IBBI Tightens Due Diligence Norms Under Section 29A to Strengthen Integrity of CIRP: New Compliance Mandate for Resolution Professionals
- REEDLAW
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REEDLAW Legal News Network reports: In a pivotal regulatory development, the Insolvency and Bankruptcy Board of India (IBBI), through its Circular dated 18 November 2025, imposed enhanced due diligence obligations on Resolution Professionals (RPs) aimed at strengthening compliance with Section 29A of the Insolvency and Bankruptcy Code, 2016. The circular seeks to reinforce transparency in the Corporate Insolvency Resolution Process (CIRP) and safeguard the process from ineligible or conflicted Resolution Applicants, thereby upholding the integrity of the insolvency framework.
Section 29A sets out comprehensive disqualification criteria for persons seeking to submit a resolution plan. These restrictions are central to the IBC framework, as they prevent wilful defaulters, connected persons, undischarged insolvents, non-performing asset (NPA) holders, and other prohibited categories from regaining control of the Corporate Debtor (CD) through the resolution mechanism. The newly issued circular strengthens the enforcement of this provision by imposing additional procedural obligations on RPs and ensuring documented scrutiny by the Committee of Creditors (CoC).
The Board underscored that the statutory disqualification criteria under Section 29A form the backbone of the resolution framework, preventing wilful defaulters, related parties, NPA holders, and other ineligible categories from regaining control of the Corporate Debtor through the CIRP. Through the Circular, the IBBI highlighted that multiple regulatory layers—Form G disclosures, mandatory undertakings with Expressions of Interest, sworn affidavits accompanying resolution plans, and the RP’s due diligence duties under Regulation 36A and Form H—collectively preserve the sanctity of the process. The strengthened directive now requires RPs to place a detailed 29A compliance note before the Committee of Creditors (CoC), with the CoC’s observations distinctly recorded in the minutes, ensuring an auditable trail of independent application of mind.
The IBBI reiterated that multiple provisions of the Code and subordinate regulations already require detailed checks on 29A eligibility at various stages. These include the obligation of the RP to disclose ineligibility criteria in Form G under Regulation 36A(4), the requirement of prospective resolution applicants (PRAs) to provide an undertaking of eligibility with their Expression of Interest under Regulation 36A(7), and submission of a sworn affidavit confirming 29A compliance along with the resolution plan as mandated by Section 30 and Regulation 39. In addition, Regulation 36A(8) imposes a statutory duty on the RP to conduct due diligence to verify that PRAs are indeed eligible, while Form H of the Insolvency Resolution Process Regulations requires the RP to attach a due diligence certificate confirming such verification.
Emphasising that compliance with Section 29A is “paramount,” the Board observed that thorough scrutiny of eligibility not only ensures transparency but also mitigates the risk of subsequent litigation, particularly challenges that arise after approval of a resolution plan by the CoC or the Adjudicating Authority. Such challenges often lead to delays, disruptions, or even the failure of resolution processes, thereby undermining the core objectives of the IBC.
To reinforce procedural robustness, the circular mandates that RPs must place a detailed note on Section 29A compliance before the CoC when resolution plans are taken up for consideration. This note must comprehensively set out the due diligence conducted, findings recorded, and documents verified. The IBBI has further directed that the deliberations and observations of the CoC must be properly and explicitly recorded in the minutes, thereby creating a transparent and auditable trail demonstrating that the CoC has independently applied its mind to eligibility issues.
This additional documentation requirement represents a shift from implicit compliance to explicit, verifiable, and minute scrutiny of eligibility aspects. It is expected to strengthen governance standards and protect the sanctity of the process in the face of potential legal disputes.
The circular has been issued in exercise of the powers conferred under Section 196 of the IBC, which authorises the Board to issue guidelines, directions, and regulations to promote the orderly conduct of the insolvency ecosystem.
With the issuance of this circular, Resolution Professionals must ensure not only that the due diligence under Section 29A is carried out, but also that it is formally placed before the CoC with detailed analysis and preserved as part of the CIRP record. This move signals a firm regulatory intent to reinforce discipline, reduce post-approval litigation, and ensure that only eligible and credible applicants participate in the resolution of stressed assets.
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