Government To Close Insolvency And Bankruptcy Law Loopholes? New Rules Coming

Government To Close Insolvency And Bankruptcy Law Loopholes? New Rules Coming Soon, BIG Change Expected In Blood Relation Clause

Section 29A of the Insolvency and Bankruptcy Code (IBC) is an important provision that defines who can and who cannot participate in the resolution process of an insolvent company. Under this section, the company's promoter and their blood relatives are restricted from taking part in the bidding or resolution process of that same company.

New Delhi: The government is gearing up to make some of the biggest changes yet to the Insolvency and Bankruptcy Code (IBC) in the upcoming winter session of Parliament. While the law has seen several amendments since it was first introduced in 2016, the proposed IBC Amendment Bill 2025 is expected to be the most impactful.

Experts, as quoted by ZeeBiz, say that this move could strengthen the real purpose of “Ease of Doing Business”, especially since it may revise Section 29A, which currently prevents a company's promoters and their blood relatives from taking part in the insolvency resolution process.

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Section 29A of the Insolvency and Bankruptcy Code (IBC) is an important provision that defines who can and who cannot participate in the resolution process of an insolvent company. Under this section, the company's promoter and their blood relatives are restricted from taking part in the bidding or resolution process of that same company.

The government's intention behind this rule was to ensure that the promoters of a bankrupt company, or people closely associated with them, do not regain control of the same company. However, industry experts argue that this provision is “extremely broad”. They say it ends up restricting even those individuals who may not have any direct business connection with the company — but are only related to the promoter by family ties.

Many industry bodies and corporate law experts believe that the time has come to amend this section, as per ZeeBiz. They argue that if a relative has no financial or managerial involvement with the company, then they should not be barred from participating in the IBC process just because they are a “blood relative” of the promoter.

The proposal to amend the IBC is currently being reviewed by a Select Committee chaired by Baijayant Panda. Various stakeholders have been presenting their views and recommendations before the committee.

One of the key suggestions placed before the committee is to redefine the “blood relation” clause under Section 29A. Industry representatives argue that the definition of a “related party” should be limited only to business relationships, not personal family ties.

They suggest that a person's bid should be restricted only if the source of their investment is directly linked to the company promoter's funds, rather than just because they are a family relative.

If this amendment goes through, many large corporate groups in the country will be allowed to participate in IBC cases involving companies linked to their blood relatives. This could speed up the insolvency resolution process, as it would increase the number of potential bidders and create more competition.

Experts believe that this move could not only improve the success rate of IBC cases but also strengthen the true intent of “Ease of Doing Business” in India.

Since its introduction in 2016, the Insolvency and Bankruptcy Code has undergone six major amendments, each aimed at making the insolvency process faster, more transparent, and more investor-friendly. However, experts say that provisions like Section 29A no longer fit well with the current business environment, and updating it has now become necessary.

Source: ZeeNews
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