INELIGIBILITY CRITERIA U/S 29A OF IBC, 2016: A NET TOO WIDE

(Synopsis towards partial fulfilment of the assessment of Seminar Paper)

SUBMITTED TO:
Ms. Ruth Vaiphei
Faculty In-charge,
Insolvency Law

SUBMITTED BY
Shachi Singh
Roll No. 1356
B.A. L.LB.(Business Hons.)

National Law University, Jodhpur

Winter Session
(January-May, 2020)
 TABLE OF CONTENTS

INTRODUCTION................................................................................3
RESEARCH OBJECTIVES......................................................................5
STATEMENT OF PROBLEM..................................................................5
RESEARCH QUESTIONS......................................................................6
RESEARCH METHODOLOGY.................................................................6
AREAS OF INTEREST.........................................................................7
REVIEW OF LITERATURE....................................................................7
TENTATIVE CHAPTERISATION...............................................................9
BIBLIOGRAPHY..............................................................................10
INTRODUCTION

‘Four things belong. to a judge: to hear courteously, to answer wisely, to

consider soberly, and to decide impartially.’
-Socrates
Insolvency and Bankruptcy Code, 2016 (“IBC”) does not need any introduction in this day and
age. It is a law that has been enacted by the Parliament to replace the Presidency Towns
Insolvency Act, 1909 and Sick Industrial Companies Repeals Act, 2003 among other laws.

With the introduction of this Code, it now acts as the primary law that deals with insolvency of
companies, individuals and partnerships. Therefore this code has unified the provisions of
insolvency which were earlier prescribed separately under different laws.

While this Code was introduced in 2016, it has been amended twice with the most recent one
being in August 2018. Section 29A of the Insolvency and Bankruptcy Code, 2016 was added by
the Insolvency and Bankruptcy Code (First) Amendment Act, 2018 and it was further amended
by the Second Amendment Act, 2018.

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Section 29A reads as “Persons not eligible to be resolution applicants” 1. It lists down people who
are disqualified from submitting a resolution plan, either individually or in concert with persons
who are disqualified under the various sub-clauses under this section.

The main intention of the legislators behind introducing this section was to ensure that the
people who are responsible for the insolvency of a company should not be allowed to bid for the
company as this would allow them to get back the control of a company at a lower price, by not
paying the debts owed to creditors in full. Also, this way they will also not be allowed to bid for
any other company which is also under insolvency as otherwise it will hamper the insolvency
process.

This section came about because in a lot of these insolvency cases it was found that the
Directors, Promoters or other people in the management of the Company would siphon off the
funds of the Company instead of paying it back to the creditors. Then on the company being
unable to pay its debt, the company would go into liquidation and these directors, promoters or
managers of the company would bid back for the company at a lower price and get back the
control of the company thereby efficiently side stepping the debts it previously owed to its
creditors.

Therefore, this section was first introduced by the Insolvency and Bankruptcy Code
(Amendment) Act, 2018. This section was further amended by the Insolvency and Bankruptcy
Code Second Amendment Act, 2018. The second amendment further added more restrictions on
persons who are disqualified from submitting a resolution plan.

Therefore, this amendment further disqualifies more people from submitting a resolution plan.
That is, not only is the list of people disqualified Therefore the question which lies from this is
that has this amendment excluded so many people from its purview that it has affected the
Insolvency process because of less bidders?

1
Section 29A, Insolvency and Bankruptcy Code, 2016

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From a preliminary reading of the section, we can see that this section has been enacted to
prevent people, who had been responsible for the company going into debt, from bidding for the
Company when it goes under insolvency.

This research aims to see if the purpose behind enacting this legislation has been fulfilled or not.

RESEARCH OBJECTIVES

The aim and objectives of the captioned study are to:

1. Analyse the reason for introducing Section 29A of the Insolvency and Bankruptcy Code,
2016.
2. Analyse the amendments of Section 29A of IBC, 2016 and justifying the need for the
same.
3. Comparatively analyse section 29A, Insolvency and Bankruptcy Code, 2016 with the
laws of US and UK.
4. Analyse the approach of the judiciary with respect to Section 29A, of Insolvency and
Bankruptcy Code, 2016.
5. Determine if the law has been adequately drafted, considering the reasons for its
enactment.

STATEMENT OF PROBLEM

The IBC is a recently introduced law and therefore the amendments under it like the introduction
of Section 29A are also very new to the Indian scenario. There is a lot of potential for research in
this field as looking for the reasons of enacting this section and whether the amendments
answered the same would help throw light on whether there is a need for further amendment of
this section.

Apart from this, since the code is at a nascent stage of development, there is a need for research
to facilitate the constant growth and changes required in it. Due to the pubescent stage of this

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code, there is a huge scope for further detailing and deliberation to align the code with the
objective of the law makers. Therefore, it is the need of the hour to conduct a detailed research
on the same.

