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Withdrawal of Insolvency Application

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Last Updated on July 4, 2023 by Kanakkupillai

Withdrawal of Insolvency Application

The Indian Bankruptcy Code was enacted in 2016 to amend insolvency proceedings. The primary function of the IBC is to facilitate the efficient functioning of corporates. One of the significant steps taken by the IBC was introducing a resolution process for stressed assets, which refers to the loan amounts granted by banks. However, concerns have been raised regarding the potential dissolution of viable companies under the provisions of the IBC. To address this, Section 12 A was inserted.

Sec 12 A and Regulation 30 A

Section 12 A and Regulation 30 A are essential components of the IBC. Section 12 A emphasizes the withdrawal of liquidation proceedings. However, withdrawal is only granted when specific conditions mentioned in the act are satisfied. These conditions include the satisfaction of Sections 7, 8, and 10, which relate to initiating the insolvency process. Additionally, the withdrawal of liquidation proceedings requires the approval of 90 percent of the creditors. Regulation 30 A should be considered along with Section 12 A to grant permission to withdraw liquidation proceedings.

The Interesting Situation where Withdrawal is Demanded Suddenly

In certain interesting situations, an application for resolution may be pending before the adjudicating authority, but the parties suddenly reach a settlement plan with the creditors. In such cases, with the permission of the creditors, the party can apply to the NCLT tribunal for the withdrawal of insolvency proceedings. Section 12 A allows for the withdrawal of the application with the approval of 90 percent of the creditors.

In the case of Sathyanarayan Malu vs. CPM Paper Limited, NCLT Mumbai granted the application for the withdrawal of the insolvency application while the resolution was pending before the NCLT. The NCLT considered the creditors’ acceptance of the payment amount by the corporate debtor.

The Intersection Between Sec 12 A and Sec 29 A

Section 29 A of the Indian Bankruptcy Code prohibits certain individuals from participating in the resolution process. However, in the case of Vishwanath Shirke vs. creditors, the court held that individuals declared ineligible under Section 29 A is not barred from availing of the provisions mentioned in Section 12 A. The court concluded that Section 12 A and Section 29 A are distinct and do not restrict a person from accessing the provisions outlined in Section 29 A.

Conclusion

The withdrawal of insolvency proceedings provided by Section 12 A presents a valuable opportunity for companies. However, to derive the benefits of this provision, the approval of the majority of creditors is necessary. This opportunity allows a company to revive and continue its business operations while creditors are given the opportunity to receive the amounts owed to them by the corporate debtors.

FAQs

1. What is the purpose of the Indian Bankruptcy Code (IBC)?

The Indian Bankruptcy Code, enacted in 2016, aims to amend insolvency proceedings and facilitate the efficient functioning of corporates. It addresses the resolution of stressed assets, which refers to loan amounts granted by banks. However, concerns have been raised about the potential dissolution of viable companies under the provisions of the IBC.

2. What is the significance of Section 12 A and Regulation 30 A in the IBC?

Section 12 A and Regulation 30 A is crucial in the IBC. Section 12 A emphasizes the withdrawal of liquidation proceedings only under certain conditions. These conditions include satisfying Sections 7, 8, and 10 of the IBC. Additionally, the withdrawal of liquidation proceedings requires the approval of 90 percent of creditors. Regulation 30 A complements Section 12 A and should be considered when granting permission to withdraw liquidation proceedings.

3. Can a party withdraw an insolvency application while it is pending before the adjudicating authority?

Yes, in certain situations, if parties come to a settlement plan with the creditors while the application for resolution is pending, they can apply to the NCLT tribunal to withdraw insolvency proceedings. The withdrawal can also be requested by obtaining the approval of 90 percent of the creditors, as outlined in Section 12 A of the IBC.

4. Are there any restrictions on availing the benefits of Section 12 A due to Section 29 A?

According to the Indian Bankruptcy Code’s Section 29 A, certain individuals are barred from participating in the resolution process. However, the court, in the case of Vishwanath Shirke vs. creditors, held that individuals declared ineligible under Section 29 A is not restricted from availing of the provisions mentioned in Section 12 A. The court concluded that both sections are distinct and independent of each other.

G.Durghasree B.A.B.L (Hons)

G Durghasree B.A.B.L (Hons) is a registered trademark attorney with extensive experience as an Advocate for a period of 8 years. She possesses expertise in trademark law, including trademark filing and trademark hearings. Additionally, she is skilled in contract drafting and reviewing, providing legal advice and opinions, particularly in the areas of Company Law, Insolvency and Bankruptcy Code (IBC), and Goods and Service Tax Law (GST). Her experience encompasses both litigation and non-litigation aspects of these laws.