, appeared for the Respondent No. 1.
Mr. Anang Shandalia, IRP, appeared in person.
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