The amendment under Section 29A of the Insolvency Code, 2016 is one which was made only in
the Indian legislation. Therefore, if we compare this to the laws in other countries, we can see
how there is scope for detailed procedure which is still lacking in our present legislation.
Therefore, this research aims to check if the present legislation meets the objectives for which it
was enacted and if there is any need to amend the same or not.

RESEARCH QUESTIONS

1) What was the background for enactment of Section 29A of Insolvency and Bankruptcy
Code, 2016?
2) Whether introduction of Section 29A of Insolvency and Bankruptcy Code, 2016 fulfilled
the objectives it aimed for?
3) What were the reasons for the enactment of amendments to the Section 29A of
Insolvency and Bankruptcy Code, 2016
4) Whether the restrictions imposed under Section 29A of Insolvency and Bankruptcy
Code, 2016 are unreasonably wide?
5) What is the para material position of law in jurisdictions of US and UK with respect to
Section 29A of Insolvency and Bankruptcy Code, 2016.
6) Is there any need of amending or removing Section 29A, Insolvency and Bankruptcy
Code, 2016 in light of these laws?

RESEARCH METHODOLOGY

The research methodology followed is doctrinal in nature and will focus on answering the
questions raised through the interpretation of the laws of different jurisdictions and comparing it
with the enactment of Section 29A of the Insolvency Code, 2016. A comparison will also be
attempted to analyze the system in place before the enactment and the subsequent amendment of
the Insolvency Code, 2016. Reliance will also be placed on the available primary sources such as

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the decided case laws, however due to the nascent stage of implementation of the Insolvency
Code there are limitations to the availability of empirical data. Nevertheless, reliance will also be
sought from the secondary sources in arriving at the findings of the captioned study. Apart from
this, the laws in other countries, specifically that of the US and UK with regard to insolvency
will also be looked into and a comparison will be drawn from the same.

AREAS OF INTEREST

 Insolvency and Bankruptcy Code, 2016.

 US Bankruptcy Code, Title 11 of US Code, (2019th Edition).

 Insolvency Act, 1986 (UK).

 Companies Act, 2013 (India).

This research will focus on looking into the objective behind enacting Section 29A and also the
reasons behind further amendments of this section. But this research will only focus on Section
29A with relation to insolvency of Companies and not everything else covered under it like
LLPs and individuals. The objective is to find out if the section fulfils the purpose for which it
was enacted or it needs to be amended.

This research will address these concerns by looking at the Statement of Objectives and Reasons
that has been released by the IBBI. It further aims to answer this through case analysis of the
cases that deal with Section 29A and looking at issues in them.

Apart from this, this research will look at the insolvency laws of US and UK to see if such a
provision exists there or not and how the laws in those countries have dealt with this situation
under their laws. Thus, this study aims to answer the question of adequacy of Section 29A and
suggest amendments to it, if required.

LITERATURE REVIEW

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V S Datey, Guide to Insolvency and Bankruptcy Code, 20162:
This book is a comprehensive guide on the Insolvency and Bankruptcy Code. This book has
been referred to get an overview about the Insolvency and Bankruptcy Code, 2016 along with a
look at the amendments that have been made to the Code. It provides an overview of the relevant
provisions along with section 29A and gives information on how this section came into being.

Report of the Insolvency Law Committee, March, 2018:

It talks about the key recommendations made by various stakeholders. It details the various
recommendations that have been made by various stakeholders like streamlining the
disqualifications of people who have contributed to insolvency of the company or are otherwise
undesirable are ineligible to submit a resolution plan.

Chapter 11 of Title 11, US Bankruptcy Code:

Chapter 11 deals with reorganization of a debtor’s assets. It is a form of bankruptcy which gives
the individuals a fresh start. It is usually filed by a company but individuals may also file it. It is
similar to the Insolvency and Bankruptcy Code, 2016 of India and it had also been relied upon
while formulating the Indian law. Any person going under chapter 11 will first have to form a
reorganisation plan. The company will either sell its assets to pay back the creditors or else it
will it will have to lessen its debts and renegotiate payment.

Insolvency Act, 1986, UK Insolvency Act:

It deals with both insolvencies and winding up of companies. This act deals with both voluntary
winding up and winding up by the Court in case of insolvency. Most of the provisions as well as
the procedure under this act is similar to the Insolvency and Bankruptcy Code, 2016.

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Guide to Insolvency and Bankruptcy Code, 2016 (7th Edition, 2019)

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 TENTATIVE CHAPTERISATION

1. Introduction

An introduction to the Insolvency and Bankruptcy Code, 2016 along with an introduction
to Section 29A of the Insolvency and Bankruptcy Code, 2016.

2. Overview of Section 29A

In-depth analysis of Section 29A while examining the reasons for enacting the same. To
accomplish this, this chapter will look into the report by the Insolvency Law Committee
on March, 2018. It will look into the first and the second amendment of the Insolvency
and Bankruptcy Code, 2016. The reasons for bringing the amendments will be
ascertained along with looking at the scope of Section 29A and all that it will restrict. It
will also look at the suggestions that were made while introducing and subsequently
amending the section and look at why this section was introduced the way it has been.

