[by Arzoo Kedia]
The author is a student of Hidayatullah National Law University.
Introduction
On 4th July, 2025, the Insolvency and Bankruptcy Board of India (‘IBBI’) notified the IBBI (Insolvency Resolution Process for Corporate Persons) (Fifth Amendment) Regulations 2025, whereby avoidance transactions must be disclosed upfront in the Information Memorandum (‘IM’) prepared by the corporate debtor’s resolution professional.
According to the new norm, all avoidance transactions covered under Sections 43 to 51 and 66 of the Insolvency and Bankruptcy Code (‘IBC’) must now be explicitly identified and disclosed in the IM. This contains information about applications that have previously been submitted to the Adjudicating Authority, as well as any avoidance, preferential, undervalued, extortionate credit or fraudulent activities. Additionally, it states that the value of any avoidance transaction should not be assigned by debt resolution plans unless it was revealed in the prospectus and communicated to all potential investors in accordance with Regulation 35A(3A), prior to the deadline for bid submission. The IM must also be kept updated and shared with the Committee of Creditors (‘CoC’) at regular intervals, ensuring continuous transparency.
However, the amendment is not free from challenges and requires further clarification. This blog discusses the amendment’s key provisions, the problems it seeks to address, persistent challenges, and possible reforms to ensure effective implementation.
Previous Challenges and What the Amendment Resolves
The main goals of this amendment are to improve the resolution processes’ transparency and enable better price discovery. This amendment aims to solve the problem of material irregularity being swept under the rug during resolution procedures. Previously, insider knowledge of avoidance transactions allowed resolution applicants to suggest recovery tactics that others were not aware of. Creditors are better equipped to assess resolution plans with greater knowledge when early disclosure of contentious transactions is required, which increases the amount of collective decision-making under Section 30(4).
Prior to the amendment, the framework for dealing with avoidance transactions was lacking clarity. Regulation 39(2) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 required RPs to place resolution plans before CoC along with information regarding any avoidance transactions and orders passed there in, if any. Similarly, Form H, the RPs’ compliance certificate, merely required disclosure of pending avoidance applications at the time of submitting the resolution plan for final approval. These gaps in regulation usually keep material irregularities hidden until resolution, hindering informed decision-making.
Aligning more closely with the UNCITRAL Legislative Guide on Insolvency Law, the amendment represents a progressive shift in India’s insolvency framework. However, it still faces certain unresolved challenges.
Remaining Gaps and Concerns
Although a welcome step, the amendment highlights a critical ambiguity. The criteria for transactions to be identified as “avoidant” remain unclear. The RP’s determination of the same is preliminary until the adjudicating authority passes an order. Additionally, there is no look-back period for fraudulent transactions, and the 3-year period under the limitation act does not apply. Hence, the RPs may look back at any time preceding the insolvency commencement and get a substantial volume of transactions to examine, still however, RPs may sometimes fail to recognise certain transactions as avoidant. For instance, in the case of Shinhan Bank v. Sugnil India Pvt. Ltd., the RP failed to characterise unsecured loans provided at an interest rate of 65% per annum as extortionate. Yet, the NCLT Allahabad considered the transactions on an independent basis and ruled that a percentage rate of interest that was considered exorbitant constituted extortionate credit under Section 50 of the IBC. The Tribunal went ahead and waived the debt, highlighting the need for a clear set of criteria.
Additionally, there is judicial uncertainty in the application of preferential transactions under Section 43 of the IBC, with various forums having taken different views on structurally similar transactions. For example, in IDBI Bank Ltd. v. Jaypee Infratech Ltd., the NCLAT ruled that payments to financial creditors on the eve of the insolvency commencement date did not constitute preferential transactions on the grounds that the payments were made in the ordinary course of business and hence exempt. But in Anuj Jain v. Axis Bank Ltd., the Supreme Court considered that mortgages entered into by Jaypee Infratech to secure its parent company’s loans were preferential since they conveyed interest in property for the advantage of a related party and were not in the ordinary course of business. These inconsistent applications of the “ordinary course of business” and “financial position worsening” tests have generated uncertainty for RPs, who are required to make early determinations in the face of developing and sometimes conflicting judicial standards.
Secondly, the amendment clubs Section 66 with other avoidance provisions, but the apex court has held that applications filed under Section 66 cannot be treated as avoidance transactions. There is no guidance on how to differentiate and treat fraudulent behaviour beyond disclosure.
Thirdly, fraudulent transactions are often handled by external agencies, such as the Serious Fraud Investigation Office (‘SFIO’). The investigation for these cases may drag on for years, extending well beyond the CIRP period. Accordingly, the pre-emptive compulsory disclosure of these transactions in the IM, while intended to enhance transparency, can create commercial uncertainty for potential resolution applicants. The threat of outstanding investigations and subsequent post-resolution liabilities can discourage bidders or result in under-valuation of distressed assets.
