Section 29A eligibility: a promoter's unpaid guarantee and the one-year NPA clock
Zenith Alloys submits a resolution plan for a steel corporate debtor whose CIRP commenced on 15 July 2024. Mr. A holds 26% of Zenith Alloys, is its chairman and has nominated two of its five directors. Mr. A is also the promoter of Zenith Ispat. Zenith Ispat's cash credit account was classified NPA on 1 June 2024, and Zenith Ispat's own Section 7 application was admitted on 12 December 2024. The lender invoked Mr. A's personal guarantee for Zenith Ispat's ₹60 crore term loan on 10 January 2025, and ₹12 crore remains unpaid. Zenith Alloys filed its plan and Section 29A affidavit on 20 March 2025, disclosing all of this but arguing that Mr. A is a minority shareholder with no veto and therefore neither controls the applicant nor acts in concert with it. The CoC approved the plan on 20 June 2025 with 82% of the eligible voting share.
1. Assess the applicant's eligibility under Section 29A as on 20 March 2025, clause by clause.
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The NPA clause. Section 29A(c) bars a person who, at the time of submission, has an account - or is promoter or in management or control of a corporate debtor with an account - classified as NPA, where one year has elapsed from classification to the date of commencement of CIRP of the corporate debtor being resolved. Here NPA classification was 1 June 2024 and CIRP of the target commenced 15 July 2024: only about six weeks. The one-year condition is not met, so clause (c) is not triggered.
The guarantee clause. Section 29A also bars a person who has executed a guarantee in favour of a creditor in respect of a corporate debtor against which an insolvency application has been admitted, where the guarantee has been invoked and remains unpaid in full or part. Both conditions are satisfied: Zenith Ispat's application was admitted on 12 December 2024, the guarantee was invoked on 10 January 2025, and ₹12 crore is unpaid at the date of submission.
Who is the applicant? Section 29A catches the applicant and any person acting jointly or in concert with it. Mr. A is chairman, holds 26% and has nominated 40% of the board - a strong inference of joint action and control. The applicant therefore carries Mr. A's disqualification.
Conclusion. Zenith Alloys is ineligible; the plan cannot lawfully be approved.
2. Zenith Alloys argues that more than a year has now passed since NPA classification and that it will clear the ₹12 crore guarantee before the NCLT hearing. Does either argument assist it?
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The NPA clock argument fails. Clause (c) does not run to the date of plan approval or the date of the Authority's order; it measures one year from classification to the date of commencement of CIRP of the corporate debtor being resolved. Both dates are historical and fixed. The subsequent lapse of time after CIRP commenced is legally irrelevant, so the argument that the account has 'now' been NPA for over a year does not bring clause (c) into play.
The cure argument fails on the guarantee limb. The 2018 proviso to clause (c) allows an NPA promoter to become eligible only by paying the overdue amounts with interest before submission of the plan - and it is unavailable to a wilful defaulter. That cure does not touch the guarantee limb at all; an invoked and unpaid guarantee is an independent disqualification. More fundamentally, ArcelorMittal India v. Satish Kumar Gupta (SC, 2019) holds that eligibility must exist on the date the plan is submitted. A payment made after submission, even before approval, cannot retrospectively cure ineligibility.
Practical point. If the guarantee had been discharged before 20 March 2025, the applicant's position would have been materially different. Timing of the cure is everything, and the RP's EoI should have made that explicit.
3. Can the CoC's 82% approval and its commercial wisdom override Section 29A? What should the RP have done earlier?
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No. Section 29A is a statutory bar on eligibility, not a commercial issue. The CoC's commercial wisdom operates within the framework of the Code; it cannot waive a disqualification or vote an ineligible applicant into eligibility. Essar Steel makes clear that the Authority must satisfy itself of compliance with the Code when approving a plan, and a plan submitted by an ineligible person is void at its root. The 82% vote is legally irrelevant to the eligibility question, though it may be relevant to any fresh process.
What the RP should have done. The RP examines the Section 29A affidavit, and the accompanying disclosures, before placing a plan before the CoC. Here the affidavit itself disclosed the invoked, unpaid guarantee, so the RP should have rejected the plan at the scrutiny stage and recorded the reason, rather than allowing the CoC to vote. The RP should also have checked the shareholding agreement and board composition of Zenith Alloys to assess joint action and connected-person status.
Next steps. Reject the plan, seek a fresh EoI within the CIRP period, and consider whether the RP's own conduct needs to be reported. If the 330-day limit cannot accommodate a fresh process, the CoC must move to liquidation under Section 33.