3. Judicial Analysis of Section 29A of the Insolvency and Bankruptcy

Code, 2016

Case analysis of the cases where section 29A has come into picture and answer if the
same has helped the objectives behind its enactment. Various landmark cases will be
analysed starting from the case of Essar Insolvency Case (Arcelor Mittal v Satish Kumar
Gupta) which was decided by the Supreme Court and addressed the controversy of
application of section 29A and the challenges that were made to this section. Further, the
case of Innoventive Industries v ICICI Bank will also be analysed along with M/s
Swadisht Oils case. This is because the judiciary has been tasked to answer the questions
that had been raised by the introduction of the section.

4. Comparative analysis the Insolvency Law of US and UK

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 Since the Insolvency Code, 2016 has been drafted keeping in mind the Insolvency laws
of US and UK therefore there is a need to compare section 29A with equivalent
provisions present in these countries. Title 11 of the United States Code deals with
insolvencies and reorganisation in US while the Insolvency Act, 1986 in the UK deals
with the insolvencies.

5. Conclusion
Suggest amendments under Section 29A of the Insolvency Code, 2016 if needed for
better implementation of the objective behind enacting it.

BIBLIOGRAPHY

BOOKS
1. Manzar Saeed, Commentary on the Insolvency and Bankruptcy Code, 2016 (2017)
2. Taxmann, Insolvency and Bankruptcy Code, 2016 (2019)
3. V.S. Datey, Guide to Insolvency and Bankruptcy Code, 2016 (2019)
ACTS
1. Insolvency and Bankruptcy Code, 2016
2. Insolvency Act, 1986 (UK)
3. Title 11, US Code-US Bankruptcy Code
CASES
1. Binani Industries Ltd. &Anr. v. Bank of Baroda &Anr.,Company Appeals (AT)
(Insolvency) No. 82, 123, 188 of 2018.
2. Chitra Sharma v. Union of India, Writ Petition(s)(Civil) No(s).744/2017.
3. Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta &Ors., C.A. Nos. 9402-9405 of
2017.
4. RBL Bank Limited. v. MBL Infrastructure Limited, CA (IB) Nos. 238, 270 &
288/KB/2018 in CP (IB) No. 170/KB/2017.
5. Swiss Ribbons Pvt. Ltd. &Anr. v. Union of India, Writ Petition (Civil) No. 99 of 2018.
ARTICLES

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 1. Restructuring and Insolvency in the United States (Thmoson Reuters) <
https://content.next.westlaw.com/Document/Id4cf8e42f3ad11e28578f7ccc38dcbee/View/
FullText.html?
contextData=(sc.Default)&transitionType=Default&firstPage=true&bhcp=1>
2. Bankruptcy Law, Chapter 7, 11 and 13 (HG Org) < https://www.hg.org/bankrpt.html>
3. Restructuring and Insolvency in the US (Lexology) <
https://www.lexology.com/library/detail.aspx?g=4cfbd481-874d-4f18-9a2a-
4df7e08e352b>
4. Corporate Recovery and Insolvency in UK, 2018 (Global Legal Group Limited) <
https://iclg.com/practice-areas/corporate-recovery-and-insolvency-laws-and-
regulations/usa>
5. Practical Guide to UK Insolvency (Squire Patton Boggs) <
https://www.squirepattonboggs.com/~/media/files/insights/publications/2011/04/a-
practical-guide-to-uk-insolvency-proceedings/files/eur6182-girr--squire-
sanders/fileattachment/eur6182-girr--squire-sanders.pdf>
6. Introduction to English Insolvency Law (Slaughter and May) <
https://www.slaughterandmay.com/media/251437/an-introduction-to-english-insolvency-
law.pdf>
7. Insolvency in Brief (Pricewaterhouse and Coopers) <
https://www.pwc.co.uk/assets/pdf/insolvency-in-brief.pdf>
8. Insolvency and Bankruptcy Board of India (IBBI) < https://ibbi.gov.in/>
9. The Insolvency and Bankruptcy Code, 2016- Key Amendments (Mondaq) <
http://www.mondaq.com/india/x/492318/Insolvency+Bankruptcy/The+Insolvency+And+
Bankruptcy+Code+2016+Key+Highlights>
10. Insolvency Procedures for Limited Liability Partnerships (Thomson Reuters)
https://uk.practicallaw.thomsonreuters.com/1-503-8295?
transitionType=Default&contextData=(sc.Default)&firstPage=true&comp=pluk&bhcp=1
,
11. Insolvent LLPs: Reviewable transactions and liability of members (Thomson
Reuters)https://uk.practicallaw.thomsonreuters.com/7-508-1021?
transitionType=Default&contextData=(sc.Default)

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 12. Komal Gupta, Priyanka Mittal, Scope of Insolvency Rules to be expanded <
https://www.livemint.com/Companies/e9Xl8HTcxy0AJdMcAgbEGJ/Scope-of-
insolvency-rules-expanded-to-individual-businesses.html>

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