prpri Insolvency Ordinance section 29 A Faces First Challenge in Court Insolvency Ordinance section 29 A Faces First Challenge in Court

While the ordinance section 29 A of the IBC code for which the presidential assent has already been given which bars the existing promoters from bidding in the resolution process has been challenged in the Punjab & Haryana High Court

No doubt the ordinance is meant to disallow the dishonest and wilful defaulters from participating in the asset bids which by all means looks very great and noble idea from outside but what collateral damage it would cause is for anybody to guess.

The ordinance has been specifically challenged mainly on two grounds:

1. Retro Activity of the ordinance

2. Does not distinguish between a genuine promoter and a wilful defaulter.

My apprehensions are as follows:

1. This ordinance is given a retrospective effect, which means all the cases which are already before the NCLT would be affected by this.

2. Any regulation/act should be prospective and we have already seen what sort of problems arises when retrospective amendments were brought with regard to Income Tax issues.

3. This type of restriction was not the intent of the IBC code when it was brought in as the BLRC Report, the premise on which IBC code is structured, talks about giving genuine promoters, a second chance, especially for the MSME sector.

4. Supposing there is only one bidder who happens to be the promoter group , and it would be highly unfair to force a unit/company into liquidation even if the promoter has the ability and hope to revive the company

5. The ordinance does not seem to differentiate between malfeasance and business failure and a blanket ban on the existing promoters would put the honest promoters into great jeopardy.

6. Now that the ordinance has been challenged, then the strict time lines as per the code would be impossible.

7. Does it make a any business sense for the financial creditors to forego the bid from the highest person even if he happens to be from the promoters group, leaving apart the sentimental aspects?

8. Another fundamental question is that , is not the right to equality before law violated if you debar anybody from participating in the bidding process, just because he is from the promoters group or associate of the promoters group ?

We are missing the fundamental issues in the bargain and we must have the ability to differentiate between the wheat and chaff and the genuine promotes should be given all encouragements and not paint all the promoters with the same brush.

(Author V.Ramkumar is a Company Secretary In Practice from Coimbatore and can be reached at

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July 2021