When a company goes into insolvency, its promoters often want to bid for it. Sometimes they are the best people to run it; sometimes they are the reason it failed. Section 29A of the Insolvency and Bankruptcy Code was added in 2017 to stop people whose conduct contributed to the default, or who are otherwise unsuitable, from buying the company back at a discount.
Section 29A is wide. It catches not only the bidder but also its "connected persons", including promoters, directors and group companies. Many bids have been disqualified, sometimes after months of negotiation, because one connected person tripped a clause nobody had checked. This page sets out who is barred and how eligibility is tested, whether you are a promoter hoping to bid or a creditor scrutinising a plan.
हिंदी में सारांश
IBC की धारा 29A तय करती है कि कौन वà¥à¤¯à¤•à¥à¤¤à¤¿ दिवाला में गई कंपनी के लिठरेज़ोलà¥à¤¯à¥‚शन पà¥à¤²à¤¾à¤¨ नहीं दे सकता। इसमें विलफà¥à¤² डिफॉलà¥à¤Ÿà¤°, à¤à¤• साल से ज़à¥à¤¯à¤¾à¤¦à¤¾ पà¥à¤°à¤¾à¤¨à¥‡ NPA खाते वाले (जब तक बकाया न चà¥à¤•à¤¾à¤à¤‚), कà¥à¤› अपराधों में दोषी, अयोगà¥à¤¯ निदेशक, और à¤à¤¸à¥‡ गारंटर शामिल हैं जिनकी गारंटी invoke होकर अदा नहीं हà¥à¤ˆà¥¤ यह नियम बोली लगाने वाले के "connected persons" पर à¤à¥€ लागू होता है। MSME कंपनियों के पà¥à¤°à¤®à¥‹à¤Ÿà¤°à¥‹à¤‚ को कà¥à¤› छूट मिलती है।
Is this your situation?
- Your company is in insolvency and you, as promoter, want to submit a resolution plan
- You are an investor bidding for a company and want to be sure nothing in your group disqualifies you
- Your company's loan account has been a non-performing asset for more than a year
- You gave a personal guarantee for the company's loans and it was invoked
- You are a lender on a committee of creditors reviewing a bid from a promoter-linked entity
- Your company is an MSME and you have heard promoters get some relief
Who is barred under Section 29A
A person cannot submit a resolution plan if that person, or anyone acting jointly or in concert with them, falls under any of these categories:
Undischarged insolvent
A person who is an undischarged insolvent under any law.
Wilful defaulter
A person classified as a wilful defaulter under RBI guidelines, by a bank or financial institution.
Long-standing NPA
A person who has an account, or controls or manages a company with an account, that has been classified as a non-performing asset for one year or more, unless all overdue amounts with interest are paid before the plan is submitted. Financial entities and certain buyers of distressed assets have limited exemptions.
Certain convictions
A person convicted of an offence punishable with two years or more under laws listed in the Twelfth Schedule, or seven years or more under any law, until two years after release.
Disqualified directors and market bans
A person disqualified to act as a director under the Companies Act, or prohibited by SEBI from trading in or accessing the securities markets.
Guarantors and wrongdoers
A person who gave a guarantee for the company's creditor that has been invoked and remains unpaid, or who was involved in preferential, undervalued, extortionate or fraudulent transactions found by the NCLT. Persons connected to anyone in these categories are also barred.
"Connected persons": the clause that catches most bids
Section 29A(j) extends the bar to any "connected person". That includes the promoters and the people in management or control of the bidder, the promoters and management of the proposed company after resolution, and the holding company, subsidiary, associate and related parties of all of them.
In ArcelorMittal India v Satish Kumar Gupta (2018), the Supreme Court made it clear that the tribunal can look behind corporate structures to see who really stands behind a bid, and that a bidder connected to a defaulting entity must clear that entity's NPA dues before bidding. Both ArcelorMittal and Numetal had to deal with links to defaulting companies before their bids could be considered.
In practice, every bid needs a mapping exercise: list the bidder, its promoters, directors, group companies and co-investors, and test each against the clauses. A single overlooked group company with a year-old NPA can sink the bid.
