Withdrawal of Section 7 insolvency case after liquidation begins: Section 12A bar upheld, appeal dismissed

Section 12A of the IBC was held inapplicable once the corporate debtor has entered liquidation under Chapter III; withdrawal of a Section 7 proceeding at that stage cannot be permitted. The Tribunal reasoned that Section 12A was consciously confined by the legislature to the CIRP stage under Chapter II, and extending it to liquidation through inherent powers would contradict legislative intent and distort the statutory liquidation framework; accordingly, the application seeking withdrawal was not maintainable and the impugned order was affirmed. The request to refer the matter to a larger Bench based on alleged divergent co-ordinate Bench views was rejected as unnecessary in view of binding precedent holding Section 12A inapplicable at liquidation. The appeal was dismissed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether withdrawal of proceedings initiated under Sections 7/9/10 can be permitted after an order of liquidation has been passed, by invoking Section 12A despite its placement and operation within Chapter II (CIRP) of the Code.

(ii) Whether the Tribunal can use inherent powers (including those traced to Section 60(5) and Rule 11) to allow such post-liquidation withdrawal/closure on the basis of a settlement/OTS and payments made, despite the absence of a specific statutory provision in Chapter III (liquidation).

(iii) Whether, in the presence of divergent co-ordinate bench views, the matter must be referred to a larger bench, or whether a later, higher-strength bench decision binds and governs the issue.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Applicability of Section 12A at the liquidation stage

Legal framework (as discussed by the Court): The Court examined the placement and scheme of Section 12A as inserted by amendment with effect from 06.06.2018, noting that it forms part of Chapter II which "exclusively deals" with CIRP. Liquidation is treated as a distinct, later stage governed by Chapter III, reached after exhaustion of CIRP.

Interpretation and reasoning: The Court held that the legislature's choice to confine Section 12A to Chapter II, and not introduce any corresponding provision in Chapter III, reflects an "intentional, intelligible, and conscious legislative distinction." From this, the Court drew the logical inference that withdrawal under Section 12A is confined to the CIRP stage and is not available once liquidation has commenced. The Court rejected the contention that a settlement/OTS concluded after liquidation and payments made could substitute for the statutory mechanism of Section 12A or justify "borrowing" Section 12A into liquidation proceedings.

Conclusions: Section 12A cannot be invoked for withdrawal once an order of liquidation has been passed; there is no statutory basis to "push back" the process de novo after liquidation has begun.

Issue (ii): Use of inherent powers to permit post-liquidation withdrawal based on OTS

Legal framework (as discussed by the Court): The Court considered whether powers under Section 60(5) read with Rule 11 could be stretched to permit withdrawal at liquidation stage, and relied on the principle that inherent powers cannot be used where the statute occupies the field and provides specific parameters. The Court also applied the caution that adjudicatory bodies under the Code should remain confined to the statutory framework and avoid introducing "alien process" after a stage has been exhausted.

Interpretation and reasoning: The Court reasoned that since the Code deliberately provides a withdrawal mechanism (Section 12A) only at the CIRP stage, the field is not a "vacuum" permitting inherent powers to override or bypass the statutory scheme. Extending Section 12A into liquidation via inherent powers was characterised as "irrational," contrary to legislative intent, and an impermissible "experimentation" that would distort the object and efficiency of the Code and potentially sabotage the prescribed statutory procedure with "catastrophic consequences." The Court noted that no provision was shown that could lawfully take the matter outside liquidation once liquidation had commenced.

Conclusions: Inherent powers cannot be invoked to permit withdrawal/closure at the liquidation stage by importing Section 12A or by giving effect to an OTS/"No Due Certificate" after liquidation has been ordered.

Issue (iii): Effect of divergent co-ordinate bench views and need for reference

Legal framework (as discussed by the Court): The Court addressed the contention that divergence among co-ordinate benches necessitates reference to a larger bench. It held the principle applies where differing views are by benches of the same strength.

Interpretation and reasoning: The Court found that the governing view was laid down by a later decision of a three-member bench, which was of higher strength and later in time, and therefore constituted the binding precedent on the question whether Section 12A can operate during liquidation. Consequently, no reference was required.

Conclusions: The later, higher-strength bench ruling binds; the issue is treated as covered and no larger bench reference is warranted.

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