Section 29A

By;- CA Krishan Vrind Jain

B.Com, ACMA, FCA, RP, DISA, Cert.
Forensic Auditor & Arbitrator from ICAI
 Introduction
• Resolution plan is designated to be the “way-out” for insolvent entities
coming under the Insolvency and Bankruptcy Code, 2016.

• The resolution professional appointed by the Adjudicating Authority

constitutes a committee of creditors, invites resolution plans from
prospective resolution applicants, and places the resolution plans before
the committee of creditors.

• The resolution plan which is approved by the committee of creditors is

submitted to the Adjudicating Authority for sanction.

• A resolution applicant, as defined originally under section 5(25) of the

Code, earlier referred to mean any person who submits a resolution plan
to the resolution professional.
Introduction
• Hence, a resolution applicant might have been any person- a creditor, a promoter, a
prospective investor, an employee, or any other person. The Code had not gone into the
basis and criteria for selection of the resolution applicant. This became a fatal loophole in
the law which allowed back-door entry to defaulting promoters at substantially discounted
rates for the assets of the corporate debtor.

• To curb the illicit ways, several amendments were made in the Code, first by way of
Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 dated 23rd November,
2017, then by Insolvency and Bankruptcy Code (Amendment) Act, 2018 dated
19th January, 2018 (“Amendment Act”).

• Of all the amendments, the one which has become a riddle for all is section 29A. The
section specifies persons not eligible to be resolution applicant, and has ten parts (i.e.
clauses), the tenth part is further divided into three sub-parts, of which the third part has its
own descendants.

• These layers of section 29A are more in the nature of elimination rounds.
Layers of Ineligibility
• An assiduous analysis of Section 29A reveals that the section
imposes four layers of ineligibility, as mentioned below-
• First layer ineligibility, where the person itself is ineligible;
• Second layer ineligibility, i.e. where a “connected person” is
ineligible;
• Third layer ineligibility, i.e. being a “related party” of connected
persons; and
• Fourth layer ineligibility, where a person acting jointly/in concert
with a person suffering from first layer/second layer/third layer
ineligibility, becomes ineligible.
 Important Criteria under section 29A
• The basic idea behind section 29A is that only those who contributed to
defaults of the company or are otherwise undesirable are rendered ineligible.
• Some of the criteria specified in section 29A in respect of ineligible resolution
applicant like undischarged insolvent, convicted for offence punishable with
imprisonment and disqualification as director can apply only to an individual.
• The most important criteria are following –
• (i) clause (c) which provides that person having account with Bank which is
NPA cannot be resolution applicant and
• (ii) clause (h) which provides that a surety (guarantor) of corporate debtor
which has not paid the guarantee amount when guarantee has been invoked
cannot be a resolution applicant.
RA ineligible if Connected person is ineligible

