Section 12A Amendments: IBC Bill 2025 Enhances Predictability In India's Insolvency Regime

The Insolvency and Bankruptcy Code (IBC), introduced in 2016, has transformed India’s approach to corporate distress. Among its many provisions, Section 12A allowed insolvency proceedings to be withdrawn even after admission. While this acted as a safety valve, it also became one of the most frequently used exit routes, particularly in cases filed by operational creditors.

Data from the Insolvency and Bankruptcy Board of India (IBBI) shows that by June 30, 2025, 1,191 cases around 14% of all admitted CIRPs had been withdrawn under Section 12A, with 825 of these initiated by operational creditors. This pattern revealed how promoters often waited until admission before offering settlements to regain control. The weaknesses in this practice became evident in the Byju’s insolvency matter, seen as promoters attempting to short-circuit the collective process through direct settlements after admission.

The Supreme Court clarified that the promoters could not bypass Section 12A by relying on inherent powers under Rule 11 of NCLAT to permit withdrawal on grounds of settlement, since statutory provisions exist to protect creditors’ collective rights. It held that once the Committee of Creditors (CoC) is constituted, withdrawal can only occur through an application routed via the RP, placed before the NCLT, and approved by 90% of the CoC.

This reaffirmed that insolvency is a collective proceeding in which all creditors’ rights must be safeguarded. The recently proposed Insolvency and Bankruptcy Code (Amendment) Bill, 2025 carries this logic forward by refining Section 12A. If implemented, withdrawals will be permitted only after the CoC is constituted but before resolution plans are invited, and only with the approval of 90% of creditors by value. The NCLT must decide such applications within 30 days.

These boundaries ensure that once the resolution stage begins, it cannot be disrupted by lastminute settlements that undermine the process or waste the efforts of resolution applicants. For promoters, this makes the path more difficult. Earlier, many relied on a “wait and watch” approach letting CIRP admission proceed and then negotiating selectively to regain control. With the near-unanimity required among financial creditors, such manoeuvres are now unlikely to succeed. The Byju’s case illustrates this dynamic: had direct settlement been permitted, the company might have exited the CIRP process, but under the current framework, such outcomes are effectively foreclosed.

From the perspective of creditors and the system as a whole, the change is constructive. It removes space for tactical misuse, provides resolution applicants with certainty, and, most importantly, ushers in greater financial discipline. In the short term, promoters now know that once insolvency begins, their ability to negotiate diminishes sharply, compelling them to act early by repaying debts, engaging with creditors responsibly, and avoiding defaults that could cost them their enterprises. In the longer run, this shift fosters a healthier credit culture, reduces opportunism, and builds a more predictable and stable insolvency framework that enhances overall confidence in the financial system.

The data highlights the benefits of guiding cases toward resolution rather than withdrawal. On average, resolution plans yield 32.57% recovery of admitted claims, compared to only 4–6% in liquidation. Resolution also preserves more business value and jobs. By curbing opportunistic withdrawals and directing cases toward structured solutions, the amended Section 12A strengthens creditor rights, enhances transparency, and improves overall outcomes.

The reform of Section 12A thus reflects the growing maturity of India’s insolvency framework. While promoters lose flexibility, the system gains predictability, fairness, and confidence. By embedding discipline at the core of the Code, the amendments build a stronger, more credible insolvency regime that benefits creditors, investors, and the wider economy.

The author is a noted lawyer specialising in NCLT matters

Published on: Tuesday, November 11, 2025, 11:25 AM IST