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Ineligibility under section 29A of IBC attaches at a time when the Resolution Plan is submitted

Ineligibility under section 29A of IBC attaches at a time when the Resolution Plan is submitted

The Bench of Hon’ble National Company Law Appellate Tribunal, New Delhi comprising officiating Chairperson Justice A.I.S. Cheema and the Technical Member Kanthi Narahari was hearing an Appeal where the Bench was reiterating the law laid down in ArcelorMittal India Private Limited v. Satish Kumar Gupta and Others, REED 2018 SC 10541 held that the ineligibility under Section 29A of the Insolvency and Bankruptcy Code, 2016 attaches at a time when the Resolution Plan is submitted by a Resolution Applicant for approval before the Adjudicating Authority. The brief background of the case, the issue raised and analysis of the Supreme Court ruling are discussed below. [REED 2021 NCLAT Del 06515]

The National Company Law Tribunal (NCLT) on 24 August 2017 admitted an Application made by the Wig Associates Pvt Ltd (Corporate Debtor) to initiate the Corporate Insolvency Resolution Process (CIRP) under section 10 of Insolvency and Bankruptcy Code, 2016 (IBC). Pursuant to the commencement of CIRP, a Committee of Creditors (CoC) was constituted that comprised only one Financial Creditor, namely, Bank of Baroda. The sole Financial Creditor in the third CoC meeting on 6 April 2018 informed the Resolution Professional (Appellant) that it had sanctioned One Time Settlement Offer (OTS) issued by Mr. Mahendra Wig, who was the guarantor of Corporate Debtor, and asked if the same can be treated as Resolution Plan. The Appellant placed the OTS proposal before CoC on 20 April 2018, which approved the same and later it was approved by the NCLT vide Impugned Order dated 4 June 2018. 

An Appeal was filed by IBBI against the Impugned Order when NCLAT passed Order dated 1 August 2018, holding that the IBBI does not have the locus to file the Appeal and directed IBBI to ask the Resolution Professional of Corporate Debtor to file the Appeal. Hence, this appeal was filed by the Appellant to resolve whether Section 29A of IBC will be applicable with retrospective effect in section 10 proceedings which were initiated prior to Section 29A coming into force.

The Insolvency and Bankruptcy Code (Amendment) Act, 2017 No.8 of 2018 enacted with effect from 23 November 2017 introduced section 29A into the IBC, thereby laying down law with regard to persons not eligible to be Resolution Applicants, which includes the guarantors of the Corporate Debtor. The Resolution Plan of Mr. Mahendra Wig, who is the guarantor of Corporate Debtor, was accepted on 20 April 2018 in the 4th CoC meeting despite him being a related party as per Section 29A. 

The Supreme Court in the case of ArcelorMittal India Private Limited v. Satish Kumar Gupta and Others, REED 2018 SC 10541 has settled the law that ineligibility attaches at the time when the Resolution Plan is submitted by Resolution Applicant. Further, in the matter of Swiss Ribbons Private Limited and Another v. Union of India and Others, REED 2019 SC 01504, the Apex Court has upheld the insertion of section 29A with retrospective effect. Hence, based on these rulings, the NCLAT rejected the Impugned order, wherein the NCLT has upheld the Resolution Plan cum OTS proposal, observing that since the CIRP is a continuous process, the Application is to be dealt with as per the provisions which existed on the date when the petition was admitted i.e, on 24 August, prior to when section 29A was introduced.

In light of the Apex Court’s judgments, and after taking an analytical view on section 29A, the Appellate Authority rejected the Resolution Plan submitted by Mr. Mahendra Wig and the Impugned Order was set aside. Accordingly, the matter was remitted back to the NCLT to pass the Order of liquidation of the Corporate Debtor under Section 33 of the IBC. 


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