IBC is still evolving legislation. There are many ordinances and amendments in IBC since its enactment. There are views in favor and in against of these changes in code. But, I made my write up limited only to Sec 29A of the Code.
Section 29A is widely debatable and centre of focus in whole IBC. It was introduced by way of ordinance dated 23rd November, 2017 and later on ratified through Amendment Act, 2018. Sec 29A is a restrictive provision- any person falling in the negative list is not eligible to submit a resolution plan.
Need of Sec 29A
Before 29A, every individual or body corporate can participate in a bidding process of Corporate Debtor which is subject to CIRP irrespective he is original promoter, director or person connected to them directly or indirectly. So, persons who, by their misconduct or fraudulent motives, contributed to the default of the Corporate Debtor, can regain the control of their company again by bidding in hefty discounts while banks and other financial institutes taking haircuts.
Section 29A was introduced to disqualify only those, who had contributed in the downfall of the corporate debtor or were unsuitable to run the company because of their antecedents whether directly or indirectly. The Section 29A of the code made it clear, once you make your company an NPA account, you better find out a way to pay up or be ready to lose the Ownership.
Section 29A – Who is ineligible?
A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person –
1. Is an undischarged insolvent;
2. Is a wilful defaulter in accordance with the guidelines of the RBI issued under the Banking Regulation Act, 1949;
3. Has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in by the RBI and at least a period of 1 year has lapsed from the date of such classification;
Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to non-performing asset accounts before submission of resolution plan;
4. Has been convicted for any offence punishable with imprisonment for 2 years or more;
5. Is disqualified to act as a director under the Companies Act, 2013;
6. Is prohibited by the SEBI from accessing the securities markets;
7. Has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code;
8. Has executed an enforceable guarantee in favor 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;
9. Has been subject to any disability, corresponding to clauses (1) to (8), under any law in a jurisdiction outside India; or
10. Has a connected person not eligible under clauses (1) to (9).
Acting in Concert
The term ‘Acting in concert’ has not been defined under Code. However, Code provides that words/expressions not defined under the Code shall have the meaning assigned to them under other acts identified under the Code including the SEBI Act, 1992. Therefore, the definition of person acting in concert (“PAC”) will have to be borrowed from the SEBI (SAST) Regulations, 2011 that defines PAC as persons who have the common objective/purpose of acquisition of shares/ voting rights in/exercising control over a company pursuant to an agreement or understanding, formal or informal, directly or indirectly co-operate for acquisition of shares/voting rights in/ exercise of control of the company.
“Connected person” means –
Applicability of Section 29A Retrospectively?
It has been clearly stated in the Amendment Act, 2018 that it is to apply from 23.11.2017. Hence, pending cases before this date cannot be governed by section 29A. It is a settled legal principle that old rights are to be governed by old law and new rights by new law. The rights of the parties are determined on the basis of the rights available to them on the date of suit. Subsequent legislation cannot be made applicable to the pending proceeding.
Relaxation to MSME promoters
Since the Indian business environment is typically promoter-driven, it will not be easy to achieve resolution without involving promoter in some way in the resolution process. So, another significant amendment is made in Section 29A later, to leave out micro, small and medium enterprises. The amendment was done because this MSME industry are more labor-intensive small businesses which do not find interest from bidders and would eventually go into liquidation.