Section 29A Eligibility After Arcelor Mittal: The Working Test
Section 29A of the Insolvency and Bankruptcy Code, 2016 disqualifies a wide class of persons from submitting resolution plans. The Supreme Court's Arcelor Mittal decision laid down the working test for eligibility — and the post-judgment authority has refined it in practice.
The disqualification framework
Section 29A of the IBC was introduced by the 2017 amendment to prevent defaulting promoters from regaining control of their corporate debtor through the resolution process. The provision disqualifies resolution applicants on multiple grounds: NPA accounts, prior connection with the corporate debtor, conviction history, ineligibility under specified statutes, and connections (through "connected persons") to any of the above.
The breadth of Section 29A has been challenged on multiple fronts. The Supreme Court has consistently upheld its constitutional validity, while progressively refining its scope in application.
Arcelor Mittal: the holding
In Arcelor Mittal India v. Satish Kumar Gupta (2018), the Supreme Court addressed Section 29A in the context of the Essar Steel resolution. The Court held that:
- The relevant date for assessing Section 29A eligibility is the date of submission of the resolution plan, not the date of CIRP commencement.
- The disqualification under Section 29A(c) — NPA accounts — extends to persons "in control" of NPA accounts, with control assessed substantively rather than formally.
- An applicant disqualified under Section 29A may purge the disqualification before submission of the resolution plan; the purging must be substantive, not cosmetic.
The "connected persons" question
Section 29A(j) extends the disqualification to "connected persons" of any disqualified resolution applicant. The connected-persons net is wide: relatives, holding companies, subsidiaries, associate companies, persons exercising control, persons under common control.
The Supreme Court has held that the test for "connected person" is to be applied substantively. A nominal corporate distance — interposing a special-purpose vehicle between the applicant and the disqualified person — does not break the connection if substantive control is retained.
The purging question
Where an applicant is disqualified under Section 29A(c) (NPA accounts), the disqualification may be purged by paying the overdue amounts before submission of the resolution plan. The purging must be of the entire disqualifying overdue amount, not a partial payment.
The Supreme Court has held that purging is permissible up to the date of submission of the resolution plan. Post-submission purging — paying overdue amounts after the plan has been submitted but before the CoC approves — has been the subject of inconsistent decisions, with the prevailing view being that purging must be complete by the date of submission.
Working observations
For prospective resolution applicants, the Section 29A diligence is the threshold question. The diligence must cover:
- The applicant's own ineligibility under Section 29A(a)–(i) — undischarged insolvent, wilful defaulter, NPA account, conviction, disqualified director, prohibited under SEBI, etc.
- The applicant's connected persons under Section 29A(j) — relatives, holding companies, subsidiaries, associate companies, persons in control.
- The applicant's prior connection to the corporate debtor under Section 29A(g) — preferential transaction, undervalued transaction, fraudulent trading.
Section 29A is a pre-bid filter. An applicant disqualified under Section 29A cannot become qualified through a strong commercial offer. The eligibility question must be settled before the bid is made.