• "Connected person" means— (i) any person who is the promoter or in the
management or control of the resolution applicant; or (ii) any person who
shall be the promoter or in management or control of the business of the
corporate debtor during the implementation of the resolution plan; or (iii)
the holding company, subsidiary company, associate company or related
party of a person referred to in clauses (i) and (ii).
• Thus, if resolution applicant associated with any 'connected person' who
is ineligible under section 29A of Insolvency Code, will be ineligible as
'resolution applicant' and hence cannot submit a resolution plan.
• Ineligible persons cannot purchase property of corporate debtor -
Ineligible will not be permitted to purchase property of the defaulting
corporate debtor. This has been specifically provided by inserting proviso
to section 35(1)(f) of Insolvency Code.
 Closing Doors for Back Entry
• Intention of section 29A of Insolvency Code is that a corporate debtor cannot
make back entry to the defaulting corporate debtor through its associate
companies or defaulting connected persons.
• It was observed that corporate debtors were trying to gain control of the
defaulting body corporate through its associate companies or group
companies. This was clear misuse of the Insolvency Code as they were getting
loan waivers and regaining control of the defaulting corporate debtor.
• Hence, section 29A of insolvency Code specified persons not eligible to be
resolution applicant. The basic idea is that persons who are already defaulters
or their associate companies or group companies cannot submit resolution
plan.
• Thus, unscrupulous persons cannot be allowed to take possession of defaulting
corporate debtors.
Important Criteria under section 29A
• Financial Entities not ineligible – Financial Entities like Banks, investment vehicles,
FIIS, Asset Reconstruction Company (ARC), Alternate Investment Funds will be
eligible as resolution applicant unless they are related party.
• Person having NPA eligible if it was acquired under an earlier resolution plan – To
encourage market of NPA, it is provided that if a person has NPA account which
they had acquired pursuant to prior resolution plan, he will be eligible if such
acquired NPA is less than three years old.
• Relaxation to resolution applicant in MSME sector - Notwithstanding anything to
the contrary contained in Insolvency Code, the provisions of clauses (c) and (h) of
section 29A of Insolvency Code shall not apply to the resolution applicant in
respect of corporate insolvency resolution process of any micro, small and medium
enterprises (MSME) – section 240A(1) of Insolvency Code inserted w.e.f. 6-6-2018.
• Thus, in case of corporate debtor in MSME sector, promoters of corporate debtor
can make application as Resolution Applicant even if they have an account with
Bank which is NPA. Similarly surety (guarantors) of corporate debtor in MSME
sector can apply as Resolution Applicant, even if they have not paid the guarantee
amount after invocation of the guarantee.
Twelfth Schedule of Insolvency Code for section 29A(d)
Thus, if any person has been convicted of an offence under any of the following sections for period of two years or more, he cannot be a
resolution applicant.
(1)
The Foreign Trade (Development and Regulation) Act, 1922 (22 of 1922);
(2)
The Reserve Bank of India Act, 1934 (2 of 1934);
(3)
The Central Excise Act, 1944 (1 of 1944);
(4)
The Prevention of Food Adulteration Act, 1954 (37 of 1954);
(5)
The Essential Commodities Act, 1955 (10 of 1955);
(6)
The Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(7)
The Income-tax Act, 1961 (43 of 1961);
(8)
The Customs Act, 1962 (52 of 1962);
(9)
The Water (Prevention and Control of Pollution) Act, 1974 (6 of 1974);
(10)
The Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (52 of 1974);
(11)
The Air (Prevention and Control of Pollution) Act, 1981 (14 of 1981);
(12)
The Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986);
(13)
The Environment (Protection) Act, 1986 (29 of 1986);
(14)
The Prohibition of Benami Property Transactions Act, 1988 (45 of 1988);
(15)
The Prevention of Corruption Act, 1988 (49 of 1988);
(16)
The Securities and Exchange Board of India Act, 1992 (15 of 1992);
(17)
The Foreign Exchange Management Act, 1999 (42 of 1999);
(18)
The Competition Act, 2002 (12 of 2003);
(19)
The Prevention of Money-laundering Act, 2002 (15 of 2003);
(20)
The Limited Liability Partnership Act, 2008 (6 of 2009);
(21)
The Foreign Contribution (Regulation) Act, 2010 (42 of 2010);
Hon’ble SC in the matter of Swiss Ribbons Pvt. Ltd. & Anr. Vs.
Union of India & Ors. The approach of the Code Para 12
a. The Code ensures revival and continuation of the CD by
protecting it from its own management and from liquidation.
b. The Code is a beneficial legislation which puts the CD back on its
feet, not being a mere recovery legislation for creditors.
c. The Code bifurcates and separates the interests of the CD from
that of its promoters / management.
d. The resolution process is not adversarial to the CD but, in fact,
protective of its interests.
e. The moratorium imposed by section 14 is in the interest of the CD
itself, thereby preserving the assets of the CD during the resolution
process.
FM while moving the Amendment Bill stated
• disqualification in clause (c)
• Effectively, this clause will mean that those, who are in
management and on account of whom this insolvent or the
non-performing asset has arisen, will now try and say, I do not
discharge any of the outstanding debts in terms of making the
accounts operational, and yet I would like to apply and get
the same enterprise back at a discounted value, for this is not
the object of this particular Act itself.
 Committee of Creditors can consider eligibility
of resolution applicant under section 29A
• (COC) is empowered under section 30 to consider independently in
respect of question of eligibility requirement of all applicants under
section 29A and
• if it is satisfied that resolution applicant is ineligible under section 29A it
can require Resolution Professional to invite fresh resolution plan or can
consider other available resolution plan with it - State Bank of
India v. Electrosteel Steels Ltd. [2018] 91 taxmann.com 294 (NCLT).
 Chitra Sharma v. Union of India, Writ Petition (Civil)
No. 744 of 2017 [decided on 09.08.2018] SC
• “31. Parliament has introduced Section 29A into the IBC with a specific
purpose. The provisions of Section 29A are intended to ensure that among
others, persons responsible for insolvency of the corporate debtor do not
participate in the resolution process. “
• “32. …….. The Court must bear in mind that Section 29A has been enacted
in the larger public interest and to facilitate effective corporate
governance. Parliament rectified a loophole in the Act which allowed a
backdoor entry to erstwhile managements in the CIRP. Section 30 of the
IBC, as amended, also clarifies that a resolution plan of a person who is
ineligible under Section 29A will not be considered by the CoC.. “
Proviso to Section 35(1)(f)liquidator shall not sell
the immovable and movable property (Blue Ribbon Case)
to ineligible persons u/s 29A
• The legislative purpose which permeates Section 29A
continues to permeate the Section when it applies not
merely to resolution applicants, but to liquidation also.
• Consequently, this plea is also rejected.
• that proviso to Section 35(1)(f) Is manifestly arbitrary
and violative of Article 14 of the Constitution of India.
Constitutional validity of Section 29A. (Blue
Ribbon Case)
• A statute is not retrospective merely because it affects existing
rights; nor is it retrospective merely because a part of the
requisites for its action is drawn from a time antecedent to its
passing.

