CIRP Withdrawal Must Follow Section 12A Of IBC, Creditor Cannot Be Forced To Settle: NCLAT New Delhi

The New Delhi Bench of the National Company Law Appellate Tribunal (NCLAT), on 27 October held that a financial creditor cannot be compelled to accept a settlement against its wishes and that withdrawal of the Corporate Insolvency Resolution Process (CIRP) must follow the procedure prescribed under Section 12A of the Insolvency and Bankruptcy Code, 2016 (IBC).

A Bench of Judicial Member Justice Mohd Faiz Alam Khan and Technical Member Naresh Salecha dismissed an application filed by Nandkumar Khattumal Harchandani, promoter and suspended director of N. Kumar Housing & Infrastructure Private Limited, seeking permission to deposit the admitted financial debt and restrain further steps in the CIRP. It held:

“We also notice that a mechanism has been provided in the Code with regard to the withdrawal of the application by the financial or operational creditor under Section 12A of the Code and Regulation 30A of the CIRP Regulation, 2016, as elaborated by the Hon'ble Supreme Court in the GLAS Trust case. In our considered opinion, a financial creditor cannot be compelled to enter into a settlement against its willingness in order to close the CIRP.”

The application arose from an order passed by the Mumbai Bench of the National Company Law Tribunal (NCLT) on 7 September 2026. Harchandani sought permission to deposit Rs. 75 crore immediately and pay the balance of the admitted financial debt within 15 days. He also sought to restrain the Resolution Professional (RP) from issuing a request for resolution plans pending adjudication of another application before the NCLT.

Harchandani maintained that he was not seeking withdrawal of the CIRP or restoration of management but intended to protect the creditors' interests. He argued that only Rs. 25 crore had originally been disbursed under a term loan sanctioned in 2011, while the admitted claim of the sole financial creditor, Omkara Assets Reconstruction Private Limited, had risen to Rs. 89.94 crore.

Further, he submitted that payment of the entire admitted debt was distinct from a settlement under Section 12A and that continuation of the CIRP would serve no purpose once the creditors' claims were secured.

The RP and Omkara Assets Reconstruction opposed the application, calling it an attempt to obstruct the CIRP and circumvent the procedure under Section 12A. They pointed out that Form G had already been issued, expressions of interest had been received, and another application seeking substantially similar relief was pending before the NCLT.

The respondents also alleged that Harchandani and the other suspended directors had repeatedly failed to cooperate with the RP despite directions and undertakings. They submitted that the outstanding dues had increased beyond the admitted claim due to the passage of time and accumulated interest.

The Tribunal noted that the CIRP had commenced with an admission order dated 24 February 2023, which had survived challenges before both the NCLAT and the Supreme Court.

It clarified that the appeal arose from an order directing cooperation under Section 19(2) of the IBC. The proceedings were therefore confined to examining that order and could not be expanded to determine whether the CIRP should be closed or withdrawn.

The Bench also noted that Harchandani had already approached the NCLT seeking closure of the CIRP upon payment of the creditors and a stay on further insolvency proceedings. Seeking substantially the same relief before two forums amounted to forum shopping and an abuse of the process of law, it held.

Reiterating the statutory framework, it held that withdrawal of insolvency proceedings must comply with Section 12A of the IBC and Regulation 30A of the CIRP Regulations, 2016. A financial creditor cannot be forced to accept a settlement or payment proposal against its wishes to bring the CIRP to an end.

Accordingly, the NCLAT dismissed the application for lack of merit and listed the main appeal for further proceedings on 2 November 2026.