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How to Assess Resolution Applicant Eligibility Under Section 29A of the Insolvency and Bankruptcy Code

Writer: Kaustav Chowdhury
Kaustav Chowdhury
5 minutes ago
5 min read

Section 29A of the Insolvency and Bankruptcy Code, 2016 is the gatekeeping provision of the resolution process. It disqualifies defined categories of persons from submitting a resolution plan, and it reaches beyond the applicant to anyone acting jointly or in concert with him and to his connected persons. Eligibility disputes are among the most common grounds on which approved plans are challenged, and the NCLAT has recently confirmed that the list is exhaustive: a practising chartered accountant is not disqualified merely by profession. This guide sets out how to run the screen properly.

Step 1: Fix the Relevant Date

Eligibility is tested as at the date of submission of the resolution plan, not the insolvency commencement date. The Supreme Court settled this for micro, small and medium enterprises in Hari Babu Thota [Civil Appeal No. 4422 of 2023, decided November 29, 2023], holding that an enterprise registering as an MSME after commencement of the process may still rely on the relief available to it.

In practice, record the test date in the eligibility note. A disqualification that has been cured before submission, such as payment of overdue amounts on a non-performing account, does not continue to bar the applicant.

Step 2: Screen the Applicant Against Each Clause

Work through clauses (a) to (j) in order rather than forming an overall impression:

  1. Clause (a): Undischarged insolvent.

  2. Clause (b): Wilful defaulter under the Reserve Bank of India guidelines issued under the Banking Regulation Act, 1949.

  3. Clause (c): An account classified as non-performing for at least one year before commencement, or management or control of such an account, unless all overdue amounts with interest and charges are paid before submission.

  4. Clause (d): Conviction for an offence punishable with two years or more under the statutes listed in the Twelfth Schedule, or seven years or more under any other law, subject to the two-year period after release.

  5. Clause (e): Disqualification to act as a director under the Companies Act, 2013.

  6. Clause (f): Prohibition by the Securities and Exchange Board of India from trading in or accessing the securities markets.

  7. Clause (g): Promoter or in management or control of a corporate debtor in which a preferential, undervalued, extortionate credit or fraudulent transaction has been adjudicated.

  8. Clause (h): Executed a guarantee in favour of a creditor of a corporate debtor under insolvency, where the guarantee has been invoked and remains unpaid.

  9. Clause (i): Subject to a disability corresponding to any of the above under any law in a foreign jurisdiction.

  10. Clause (j): A connected person falling within any of clauses (a) to (i).

Step 3: Map the Connected Persons

Clause (j) read with Explanation I is where most eligibility failures are found. A connected person includes any person who is the promoter or in the management or control of the resolution applicant; any person who will be the promoter or in management or control of the business of the corporate debtor during implementation of the plan; and the holding company, subsidiary company, associate company or related party of either.

Build the map as a chart rather than a list. Trace upward to ultimate beneficial ownership, sideways to associates and related parties, and forward to whoever will run the corporate debtor after implementation. The forward-looking limb is routinely overlooked and is precisely where a disqualified promoter attempts to return.

Step 4: Apply the MSME Relief Where It Is Available

Section 240A of the Code disapplies clauses (c) and (h) of Section 29A where the corporate debtor is a micro, small or medium enterprise. The relief is confined to those two clauses. Every other disqualification continues to apply in full, including conviction, director disqualification, securities market debarment and the fraudulent transaction limb.

In practice, verify the Udyam registration and the classification thresholds contemporaneously, and keep the certificate on the record. The relief exists to allow promoters of small enterprises to bid for their own businesses, and it is regularly contested.

Step 5: Obtain and Test the Section 30(1) Affidavit

Section 30(1) requires a resolution applicant to submit the plan "along with an affidavit stating that he is eligible under section 29A". The affidavit is a statutory requirement, not a formality.

  • Do not treat it as conclusive: The resolution professional must satisfy himself independently. An affidavit that is later shown to be false exposes the applicant, but it does not cure an ineligibility.

  • Require the connected person schedule: The affidavit should annex the list of connected persons relied on, so that the basis of the declaration is auditable.

  • Seek supporting confirmations: Credit bureau records, the wilful defaulter lists, the SEBI debarment database and the MCA director disqualification list are all independently checkable.

Step 6: Record the Determination and Place It Before the Committee

The resolution professional confirms under Section 30(2) that each plan received conforms to the requirements of the Code before presenting it to the Committee of Creditors. The eligibility determination should be recorded in the minutes with reasons, not merely noted as satisfied.

Members of the suspended Board of Directors receive notice of committee meetings under Section 24(3)(b) and may attend, but under Section 24(4) they have no right to vote. Objections they raise on eligibility should be recorded and answered on the record, since an unanswered objection is the seed of an appeal.

Step 7: Anticipate the Challenge at Plan Approval

Most eligibility disputes surface when the plan comes up for approval before the Adjudicating Authority. Prepare for three recurring arguments.

  • The professional status argument: That the applicant's occupation disqualifies him. The NCLAT has confirmed that Section 29A does not disqualify a practising chartered accountant by reason of profession, and that professional conduct rules operate in a different field with disciplinary rather than insolvency consequences.

  • The higher rival bid argument: That a competing plan offered more. The commercial wisdom of the committee attracts limited review, and quantum alone does not establish ineligibility of the successful applicant.

  • The connected person argument: That a disqualified person sits behind the applicant. This is the argument most likely to succeed, which is why Step 3 deserves the most work.

Common Pitfalls to Avoid

  • Reading disqualifications into the section: Section 29A is exhaustive. Restrictions drawn from professional conduct rules, contractual covenants or regulatory codes do not become disqualifications under the Code.

  • Testing eligibility at the wrong date: Applying the commencement date rather than the date of plan submission produces wrong answers, particularly where a default has been cured.

  • Stopping at the applicant: Clauses (j) and Explanation I extend the enquiry to persons acting in concert and to connected persons, including those who will control the debtor after implementation.

  • Over-reading Section 240A: The MSME relief covers clauses (c) and (h) only. Treating it as a general exemption is a material error.

  • Relying on the affidavit alone: The statutory declaration under Section 30(1) supports the determination; it does not replace it.

Key Statutory Provisions

  • Section 29A of the IBC: Persons not eligible to be resolution applicants.

  • Section 30(1) of the IBC: Submission of a plan with an affidavit of eligibility.

  • Section 30(2) of the IBC: Confirmation by the resolution professional that the plan conforms to the Code.

  • Section 240A of the IBC: Disapplication of clauses (c) and (h) of Section 29A for micro, small and medium enterprises.

  • Section 24(3)(b) and 24(4) of the IBC: Notice to and attendance of suspended directors at committee meetings, without a right to vote.

  • Banking Regulation Act, 1949: Source of the Reserve Bank of India wilful defaulter guidelines referred to in clause (b).

  • Companies Act, 2013: Director disqualifications referred to in clause (e).

Sources and References


Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult a qualified legal professional for advice specific to their circumstances.

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