Cost cannot be imposed on financial creditors for entering into a settlement and seeking withdrawal under Section 12A.

The Corporate Insolvency Resolution Process (CIRP) against Karnal Agriculture Industries Ltd. (Corporate Debtor) commenced on 10.12.2024 via 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) while allowing the IRP to collate claims.

During this interim period, the Corporate Debtor reached a settlement and obtained One Time Settlements (OTS) from its three Financial Creditors—PNB, SBI, and ARCIL (representing 100% voting share).

Consequently, PNB filed an application under Section 12A of the IBC for withdrawal of the CIRP.

On 30.10.2025, the Adjudicating Authority (NCLT) allowed the withdrawal but imposed a cost of Rs. 5,00,000/- on each Financial Creditor, citing "laxity," "unduly prolonged" resolution, and "substantial haircuts."

The Financial Creditors appealed solely against the imposition of these costs.

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.

The legal principle established by the Supreme Court in *Glass Trust Company (LLC)*, noting that while other creditors have the right to object to a Section 12A withdrawal, the primary objective of the Code is the resolution of insolvency, which may include settlement between parties.

The Appellate Tribunal found that the Adjudicating Authority’s reasons for imposing costs—namely the "haircut" taken by banks and the time taken to settle—were not valid grounds for penalties.

The Tribunal noted that because of the stay order dated 18.12.2024, the CoC was never formally constituted, and the Financial Creditors (who represented 100% of the possible voting share) were within their rights to enter into an OTS with the Corporate Debtor.

The Tribunal observed that no other creditors had filed objections to the withdrawal application.

Since the Financial Creditors followed the prescribed procedure of filing Form-FA after receiving payment and clearly disclosed all facts in the Section 12A application, there was no evidence of "laxity" or "lack of due diligence" that warranted punitive costs.

The Tribunal set aside the portion of the impugned order dated 30.10.2025 that imposed a cost of Rs. 5,00,000/- on SBI, PNB, and ARCIL.

The appeals were allowed to that extent, while the order permitting the withdrawal of the CIRP remained intact.