Section 29A of India's Insolvency and Bankruptcy Code: An Instance of Hard Cases Making Bad Law?

Indian Institute of Management Ahmedabad Working Paper No. 2021-07-01

30 Pages Posted: 16 Jul 2021 Last revised: 3 Aug 2021

See all articles by M. P. Ram Mohan

M. P. Ram Mohan

Indian Institute of Management Ahmedabad

Vishakha Raj

Indian Institute of Management Ahmedabad

Date Written: July 15, 2021

Abstract

The Insolvency and Bankruptcy Code, 2016 (IBC) offers a mode of reorganisation for distressed corporations. The IBC’s approach to corporate rescue limits the extent to which the incumbent management of a distressed corporation can participate in its rehabilitation. This is reflected in 29A of the IBC which, inter alia, excludes promoters and the incumbent management of corporations with non-performing asset accounts from submitting resolution plans. Though contained in the IBC, judicial interpretation has made section 29A applicable to corporate reorganisations under India’s Companies Act, 2013 as well. The introduction and application of section 29A is reflective of a broader scepticism towards allowing promoters and directors to regain control of companies that went into financial distress under their watch. This paper re-evaluates section 29A by examining whether it has solved the problems it had set out to and finds that some ineligibilities prescribed for the incumbent management under section 29A can be relaxed. It uses the example of the United Kingdom’s insolvency regime (with which India bears similarities) to explain why resolution plans from the incumbent management should not be disallowed.

Keywords: Section 29A, Insolvency and Bankruptcy Code, 2016, incumbent management, liquidation, corporate reorganisation, promoter.

JEL Classification: K21, K10, K2, F23

Suggested Citation

M. P., Ram Mohan and Raj, Vishakha, Section 29A of India's Insolvency and Bankruptcy Code: An Instance of Hard Cases Making Bad Law? (July 15, 2021). Indian Institute of Management Ahmedabad Working Paper No. 2021-07-01, Available at SSRN: https://ssrn.com/abstract=3886464 or http://dx.doi.org/10.2139/ssrn.3886464

Ram Mohan M. P. (Contact Author)

Indian Institute of Management Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380015
India

Vishakha Raj

Indian Institute of Management Ahmedabad ( email )

Vastraour
Ahmedabad, 380015
India

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