Due Diligence on Prospective Resolution Applicants: A Practical Guide

The Insolvency and Bankruptcy Code (IBC) places a heavy responsibility on the Resolution Professional (RP) to ensure that only eligible Resolution Applicants (RAs)—and their connected persons—participate in a Corporate Insolvency Resolution Process (CIRP).

With the recent IBBI Circular No. IBBI/CIRP/88/2025 dated 18 November 2025, the scope, depth, and documentation requirements for such due diligence have become even more critical. The RP must directed to place a detailed note on section 29A compliance before the CoC when resolution plans are considered and ensure that deliberations and observations of the CoC are properly recorded in the minutes.

This post distils the framework I personally follow as a legal practitioner, incorporating including digital tools like Tofler, ZaubaCorp, public-domain searches, SEBI jurisprudence on “persons acting in concert,” and a printable checklist.

Understanding Section 29A and Who It Covers:

Section 29A extends ineligibility not only to the applicant but to:

• related parties;

• persons managing or controlling the RA;

• persons who, acting jointly or in concert with a disqualified person, seek to acquire the Corporate Debtor;

• entities with shared management or beneficial interest;

Given the broad sweep of this section, the due diligence must go beyond documents submitted by the RA.

SEBI’s PAC Principles — Useful for 29A Evaluation?

SEBI’s jurisprudence offers the most structured interpretation of PAC. Under takeover regulations and insider trading laws, PAC refers to:

“Persons who, with a common objective or purpose of acquisition or control, cooperate pursuant to an agreement or understanding (formal or informal).”

Important characteristics:

• Commonality of objective is central.

• Existence of formal agreement NOT required.

• Conduct and patterns matter more than documentation.

• Even funding arrangements or back-end commitments can make someone a PAC.

• PACs may operate through layered entities—beneficial ownership is key.

Practical PAC Due Diligence Framework:

A. Corporate Linkage Mapping:

• Track addresses, emails, mobile numbers across filings;

• Review shareholding and UBO patterns.

B. Behavioral Indicators:

• Joint participation in earlier deals;

• Common legal advisors, consultants, or intermediaries;

• Financial interdependence;

• Transactional circularity.

C. Documentary Evidence:

• ROC filings like DIR-12, MGT-7, AOC-4, CHG-1/4;

• SEBI/Stock Exchange Filings such as shareholding patterns, insider trading disclosures, related party transactions;

• Litigation & Enforcement Databases;

• Sanctions, AML & Integrity Screening;

• Bank statements;

• Public announcements or press releases.

Tips for RA Due Diligence:

1. While statutory sources like MCA are mandatory, Tofler helps me combine scattered pieces of information into a single analytical view:

• For mapping director networks — one click reveals all companies (past and present) connected to a person.

• For understanding group structures — Tofler visual-maps ownership chains.

2. ZaubaCorp is another powerful website lists all companies registered at the same address. This is crucial because:

• Promoter groups often use a single shared address for multiple entities.

• SPVs created to bypass Section 29A frequently share the promoter's office address.

• Shell companies are often clustered under common addresses.

3. In my practical experience, one of the most underrated but extremely effective due-diligence tools is a simple Google search. Before finalising any 29A eligibility assessment, I routinely conduct broad internet searches using structured keywords. I have found that:

· Media reports often uncover past allegations, fraud suspicions, regulatory actions, or promoter disputes.

· Social media platforms can give insights into who the promoter associates with.

· Press releases by industry associations/ chambers of commerce can show past partnerships, MOU signings, or business linkages.

Many times, simple keyword combinations such as:

· “Name of RA + fraud”

· “Name of promoter + NPA”

· “Name of company + litigation”

· “Name of promoter + arrest/FIR”

· “Name of funding entity + complaint”

have uncovered red flags.

A real example from practice:

In one CIRP, a quick search — “RA Name + NCLT” — revealed that a Section 9 petition was still pending before the NCLT. This contradiction triggered enhanced scrutiny, and ultimately, the RA had to furnish further disclosures.

Thus, even though Google searches sound simplistic, in many cases, they have been the most revealing part of the entire due-diligence exercise. For RPs, this becomes the first-line filter — the compass pointing you to where the deeper due diligence must go.

Categorizing PAC Relationships:

The findings should finally be classified as under:

1. Confirmed PAC- Evidence which clearly establishes concerted action must be tested for Section 29A.

2. Probable PAC- For strong indicators but no conclusive evidence, seek clarifications and evaluate deeper. Also, wherever necessary, prepare undertakings, indemnities, and disclosures to protect the RP and CoC.

3. Potential PAC- Weak indicators should be monitored and disclosed to CoC for awareness.