Section 29A of Insolvency and Bankruptcy Code

Section 29A- concept and relevance

Section 29A of the IBC, 2016 contains the list of Conditions that would disqualify a potential bidder from being a resolution applicant. Section 29A goes a step further in its capacity to effectively prevent the incumbent management to participate in the future of the distressed company all together. Here, we go through the motivations of enacting Section 29A and how it influenced India’s new era of corporate restructuring.

         There are three layers of Ineligibility and they are as follows:

This section asserts protection to the creditors of the company by safeguarding them against unscrupulous persons who irrespective of the earlier defaults are trying to reward themselves by taking the system for a ride resulting in the very objective of the resolution process going for a toss. The Resolution Professional has the responsibility to conduct due-diligence u/s 29A of the Code. Adequate due diligence on the prospective Resolution Applicants and their connected persons needs to be conducted efficiently and independently subject to the timeline prescribed by the NCLT. The CoC has been empowered to review the Due diligence report submitted by the Resolution Professional and to decide on approval or rejection of the Resolution Plan. 

Examples of attacks on the provision of Section 29A of the Code

Following are the case studies in which this provision was challenged over some time since the enactment of the code:

The Supreme Court while dealing with the proposal of JAL to submit a resolution plan for CIRP of Jaypee Infratech Limited (JIL), observed the following:

The above judgments do not provide any rational basis for the solutions on such extraordinary circumstances and therefore the stop-gate to the promoters by sec. 29A is getting withered away. After going through the above cases and the time taken by them, it is evident that the IBC has failed to comply with the timeline of 330days as envisaged under the Code read with the rules relating to the same, and this has impacted the confidence of the Investors intending to participate in the Bidding process of such defaulting companies.


 Section 29A of the Code enacted multiple layers of relations and try to stop back door entry of promoter or connected to the promoter group of the Corporate Debtor for acquisition of the company at discount fall. This section on one side put some barriers for defaulting directors and other side safeguards the interest of other stakeholders may make IBC and CIRP Process much more economically by investing in target company. The enactment of the section might also disbar crucial stakeholders to bid for the revival of the company. Therefore, certain amount of forbearance by the courts in deciding the issue of ineligibility is the need of the hour to maximize the objectives of the Code. The Code was designed to find the best possible way out for a sick entity- it was meant to be more inclusive in approach and there was definitely no intention to avoid promoters from submitting resolution plans. However, the reach of Section 29A extends to four layers (as explained above), and may lead to exactly opposite results.

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