Costs Imposition Requires Record-Based Reasons; unexplained monetary penalties on creditors for insolvency withdrawals were quashed.

Imposition of costs on financial creditors arising from a withdrawal under insolvency withdrawal provisions requires a reasoned, record-based finding establishing either that the withdrawal should have been disallowed or that creditors engaged in sanctionable misconduct; absent such findings and absent recorded objections by other creditors, imposing a monetary penalty is unsustainable. The tribunal confined review to the stated reasons for cost imposition, found none adequate, and therefore set aside the part of the order directing costs against the financial creditors, quashing that penalty.

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Issues: Whether the component of the impugned order imposing costs of Rs. 5,00,000/- on each of the financial creditors should be set aside.

Analysis: The Tribunal examined the circumstances leading to withdrawal under Section 12A of the Insolvency and Bankruptcy Code and the facts that (i) the Corporate Insolvency Resolution Process commenced and an interim order restrained constitution of the committee of creditors, (ii) the corporate debtor entered into one-time settlements with financial creditors after the interim order, and (iii) no other creditor filed objection to the Section 12A application. The Tribunal considered the relevance of the right of other creditors to object (as noted in prior authority) but found no objections recorded in the impugned order. On the question of imposing costs, the Tribunal held that imposing a monetary penalty on the financial creditors required valid reasons tied to the record; absent a finding that withdrawal under Section 12A ought to be disallowed or that the creditors had committed sanctionable misconduct, the imposition of costs was not sustainable. The Tribunal therefore confined its review to the reasoned basis for cost imposition and found none sufficient to warrant the penalty.

Conclusion: The part of the impugned order dated 30/10/2025 imposing costs of Rs. 5,00,000/- on each financial creditor is set aside and the appeals are allowed to that extent; the direction to impose costs is quashed in favour of the appellants.

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