2026 (3) TMI 926 - AT - IBC

De facto control and connected person analysis sustain Section 29A ineligibility; CIRP to continue with fresh Form G.

The note addresses two issues: first, whether the applicant was ineligible under Section 29A due to substantive de facto connections with a previously NPA ... Determining eligibility of the resolution applicant to be eligible under Section 29A - declared Ineligibility without being heard on the issue and without being given any opportunity to file reply - scope of connected person - continuation of proceedings of Corporate Insolvency Resolution Process of the Corporate Debtor from the stage of issuance of a fresh ‘Form- G’ - Purposive interpretation of Section 29A (see-through provision) - meaning of 'persons acting in concert' - violation of principles of natural justice - Duty of the resolution professional under Regulation 36A to verify eligibility. Purposive interpretation of Section 29A (see-through provision) - Whether Cosmic CRF Limited is ineligible to be a resolution applicant under Section 29A of the Insolvency and Bankruptcy Code - HELD THAT:- The purpose of the ineligibility under Section 29-A is to achieve a sustainable revival and to ensure that a person who is the cause of the problem either by a design or a default cannot be a part of the process of solution. Section 29-A, it must be noted, encompasses not only conduct in relation to the corporate debtor but in relation to other companies as well. This is evident from clause (c) (“an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as a non-performing asset”), and clauses (e), (f), (g), (h) and (i) which have widened the net beyond the conduct in relation to the corporate debtor.” The Hon’ble Supreme Court, in ArcelorMittal [2018 (10) TMI 312 - SUPREME COURT] has held that eligibility under Section 29A of the Insolvency and Bankruptcy Code, 2016 (“IBC”) must be determined on the basis of the de facto position of the persons concerned, rather than their de jure status. The Tribunal, after reviewing the expert reports, complaints and material on record, applied a purposive, see through construction of Section 29A (as explained in ArcelorMittal.) and examined connections between Cosmic CRF, its promoters and Cosmic Ferro Alloys Ltd. (CFAL). It found material showing de facto continuity of control, cross shareholdings, post resolution asset transfers and retained involvement of promoters in CFAL's operations. The Committee of Creditors' minutes lacked sub section wise reasoning and had unduly relied on a single senior counsel's opinion; the RP/CoC had also not placed decisive material. Applying the statutory tests and the proviso to clause (c), and having regard to the need to prevent back door re entry by persons connected with an NPA, the Tribunal concluded that Cosmic CRF and its connected persons attracted disqualification under Section 29A (notably clause (c) and, on the facts and purposive assessment, clause (j)), and therefore the applicant is ineligible. The Tribunal recorded that it could not reach definitive conclusions on some factual aspects (notably certain documentary proof regarding invocation/enforcement of guarantees and on clause (a)), but held that disqualification under the identified clauses sufficed to render Cosmic CRF ineligible. [Paras 176, 177, 178, 183, 184] Cosmic CRF Limited is ineligible under Section 29A of the IBC (in particular under clause (c) and having regard to clause (j) on the facts), and the recall of the Tribunal's earlier findings of ineligibility is not warranted. Duty of the resolution professional under Regulation 36A to verify eligibility - HELD THAT:- The Tribunal noted that it had given the parties opportunity to file replies on eligibility and that during pendency it had passed interim directions protecting the process (including ordering that any resolution plans received not be opened). The RP had thereafter issued a fresh Form G and taken steps to continue the CIRP. Having concluded that the applicant is ineligible under Section 29A, the Tribunal found no ground to recall its earlier order directing continuation of the CIRP from the stage of issuance of a fresh Form G and directed the CIRP to proceed without delay. The Tribunal also directed IBBI to conduct an independent inquiry into related procedural and disclosure issues. [Paras 76, 77, 195, 196, 197] No grounds to recall the direction to continue the CIRP; proceedings shall continue and IBBI is directed to inquire into related matters. Final Conclusion: The Tribunal upheld its earlier conclusion that Cosmic CRF Limited is ineligible under Section 29A of the IBC (principally under clause (c) and in light of clause (j)), declined to recall the Tribunal's order directing continuation of the CIRP from the stage of a fresh Form G, and directed the RP to proceed while IBBI conducts an independent inquiry into related procedural and disclosure issues. Issues: (i) Whether the recall application should be allowed to set aside the Tribunal's judgment dated 25.07.2025 insofar as it held the applicant to be ineligible under Section 29A of the Insolvency and Bankruptcy Code, 2016; (ii) Whether proceedings of the Corporate Insolvency Resolution Process of the corporate debtor should continue from the stage of issuance of a fresh Form-G.Issue (i): Whether the Applicant Cosmic CRF Limited is ineligible to be a resolution applicant under Section 29A of the Insolvency and Bankruptcy Code, 2016 and whether the Tribunal's earlier findings to that effect should be recalled.Analysis: The Tribunal reviewed expert reports, statutory provisions, and judicial precedents addressing the temporal test for clause (c), the scope of connected persons and persons acting in concert, and the purposive object of Section 29A. The material on record showed cross-shareholding, directorships and post-resolution asset transfers connecting the applicant and its promoters with a previously NPA entity (CFAL), retention of operational roles post-resolution, and corporate guarantees linked to entities in the same group. The Committee of Creditors had relied heavily on a senior counsel's opinion in reaching eligibility, but the Tribunal examined the underlying facts and reports, applied the see-through / de facto control approach, considered the first proviso to clause (c) and the requirement that overdue amounts must be paid to remove disqualification, and observed incomplete disclosure and unresolved factual gaps (including invocation/enforcement status of guarantees). On balance and adopting a purposive interpretation of Section 29A informed by precedent, the Tribunal found that disqualifying connections and factual indicia of continued de facto control existed such that ineligibility attached under the provisions considered.Conclusion: The recall application insofar as it sought to set aside the Tribunal's holding that Cosmic CRF Limited was ineligible under Section 29A is dismissed; the earlier findings of ineligibility are retained.Issue (ii): Whether the Corporate Insolvency Resolution Process of Amzen Transportation Industries Ltd. should be directed to continue from the stage of issuance of a fresh Form-G.Analysis: The Tribunal noted compliance steps already undertaken by the resolution professional following the earlier order and the existence of received EOIs and pending resolution-plan related timelines. Given the dismissal of the recall on eligibility grounds and the need to progress CIRP, the Tribunal considered continuation appropriate while also directing an independent inquiry by the Insolvency regulator into related procedural and disclosure issues.Conclusion: Proceedings of the CIRP shall continue with immediate effect and further processing, including issuance of a fresh Form G and related steps, is directed to proceed.Final Conclusion: The recall application is dismissed; the Tribunal's earlier determination that the applicant is ineligible under Section 29A stands and the CIRP process for the corporate debtor is ordered to continue without interruption while regulatory inquiry is permitted.Ratio Decidendi: Where material facts and documentary indicia show substantive (de facto) connections, control or continuing involvement of a resolution applicant or its connected persons with an entity whose account was classified as NPA, and the statutory gateway in Section 29A (including its proviso) is not satisfied, the resolution applicant can be held ineligible; eligibility must be assessed on substance (de facto control and acting in concert) at the plan submission date and through purposive application of Section 29A.