The National Company Law Tribunal (NCLT), Bengaluru, on 28 October held that a person cannot be disqualified under Section 29A(b) of the Insolvency and Bankruptcy Code, 2016 (IBC), merely because companies in which he holds directorships have been classified as wilful defaulters.
A Bench of Judicial Member Sunil Kumar Aggarwal and Technical Member Radhakrishna Sreepada allowed an application filed by V.V.S.R. Anjaneyulu Vattem, challenging his exclusion from the list of Prospective Resolution Applicants. It observed:
“We do not have any material before us establishing the Applicant's independent ineligibility to submit a resolution plan under the applicable provisions of Section 29A except Section 29A(c) and (h) of the Code and the fact that the Applicant is a Director in M/s. Karnataka Cements Limited or M/s. Sri Chakra Financial Services does not, by itself, conclude the inquiry under Section 29A(b) of the Code.”
The Corporate Insolvency Resolution Process (CIRP) of Sri Balaji Cement and Power Limited commenced on 1 August 2025, pursuant to an insolvency application filed by Maximus ARC Limited.
V.V.S.R. Anjaneyulu Vattem, an erstwhile promoter and suspended director of the Corporate Debtor, which is a registered Micro, Small and Medium Enterprise (MSME), submitted an Expression of Interest to participate in the resolution process, claiming exemption under Section 240A of the IBC.
However, the Resolution Professional (RP) excluded his name from the final list of Prospective Resolution Applicants, citing his alleged ineligibility under Section 29A(b) because he was a director of Karnataka Cements Limited and Sri Chakra Financial Services, which had been classified as wilful defaulters.
Challenging the exclusion, Vattem contended that he had never been personally declared a wilful defaulter. He argued that the defaults relating to Karnataka Cements pertained to the period when the company was under its previous management. He further submitted that no final order declaring Sri Chakra Financial Services a wilful defaulter had been served on him in accordance with the Reserve Bank of India's (RBI) prescribed procedure.
The RP and Maximus ARC opposed the application, contending that Vattem's name appeared in wilful defaulter records following verification under Section 29A(b) of the IBC. They submitted that despite being given an opportunity to establish otherwise, he had failed to produce documents showing that the wilful defaulter classification had been removed.
Examining Section 29A of the Code, the Tribunal observed:
“A plain reading of the provision makes it evident that the ineligibility contemplated under Section 29A is statutory in nature and must be determined with reference to the particular clause sought to be invoked.”
It noted that the documents relied upon by the respondents established that Karnataka Cements and Sri Chakra Financial Services had been classified as wilful defaulters. However, these documents did not establish that Vattem himself had been classified as a wilful defaulter in his individual capacity.
Further, the Bench explained that a company's classification as a wilful defaulter does not automatically disqualify its directors under Section 29A(b), observing:
“Section 29A (b) refers to a person who is a wilful defaulter in accordance with the applicable guidelines of the Reserve Bank of India and if a person is director in another company which has been included in the wilful-defaulters records then the said person cannot be said to be a wilful defaulter for the purpose of Section 29A (b) of the Code because it is necessary to examine whether the Applicant himself has been classified as a wilful defaulter.”
The Tribunal also said that the applicant could claim exemption from the disqualifications under Sections 29A(c) and (h) under Section 240A of the Code, since the Corporate Debtor was an MSME.
Moreover, it considered the NCLAT decision in Namdeo Hindurao Patil v. Virendra Kumar Jain, wherein it was held that an individual who is personally classified as a wilful defaulter cannot claim exemption from Section 29A(b) merely because the corporate debtor is an MSME.
However, the Bench distinguished the present case, observing that the issue was not whether an individual who had been personally classified as a wilful defaulter could claim the MSME exemption, but whether Vattem himself had been classified as a wilful defaulter.
Finding that the respondents had failed to establish Vattem's independent ineligibility under Section 29A(b), it held:
“…we are of the considered view that the exclusion of the Applicant from the list of Prospective Resolution Applicants cannot be sustained and hold that the Applicant is, entitled to participate in the resolution process in accordance with the Code and the applicable CIRP Regulations.”
Accordingly, the NCLT allowed the application and directed the RP to include Vattem's name in the list of Prospective Resolution Applicants.
For Applicant: Ch. Srinivasalu
For Respondent: JVL Bharathi