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

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