Dissecting S. 29A of the IBC: NCLAT Clarifies Resolution Applicant Eligibility in Insolvency Cases

Introduction

This case, Vishram Narayan Panchpor v. Committee of Creditors[i], involves an appeal before the National Company Law Appellate Tribunal (‘NCLAT’), by a Resolution Professional (‘RP’) challenging the decision of the National Company Law Tribunal (‘NCLT’). The impugned order had rejected a Resolution Plan that had been approved by the Committee of Creditors (‘CoC’) on the ground that the plan was submitted by Mr. Mahesh Mathai, an ex-director, and the Successful Resolution Applicant (‘SRA’) of the Corporate Debtor (‘CD’) namely, M/s. Blue Frog Media Private Limited.

The central issue pertains to the interpretation of s. 29A of the Insolvency and Bankruptcy Code, 2016 (‘IBC’), specifically focusing on s. 29A(c) which deals with the eligibility criteria for the SRA. Vishram Narayan Panchpor (‘the Appellant’) contended that the NCLT’s decision was erroneous. He emphasised the absence of specific disqualifying factors in s. 29A and questioned the relevance of the SRA’s former role as a promoter/director in determining his eligibility.

Facts

• The appeal challenges the order dated 18.08.2023, issued by NCLT Mumbai Bench-I, which rejected the RP’s application for approval of a Resolution Plan submitted by the SRA for the CD. The Resolution Plan had received approval from the CoC with a 91.86% vote share.

• The NCLT found that the SRA, who had resigned on 01.03.2018, stood ineligible under s. 29A of the IBC to submit a Resolution Plan. The NCLT concluded that the SRA’s prior role could adversely impact the corporate insolvency resolution process (‘CIRP’), leading to the rejection of the Resolution Plan.

• The appellant argued that s. 29A of the IBC does not automatically disqualify all promoters and directors and that disqualification must be linked to specific clauses within s. 29A of the IBC. The appellant asserted that the SRA does not meet any disqualifying criteria under s. 29A. They specifically argued that s. 29A(c) of the IBC cited by the NCLT was inapplicable, as none of the banks involved were creditors of the CD, rendering the clause irrelevant.

Held

• The NCLAT set aside the impugned order and revived the RP’s application for fresh consideration by the NCLT. It noted that s. 29A(c) of the IBC applies only when the applicant or their associate has an account classified as a non-performing asset (‘NPA’) with the CD. The NCLAT considered the absence of any material to suggest that the account of the SRA or the CD was a NPA on the date of plan submission, making s. 29A(c) inapplicable.

• No evidence was presented to establish any bank as a creditor of the CD, only individual creditors were listed in Form-H. The NCLAT emphasised that a person is ineligible to submit a Resolution Plan only under specific clauses (a) to (g) of s. 29A of the IBC.

• It was determined that none of these clauses applied to the SRA in the present matter and relied on the Hon’ble Supreme Court’s decision in Hari Babu Thota v. Shree Aashraya Infro-Con Limited*[ii]*, highlighting that there is no per se disqualification under s. 29A for promoters.

• The decision to declare the ex-director ineligible based solely on his past role, without reference to a specific clause in s. 29A was found to be erroneous. Consequently, the rejection of the Resolution Plan was deemed unsustainable, requiring a reconsideration of the plan.

Analysis

The NCLAT’s decision highlights a nuanced interpretation of s. 29A of the IBC, with a particular emphasis on the specific criteria for determining ineligibility. This decision provides clarity by affirming that prior roles as promoters or directors do not inherently disqualify individuals from becoming resolution applicants. Instead, eligibility is contingent upon satisfying the explicit criteria outlined in s. 29A of the IBC.

This interpretation ensures that past associations with the CD do not automatically lead to ineligibility. Instead, the focus shifts to evaluating the current qualifications and conditions of the applicants in accordance with the precise clauses outlined in the IBC. This approach aligns with the intent of the law, which aims to promote a fair and objective evaluation of resolution applicants based on well-defined criteria.

End Notes:

[i] Vishram Narayan Panchpor (Resolution Professional of Blue Frog Media Private Limited) v. Committee of Creditors (Blue Frog Media Private Limited & Anr., 2024 SCC OnLine NCLAT 69 

[ii] 2023 SCC OnLine SC 1642

Authored by Shivam Mishra, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.