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IBBI calls for CoC to discuss, record section 29A eligibility under IBC
In a discussion paper released on Wednesday, the Insolvency and Bankruptcy Board of India (IBBI) has proposed that all prospective resolution applicants submit a statement of beneficial-ownership.
The idea behind the proposed changes to IBC regulations is to bring more transparency and procedural fairness to corporate insolvency resolution.
The IBBI has also proposed online invitation and submission of resolution plans.
The Supreme Court's two-judge bench of Justice Bela M Trivedi and Justice Satish Chandra Sharma in its May 2 order in the BPSL matter had come down heavily on the CoC and the resolution professional (RP). It said that the RP had 'utterly failed' to discharge statutory duties and the CoC failed to exercise its commercial wisdom while approving the resolution plan of JSW.
'While the order may have been repealed, we went through the SC's observations to try to make the processes under IBC more robust,' a senior official told Business Standard.
The SC recalled its May 2 judgment that ordered liquidation of BPSL.
'Parliamentary committees and expert groups have underscored the urgent need for robust digital infrastructure to promote procedural fairness, transparency, and confidentiality in the insolvency process,' the discussion paper highlighted.
The IBBI proposal now requires the CoC to formally discuss and record its deliberation on section 29A eligibility of the resolution applicant. This section sets out ineligibility criteria for resolution applicants under IBC, barring wilful defaulters, undischarged insolvent person, related party, such as personal guarantor among others from taking part in the resolution process.
IBBI said that this would help CoC members to engage more deeply in the due diligence process, reduce potential litigation on eligibility-related issues under section 29A and enhance transparency.
The regulator has also suggested that the resolution applicants submit an affidavit stating whether they are eligible for the benefit of section 32A, which provides immunity to the corporate debtor and its property from prosecution for offences committed prior to commencement of the CIRP. This has been proposed, IBBI said, to uphold the integrity of the process and prevent any potential abuse.
'The benefit of the clean slate principle under the IBC can only be availed if the conditions laid down in section 32A are stringently fulfilled,' the IBBI discussion paper said.
On similar lines, as the online auction platform for liquidation process under IBC, which is effective from April 1, 2025, IBBI has proposed digitising the broader resolution process online, such as invitation and submission of resolution plans.
The 10th Report of the Standing Committee on Finance on 'Demands for Grants of the Ministry of Corporate Affairs (MCA)' had recommended implementation of a direct submission system for resolution plans through a central online portal.
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