Relief for MSME promoters
The MSME exemption
Section 240A says that clauses (c) (long-standing NPA) and (h) (invoked guarantees) do not apply to a resolution applicant for a corporate debtor that is a micro, small or medium enterprise.
Why it exists
For small businesses, the promoter is often the only realistic buyer. The exemption lets MSME promoters bid for their own company even if the account is an NPA or their personal guarantee has been invoked.
What still applies
Other clauses, such as wilful defaulter status, certain convictions and disqualification as a director, still apply to MSME promoters.
Pre-packs
The pre-pack route for MSMEs also requires eligibility under Section 29A, read with the MSME exemption.
How eligibility is tested
Mapping the bidder group
We list every entity and individual connected to the bid, including promoters, directors, holding and group companies, and co-investors.
Checking each clause
For each person we check NPA status, wilful defaulter lists, guarantees given to the company's creditors, director disqualification, SEBI orders and criminal records. Bank confirmations and CIBIL reports help.
Curing what can be cured
Some disqualifications can be removed. NPA dues can be paid before plan submission. A connected entity can sometimes be divested, though the committee and the tribunal will look closely at last-minute changes.
The affidavit
The resolution applicant files an affidavit stating it is eligible under Section 29A. The resolution professional and the committee rely on it, and a false affidavit has serious consequences.
Scrutiny by the committee and the NCLT
The resolution professional examines eligibility and may seek more information. Rival bidders and creditors often challenge eligibility before the NCLT. A plan from an ineligible applicant cannot be approved.
For creditors and rival bidders
If you believe a bidder is ineligible, raise it early with the resolution professional and the committee, with documents. Objections can also be taken before the NCLT when the plan comes up for approval, and in appeal before the NCLAT. Common grounds include undisclosed group companies with NPA accounts, promoters who gave invoked guarantees, and bids routed through new entities set up by the old management. See objecting to a resolution plan.
Section 29A also matters in liquidation. Persons who are ineligible under Section 29A cannot buy the company's assets from the liquidator, and the Supreme Court held in Arun Kumar Jagatramka v Jindal Steel and Power (2021) that they cannot propose a scheme of compromise in liquidation either.
Time and typical cost
Fees are agreed in writing in advance and do not depend on whether the bid succeeds.
| Task | Usual time | What it involves |
|---|---|---|
| Eligibility mapping for a bidder group | 1 to 3 weeks | Searches, confirmations, legal opinion |
| Curing an NPA disqualification | Before plan submission | Settlement with lenders, payment of overdues |
| Defending eligibility before NCLT | Weeks to months | Replies, hearings |
| Challenging a rival's eligibility | During plan stage | Applications before the NCLT and NCLAT |
Documents for an eligibility review
About the bidder
- Shareholding and group structure chart
- List of directors, promoters and key managers
- Financial statements of the bidder and group companies
Credit records
- CIBIL or credit reports of connected entities
- Bank confirmations on account status
- Details of guarantees given to any lender
Compliance records
- DIN status of directors
- Any SEBI orders or show cause notices
- Pending criminal cases and their status
A promoter, a guarantee and an MSME exemption
Here's a made-up example. A small Ghaziabad textiles company classified as an MSME went into insolvency. Its promoter wanted to bid, but his personal guarantee to the company's bank had been invoked and the loan account was an NPA for over a year.
We checked the other clauses: no wilful defaulter classification, no disqualification, no SEBI orders, no convictions. Because the company was an MSME, Section 240A meant the NPA and invoked-guarantee clauses did not apply. The promoter submitted a plan with an affidavit and our eligibility note annexed. A rival bidder challenged it, but the NCLT accepted that the exemption applied. The committee then judged the plan on its commercial merits.
Mistakes bidders make on eligibility
- Mapping only the bidding company: connected persons include promoters, directors, group companies and co-investors. Check every one of them.
- Assuming NPA status from memory: get written confirmation from lenders about account status, because classifications change.
- Clearing NPA dues too late: overdue amounts must be paid before the plan is submitted, not after.
- Last-minute restructuring of the group: divesting a disqualified entity days before bidding draws scrutiny and can be treated as a sham.
- Relying on the MSME exemption wrongly: it applies only where the corporate debtor itself is an MSME, and only to the NPA and guarantee clauses.
