The End Of The “Settlement Exit”? — The Stricter Section 12A Regime Post-2026 Amendment

The 2026 IBC amendment tightens Section 12A to curb settlement‑exit abuse and protect creditors and prospective resolution applicants.

The old game: How Section 12A became a Loophole

For nearly eight years, the Insolvency and Bankruptcy Code, 2016 (IBC) carried within it a quiet contradiction. On the one hand, it was designed to be a serious, time-bound, collective resolution mechanism and a creditor-driven process. On the other hand, it contained Section 12A, a provision that became one of the most strategically exploited exits in Indian commercial law.

Section 12A was inserted by the Second Amendment Act, 2018 on the recommendation of the Insolvency Law Committee. Its intent was that if a debtor and creditor reconciled after insolvency proceedings had been admitted by the National Company Law Tribunal (NCLT), they should not be trapped in a process that no longer served the purpose. What followed, in practice, was a systematic distortion of that intent.