Section 29A Of the Indian Insolvency Regime: Aid or Impediment to Corporate Governance?

Abstract

The Insolvency and Bankruptcy Code, 2016 was introduced to act as a single legislation for dealing with insolvency issues. It safeguards the interest of all stakeholders related to the corporate debtor as well as ensures good returns to the creditors. The code also focuses on the management of the corporate debtor post-resolution. The key provision in this respect is Section 29A of the Code, which prevents the promoters, incumbent management of the corporate debtor as well as certain other undesirable persons, from taking over the corporate debtor, so that charge can be taken by better management. While the intent behind the legislation was bonafide, there appears to be a lack of foreseeability on the part of the legislature on the far-reaching consequences of Section 29A. Through this piece, the authors aim to address the gap between the legislative intent and the actual effect of the provision, which might not aid but diminish corporate governance. For doing so, this article would firstly elaborate upon corporate governance and its interlink with IBC, with emphasis on Section 29A of the Code. It then brings to the fore the intention-outcome asymmetry in the impugned provision. The article then focuses on the non-alignment of Section 29A with certain key objectives of the Code. The authors point out that the scheme of Section 29A is broad enough to exclude even genuine promoters and incumbent management. Accordingly, the authors advocate for narrowing the ambit of Section 29A to prevent the exclusion of genuine promoters and incumbent management from submitting a resolution plan. Finally, the authors suggest a middle path preventing the blanket ban on incumbent management and promoters as well as other desirable persons while still achieving the objectives of the Code.