This grey area becomes especially contentious when resolution applicants are compelled to take pricing and strategic decisions in the absence of understanding how far or what the consequences are of possibly avoidant transactions. Pre-mature disclosures—particularly, if made based on an RP’s initial and not final estimate—may discourage applicants from bidding entirely, fearing potential future litigations or contingent liabilities. This is particularly so in the absence of final adjudication by the National Company Law Tribunal (NCLT), which tends to come after resolution or in liquidation.
Statistics released by the IBBI in 2024 highlight the disparity between the identification of avoidance transactions and their subsequent enforcement. Up to September 2024, 1,326 applications that involved claims totalling ₹3.76 lakh crore had been made to the Adjudicating Authority. However, a mere 338 cases were resolved with a recovery of just ₹7,516 crore. By stark contrast, direct recoveries under CIRP and liquidation were at ₹3.55 lakh crore and ₹10,446 crore, respectively. This vast discrepancy not only emphasises the scale of the problem but also the inefficiency in the enforcement processes of avoidance transactions. There are various reasons for such discrepancy including the fact that RPs usually deprioritise avoidance transactions due to them requiring detailed forensic audits, voluminous evidence, and fact intensive litigation, whereas CIRP proceedings are time bound and yield direct benefits faster.
Compounding this problem is the lack of temporal alignment between CIRP timelines and avoidance proceedings adjudication. Whereas the maximum time limit for CIRP under the statute is 330 days, litigation relating to avoidance is likely to drag on well into liquidation or even after resolution. This defeats the purpose of such proceedings in the resolution stage unless resolved in a timely manner or monetised by assignment, now something that is legally allowed under the Code. However, this also throws in multi-dimensional questions of valuation, certainty of pricing, and information asymmetry in bidders.
Suggestions
Firstly, to resolve ambiguities within the framework, some clear guidelines need to be established. The IBBI must issue binding criteria or a code of indicators, similar to red-flag checklists utilised by forensic auditors, to inform RPs how to identify avoidant transactions under Sections 43–51. The guidelines might include Excessive interest rates which may be somewhere above 30% as derived from previous decisions of tribunal, transactions with related parties without consideration, and transfers during liquidity stress. A presumptive threshold may also be established where a transaction within 1 year with a connected person is presumed preferential unless it is established otherwise, as in the UK’s Insolvency Act 1986.
Secondly, a clarification on the position of Section 66 to either be clubbed with other avoidance provisions or not should be issued. And if a separate position has to be maintained for fraudulent transactions, then a specific fast-track system, i.e., independent listing protocols, priority allocation, or legislative timeframes for disposal, must be formalised. This would facilitate speedy disposal of such applications in coordination with the overall CIRP process.
Thirdly, an RFRP model should have uniform contractual representations to safeguard bidders. Measures like capping post-resolution liability, permitting insurance-backed indemnities and permitting exceptions so that unresolved inquires may be excluded from disclosure may be undertaken. For realigning investigatory and insolvency timelines, a tripartite coordination framework among the IBBI, SFIO and ED could be established to give priority to cases under ongoing CIRP, thus minimising procedural hold-ups and boosting investor confidence.
Fourthly, to avoid disclosures leading to making the entire resolution process riskier, a dual tagging of avoidance transactions within the IM can be adopted. This would explicitly differentiate between “tentatively avoidant transactions” (marked by the RP) and “adjudicated avoidant transactions” (those determined by the NCLT). This clarity enables bidders to precisely evaluate and calibrate the legal risk. In addition, pending avoidance claims can be capitalised by establishing an avoidance claim market, in which these claims are delegated to third-party litigants or investors. This allows resolution applicants to concentrate exclusively on the company’s saleable assets, leaving the risk and possible reward of avoidance recoveries to specialised parties.
Fifthly, to address inadequate recovery, special benches or hearing tracks in the NCLT and NCLAT may be created solely for avoidance proceedings. This way, such matters will be decided within reasonable periods. Additionally, resolution professionals may be incentivised to pursue avoidance transactions diligently through performance-based incentives. These incentives, limited and regulated, may be linked to the actual amount recovered from avoidant transactions.
Conclusion
The amendment is a positive move towards increasing transparency in CIRP, but disclosure is not a magic pill. There still exist two long standing issues: the absence of transparency and consistency in determining avoidance transactions, and the misalignment between CIRP timelines and delayed adjudication of such claims, which negates their value in resolution. In the absence of judicial standards, time-bound adjudication and protection for bidders, it can unintentionally heighten uncertainty and dampen resolution value.
For the reform to fulfil its purpose, it should be supported by crystal-clear regulatory guidelines on the definition of avoidant transactions, and institutional coordination between investigative and insolvency institutions. It is only then that India’s insolvency regime can find a substantial balance between transparency and commercial feasibility.