Navigating complexities: Why the voting threshold is a major hurdle in insolvency application withdrawal

Mint

5 hours ago

India's leading law firms such as Shardul Amarchand Mangaldas & Co, Khaitan & Co, and JSA Advocates & Solicitors have voiced concerns about the increasing difficulty in withdrawing companies from insolvency proceedings.
A key hurdle is the stiff requirement for a 90% voting threshold from the committee of creditors (CoC) to approve such a withdrawal, even when a viable insolvency resolution plan is near, they said.
"One of the key challenges is the requirement of a 90% voting threshold from the committee of creditors (CoC), which is often difficult to achieve," said Shardul Shroff, executive chairman at Shardul Amarchand Mangaldas & Co.
Shroff was pointing to section 12A of the Insolvency and Bankruptcy Code that allows withdrawal of insolvency application against a corporate debtor only with the approval of 90% voting share of the committee of creditors, which is often hard to achieve.
Shroff also noted another hurdle wherein once the insolvency proceedings are admitted, they are treated as proceedings in rem, meaning that they impact all stakeholders of the corporate debtor and not just the parties to the settlement. "As a result, even if the CoC consents to withdrawal, dissenting stakeholders such as operational creditors or minority financial creditors may object if their claims remain unpaid or unresolved."
Law firms have mentioned some insolvency cases, including Byju's, and Syska LED, wherein creditors have failed to settle matters outside of the formal insolvency process.
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Shroff highlighted the Byju's case wherein operational creditor BCCI (Board of Control for Cricket in India) moved the insolvency court in 2024 seeking dues worth ₹158 crore. Byju's settled its dues with BCCI. The same year, however, other creditors including Glas Trust and Aditya Birla finance opposed the settlement since financial creditors did not receive their dues before BCCI, an operational creditor.
On 23 October 2024 , the Supreme Court clarified the procedure for withdrawal under Section 12A and emphasized that the National Company Law Tribunal (NCLT) Mumbai bench cannot act merely as a 'post office" . "However, the Court did not lay down any clear test or criteria that the NCLT is supposed to apply if the statutory requirements for withdrawal are otherwise met. This lack of guidance can lead to legal uncertainty and add to the procedural delays, leading to erosion of value available for stakeholders," said Shroff.
Today, Byju's still continues to be under the corporate insolvency resolution process (CIRP). This was after SC in May 2025 admitted appeal filed by BCCI and refused to stay the ongoing CIRP, but issued notices to key creditors Glas Trust, Aditya Birla Finance, etc.
The next hearing is scheduled for 21 July, when the top court will decide whether to allow withdrawal and consider interim reliefs.
Others concur.
"While the 90% threshold aims to ensure consensus, it is increasingly being relied upon by courts to disallow settlements on a bilateral basis if the majority group is opposing," Kumar Saurabh Singh, a partner at Khaitan & Co who practises banking and finance restructuring and insolvency, said.
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Bottleneck
Singh noted that when such bilateral settlements were challenged by other creditors or fresh applications were filed, they caused a 'judicial bottleneck".
According to an insolvency lawyer who practises in NCLT-Mumbai, the court rejected Syska LED Lights' application to withdraw the corporate insolvency resolution process initiated against them.
The bankruptcy case started in October last year, when Sunstar Industries, one of the operational creditors, initiated insolvency proceedings against the consumer electricals company Syska LED Lights. On 18 March 2025, Sunstar Industries filed a section 12A application for withdrawal of CIRP after reaching a settlement with Syska LED Lights. However, financial creditors, including IDFC First Bank and State Bank of India, intervened while strongly opposing the insolvency application withdrawal. The insolvency court rejected the withdrawal application this year in March.
"Given the criticality of the 12A process being the only avenue for withdrawal of a company from CIRP, commercial considerations should be paramount in the court's decision-making. Delays or any other form of judicial intervention may prove fatal," said Soumitra Majumdar, partner, JSA Advocates & Solicitors.
Majumdar is in favour of a high threshold of CoC approval. "Given the definitive nature of the 12A process, the consent threshold should be high, reflective of wide acceptance by the committee of creditors. Accordingly, a 90% threshold appears to be in order".
Still, commercial considerations should be allowed to be paramount while considering 12A processes, with absolute flexibilities and procedural safeguards.