• A resolution applicant has no vested right for consideration or

approval of its resolution plan and, therefore, no vested right
is taken away by Section 29A.
 Constitutional validity of Section 29A. (Blue
Ribbon Case)
• There is no vested right in an erstwhile promoter of a CD to bid for the
immovable and movable property of the CD in liquidation. Section 29A
not only applies to resolution applicants but also to liquidation.
• A person, who is unable to service its own debt beyond the grace
period, is unfit to be eligible to become a resolution applicant. This
policy cannot be found fault with.
• Neither can the period of one year be found fault with, as this is a policy
matter decided by the RBI and which emerges from its Master Circular,
as during this period, an NPA is classified as a substandard asset.
Constitutional validity of Section 29A. (Blue
Ribbon Case)
• Persons who act jointly or in concert with others are connected with
the business activity of the resolution applicant. All categories of
persons mentioned in section 5 (24A) of the Code must be connected
with the resolution applicant within the meaning of section 29A (j).
The categories of persons who are collectively mentioned as ‘relative’
in explanation to section 5 (24A) need to have a connection with the
business activity of the resolution applicant.
• Rationale for excluding MSMEs from eligibility criteria laid down in
Section 29A (c) and 29A (h) of the Code is qua such industries, other
resolution applicants may not be forthcoming which would not lead
to resolution but liquidation.
Verification Process
Eligibility Requirements under Verification Method
Section 29A of IBC 2016
29A(a): The Applicant(s) and Declaration in the form of an Affidavit as per format “A”
Persons Acting in Concert with the [Note: Information utility which is envisaged to carry this data is
Applicant (PAC) should not be an new and yet to have any database of undischarged insolvents
undischarged insolvent under individual insolvency laws. Also note that the individual
bankruptcy regime is not in force yet]
29A(b): The Applicant(s) and PAC (a) Declaration in the form of an Affidavit as per format “A”;
should not be is a wilful defaulter in
accordance with the guidelines of
(a) The RP may send a request (in format “B”) to identified bank,
the Reserve Bank of India issued
asking for wilful defaulter list. [Note: list of wilful defaulter as
under the Banking Regulation Act,
published by the RBI is provided to banks);
1949;

