Who Is Disqualified Under Section 29A?

Section 29A of the Insolvency and Bankruptcy Code (IBC), 2016 was introduced to maintain the integrity of the resolution process by ensuring that only credible and law-abiding applicants can bid for insolvent companies. This section disqualifies certain individuals and entities from becoming resolution applicants to prevent defaulting promoters and fraudulent parties from regaining control of the distressed assets.

Who Is Disqualified Under Section 29A?

Section 29A outlines several categories of persons or entities that are ineligible to submit a resolution plan. These include:

1. Wilful Defaulters
Individuals or entities classified as wilful defaulters by RBI or any scheduled bank are not eligible.

2. NPA Holders
Any person or company managing or controlling a company that has been a non-performing asset (NPA) for more than one year is disqualified, unless they clear all overdue payments with interest before submitting a resolution plan.

3. Convicted Individuals
Any person convicted for an offense punishable with imprisonment of two years or more (under specified laws) is disqualified for a period of two years from the date of release.

4. Disqualified Directors
Persons who are disqualified to act as directors under the Companies Act, 2013 are barred.

5. SEBI-Restricted Persons
Individuals or entities prohibited by SEBI from trading in securities or accessing the capital markets are ineligible.

6. Fugitive Economic Offenders
Declared fugitive economic offenders under the Fugitive Economic Offenders Act, 2018 cannot submit resolution plans.

7. Undischarged Insolvents
Persons declared as undischarged insolvents are disqualified.

8. Ineligible Related Parties
Any connected person related to the resolution applicant, such as holding or subsidiary companies, joint ventures, or promoters, is also considered disqualified if they meet any of the above disqualification criteria.

9. Persons Who Gave Guarantees
If a person gave a guarantee for a corporate debtor which has been invoked and not paid, they too are disqualified.

10. Involvement in Fraudulent Transactions
Any person involved in preferential, undervalued, or fraudulent transactions as per Sections 43 to 51 of IBC.

Example

Situation:

A corporate debtor enters the Corporate Insolvency Resolution Process (CIRP). The promoter of the company wants to submit a resolution plan to regain control of the company.

Facts:

The promoter had been classified as a wilful defaulter by a bank.

The company had NPAs for more than one year.

The promoter’s related company had a pending fraud investigation.

Steps & Outcome:

The Resolution Professional rejects the promoter’s resolution plan based on Section 29A disqualifications.

The promoter approaches the NCLT but is denied on grounds of wilful default and related party disqualification.

A third-party financial institution with a clean record submits a valid resolution plan and gets approval.

The case sets a precedent reinforcing the strict enforcement of Section 29A to prevent misuse of the insolvency process.