2026 (3) TMI 157 - AT - IBC

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 ... Condonation of delay - imposition of costs on financial creditors in Section 12A withdrawal Condonation of delay - Application for condonation of 14 days' delay in filing the appeal - HELD THAT: - The Tribunal considered the explanation that after receipt of the Adjudicating Authority's order imposing costs the Bank referred the matter to its head office and obtained approval before filing the appeal. The Tribunal found that sufficient cause was shown in the application and therefore the delay in filing the appeal was excused. [Paras 2, 3, 4] Delay of 14 days condoned. Imposition of costs on financial creditors in Section 12A withdrawal - Validity of the Adjudicating Authority's imposition of costs of Rs. 5,00,000 on each financial creditor while allowing the Section 12A withdrawal - HELD THAT: - The Tribunal examined the facts that the Corporate Debtor entered into settlements with financial creditors after an interim order directing collation of claims and withholding constitution of the CoC, and that no other creditor had filed objections to the Section 12A application. While noting the Supreme Court's decision in Glass Trust Company (LLC) recognising other creditors' right to object, the Tribunal observed that no objections were recorded in the impugned order. The Tribunal concluded there was no valid reason recorded in the impugned order for imposing costs on the financial creditors merely for entering into settlement and facilitating withdrawal, and that the Adjudicating Authority could have taken other courses of action if it considered the withdrawal inappropriate. Accordingly, the imposition of costs was found to be unjustified. [Paras 11, 12, 13, 14, 15] Impugned order insofar as it imposed costs of Rs. 5,00,000 on each financial creditor is set aside. Final Conclusion: The application for condonation of delay is allowed and the appeals are allowed insofar as the Tribunal has set aside the direction to impose costs of Rs. 5,00,000 on each financial creditor in the impugned order. 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.