Answer By law4u team
A company may wish to withdraw an insolvency application due to settlement with creditors or change in circumstances. The Insolvency and Bankruptcy Code (IBC), 2016 provides a legal framework for such withdrawal, both before and after the admission of the application by the National Company Law Tribunal (NCLT). However, the withdrawal is subject to certain conditions and approvals to prevent misuse and ensure fairness to all stakeholders involved.
When And How Can a Company Withdraw Insolvency Application?
1. Before Admission by NCLT
Withdrawal Allowed Freely
If the insolvency application (filed under Section 7, 9, or 10) has not yet been admitted, it can be withdrawn unilaterally by the applicant by filing a simple request before the NCLT.
2. After Admission – Section 12A of IBC
Requires Approval by 90% CoC Members
Once the application is admitted and the Corporate Insolvency Resolution Process (CIRP) has started, withdrawal can happen only under Section 12A, subject to:
Approval by 90% voting share of the Committee of Creditors (CoC).
Application for withdrawal must be made by the applicant through the Resolution Professional (RP).
NCLT approval is mandatory for final withdrawal.
3. Settlement Outside NCLT
If a company settles the matter with the creditor before admission, it can approach NCLT to record the amicable settlement and close the case.
4. Supreme Court Under Article 142 (Exceptional Cases)
In rare or special situations where Section 12A cannot be applied, the Supreme Court has used its powers under Article 142 to permit withdrawal in the interest of justice.
Key Conditions and Legal Provisions
Form FA must be submitted to the Resolution Professional for withdrawal under Section 12A.
The Resolution Professional must verify the form and present it to CoC for approval.
If approved by CoC, the RP files an application to NCLT for formal withdrawal.
No withdrawal is permitted after approval of the resolution plan by NCLT.
Common Reasons for Withdrawal
Full settlement between creditor and corporate debtor.
Incorrect or premature filing of insolvency application.
Technical errors or defects in the original application.
Strategic decision by the applicant to pursue other recovery methods.
Example
A small IT company receives a Section 9 insolvency notice from a vendor for ₹10 lakh unpaid dues. Before NCLT admits the application, the company settles the dues and requests withdrawal.
Steps taken:
The company files a withdrawal request at NCLT before admission.
NCLT allows the withdrawal after verifying that the matter has been settled.
If the case had been admitted, the company would have needed:
CoC formation,
90% CoC approval,
RP’s filing of Form FA,
and then NCLT’s approval under Section 12A.
