Settlement-related withdrawal of CIRP must be pursued before the Adjudicating Authority under Section 12A.

Bhagwati Trading Co., the operational creditor, initiated proceedings under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) against Prajit Prasannan.

The National Company Law Tribunal (“NCLT”) admitted the application and initiated CIRP against the appellant by order dated 5 August 2026.

During the pendency of the proceedings before the NCLT, the parties executed a Settlement Deed/Memorandum of Understanding dated 29 July 2026, recording an amicable settlement and providing that the operational creditor would withdraw the proceedings.

The settlement was not brought to the NCLT’s notice before the order was passed, although the operational creditor subsequently filed an application seeking appropriate relief.

After removal of defects, the application was numbered IA No. 3840/2026 and was taken up by the NCLT on 19 August 2026; notice was issued, an issue concerning the invocation of inherent powers under Rule 11 of the NCLT Rules, 2016 was framed, and an amicus curiae was appointed.

The present appeal challenged the CIRP commencement order and sought liberty to pursue withdrawal of the proceedings on the basis of the settlement.

Whether the appeal against the CIRP commencement order should be adjudicated in light of the parties’ settlement allegedly reached before the order was passed?

Whether the parties should pursue the settlement and withdrawal relief before the NCLT in the pending interlocutory application?

Whether the operational creditor could seek withdrawal of the CIRP under Section 12A of the IBC read with Regulation 30A of the CIRP Regulations, 2016, subject to the outcome of the pending proceedings before the NCLT?

The Court applied Section 9 of the IBC, under which an operational creditor may initiate CIRP upon the existence of an operational debt and default.

It also recognised the statutory mechanism under Section 12A of the IBC read with Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, permitting withdrawal of CIRP after admission, subject to the prescribed procedure and approval of the requisite majority of the Committee of Creditors, where applicable.

The Court further noted the possible relevance of Rule 11 of the NCLT Rules, 2016, which preserves the NCLT’s inherent powers to pass orders necessary to secure the ends of justice, but left its applicability to be considered by the NCLT in the pending interlocutory application.

The NCLAT noted that both parties accepted that their dispute had been settled before the CIRP commencement order and that the settlement had been reduced to writing.

The Settlement Deed specifically contemplated withdrawal of the proceedings by the operational creditor.

However, because the settlement had not been effectively placed before the NCLT before the order dated 5 August 2026, and because the NCLT was already examining the subsequent application involving the settlement and the possible exercise of inherent powers, the NCLAT declined to determine the settlement’s legal effect in the appeal.

Instead, it considered it appropriate for the parties to pursue their remedies before the NCLT, including an application under Section 12A read with Regulation 30A, if warranted by the outcome of IA No. 3840/2026.

The parties were directed to pursue their grievance before the NCLT in IA No. 3840/2026.

The operational creditor was granted liberty to file an appropriate application under Section 12A of the IBC read with Regulation 30A for withdrawal of the CIRP, depending on the outcome of the pending application.

The interim order dated 12 August 2026 passed by the NCLAT was directed to remain operative until the final disposal of IA No. 3840/2026, stated to be listed before the NCLT on 9 September 2026.