Section 29A IBC Ineligibility: Connected Persons Cases

Section 29A keeps those responsible for a company's failure, and persons connected with them, from buying it back through the process. Questions usually present a bidder with a hidden link to a defaulter and ask whether it is caught, whether it can cure the bar, and when eligibility is tested. The answer requires reading the relevant clause, then looking through the corporate structure to the persons in control.

1. The Law in Brief

Figure 1: The ten grounds of ineligibility

• Scope. A person is ineligible to submit a resolution plan if it, or any person acting jointly or in concert with it, falls within clauses (a) to (j)
• Testing. Eligibility is tested when the plan is submitted, and the applicant files an affidavit of eligibility (section 30(1)); the resolution professional examines it and the committee decides (ArcelorMittal, 2018)
• Liquidation. An ineligible person cannot buy assets from the liquidator (proviso to section 35(1)(f)) or propose a scheme of compromise in liquidation (Jagatramka, 2021)

2. Can a Promoter with an NPA Account Bid?

• Issue. Whether a promoter who controls a company with an NPA account may submit a plan, and how the bar can be cured.
• Law. Section 29A(c) makes ineligible a person who, or whose controlled or promoted corporate debtor, has an account classified as an NPA for one year or more before the insolvency commencement date, unless all overdue amounts with interest and charges are paid before the plan is submitted. The new company is caught because Mr F is a connected person under clause (j) and Explanation I. In ArcelorMittal (2018), the Supreme Court allowed bidders to become eligible by paying the overdues of the linked NPA accounts. Under section 240A, clauses (c) and (h) do not apply to resolution applicants for MSMEs.
• Application. JK Ltd, controlled by Mr F, has been an NPA for two years. Any company he controls or promotes is affected through clause (j)
• Conclusion. Mr F's company is ineligible unless JK Ltd's overdues of ₹60 crore, with interest and charges, are paid before the plan is submitted. If GH Ltd is an MSME, clause (c) does not apply, and he may bid without paying, subject to the other clauses.

3. When Is a Bidder Acting in Concert with a Defaulter?

• Issue. Whether a bidder linked to a wilful defaulter through layered structures and family members is ineligible.
• Law. Section 29A bars a person acting jointly or in concert with an ineligible person, and a person who has a connected person who is ineligible (clause (j)). In ArcelorMittal (2018), the Supreme Court gave acting jointly or in concert its ordinary meaning, covering persons pursuing a common objective even informally, and held that the committee and the NCLT must look behind corporate structures to see who is really in control.
• Application. The former chairman is ineligible under clause (b). The beneficial owners of LM Holdings are his children, and its finance comes from a guarantor of NO Ltd's debts. The structure appears designed to return control to the chairman's family.
• Conclusion. The committee should treat LM Holdings as acting in concert with the wilful defaulter and as having an ineligible connected person, and should not consider its plan. If it approved the plan, the NCLT could reject it under section 31 for non-compliance with section 30(2)

Figure 2: Ways out of section 29A, and one that fails

4. Does an Unpaid Guarantee Bar Bidding for Any Company?

• Issue. Whether clause (h) bars a guarantor from bidding for any corporate debtor, or only for the one whose debt it guaranteed.
• Law. Section 29A(h) makes ineligible a person who has executed a guarantee in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by that creditor has been admitted, where the guarantee has been invoked by the creditor and remains unpaid in full or part. The clause is not limited to plans for that corporate debtor.
• Application. PQ Ltd's guarantee for RS Ltd, whose CIRP was admitted on the lenders' application, has been invoked by them and remains unpaid. The disqualification attaches to PQ Ltd as a person.
• Conclusion. PQ Ltd is ineligible to submit a plan for TU Ltd as well, unless TU Ltd is an MSME, in which case section 240A disapplies clause (h). PQ Ltd may remove the bar by honouring the invoked guarantee in full.

5. Can Late Restructuring Cure Section 29A Ineligibility?

• Issue. Whether ineligibility at the time of submission can be cured by later restructuring, and whether an ineligible promoter may propose a scheme in liquidation.
• Law. In ArcelorMittal (2018), the Supreme Court held that eligibility is tested at the time the plan is submitted, and later restructuring does not cure it, though the proviso to clause (c) allows payment of overdues before submission. In Arun Kumar Jagatramka v Jindal Steel and Power (2021), the Court held that a person ineligible under section 29A cannot propose a scheme of compromise or arrangement for a company in liquidation under the Code.
• Application. VW Ltd was ineligible under clause (e) read with clause (j) when it submitted its plan, as its director was disqualified. ZA Ltd's promoter is ineligible and seeks to regain the company through a scheme.
• Conclusion. VW Ltd's plan cannot be considered; it may submit afresh only if the process allows a new submission and it is then eligible. ZA Ltd's promoter cannot propose a scheme, nor buy assets from the liquidator.

6. Frequently Asked Questions

Does section 29A require any wrongdoing by the bidder?

No. Clause (c) bars a person with an NPA account even without fraud; the Supreme Court held this to be a legitimate policy choice in Swiss Ribbons (2019).

Is an ARC that holds shares in an NPA company ineligible?

Not under clause (c), if it is a financial entity and not a related party of the corporate debtor.

Who decides eligibility?

The resolution professional examines the affidavit and presents his view; the committee decides; and the NCLT may review it when considering approval under section 31.

7. Related Topics

• Topic 38: Section 29A. Ineligible resolution applicants.
• Topic 39: Promoters under IBC. 29A, settlements and liquidation.
• Topic 115: IBC Minimum Payments. Operational and dissenting creditors.