Section 29A of IBC: Resolution Applicant Ineligibility and Due Diligence Checklist

Section 29A of the Insolvency and Bankruptcy Code, 2016 is an eligibility filter for resolution applicants. It is not simply a rule that “promoters cannot bid”. The section asks whether the applicant, a person acting jointly or in concert with it, or a connected person falls within specified disqualification categories. For a resolution professional, lender, investor or adviser, the practical challenge is therefore to map the applicant’s ownership, management, control, credit history and regulatory status before the plan reaches the voting stage.

The statutory starting point is the official IBBI compilation of the Insolvency and Bankruptcy Code, which contains Section 29A and Section 240A. Because the Code has continued to evolve, practitioners should also check the current IBBI Act repository before relying on an older consolidated PDF.

What Section 29A actually does

Section 29A prevents a person from submitting a resolution plan where that person, or another person acting jointly or in concert with it, is hit by any of the statutory ineligibility clauses. The test is wider than the legal entity whose name appears on the plan. Clause (j) extends the screen to connected persons, which is why a clean special-purpose vehicle does not by itself establish eligibility.

The principal disqualification buckets can be understood as follows:

• Insolvency and default status: an undischarged insolvent, a wilful defaulter under applicable RBI guidelines, and specified non-performing asset situations under clause (c).
• Criminal, corporate and securities restrictions: specified convictions, director disqualification under the Companies Act, and a SEBI prohibition from trading in securities or accessing the securities market.
• Avoidance-transaction history: specified cases where a person was a promoter or in management or control of a corporate debtor in which a preferential, undervalued, extortionate-credit or fraudulent transaction occurred and an order was made, subject to the statutory exception.
• Guarantee exposure: clause (h) covers the specified case of a guarantee given to a creditor for another corporate debtor where the insolvency application was admitted, the guarantee was invoked and it remains unpaid in full or in part.
• Foreign and connected-person disabilities: a corresponding disability under foreign law and ineligibility flowing through a connected person.

The NPA test is more precise than “any NPA means disqualification”

Clause (c) deserves separate treatment because it is frequently oversimplified. The provision looks at the position at the time the resolution plan is submitted. It can cover an account of the applicant, or an account of a corporate debtor under its management or control or of which it is a promoter, where the account is classified as an NPA under the relevant regulatory framework and at least one year has elapsed from that classification to commencement of the target corporate debtor’s CIRP.

The same clause contains a cure route: a person can become eligible by paying all overdue amounts together with interest and charges relating to the NPA account before submission of the resolution plan. It also contains specific carve-outs, including for qualifying financial entities. This means a due-diligence memo should not stop at “NPA: yes/no”; it should record the relevant account, relationship to the applicant, NPA classification date, CIRP commencement date, applicable proviso and whether any cure payment was completed before plan submission.

Short illustration

Assume BidCo itself has no borrowings, but its promoter also promotes Company X. Company X has an NPA account and the statutory one-year condition is met. The eligibility analysis cannot end with BidCo’s clean balance sheet. The promoter relationship and the clause (c) provisos must be tested. If the cure provision is relied upon, evidence of full payment of overdue amounts, interest and charges should exist before the resolution plan is submitted.

Connected-person mapping is a core due-diligence step

The connected-person definition reaches beyond the applicant to persons who are its promoters or in its management or control, persons who will be promoters or in management or control of the corporate debtor during implementation of the plan, and specified corporate or related-party relationships around those persons, subject to statutory financial-entity exclusions.

In practice, build a simple ownership-and-control map before issuing a final eligibility conclusion. Identify the bidding entity, persons acting jointly or in concert, present promoters and controllers, proposed implementation-stage controllers, holding companies, subsidiaries, associates and relevant related parties. Then test the applicable Section 29A clauses against that mapped universe rather than against the bidder alone.

MSME relaxation under Section 240A is narrow, not blanket relief

Section 240A provides an important exception for a qualifying micro, small or medium enterprise: clauses 29A(c) and 29A(h) do not apply to a resolution applicant in the CIRP or pre-packaged insolvency resolution process of such an MSME. The exemption is therefore clause-specific. It does not automatically switch off other restrictions such as wilful-defaulter status, director disqualification, a SEBI market-access prohibition or other applicable Section 29A clauses.

For an MSME case, the checklist should first document that the corporate debtor falls within the statutory MSME framework, then mark clauses (c) and (h) as subject to Section 240A while continuing the rest of the Section 29A review.

What the RP and prospective applicant should document

IBBI has expressly strengthened the process around Section 29A. Its Circular IBBI/CIRP/88/2025 on Section 29A due diligence records that the RP must state the Section 29A ineligibility criteria in Form G, the prospective resolution applicant must give an undertaking with its expression of interest, and the applicant must submit an affidavit with the resolution plan confirming eligibility. The circular also reiterates the RP’s due-diligence responsibility and directs the RP to place a detailed Section 29A compliance note before the committee of creditors when plans are considered, with deliberations and observations recorded in the minutes.

The detailed procedural requirements should be checked against the current IBBI CIRP Regulations repository, rather than relying on an old internal template.

Practical Section 29A due-diligence checklist

1. Map the applicant universe. Record the bidder, consortium or joint actors, promoters, management, controllers and relevant connected persons.
2. Verify identity and corporate status. Collect incorporation records, constitutional documents, director and key ownership details, and declarations needed to connect each person to the statutory tests.
3. Check insolvency and default-related clauses. Review undischarged-insolvency status, wilful-defaulter status and clause (c) NPA exposure with dates and supporting lender or regulatory records.
4. Check legal and regulatory disabilities. Review applicable conviction, director-disqualification and SEBI restriction issues rather than accepting a generic “no disqualification” statement.
5. Review avoidance-transaction history. Search for relevant adjudicatory orders and document whether the statutory exception, if invoked, is actually satisfied.
6. Test guarantees carefully. Identify the corporate debtor covered by the guarantee, admission of the insolvency application, invocation status and whether the invoked amount remains unpaid.
7. Apply MSME relief clause by clause. Do not treat Section 240A as a complete waiver of Section 29A.
8. Reconcile undertaking, affidavit and independent evidence. The applicant’s declarations are important, but the RP’s due diligence should be supported by a documented evidence trail.
9. Prepare the CoC note. Summarise each relevant clause, evidence reviewed, exceptions relied upon, unresolved points and the eligibility conclusion, then preserve the CoC’s deliberations in the minutes.

Common mistakes to avoid

• Checking only the bidding SPV and ignoring connected persons.
• Treating every NPA as an automatic bar without applying the one-year condition, relationship test, cure proviso and other statutory carve-outs.
• Assuming an MSME corporate debtor eliminates all Section 29A restrictions.
• Relying only on the applicant’s affidavit without an RP due-diligence trail.
• Ignoring whether a guarantee was actually invoked and remains unpaid.
• Waiting until the final plan is ready before identifying eligibility problems that could have been found at the EOI stage.

Practical takeaway

A defensible Section 29A review is a structured eligibility exercise, not a one-page declaration. Start with the applicant and connected-person map, test every relevant clause against evidence, document any NPA cure or statutory exception, apply Section 240A only to the clauses it actually relaxes, and maintain a clear RP and CoC record. That process reduces the risk of discovering a fundamental eligibility defect after significant time has already been spent evaluating the resolution plan.