For nearly eight years, the Insolvency and Bankruptcy Code, 2016 (IBC) carried within it a quiet contradiction. On the one hand, it was designed to be a serious, time-bound, collective resolution mechanism and a creditor-driven process. On the other hand, it contained Section 12A, a provision that became one of the most strategically exploited exits in Indian commercial law.

Section 12A was inserted by the Second Amendment Act, 2018 on the recommendation of the Insolvency Law Committee. Its intent was that if a debtor and creditor reconciled after insolvency proceedings had been admitted by the National Company Law Tribunal (NCLT), they should not be trapped in a process that no longer served the purpose. What followed, in practice, was a systematic distortion of that intent.

Promoters and corporate debtors quickly recognised that the IBC’s admission stage created the single most powerful negotiating argument available to creditors. The tactic became almost formulaic, i.e., a creditor files under Section 7 or Section 9, the NCLT admits the case, management is suspended, a moratorium kicks in, and suddenly the debtor is ready to negotiate. Settlement is reached, withdrawal is filed, and the process ends. Rinse and repeat.

The process was also being weaponised against its own architecture. Under the framework that existed before the 2026 amendment, withdrawal was theoretically available at four stages and each of these windows which was intended to serve as a measured safety valve, became a potential escape plan:

• before admission;

• after admission but before the CoC was constituted;

• after CoC formation but before the Expression of Interest (Form G) was issued;

• even after Form G with appropriate justification

The Insolvency and Bankruptcy Board of India’s (IBBI) own data speaks for itself. By June 30, 2025, a total of 1,191 Corporate Insolvency Resolution Process (CIRP) cases which amount to approximately 14% of all admitted CIRPs, had been withdrawn under Section 12A. Of these, 825 were initiated by operational creditors. The IBC, which was designed as a holistic resolution mechanism, was reduced to the country's most expensive debt recovery notice.

If one case crystallised everything that was wrong with this settlement-exit culture under the IBC, it was GLAS Trust Company LLC v. Byju Raveendran & Ors (2024 INSC 811). The Board of Control for Cricket in India (BCCI) had filed a petition under Section 9 of the IBC against Think & Learn Pvt. Ltd.(Byju's) for an unpaid sponsorship amount of approximately ₹158 crore. The NCLT Bengaluru admitted the petition, initiating CIRP. Within weeks, Byju Raveendran (the suspended director) reached a settlement with the BCCI. Rather than following the prescribed route under Section 12A of the IBC, the parties approached the National Company Law Appellate Tribunal (NCLAT) directly, invoking its “inherent powers” under Rule 11 of the NCLAT Rules, 2016. The NCLAT allowed the withdrawal, setting aside the NCLT's admission order entirely.

GLAS Trust Company LLC, a financial creditor of Byju's with far larger exposures than the BCCI’s ₹158 crore, challenged this. The Court held that once an insolvency application is admitted by the NCLT, the proceedings fundamentally transform in character, from a dispute in personam to one in rem. In that transformed state, the settlement between two parties, cannot be permitted to extinguish the rights of creditors who were not at the negotiating table. The Court ruled that Section 12A, read with Regulation 30A of the CIRP (Corporate Insolvency Resolution Process) Regulations, 2016, provides the exhaustive and exclusive procedure for withdrawal. Rule 11 of the NCLAT Rules or Article 142 of the Constitution, none of these could be deployed as alternate routes around a statute that had deliberately prescribed a structured exit.

The judgment sent a clear and timely message across the IBC bar that the insolvency process, once legitimately set in motion, is not the property of the creditor who filed it. It belongs to every creditor and every serious bidder who enters the courtroom.

Under the Insolvency and Bankruptcy Code (Amendment) Act, 2026, clause 8 of the Amendment Act entirely substitutes the old Section 12A with a new provision.