(a) RP may also check websites like watchout investors &

www.probe42.in to verify whether resolution applicant’s name
is appearing in their list.
Verification Process
29A(c): The Applicant(s) and PAC should not have an (a) Declaration in the form of an Affidavit as per format
account, or an account of a corporate debtor under “A”;
the management or control of such person or of
whom such person is a promoter, classified as non-
(a) NPA can be identified from CIBIL report of Individual
performing asset in accordance with the guidelines of
or his promoted entity (Corporate Debtor). However,
the Reserve Bank of India issued under the Banking
the limitation is that he may not disclose the entity
Regulation Act, 1949 and at least a period of one year
with whom he/she may be associated. Database
has lapsed from the date of such classification till the
check of Director’s list be undertaken and finding to
date of commencement of the corporate insolvency
be kept on record whether He/ She is a director or not
resolution process of the corporate debtor.
in any of the company as on that date. In case his
Provided that the person shall be eligible to submit a
name appears in the Director’s list then CIBIL of both
resolution plan if such person makes payment of all
the entity and Individual will have to be verified.
overdue amounts with interest thereon and charges
[Note: The only reliable available source for NPA
relating to non-performing asset accounts before
account verification as of now is CIBIL database.]
submission of resolution plan.
Verification Process
29A(d): The Applicant(s) and PAC should not
have has been convicted for any offence
punishable with imprisonment for two years
or more;
Declaration in the form of an Affidavit as per format “A”
[Note: No reliable database available to verify criminal
antecedents of any person. Hence RP may rely on the affidavit
provided by the Applicant]

29A(e): The Applicant(s) and PAC should not be (a) Declaration in the form of an Affidavit as per format “A”
disqualified to act as a director under the
(b) RP to check director disqualification database on
Companies Act, 2013;
www.probe42.in

29A(f): The Applicant(s) and PAC should not be (a) Declaration in the form of an Affidavit as per format “A”
prohibited by the Securities and Exchange
(b) RP to check database of SEBI prohibited List on
Board of India from trading in securities or
www.probe42.in
accessing the securities markets;
 Verification Process
29A(g): The Applicant(s) and PAC should not have been a (a) Declaration in the form of an Affidavit as per format “A”
promoter or in the management or control of a
(b) RP to keep track/check of all orders by the Adjudicating
corporate debtor in which a preferential transaction,
Authority under the Code in respect of preferential
undervalued transaction, extortionate credit transaction
transaction, undervalued transaction, extortionate credit
or fraudulent transaction has taken place and in respect
transaction or fraudulent transaction
of which an order has been made by the Adjudicating
Authority under this Code;

29A(h): The Applicant(s) and PAC should not have
executed an enforceable guarantee in favour of a
creditor in respect of a corporate debtor against which
an application for insolvency resolution made by such
creditor has been admitted under this Code;
(a)Declaration in the form of an Affidavit as per
format “A”
(b)CIBIL report of guarantors
29A(i): The Applicant(s) and PAC should not have has been subject to Declaration in the form of an Affidavit as per format “A”
any disability, corresponding to clauses (a) to (h), under any law in a [Note: No database available. Hence RP may rely on the
jurisdiction outside India; or affidavit provided by the Applicant]
29A(j): The Applicant(s) and PAC should not have a connected person (a) Declaration in the form of an Affidavit as per format “A
not eligible under clauses (a) to (i).
(b) Applicant to disclose all connected persons in an Affidavit in
Explanation— For the purposes of this clause, the expression
format ‘C’ –
"connected person" means—
(i) any person who is the promoter or in the management or control of - RP to repeat the aforesaid process for all connected
the resolution applicant; or persons (however, a separate affidavit from all connected
(ii) any person who shall be the promoter or in management or control persons may not be insisted upon)
of the business of the corporate debtor during the implementation of
- If applicant is an individual – his directorship in various
the resolution plan; or
companies can be checked from MCA website – check if all
(iii) the holding company, subsidiary company, associate company or
such companies have been disclosed as connected persons
related party of a person referred to in clauses (i) and (ii):
by the applicants

