Shady deals at companies going bust? A concerted clawback effort is on the way

The idea is to have a more robust assessment of suspicious transactions that fall into the ‘preferential’, ‘low value’, ‘fraud’ and ‘extortion’ classes; thus, this creates a strong basis for the government to take action and allow the courts to reverse them and recover the assets.

Creditors appoint administrators to oversee businesses in bankruptcy. These persons are trying to detect such avoidance transactions and approach the National Company Law Tribunal (NCLT) to reverse them under India’s bankruptcy law. The recovery of such deals will bring more assets and resources to the table for lenders to prepare a revival plan for the company.

“Efforts are ongoing to improve enforcement outcomes in these transactions, which will help revive the companies involved,” said one of the people cited above.

This comes at a time when recoveries from such transactions are minimal. outside ₹The 3.85 trillion that solution experts are trying to get back is just a little more ₹7,900 crore could be recovered by the end of FY25, according to IBBI data. The move is part of discussions to improve the overall institutional capacity of resolution professionals and the debt resolution ecosystem in the country. One idea being considered is to establish protocols to be followed in flagging such transactions by resolution experts.

İBBI has taken steps to encourage creditor-appointed administrators of insolvent businesses to be more proactive in such situations. In July, the insolvency regulator required them to disclose such transactions in the sales prospectus of the insolvent business they oversee for greater transparency and better price discovery. The regulator said only amounts from avoidable transactions disclosed in the prospectus could be included in the corporate transformation plan.

Experts attributed the low recovery from these transactions to the complexity of proving such cases before the NCLT rather than overestimation of the amounts.

NPV Insolvency Professionals Pvt. Determining intent, tracing transactions and collecting admissible evidence is challenging and often time-consuming, especially when records are incomplete or promoters are uncooperative, said Anisha Jhunjhunwala, senior counsel at IBC. Ltd. Even if courts rule in favor of recovery, enforcement remains weak because counterparties often do not have sufficient convertible assets, leading to limited actual recovery, he said.

“To improve outcomes, the government and IBBI should strengthen inter-agency coordination and streamline forensic procedures to enable more accurate prediction of avoidance,” Jhunjhunwala said. He also said that providing better access to financial and transactional data to insolvency professionals and creating special fast-track benches within the NCLT for such cases would help significantly.

Moksh Kalyanram Abhiramula, managing partner of La Mintage Legal LLP, said the complexity of the cases was slowing down the recovery.

“Bankruptcy professionals must produce detailed evidence demonstrating the purpose, timing and impact of each transaction, which often involves forensic audits, tracing assets and challenging detailed defenses put forward by defendants. Further complications arising from lengthy legal battles, lack of documentary records and delays in judicial processes make actual recoveries difficult compared to filed claims,” ​​said Abhiramula.

For better prediction and recovery, Abhiramula said, the government and IBBI can lay down sound guidelines for claim quantification, mandate stringent forensic investigations for pre-filing, facilitate better asset tracking technology and strengthen inter-agency coordination for enforcement.

Experts also said that simplifying NCLT procedures and training insolvency professionals in forensic accounting will help get rid of these dubious deals.