Resolution and Its Gatekeepers

In one line

Once a company is in resolution, three gates decide its future: section 29A says who may not buy it, section 30 says what a plan must contain and that sixty-six per cent of the financial creditors must approve it, section 31 says the Tribunal approves a conforming plan and that the approval binds everyone, and section 53 supplies the liquidation waterfall against which every plan is measured.

Why the law has this at all

A resolution plan is a sale of a distressed company to whoever will pay the most for it. Left unregulated, the highest bidder would often be the promoter whose management caused the default, buying back his own company at a discount created by his own failure, with the creditors' write-off as his profit. Section 29A was inserted for that reason, by Act 8 of 2018, s.5, with effect from 23 November 2017, and it is a disqualification provision, not a penalty.

The second problem is the opposite one. If every creditor could veto a plan, no plan would pass, because the last holdout would always be paid to go away. Section 30(4) answers that with a supermajority of the financial creditors, and s.30(2)(b) and (ba) protect those who are outvoted or excluded by giving them a floor measured against liquidation.

The third problem is the buyer's. Nobody will pay for a company that carries unknown historical liabilities. Section 31(1) answers that by making the approved plan binding on all stakeholders, and since 26 May 2026 s.31(6) says in terms that prior claims are extinguished.

And the fourth is the yardstick. Every protection in the Code is measured against what the claimant would have got in a liquidation, so s.53 does double duty: it governs an actual liquidation, and it fixes the floor for a plan.

Section 29A: the gatekeeper

A person is not eligible to submit a resolution plan if that person, or any other person acting jointly or in concert with him:

(a) is an undischarged insolvent;

(b) is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act 1949;

(c) at the time of submission of the resolution plan has an account, or an account of a corporate debtor under his management or control or of whom he is a promoter, classified as a non-performing asset under the Reserve Bank's guidelines or the guidelines of a financial sector regulator, and at least one year has lapsed from the date of classification till the date of commencement of the corporate insolvency resolution process. By the proviso he becomes eligible if he pays all overdue amounts with interest and charges relating to the non-performing asset accounts before submitting the plan. A further proviso exempts a financial entity that is not a related party of the corporate debtor, and Explanation II gives an applicant a three-year grace where the offending account was itself acquired under a resolution plan approved under this Code;