Provided that nothing in clause (iii) of this Explanation shall apply to— - If applicant is a company – list of subsidiaries can be
(A) a scheduled bank; or verified from its balance sheet
(B) an asset reconstruction company registered with the Reserve Bank
- However, there is no comprehensive data base from where
of India under section 3 of the Securitisation and Reconstruction of
all connected persons of the applicant can be determined –
Financial Assets and Enforcement of Security Interest Act, 2002; or
therefore, the RP may rely on the affidavit of connected
(C) an Alternate Investment Fund registered with the Securities and
persons provided by the applicant
Exchange Board of India.".
Related party
• “Related party” has been defined in Section 5 (24); however, the
definition is specific to corporate debtor, i.e. the definition specifies the
persons who shall be treated as “related party’ of the corporate debtor.
Hence, where the persons referred to in clauses (i) and (ii) of the
Explanation are persons other than the corporate debtor, the definition
under section 5(24) becomes irrelevant, and the following may be noted-
• Where one of the person is a company, “related party” shall be
interpreted in terms of section 2(76) of the Companies Act, 2013;
• Where none of the persons is a company, the definition of the term
“related party” has been inserted by sec 5 (24A). In the context of natural
persons, generally the term “relative” is used.
Associate Company
• For the purpose of determining whether a company is an associate of
the other, the definition as under Section 2(6) of the Companies Act,
2013 shall be referred, wherein “Associate company”, in relation to
another company, means a company in which that other company
has a significant influence, but which is not a subsidiary company of
the company having such influence and includes a joint venture
company.
• For the purpose of the said definition, “significant influence” means
control of at least 20% (twenty per cent) of total share capital, or of
business decisions under an agreement.
• For example- “Company X” holds 20% of total share capital of
Company “Y”, then
• Company X will be deemed to be an associate company of Company
Y.
Relevant time- whether lookback allowed?
• A relevant question would be regarding the point of time at
which the ineligibility has to be ascertained. The language
of the section suggests that only present status of the
resolution applicant has to be seen. No lookback period has
been prescribed.
• However, my opinion is that it would be upon the committee
of creditors to decide on whether any past event shall be
weighed upon while making the final decision.
Regulations related to 29A/Resolution applicant /Resolution plan relevant
from the point of 29A to be complied with by RP/COC or Both
• 36A. Invitation for expression of interest.
• …………………..
(7) An expression of interest shall be unconditional and be accompanied by-
(a) an undertaking by the prospective resolution applicant that it meets the criteria specified by the
committee under clause (h) of sub-section (2) of section 25;
(b) relevant records in evidence of meeting the criteria under clause (a);
(c) an undertaking by the prospective resolution applicant that it does not suffer from any ineligibility
under section 29A to the extent applicable;
(d) relevant information and records to enable an assessment of ineligibility under clause (c);
(e) an undertaking by the prospective resolution applicant that it shall intimate the
resolution professional forthwith if it becomes ineligible at any time during the corporate
insolvency resolution process;
(8) The resolution professional shall conduct due diligence based on the material on record in
order to satisfy that the prospective resolution applicant complies with-
(a) the provisions of clause (h) of sub-section (2) of section 25;
(b) the applicable provisions of section 29A, and
(c) other requirements, as specified in the invitation for expression of interest.
(9)The resolution professional may seek any clarification or additional information or document from the
prospective resolution applicant for conducting due diligence under sub-regulation (8).
 Thank you
CA. Krishan Vrind Jain
09417009490
Email jainkv@gmail.com