What Has Changed

• The pre-CoC window is now closed. Under the old regime, a withdrawal could be filed even before the CoC was constituted. The 2026 Amendment reverses this entirely, and withdrawal is now only permissible after the CoC has been constituted. This ensures that all creditors, and not just the one who filed the petition, have a collective voice before any exit is permitted.

• The post-Form G window is now closed. Once the Resolution Professional (RP) issues the first invitation for submission of resolution plans (Form G: Expression of Interest), the withdrawal option is permanently shut. It implies that from the moment serious bidders are publicly invited into the process, the process cannot be withdrawn. Third-party Prospective Resolution Applicants (PRAs) who have spent time, money, and resources on due diligence are now, for the first time, given statutory protection.

• The 90% CoC approval requirement is retained. Within the permitted window (post-CoC, pre-Form G), a withdrawal still requires 90% of the CoC's voting share to approve it. It ensures that no minority creditor is steamrolled by dominant creditor.

• The NCLT (National Company Law Tribunal) must pass an order within 30 days. The amendment inserts a mandatory 30-day deadline for the Adjudicating Authority to decide on a withdrawal application once it is received. This prevents the process from being held in limbo to freeze CIRP proceedings while settlement negotiations dragged on indefinitely.

• The requirement to seek the applicant creditor's approval is removed. Under the substituted provision, the consent of the original applicant creditor is no longer a prerequisite. Withdrawal is now a collective creditor decision, not a bilateral one between the filing creditor and the debtor.

• The role of the Resolution Professional is clarified and reinforced. Consistent with the Supreme Court’s direction in GLAS Trust judgement, all withdrawal applications must be routed through the IRP or RP and not filed directly by parties before the tribunal.

The 2026 Amendment does not operate in a vacuum. Its real-world consequences ripple across three distinct stakeholders, each of which experiences the reform differently.

For financial creditors

• The Asset Reconstruction Companies and minority lenders who previously found themselves excluded from bilateral settlements will now have a guaranteed seat at the table before any exit is sanctioned.

• The narrower withdrawal window means that creditors who want to settle must move faster. Once the CoC is formed, the clock is ticking toward Form G. There is a premium now on early and organised creditor coordination.

For Prospective Resolution Applicants (PRAs)

• PRAs are the serious bidders who respond to Form G, conduct due diligence on distressed companies, assemble financial packages, and submit resolution plans.

• The post-Form G bar now gives PRAs a statutory guarantee: once they are invited in, the process belongs to them as much as to anyone else.

For Corporate Debtors and Promoters

• If a promoter wants to settle, the right time is before the NCLT admits the petition or, at the very latest, in the narrow post-CoC, pre-Form G corridor.

• It incentivises early engagement with creditors, reduces the use of CIRP as a negotiating threat, and should cultivate a healthier credit culture where defaults are addressed before they escalate to the insolvency stage.

What the legislature has done is not merely technical. It has made a fundamental statement about the character of insolvency proceedings and that the moment NCLT admits a petition and sets the insolvency process in motion, what follows is not a private negotiation wearing judicial clothing.

The narrower withdrawal window may initially frustrate creditors and debtors who might have settled legitimately but missed the timing. Cases that could have been resolved by agreement may now proceed to resolution plans or liquidation simply because the procedural window closed on the settlement opportunity. This is a real cost, and it should not be dismissed.

India’s insolvency framework has grown considerably since 2016. It has survived constitutional challenges, absorbed global disruptions, navigated a pandemic-era moratorium, and produced a body of Supreme Court jurisprudence that compares favourably with evolved insolvency jurisdictions. The 2026 Amendment is the next step, not a revolution, but a reckoning. A reckoning with the gap between what the IBC was designed to do and what a decade of tactical advocacy had allowed it to become.

The settlement exit is not dead. It has simply been moved to where it always belonged, i.e., before the process becomes everyone's business, and not after.

About the author: Kajal Gupta is a Senior Associate at Foresight Law Offices India.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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