- A careless affidavit: the eligibility affidavit is relied upon by the committee and the NCLT. Errors, even unintentional ones, can sink the plan.
Section 29A at a glance
| Clause | Who is barred | Main exception or note |
|---|---|---|
| (a) | Undischarged insolvent | |
| (b) | Wilful defaulter under RBI guidelines | |
| (c) | NPA account for one year or more | Cured by paying overdues before plan submission; MSME relief; some financial entities exempt |
| (d) | Convicted of specified offences | Bar lasts until two years after release |
| (e) | Disqualified director | |
| (f) | Barred by SEBI from securities markets | |
| (g) | Involved in preferential, undervalued, extortionate or fraudulent transactions found by the NCLT | |
| (h) | Guarantor whose guarantee for the company's creditor was invoked and unpaid | MSME relief |
| (i) | Similar disability under foreign law | |
| (j) | Connected persons of any of the above | Widest clause in practice |
Checklist for a resolution applicant
- Map your group structure and every connected person
- Check whether any connected person is a promoter of an NPA account for over a year
- Check for wilful defaulter tags against you or connected persons
- Check for disqualification of any director under the Companies Act
- Check for convictions carrying imprisonment of two years or more
- Check for SEBI bans on trading or accessing markets
- Check for guarantees given for debtors in insolvency
- Prepare the affidavit of eligibility, with supporting documents
The MSME exception and the curing of NPA status
Section 240A allows promoters of micro, small and medium enterprises to bid for their own company, because the Code recognises that outside investors may not be interested in small businesses. The ineligibility for NPA accounts and guarantees under clauses (c) and (h) of Section 29A does not apply to MSMEs. This is one reason why the MSME pre-pack route is attractive to promoters.
For other companies, a person whose account is an NPA can become eligible by paying all overdue amounts with interest before submitting the plan. The Supreme Court in Arcelor Mittal India v Satish Kumar Gupta (2018) held that eligibility is tested when the plan is submitted, and that the CoC and NCLT can look behind corporate structures to see who is really behind the bid. See resolution plans.
A financial investor exempt from the NPA bar
Here's a made-up example. An alternative investment fund wanted to bid for a Jaipur textile company in CIRP. One of its portfolio companies, in which the fund held 30%, had an NPA account with a bank for more than a year.
The Code exempts a financial entity from the NPA bar under clause (c) where it is not a related party of the corporate debtor. The fund was a registered financial entity and was not connected to the textile company. Its affidavit explained the exemption, and the resolution professional, after reviewing its documents, accepted the fund as eligible.
Frequently Asked Questions
Can a promoter bid for their own company in insolvency?
Only if neither the promoter nor any connected person falls under Section 29A. MSME promoters get relief from the NPA and guarantee clauses.
My company's account is an NPA. Can I still bid?
Not if the account has been an NPA for a year or more, unless you pay all overdue amounts with interest before submitting the plan. MSME promoters are exempt from this clause.
Does Section 29A apply to the bidder's group companies?
Yes. It applies to connected persons, including promoters, directors, holding companies, subsidiaries, associates and related parties.
What if I gave a personal guarantee to the company's bank?
If the guarantee has been invoked and remains unpaid, you are barred, except in the case of an MSME.
When is eligibility checked?
At the time of submitting the resolution plan, with continuing scrutiny by the resolution professional, the committee and the NCLT.
Can ineligible promoters buy assets in liquidation?
No. Persons ineligible under Section 29A cannot buy assets from the liquidator or propose a compromise scheme in liquidation.
What happens if a false eligibility affidavit is filed?
The plan can be rejected, and the person faces penal consequences.
How are your fees decided?
By the size of the bidder group and the work involved, agreed in writing. They do not depend on the outcome.
Planning a Bid? Check Eligibility First
Send us your group structure and credit details. We will map every connected person against Section 29A before you invest time in a plan.
This page gives general information about the law as it stood when it was last reviewed. It is not legal advice on your case and does not promise any result. IBC rules and NCLT procedures change often, so outcomes depend on your own documents, dates and facts.
Need help with Can Promoters Bid for Their Own Company? (Section 29A)?
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