The Section 29A Purge: NCLAT Pierces the Corporate Veil but Tramples on Procedural Boundaries in Myotic Trading

1. The Hook: Why This Case Matters Right Now

If there is one provision in the Insolvency and Bankruptcy Code, 2016 (IBC) that has generated more forensic litigation than actual resolutions, it is Section 29A. Intended as a moral and commercial quarantine to keep defaulting promoters away from regaining control of their companies, it has evolved into a labyrinth of "connected persons" and "de facto control."

The recent NCLAT ruling in Myotic Trading Private Limited vs Deepak Maini (2026) is a masterclass in the purposive interpretation of Section 29A. The Tribunal tore through complex corporate restructuring to block a resolution applicant with a tainted past. However, while the Tribunal’s substantive application of corporate and insolvency law is razor-sharp, its procedural maneuvering is deeply troubling. This judgment serves as a glaring warning to insolvency practitioners: the National Company Law Appellate Tribunal (NCLAT) is willing to overlook procedural boundaries—like locus standi—if it smells a rat in the resolution process. For M&A lawyers and Resolution Professionals (RPs), the due diligence benchmark has just been elevated from a routine MCA check to a full-blown forensic investigation.

2. The Facts: Stripped to the Essentials

The Corporate Debtor, Amzen Transportation Pvt. Ltd., was undergoing the Corporate Insolvency Resolution Process (CIRP). In response to the RP’s Form G, Cosmic CRF Ltd. ("Cosmic") submitted a resolution plan.

The Committee of Creditors (CoC) commissioned multiple due diligence reports regarding Cosmic’s eligibility under Section 29A. The reports flip-flopped. Competitors and CoC members alleged that Cosmic’s promoters (the Birla family) were previously in control of Cosmic Ferro Alloys Ltd. (CFAL), a company whose account was classified as a Non-Performing Asset (NPA) and which had itself gone through CIRP.

After a dizzying back-and-forth of show-cause notices and expert opinions—culminating in a Senior Advocate’s opinion clearing Cosmic—the CoC finally declared Cosmic eligible. Another prospective resolution applicant, Myotic Trading Pvt. Ltd., challenged this before the NCLT. The NCLT dismissed Myotic’s application purely on the threshold issue of locus standi, holding that Myotic, acting alone after its consortium broke up, had no legal capacity to challenge the process.

Myotic appealed to the NCLAT. In an earlier order (July 2025), the NCLAT agreed that Myotic had no locus. Yet, it proceeded to unilaterally declare Cosmic ineligible under Section 29A. Cosmic rushed to the Supreme Court, arguing a gross violation of natural justice. The Supreme Court directed Cosmic to file a recall application before the NCLAT to point out "factual errors." This judgment is the NCLAT’s decision on that recall application.

3. The Arguments

Cosmic’s advocates came out swinging on procedural grounds. They argued that the only issue before the Adjudicating Authority—and consequently the Appellate Tribunal—was Myotic’s locus standi. Once the NCLAT concluded Myotic had no standing, the appeal should have died there. Adjudicating on Cosmic’s Section 29A eligibility without pleadings, prayers, or a dedicated hearing was a blatant violation of natural justice.

On the merits, Cosmic argued that because CFAL (the tainted NPA) had already been resolved via a separate CIRP back in 2018, the Section 29A stigma was washed clean. The promoters no longer held an NPA account.

The RP and the CoC essentially threw their hands up, stating they had relied on expert opinions and followed the process, while asking the Tribunal to delete adverse remarks against them. Ironically, Myotic—the original instigator—filed an affidavit stating it was withdrawing from the process and had no objection to Cosmic being declared eligible, provided it got its earnest money back.

4. The Judgment

The NCLAT flatly refused to recall its order. Relying heavily on the Supreme Court’s landmark rulings in ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1 and Phoenix ARC (P) Ltd. v. Spade Financial Services Ltd., (2021) 3 SCC 475, the Tribunal applied a robust "substance over form" test.

"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'."

The Tribunal found that Cosmic’s promoters engaged in a "commercial contrivance." Through a Business Transfer Agreement (BTA) post-CFAL’s resolution, the promoters essentially bought back the prime assets of the NPA entity they had driven into the ground, without ever clearing the original NPA debt as required by the proviso to Section 29A(c). The NCLAT held that subsequent corporate restructuring cannot erase the substantive disqualification that arose when the account became an NPA.

Regarding the procedural objections, the NCLAT essentially brushed them aside, stating that "complete facts have not been placed on record," but the limited facts were enough to "see through" the corporate veil. To add sting to the tail, the NCLAT directed the Insolvency and Bankruptcy Board of India (IBBI) to conduct an independent inquiry into the conduct of the stakeholders, noting that the standard Section 29A affidavit submitted by Cosmic was "perfunctory" and hid material facts.

5. The Critique: Excellent Law, Terrible Procedure

Let us split this critique into two: the substantive law and the procedural propriety.

On the substantive law, the NCLAT is absolutely correct. The judgment is a brilliant application of the purposive interpretation of Section 29A. The Tribunal rightly identified that promoters cannot use the CIRP of one company to cleanse their sins, only to use a newly incorporated shell (Cosmic) to buy back the assets and then bid for a new Corporate Debtor. If you want to bid, you must pay off the overdue amounts of the NPA. You cannot use a BTA as a washing machine for tainted assets. The application of *Phoenix ARC*—which dealt with related parties shedding their labels to enter the CoC—to Section 29A eligibility is a smart, aggressive, and welcome jurisprudential leap.

However, procedurally, this judgment is a dangerous precedent. Cosmic’s legal team was right: the NCLAT committed judicial overreach. If an appellant (Myotic) lacks locus, the appeal is not maintainable. You cannot use a dead appeal as a Trojan horse to adjudicate the substantive rights of a third party, especially when that issue was never framed or argued before the NCLT. By refusing to recall the order, the NCLAT effectively stated that the noble end (keeping out a tainted promoter) justifies the flawed means (ignoring pleadings and natural justice).

What could the advocates have done differently? Cosmic’s counsel should have leaned much harder into the jurisdictional limits of a Recall Application under Rule 11 of the NCLAT Rules, 2016. By arguing the merits of the CFAL restructuring in the recall application, they inadvertently gave the NCLAT the very opportunity it needed to cure its earlier procedural defect by "hearing" them post-facto.

6. The Takeaway for Practitioners

For insolvency lawyers and RPs, the writing is on the wall.

• Due Diligence is now Forensic: You can no longer rely merely on current MCA master data or a chartered accountant’s clean chit. You must map the entire family tree of the Resolution Applicant and investigate their historical connection to any past CIRPs or NPAs. If a promoter is sitting on assets acquired from an erstwhile NPA via a slump sale or BTA, Section 29A(c) will bite.
• The End of the Perfunctory Affidavit: The NCLAT’s direction to the IBBI signals that boilerplate Section 29A affidavits will no longer suffice. RPs must demand active disclosure of past NPA associations, even if the applicant believes the taint has been legally "cured."
• Beware the Activist Tribunal: Do not assume you are safe just because your opponent’s petition is procedurally defective. As this case proves, if the NCLAT spots a Section 29A violation, it will bulldoze through procedural technicalities to strike it down.