NCLAT Framework on Withdrawal of CIRP Under Section 12A Before CoC Constitution

The National Company Law Appellate Tribunal (NCLAT) issued a significant decision outlining factors Adjudicating Authorities must consider when evaluating applications to withdraw the Corporate Insolvency Resolution Process (CIRP) under Section 12A of the Insolvency and Bankruptcy Code (IBC). This guidance applies specifically to cases where withdrawal is sought *before* the Committee of Creditors (CoC) is constituted. The NCLAT emphasized the need to hear all concerned parties and assess ‘all relevant factors,’ referencing the Supreme Court’s decision in Glas Trust Company LLC v. Byju Raveendran.

The Tribunal clarified that assessing the corporate debtor’s (CD) solvency is crucial, as the initial presumption of insolvency upon default may not accurately reflect its financial health. It also highlighted that the Code doesn’t differentiate between creditors based on the source of their funds, requiring a balance of interests. The withdrawal mechanism under Regulation 30A(1)(a) allows for a pragmatic approach, supporting entrepreneurship and fair exits.

The NCLAT provided a non-exhaustive list of factors for consideration, including NPA status, wilful defaulter declarations, pending decrees, creditor lists, ongoing litigation, and evidence of solvency. Additionally, the Tribunal addressed the issue of unpaid Interim Resolution Professional (IRP) fees, stating that processing a settlement application should only proceed upon advance payment of these fees. The NCLAT directed the appellant to present a settlement offer to the IRP, who can then submit an application under Section 12A, establishing a clear framework for consistent and reasoned decision-making in these cases.

(Source：Ibclaw)