Can a Builder Settle Its Way Out of Insolvency? The 2026 Section 12A Rule for Bengaluru Buyers

A Bengaluru builder is admitted into insolvency. Weeks later, word goes round the homebuyers' WhatsApp group that the promoter has "settled" with the lender who filed the case and wants the whole process withdrawn. For buyers who have just filed their claims, the question is urgent: can the case simply disappear, and do they get a say? Since the Insolvency and Bankruptcy Code (Amendment) Act, 2026 received presidential assent on 6 April 2026, the answer has a clear shape. Withdrawal now needs the approval of ninety per cent of the committee of creditors, and it can only happen within a fixed window.

The short answer. According to the Insolvency and Bankruptcy Board of India's discussion paper of 15 April 2026, Section 12A as amended permits withdrawal of an insolvency case only after the committee of creditors is constituted and before the first invitation for resolution plans, requires approval of ninety per cent of the committee's voting share, and gives the Adjudicating Authority thirty days to decide the application. The trade-off for homebuyers: a high threshold makes it hard for a promoter to settle with one creditor and walk away, but it also means a settlement you might welcome needs near-unanimous creditor support to go through.

What does the amended Section 12A say?

Three rules. The IBBI discussion paper of 15 April 2026, which sets out proposed amendments to the CIRP Regulations to implement the Amendment Act, summarises Section 12A as amended. It mandates that withdrawal shall be permitted only after constitution of the committee of creditors and before issuance of the first invitation for submission of resolution plans. It requires approval of ninety per cent of the voting share of the committee. And it prescribes a timeline of thirty days for the Adjudicating Authority to pass an order on the withdrawal application.

The paper says the substitution of Section 12A fundamentally restructures the withdrawal framework by statutorily fixing the permissible window for withdrawal and by reinforcing the central role of the committee of creditors and the resolution professional.

Why did Parliament tighten withdrawal?

To stop late and unilateral exits. The paper quotes the Select Committee that examined the change. It observed that the absence of clear timelines for withdrawing a resolution process causes disruption when withdrawal applications are filed at belated stages, and that because the process is an in-rem proceeding, the committee of creditors overseeing it must be consulted before withdrawal or approval of any form of settlement.

The Select Committee also said the amendment removes a misinterpretation of Section 12A that suggested the Adjudicating Authority could permit withdrawal before the committee of creditors was constituted, using inherent powers under Rule 11 of the National Company Law Tribunal Rules, and fixes the lack of an outer time limit for seeking withdrawal. It accepted the amendment without modification.

For homebuyers, the "in-rem" point is the key one. The process is about the company and all its creditors, not just the creditor who started it. A settlement with one lender should not end a process that hundreds of buyers are relying on, unless the committee as a whole agrees.

How does the ninety per cent rule affect homebuyers?

It gives the homebuyer class real weight. Homebuyers vote in the committee of creditors through an authorised representative for their class, as IBBI's FAQs of 24 September 2025 describe. A withdrawal needs ninety per cent of the committee's voting share. As a matter of arithmetic, if the homebuyer class holds more than ten per cent of the voting share and its votes are cast against withdrawal, the ninety per cent threshold cannot be reached.

Whether that happens in any particular case depends on the class's actual voting share and on how the representative is instructed. IBBI's FAQ says the authorised representative, or the interim representative while the appointment is pending, collects instructions from homebuyers and casts votes for the class. That is why responding to the representative's requests for instructions matters.

PropNewz explained the claim deadlines and representation rules in our guide to homebuyer claims in builder insolvency, and the broader framework in our explainer on homebuyers as financial creditors.

What procedure does IBBI propose?

A tighter Regulation 30A. The paper says Regulation 30A needs to be substituted to align with the amended section, ensure withdrawal applications are filed only through the resolution professional, provide procedural certainty on timelines and safeguard the resolution process costs incurred up to withdrawal.

The proposed text says an application for withdrawal shall be made to the Adjudicating Authority by the resolution professional within three days of approval by the committee of creditors, in a form notified by the Board through circular, accompanied by a bank guarantee towards the estimated expenses incurred for specified process costs up to the date of filing. If the application is approved, the person who furnished the bank guarantee must deposit the actual expenses, as determined by the resolution professional, into the company's bank account within three days, failing which the guarantee shall be invoked.

