Initially when the Insolvency and Bankruptcy Code (IBC) was introduced, there was no provision giving NCLT and NCLAT to allow parties to withdraw their insolvency petition which has been admitted. There was a case when NCLAT refused to exercise its inherent power under rule 1 of NCLAT rules, when the same plea was urged in the supreme court then Supreme court exercised its own special powers under Article 141 of the constitution of India and allow parties to settle the matter.
An amendment was made in the year June 6,2018 by inserting section 12A in the code for allowing parties to withdraw their insolvency petition by way of settlement. Section 12A provides for withdrawal of admitted petitions and States that “the Adjudicating authority may allow the withdrawal of the petition, admitted under section 7 or section 9 or 10, on an application made by the applicant with the approval of ninety percent voting share of the committee of creditors, in such manner as may be prescribed”. Such amendments gave rise to other few questions, that upto what period such settlement should be done and who can make an application for settlement etc.
By reading the amendment which was made, it was clear that there was no stipulation of any timeline. Therefore, the same was later clarified by the press release and by inserting regulation 30A in the Insolvency and Bankruptcy Board of India(Insolvency Resolution process for corporate persons) Regulation, 2016 which permits withdrawal, “before issue of invitation for expression of interest (EOI) under regulation 36A.” the above provision was considered by the supreme court in the case Brilliant Alloys Private Limited Vs Mr. S. Rajagopal & Ors. which held that Regulation 30A could only be considered directory depending on the facts of each case. Based on this decision NCLT and NCLAT also allowed withdrawal of the petition subject to the 90 percent approval from the COC. In Swiss Ribbons case, the Supreme court allowed NCLT to allow application for settlement even before the constitution of Coc, by exercise of its inherent power under rule 11 of the National Company Law Tribunal Rule, 2016. NCLAT also exercises its discretionary power likewise NCLT.
The second question which arises is who can file the withdrawal application, then here the answer is that the person who initiated the petition under section 7 and 9 of the code, is only entitled to withdraw or settle the petition. In other words we can say that any person who is not barred from being a resolution applicant under section 29A can file a withdrawal application. However, NCLAT after observing Supreme court ruling of the case Swiss Ribbons has held to the contrary that section 29A is not applicable while considering an application under section 12A and also held that promoters or shareholders would be entitled to settle the matter.
The NCLAT further also held that once section 12A application has been approved by 0 percent of the CoC, it is not open for the NCLAT to reject the same. We can say in other words that settlement can be done in a case where requisite consent of the coc has been obtained.
Recently, the supreme court rejected an interlocutory application for withdrawal of a resolution plan filed by a resolution applicant on the ground that the exit route unders section 12A is not available to a successful resolution applicant. The court has held in this case that the procedure is only applicable to the applicants who are invoking section 7, 9 and 10. However, court records that it was ot gog into the question, whether a successful resolution applicant altogether forfeits its right to withdraw form the process.