Post-admission settlements cannot terminate CIRP before CoC constitution under Section 12A.

Epic Yarns Private Limited was admitted into the Corporate Insolvency Resolution Process (“CIRP”) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) by the NCLT, Mumbai Bench-VI, on 23.07.2026, pursuant to an application filed by Uma Export Limited, and Klass Insolvency Resolution Professionals Pvt. Ltd. was appointed as Interim Resolution Professional (“IRP”)

During the pendency of the appeal, the suspended director informed the NCLAT that settlement negotiations were underway and subsequently filed I.A. No. 5601 of 2026, stating that the operational creditor’s entire dues had been paid and the dispute had been settled

Under a tripartite settlement agreement dated 06.08.2026, ₹50,00,000 had been paid on 23.07.2026 and a further ₹2,57,05,145 on 06.08.2026

The IRP reported that the public announcement had been made, but control and custody of the corporate debtor had not been handed over by the suspended board; no Committee of Creditors (“CoC”) had yet been constituted; and a claim of ₹1,28,58,295 had been filed by the Employees’ Provident Fund Organisation (“EPFO”)

The settlement agreement acknowledged that withdrawal or closure of the CIRP would remain subject to the IBC and required approvals, and that the operational creditor would cooperate in filing Form FA under Regulation 30A of the CIRP Regulations

1. Whether the CIRP could be terminated or the Section 9 admission order set aside merely because the operational creditor and the corporate debtor had entered into a settlement after commencement of the CIRP?

2. Whether withdrawal of the admitted insolvency application was permissible before constitution of the CoC under the amended Section 12A of the IBC?

3. Whether the appellant could be granted liberty to pursue withdrawal of the CIRP before the NCLT in accordance with Section 12A and the applicable regulations?

The Court applied Section 12A of the IBC, as amended by the IBC (Amendment) Act, 2026 and brought into force on 26.05.2026, under which withdrawal of an application admitted under Sections 7, 9 or 10 may be allowed on an application by the resolution professional supported by approval of 90% of the CoC’s voting share

The amended Section 12A(2), notwithstanding any other law, prohibits withdrawal before constitution of the CoC and after the first invitation for submission of a resolution plan

The Court also considered Regulation 30A of the CIRP Regulations concerning the procedure for withdrawal, including Form FA, and distinguished Basant Kumar Upadhyay, Ex-Director of Gardenia India Ltd. v. Kuber Shree Construction Company & Anr., Company Appeal (AT) (Ins.) No. 957 of 2025, and Jagmal v. Mangal Sales Corporation Through its Proprietor & Anr., Company Appeal (AT) (Ins.) No. 687 of 2026, because in both cases settlement and payment had occurred before admission of the corporate debtor into CIRP

The NCLAT held that the present settlement was materially different from the precedents relied upon by the appellant because it was concluded on 06.08.2026, after the CIRP had commenced on 23.07.2026

Consequently, the settlement did not retrospectively invalidate the Section 9 admission order.

Although the operational creditor had received its dues, the CIRP had acquired statutory consequences, including public announcement and the filing of an EPFO claim

The amended Section 12A imposed a mandatory statutory framework for withdrawal and expressly prohibited withdrawal before constitution of the CoC

The settlement agreement itself recognised that the CIRP could be closed only in compliance with the IBC and after obtaining the requisite orders and approvals

Therefore, the NCLAT declined to directly terminate the CIRP in the appeal but preserved the parties’ remedy under Section 12A.

It held that the post-admission settlement could be acted upon only through the procedure prescribed by Section 12A of the IBC and Regulation 30A of the CIRP Regulations.

The IRP was granted liberty to file an appropriate application before the NCLT under Section 12A, and the NCLT was requested to decide it within 15 days of receipt in accordance with law

Company Appeal (AT) (Insolvency) No. 1366 of 2026 and I.A. No. 5601 of 2026 were disposed of; pending applications, if any, were closed, with no order as to costs.