The paper also proposes a new Form FA for the withdrawal application. These are proposals in a discussion paper, so check whether IBBI has notified them before relying on the exact procedure.

What else in the 2026 changes touches homebuyers?

Two more items in the same IBBI paper. First, the amended Section 18(b) requires the interim resolution professional to receive and collate claims in such manner as may be specified, and adds an Explanation that the professional shall verify claims and, if required, determine their value. The paper quotes the Select Committee noting that this is intended to synchronise claim collection between the resolution process and liquidation, eliminating the need for a fresh invitation and verification of claims during liquidation. For a homebuyer, that means the claim you file early in the process is meant to carry forward if the company is later liquidated.

Second, the paper proposes that a corporate applicant filing for insolvency under Section 10 must furnish details of all allottees, including their names, amounts due and units allotted, whose claims appear in the company's books or in the records of the Real Estate Regulatory Authority. If adopted, that would put the list of homebuyers in front of the tribunal and the professional from the start.

Both sit alongside rules already in place. IBBI's FAQ of September 2025 describes the amended Regulation 16A(2), under which the professional selected as authorised representative acts as interim representative for the homebuyer class while the appointment is pending, attending meetings, collecting instructions and casting votes.

Treat the proposals as proposals. The paper is a consultation document, and the final regulations may differ. The amendments to the Code itself received presidential assent on 6 April 2026; check the government's commencement notification for when each amended provision applies to a case.

What should homebuyers watch for after admission?

The window between constitution of the committee and the first invitation for resolution plans. That is the only period in which, under the amended section, a withdrawal can be sought. If a settlement is being discussed, it will surface then, and the homebuyer class will be asked to vote.

Ask hard questions before giving instructions. A settlement that pays one financial creditor but leaves the project unfinished does nothing for buyers. A settlement that comes with a credible plan, funding and a completion timeline may be worth supporting. The ninety per cent rule means your class's view is likely to matter either way.

Keep your own position safe while that happens. File your claim on time, keep proof of submission, and stay in touch with the representative. A withdrawal, if approved, ends the insolvency process, so make sure your RERA and other remedies are not allowed to lapse in the meantime.

What should a Bengaluru buyer do if a withdrawal is proposed?

Use this checklist.

1. Confirm the date the committee of creditors was constituted and whether resolution plans have been invited yet.
2. Ask the authorised representative for the terms of the proposed settlement in writing.
3. Find out the homebuyer class's voting share in the committee of creditors.
4. Check whether the settlement addresses completion of the project, not just payment to one creditor.
5. Give your voting instructions to the representative within the time asked.
6. Coordinate with other allottees through a registered association so instructions are informed and consistent.
7. Track the Adjudicating Authority's order, which the amended section requires within thirty days of the application.

Frequently asked questions

Can a builder withdraw from insolvency after settling with one lender?

Only within a fixed window and with wide support. IBBI's 15 April 2026 paper says amended Section 12A permits withdrawal only after the committee of creditors is constituted and before the first invitation for resolution plans, with approval of ninety per cent of the committee's voting share.

How long does the tribunal have to decide a withdrawal application?

The IBBI discussion paper of 15 April 2026 says Section 12A, as amended by the Insolvency and Bankruptcy Code (Amendment) Act, 2026, prescribes a timeline of thirty days for the Adjudicating Authority to pass an order on the withdrawal application.

Who files the withdrawal application under the proposed rules?

IBBI proposes that the resolution professional files it with the Adjudicating Authority within three days of the committee of creditors' approval, in a form notified by circular, with a bank guarantee covering estimated process expenses. This is a proposal in a discussion paper, so check whether it has been notified.

Why does the ninety per cent rule matter for homebuyers?

Homebuyers vote as a class through an authorised representative in the committee of creditors. Since withdrawal needs ninety per cent of the voting share, a homebuyer class holding more than ten per cent and voting against would, arithmetically, prevent the threshold from being met. Actual shares vary by case.

Last updated 2026-10-24. PropNewz Team.