For years, a settlement struck soon after an insolvency petition was admitted could end the corporate insolvency resolution process (CIRP) almost as quickly as it began. However, that door has now narrowed. The Section 12A IBC Amendment 2026 rewrites the rules on withdrawing an admitted insolvency application. Promoters, creditors and resolution professionals who misread the new timing may find a settlement legally impossible to implement.
This guide explains what has changed, when the new rules apply, and how parties should plan a settlement under the amended Section 12A of the Insolvency and Bankruptcy Code, 2016 (IBC).
What the Section 12A IBC Amendment 2026 Changes
The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (Act No. 6 of 2026) received Presidential assent on 6 April 2026. By notification S.O. 2625(E) dated 22 May 2026, the Ministry of Corporate Affairs brought the substituted Section 12A into force from 26 May 2026.
The new provision has three key elements:
- Who applies, and with what vote: The withdrawal application is now made by the resolution professional, with the approval of 90% of the voting share of the Committee of Creditors (CoC). The 90% threshold itself has not changed.
- A fixed window: An application admitted under Section 7, 9 or 10 cannot be withdrawn before the CoC is constituted under Section 21(1), and cannot be withdrawn after the resolution professional issues the first invitation for submission of resolution plans. This bar applies notwithstanding anything in any other law.
- A 30-day decision timeline: The NCLT must decide the withdrawal application within 30 days of receiving it, and must record its reasons in writing if it misses that deadline.
How the Old Regime Worked
Before the amendment, Section 12A was a single sentence requiring 90% CoC approval, and Regulation 30A of the CIRP Regulations supplied the procedure. Regulation 30A allowed an applicant to seek withdrawal even before the CoC was formed, through the interim resolution professional. Moreover, it also permitted late-stage withdrawal after an invitation for expressions of interest, provided the applicant explained why.
Tribunals sometimes went further and invoked their inherent powers under Rule 11 of the NCLT Rules to permit early settlements. The Supreme Court curtailed that practice in GLAS Trust Company LLC v. BYJU Raveendran (2024), holding that withdrawal must follow the statutory route. As a result, the 2026 amendment now writes that discipline directly into the Code.
Why Parliament Narrowed the Window
The Select Committee that examined the Bill observed that withdrawal applications filed at belated stages were disrupting insolvency processes, and that the earlier law set no outer time limit for them. Because a CIRP is a proceeding in rem, affecting all creditors and not only the one who filed, the Committee considered it essential that the CoC be consulted before any withdrawal or settlement. Additionally, it also wanted to end reliance on inherent powers to allow pre-CoC withdrawals.
The result is a defined window: settlement remains possible, but only while the CoC is in place and before prospective bidders are invited to submit resolution plans.
Practical Impact for Promoters and Creditors
1. Early settlements must now wait
If a promoter clears an operational creditor’s dues a week after admission, the CIRP cannot be withdrawn straight away. The parties must wait until the CoC is constituted and then secure the 90% vote. The moratorium, the suspension of the board’s powers and the running of process costs all continue in the meantime, so settlement terms should account for that period.
2. The real deadline is the first invitation for resolution plans
Once the resolution professional issues the first invitation for resolution plans, withdrawal is barred even if every creditor agrees to it. Therefore, promoters negotiating a one-time settlement should track the CIRP timeline closely. They should also conclude terms well before that invitation goes out.
3. The resolution professional controls the filing
Since the application is now made by the resolution professional, settling parties need the RP’s cooperation and a CoC resolution in hand. Importantly, settlement documents should provide for payment of CIRP costs and the RP’s fees, as CoC members will expect those to be covered before they vote.
4. Commercial wisdom still applies inside the window
In Vallal RCK v. Siva Industries and Holdings Ltd. (2022), the Supreme Court held that when 90% of the CoC approves a settlement and withdrawal, the tribunal cannot sit in appeal over that commercial decision. That principle continues to apply, but only within the window the amended Section 12A now permits.
Checklist: Planning a Section 12A Settlement
- Confirm the CIRP stage: has the CoC been constituted, and has the first invitation for resolution plans been issued?
- Map the voting shares of financial creditors and identify whose support is needed to reach 90%.
- Agree on the settlement amount, including CIRP costs and resolution professional fees.
- Obtain a CoC resolution approving withdrawal with at least 90% of the voting share.
- Ensure the resolution professional files the application promptly; the NCLT then has 30 days to decide it.
How Lex Pleaders Can Help
Timing is now everything in a CIRP settlement. Lex Pleaders advises promoters, financial creditors and operational creditors on negotiating settlements, structuring CoC approvals and representing clients before the NCLT and NCLAT. For a broader view of the process, read our complete guide to NCLT insolvency proceedings in Delhi NCR. Alternatively, learn more about our commercial litigation and arbitration practice.
If you are facing a CIRP or considering a settlement with a corporate debtor, contact our insolvency team for a stage-specific assessment before the withdrawal window closes.
Disclaimer: This article is for general information only and does not constitute legal advice. Readers should seek professional advice on the facts of their case.