Section 29A of India’s insolvency and bankruptcy code: an instance of hard cases making bad law?

Abstract

The Insolvency and Bankruptcy Code, 2016 offers a second chance to a distressed corporation but not its incumbent management. Section 29A of the IBC excludes promoters and the incumbent management of corporations with non-performing asset accounts from submitting resolution plans. Though contained in the IBC, judicial interpretation made section 29A apply to corporate reorganisations under India’s Companies Act, 2013 as well. The introduction and application of section 29A is reflective of a broader scepticism toward allowing promoters and directors to regain control of companies that went into financial distress under their watch. This perception seems to be at odds with the overarching policy of the IBC which is to foster rehabilitation over liquidation and give corporations a second chance. 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.