Piercing the Veil or Procedural Overreach? NCLAT’s Hardline Stance on Section 29A "See-Through" Provisions

The Hook: Why This Case Matters Right Now

If there is one thing Indian insolvency jurisprudence has made abundantly clear over the last eight years, it is that Section 29A of the Insolvency and Bankruptcy Code (IBC) is the ultimate holy cow. In the recent March 2026 judgment of Myotic Trading Pvt. Ltd. vs Deepak Maini (Resolution Professional), the National Company Law Appellate Tribunal (NCLAT) delivered a masterclass on just how far tribunals will go to protect the sanctity of Section 29A—even if it means bypassing strict procedural boundaries and ignoring the withdrawal of the original complainant.

For corporate lawyers and Resolution Professionals (RPs), this judgment is a glaring red billboard. It tells us that "expert shopping" by the Committee of Creditors (CoC) to get a favorable eligibility opinion will not save a tainted promoter. More importantly, it reaffirms that courts will aggressively use the "see-through" mechanism to unmask de facto control, rendering technical corporate restructuring completely useless to bypass NPA disqualifications.

The Facts: A Masterclass in Corporate Gymnastics

The Corporate Debtor, Amzen Transportation Industries Ltd., was in CIRP. The RP received a resolution plan from Cosmic CRF Limited. Almost immediately, rival bidders and watchdogs blew the whistle: Cosmic CRF, they alleged, was ineligible under Section 29A(c) and (h) of the IBC.

The core allegation was that Cosmic’s Managing Director, Mr. Aditya Vikram Birla, was deeply connected to another entity, Cosmic Ferro Alloy Ltd. (CFAL), which was an undischarged Non-Performing Asset (NPA). What followed was a classic case of CoC indecision. The RP and CoC commissioned multiple independent reports (AHSK & Co. and PSA), both of which found Cosmic ineligible. Dissatisfied, the CoC eventually sought a Senior Advocate’s opinion, which miraculously found Cosmic eligible, prompting the CoC to approve them as a Prospective Resolution Applicant (PRA).

A rival bidder, Myotic Trading, challenged this before the NCLT. The NCLT dismissed Myotic’s application purely on the threshold issue of locus standi (as Myotic’s consortium had fallen apart). Myotic appealed to the NCLAT. In July 2025, the NCLAT agreed that Myotic lacked locus, but then went a step further: it suo motu declared Cosmic ineligible under Section 29A anyway. Cosmic rushed to the Supreme Court, which allowed them to file a Recall Application before the NCLAT on grounds of factual errors and lack of natural justice. This 2026 judgment is the decision on that Recall Application.

The Arguments: Technical Defenses vs. Substantive Reality

Before the NCLAT, the advocates for Cosmic CRF took a highly technical, procedural route. They argued that the NCLAT had exceeded its jurisdiction in the original July 2025 order. Since the NCLT had only decided the issue of Myotic’s locus, and the appeal was only about locus, the NCLAT had no business deciding Cosmic’s Section 29A eligibility. Furthermore, they argued a violation of natural justice, claiming they were never heard on the merits of their eligibility.

In a bizarre twist, Myotic (the original complainant) filed an affidavit stating they were withdrawing from the CIRP and had no objection to Cosmic being declared eligible. The CoC and the RP also jumped on the bandwagon, arguing that the NCLAT had overstepped and that the CoC’s commercial wisdom in declaring Cosmic eligible should prevail.

The Judgment: Substance Over Form

The NCLAT bench, comprising Justice Mohammad Faiz Alam Khan and Mr. Arun Baroka, flatly refused to recall the order, delivering a stinging rebuke to Cosmic, the CoC, and the RP.

Relying heavily on the Supreme Court’s landmark rulings in ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta (2019 2 SCC 1) and Phoenix ARC Pvt. Ltd. v. Spade Financial Services Ltd. (2021 3 SCC 475), the Tribunal applied a purposive interpretation of Section 29A. The NCLAT held:

"The opening lines of Section 29A... refer to a de facto as opposed to a de jure position. This is a typical instance of a 'see through provision', so that one is able to arrive at persons who are actually in 'control'... A wooden, literal interpretation would obviously not permit a tearing of the corporate veil."

The Tribunal found that despite the Birlas legally restructuring their holdings and using Cosmic CRF as a separate corporate vehicle, they retained de facto control over the assets of the NPA entity (CFAL). Because the debt of CFAL was never cleared, the stigma of Section 29A(c) and (h) transferred to Cosmic CRF. The NCLAT not only dismissed the recall application but also directed the Insolvency and Bankruptcy Board of India (IBBI) to investigate the conduct of the RP and the stakeholders for attempting to push through a tainted applicant.

The Critique: Did the Tribunal Overstep?

Let’s be brutally honest: from a strictly procedural standpoint, Cosmic’s advocates had a valid point. If an appeal is filed solely against an order dismissing a petition for lack of locus standi, an appellate tribunal venturing into the substantive merits of the case—without formally framing the issue and inviting pleadings on it—borders on judicial overreach.

However, do I agree with the NCLAT’s ultimate conclusion? Absolutely.

The advocates for Cosmic made a fatal strategic error. When you are before the NCLAT on a Section 29A defect, hiding behind procedural shields like "jurisdiction" and "locus" is a losing battle. The NCLAT is acutely aware of the backdoor mechanisms promoters use to regain control of assets. Cosmic's counsel should have focused on producing unassailable documentary evidence proving a complete severance of de facto control from the NPA entity. They failed to do so.

Furthermore, the conduct of the CoC and the RP was highly problematic. The judgment exposes the dangerous practice of "expert shopping." When two independent due diligence agencies (AHSK and PSA) flagged Section 29A violations, the CoC kept passing the buck until they found a legal opinion that suited their commercial desires. The NCLAT rightly struck this down. Commercial wisdom does not apply to Section 29A eligibility; eligibility is a strict matter of law.

The Takeaway: Lessons for Practitioners

For law firm partners and insolvency practitioners reading this, there are three major takeaways:

1. The "See-Through" Provision is Absolute: You cannot use slump sales, Business Transfer Agreements, or newly incorporated shell companies to bypass Section 29A if the underlying management remains the same. The NCLAT will pierce the corporate veil, and they will look at who is actually pulling the strings.

2. RPs Cannot Be Postmen: The NCLAT took a very dim view of the RP relying on a "general affidavit" of eligibility submitted by the Resolution Applicant. Under Regulation 36A(8), the RP must conduct independent due diligence. If an RP ignores red flags just because the CoC wants to push a plan through, they are inviting an IBBI probe.

3. Procedural Defenses Fail Against 29A: If a tribunal smells a Section 29A violation, they will invoke their inherent powers to cleanse the process. Even if the original objector withdraws (as Myotic did here), the taint of ineligibility does not wash away. Section 29A operates in rem, not in personam.

Ultimately, this judgment is a stark reminder that the IBC is meant for sustainable revival by clean hands, not for financial acrobatics by defaulting promoters.