Strengthening Due Diligence under Section 29A – IBC

Strengthening Due Diligence under Section 29A – IBC

What Section 29A Covers

Section 29A requires Section 29A list of persons who are not eligible to submit a resolution plan includes NPA defaulters, willful defaulters, connected people, those convicted of certain offenses, guarantors to the same corporate debtor, etc. People not eligible to submit a resolution plan include:

• NPA defaulters
• Willful defaulters
• Connected persons
• Certain convicted persons
• Guarantors to the same corporate debtor, etc.

Section 29A ineligibility is one of the most litigated issues in CIRP, often leading to delays, failed plans, and RP accountability questions.

IBBI Circular Explained Guidance to Strengthening Due Diligence U/s 29A

• The Insolvency and Bankruptcy Board of India has issued a circular to tighten and formalize the due‑diligence responsibilities of Resolution Professionals (RPs) regarding the eligibility of Prospective Resolution Applicants (PRAs) under Section 29A of the IBC. This is crucial because Section 29A ineligibility is one of the most litigated areas in CIRP.
• The IBBI has issued a circular re-emphasizing and tightening the due diligence responsibilities of Resolution Professionals (RPs) while verifying the eligibility of Prospective Resolution Applicants (PRAs) under Section 29A of the IBC.

Key Compliance Responsibilities Re‑Emphasized in Due Diligence U/s 29A of the IBC

The circular summarizes duties already present in the Code and Regulations:

• Regulation 36A(4) : Form G must explicitly mention Section 29A ineligibility criteria.
• Regulation 36A(7) : Every PRA must submit an undertaking along with an EOI confirming they are not ineligible.
• Section 30 & Regulation 39 : The final resolution plan must contain an affidavit affirming Section 29A eligibility.
• Regulation 36A(8) : The Resolution Professionals must perform independent due diligence to verify 29A compliance. This is the most critical responsibility and the focus of the circular.
• Compliance Certificate – Form H : Resolution Professionals must give in his Due Diligence U/s 29A which confirmation that the affidavit is in order & A due diligence certificate verifying Section 29A eligibility

Why IBBI Emphasized This Now

• Due diligence on Section 29A has frequently been found inadequate, leading to litigation before CoC voting, challenges before NCLT/NCLAT/Supreme Court, delays and plan failures, & questions on RP accountability. The circular explicitly states that this due diligence is “paramount” to preserve transparency, the integrity of CIRP, and the legal sustainability of approved plans.
• The new mandatory requirement of resolution professionals under resolution professionals must now place a “detailed note on Section 29A compliance” before the CoC.
• This note should Summarize documents submitted by each PRA, Detail verification steps taken by RP, highlight any red flags or unresolved issues, reflect interactions with PRAs & Indicate reliance on public records, MCA filings, credit reports, court orders, databases, etc.
• Moreover, CoC deliberations must be properly recorded in minutes. This creates a documented trail showing that RP verified eligibility, CoC consciously evaluated it, Any concerns were discussed. This documentation becomes critical if the plan is challenged later.

Section 29A Compliance Note for Prospective Resolution Applicant

The practical auditor and RP must take care of the strengthening due diligence under Section 29A of the IBBI regulation. We can Use for the 29A Compliance Note: the following below points must be is a concise 29A Due diligence report.

• 29A Due diligence must have the applicant details in his reporting. The report must include the list of documents to be submitted to auditors undertaking under Regulation 36A(7), the affidavit under Section 30, net worth/financial statements, shareholding structure, related party declarations, credit reports, and Court orders (if applicable).
• Following Verification Actions Taken by RP like MCA Master Data checks, NPA status verification from lenders, Willful defaulter lists (RBI), SEBI debarment lists, Public litigation search, CIRP/Liquidation records & Cross‑reference of “connected persons”
• The auditor must make all the observations/red flags in his 29A Due diligence report. Conclusion on Eligibility—What This Means for Insolvency Professionals: As a practitioner, this circular increases the documentation burden, liability for inadequate verification, and importance of detailed minutes. However, it also Strengthens the defensibility of the process, reduces post‑plan litigation risk, protects you (the RP) by showing robust compliance

Practical Checklist for Section 29A Due Diligence

A concise 29A Due Diligence Report should include:

Applicant Details & Documents

• Undertaking under Reg. 36A(7)
• Affidavit under Section 30
• Net worth & financial statements
• Shareholding & related-party disclosures
• Credit reports
• Court orders (if any)

Verification Actions by RP

• MCA Master Data checks, NPA status with lenders
• RBI willful defaulter lists
• SEBI debarment lists
• Public litigation search
• CIRP / liquidation history
• Cross-verification of “connected persons”

Key Compliance Duties Re-emphasised

• Regulation 36A(4) – Form G must clearly mention Section 29A ineligibility
• Regulation 36A(7) – PRA to submit an undertaking with EOI
• Section 30 & Regulation 39 – Affidavit confirming Section 29A eligibility with the Resolution Plan
• Regulation 36A(8) – RP must perform independent due diligence (most critical)
• Form H (Compliance Certificate) – RP must certify that Section 29A due diligence has been properly carried out

New Mandatory Requirement for RPs

RPs must now place a detailed Section 29A Compliance Note before the CoC, covering:

• Documents submitted by each PRA
• Verification steps taken by RP
• Red flags or unresolved issues
• Reliance on public records (MCA, RBI, SEBI, credit reports, court orders, databases)
• Proper recording of CoC deliberations in minutes

This creates a clear audit trail, crucial if the plan is challenged before NCLT/NCLAT/Supreme Court.

Observations & Conclusion

In the 29A DD report must Clear identification of red flags & conclusion on eligibility under Section 29A. Under this IBBI circular This Means for Insolvency Professionals: Yes, this increases Documentation burden, Verification responsibility & RP accountability But it also Strengthens process defensibility, reduces post-approval litigation & Protects the RP through robust compliance evidence