Parliamentary panel backs govt steps to strengthen IBC recovery, seeks deeper action on fund diversion
The Parliamentary Standing Committee on Finance backed government measures taken to strengthen recovery under the Insolvency and Bankruptcy Code (IBC), while recommending deeper, time-bound action against diversion and siphoning of funds during insolvency proceedings.
The committee flagged a wide gap between the value of avoidance transactions identified and the amount actually recovered: 1,326 applications involving avoidance transactions worth Rs 3.76 lakh crore resulted in recovery of only about Rs 7,500 crore, roughly 2% of the value at stake.
The panel recommended stronger coordination between the Ministry of Corporate Affairs, the Insolvency and Bankruptcy Board of India (IBBI), the Reserve Bank of India, and the Enforcement Directorate, along with enhanced forensic audit capability during the Corporate Insolvency Resolution Process (CIRP).
The committee also called for amending the IBC to explicitly empower Resolution Professionals to conduct deeper, time-bound investigations into avoidance transactions and fund diversion, and for expediting adjudication of avoidance petitions before the National Company Law Tribunal (NCLT).
Separately, the panel noted broader IBC performance concerns: average resolution time of about 853 days in 2024-25 against the mandated 330-day timeline, and around 30,600 cases pending before 30 NCLT benches.
Avoidance Transactions under the IBC (Sections 43-51 and 66)
The Insolvency and Bankruptcy Code, 2016 empowers a Resolution Professional or Liquidator to identify and claw back transactions that unfairly depleted a corporate debtor's assets before or during insolvency, restoring value for the creditor pool. These "avoidance transactions" fall into four legally distinct categories, each triggering an application to the Adjudicating Authority (NCLT).
Key Details
- Preferential transactions (Sections 43-44): transactions unfairly favouring a particular creditor/surety over others.
- Undervalued transactions (Sections 45-48): asset transfers or gifts made for significantly less than fair value.
- Extortionate credit transactions (Sections 50-51): credit extended on exorbitant/unconscionable terms.
- Transactions defrauding creditors (Section 49) and fraudulent/wrongful trading (Section 66): deliberate attempts to place assets beyond creditors' reach or continue business with intent to defraud.
- Applications under these sections are filed before the NCLT, the Adjudicating Authority for corporate insolvency under Section 5(1) of the IBC.
The Rs 3.76-lakh-crore value of the 1,326 avoidance-transaction applications reviewed by the committee refers to claims made under exactly these sections; the committee's core concern is that recovery (Rs 7,500 crore) lags the claimed value by a wide margin, undermining the deterrent purpose of these provisions.
Insolvency and Bankruptcy Board of India (IBBI) and the 330-Day Resolution Timeline
The IBBI is the regulator for insolvency proceedings in India, established under the IBC, 2016, overseeing insolvency professionals, information utilities, and the CIRP process. The Code originally mandated a resolution timeline (180 days, extendable by 90 days) that was later amended to a maximum of 330 days including litigation time, to prevent value erosion from prolonged proceedings. In Committee of Creditors of Essar Steel India Ltd v. Satish Kumar Gupta (2019), the Supreme Court read down the word "mandatorily" attached to the 330-day cap, holding it advisory rather than strictly mandatory in exceptional cases, so that resolutions are not automatically scuttled by procedural delay.
Key Details
- IBBI was notified/established on 1 October 2016 under Section 188 of the IBC.
- The 330-day outer limit (Section 12(3)) was inserted via the Insolvency and Bankruptcy (Amendment) Act, 2019, following recommendations to curb delays.
- The committee's data shows the actual average resolution time (853 days in FY 2024-25) is running well over 2.5 times the statutory 330-day cap.
The panel's broader finding of delayed resolutions (853 days average) and case pendency (~30,600 cases before 30 NCLT benches) forms the backdrop against which the fund-diversion/avoidance-transaction gap is being examined, since delay is itself linked to diminishing recoverable value.
National Company Law Tribunal (NCLT) as Adjudicating Authority
The NCLT, constituted under Section 408 of the Companies Act, 2013, is a quasi-judicial body handling corporate disputes, including all insolvency proceedings under the IBC. Its capacity (number of benches and members) directly affects how quickly avoidance-transaction applications and resolution plans can be adjudicated, a recurring theme in Standing Committee reports on the insolvency ecosystem.
Key Details
- NCLT was constituted on 1 June 2016 under the Companies Act, 2013, replacing the Company Law Board.
- Appeals from NCLT orders lie with the National Company Law Appellate Tribunal (NCLAT).
- The committee's report cites 30 NCLT benches handling roughly 30,600 pending cases.
The committee recommended expediting NCLT adjudication of avoidance-transaction petitions specifically, tying tribunal capacity constraints to the poor recovery rate on fund-diversion cases.
- Avoidance-transaction applications reviewed: 1,326, cumulatively valued at Rs 3.76 lakh crore.
- Actual recovery from these applications: about Rs 7,500 crore (roughly 2% of value at stake).
- Average CIRP resolution time (2024-25): about 853 days, against the statutory 330-day cap (Section 12, IBC).
- Pending insolvency cases: about 30,600 before 30 NCLT benches.
- IBBI established: 1 October 2016, under Section 188 of the IBC, 2016.
- NCLT constituted: 1 June 2016, under Section 408 of the Companies Act, 2013.