Adjudicating Authority cannot impose costs on Financial Creditors for entering into a settlement and seeking withdrawal under Section 12A.

Corporate Insolvency Resolution Process (CIRP) was initiated against Karnal Agriculture Industries Ltd. (Corporate Debtor/CD) on 10/12/2024 following a Section 7 application by Punjab National Bank (PNB)

On 18/12/2024, the Appellate Tribunal stayed the constitution of the Committee of Creditors (CoC) but directed the IRP to collate claims

During the stay, the CD entered into One-Time Settlements (OTS) with its financial creditors (PNB, SBI, and ARCIL), who together constituted 100% voting share

PNB subsequently filed an application under Section 12A of the IBC for withdrawal of the CIRP

By order dated 30/10/2025, the Adjudicating Authority (NCLT) allowed the withdrawal but imposed a cost of Rs. 5,00,000/- on each financial creditor, citing "unduly prolonged" resolution periods, "laxity," and "substantial haircuts"

The Appellants challenged only the imposition of these costs

The court applied Section 12A of the Insolvency and Bankruptcy Code, 2016, which permits the withdrawal of an application admitted under Section 7, 9, or 10 with the approval of 90% voting share of the CoC

It also referenced the procedural requirements of Form-FA for such withdrawals

Furthermore, it took note of the Supreme Court's precedent in *Glass Trust Company (LLC)* regarding the rights of other creditors to object to Section 12A proceedings

The Tribunal found that because of the interim stay on the constitution of the CoC, the Financial Creditors were legally entitled to negotiate and enter into an OTS with the Corporate Debtor

The IRP confirmed that the three Appellants represented 100% of the voting share and no other creditors had filed objections to the Section 12A application

The Tribunal determined that the Adjudicating Authority’s observations regarding "laxity" or "preferential payments" were uncalled for, as the creditors followed the legal process for settlement and withdrawal

While the Adjudicating Authority has the discretion to deny a Section 12A application if it finds the settlement improper, there was no valid legal reason to impose punitive costs once it chose to allow the withdrawal based on a valid settlement

The Tribunal allowed the appeals and set aside the portion of the impugned order dated 30/10/2025 that imposed costs of Rs. 5,00,000/- on each Financial Creditor

The rest of the order allowing the Section 12A withdrawal remained undisturbed