Summary: From 2023 to 2025, avoidance proceedings under Sections 43–51 and 66 of the Insolvency and Bankruptcy Code (IBC) have shifted from being peripheral to becoming one of the most powerful tools for value recovery and promoter accountability. Tribunals now recognize that preferential, undervalued, extortionate, and fraudulent transactions often hide crores siphoned off before insolvency, making their recovery more valuable than the resolution plan itself. NCLT/NCLAT and the Supreme Court have tightened expectations: RPs must file—not merely report—suspicious transactions, avoidance applications continue even after resolution, Section 66 has no limitation, and directors’ personal liability is expanding. Recoveries increasingly belong to creditors, not resolution applicants. CoCs now demand proactive filings, ring-fenced recoveries, and forensic-backed evidence, while liquidators must build on the RP’s groundwork. Avoidance actions have become essential for recovery, deterrence, and systemic accountability, redefining the future practice of insolvency in India.
How Sections 43–51 and Section 66 Are Becoming the Most Powerful — and Most Underused — Tools in the IBC
Avoidance transactions were once the “side show” of India’s insolvency ecosystem — technical, slow, and often ignored. But from 2023 to 2025, they have quietly emerged as the new litigation frontier in IBC, with NCLT/NCLAT and the Supreme Court increasingly demanding that Resolution Professionals (RPs) and Liquidators pursue them seriously.
Why? Because these applications often unlock real value — sometimes more than the resolution plan itself.
As creditors chase every rupee, tribunals are no longer treating avoidance proceedings as optional. They are treating them as essential.
Why Avoidance Proceedings Have Become Central to IBC
Three major trends explain the shift:
1. Massive Value Hidden in Pre-CIRP Transactions
Preferential transactions (Sec. 43), undervalued deals (Sec. 45), extortionate credit (Sec. 50), and fraudulent trading (Sec. 66) frequently involve crores siphoned off through related parties. Recovering even a fraction of that is often worth more than an entire resolution plan.
2. Tribunal Pressure on RPs/Liquidators
Recent orders make it clear:
If you don’t file avoidance applications, you will have to explain why.
3. Stakeholder Expectations Have Shifted
CoCs increasingly demand action against promoters who drained value before insolvency. Avoidance actions have become the accountability mechanism for a failed or manipulated business.
Key Judicial Developments (2023–25): What Courts Are Saying
1. Avoidance Applications Can Continue Even After CIRP Ends
NCLT has repeatedly held that avoidance applications survive even after resolution — and the successful resolution applicant may not be entitled to the recovery. This shifts real power to the CoC and the estate. Tribunals refuse to let promoters escape by simply “waiting out” the process.
2. RP Must File — Not Just Report — Suspicious Transactions
NCLT has criticised RPs who merely “highlighted” the issues but failed to file an application.
Now:
If the RP sees material, they must act. This has raised the duty of care significantly.
3. No Time-Bar for Fraudulent Trading (Sec. 66)
Tribunals have clarified that fraudulent manoeuvring does not enjoy limitation protection.
Promoters and directors cannot hide behind timelines.
4. Liability of Directors Expanding
Several NCLT orders in 2024–25 have disgorged:
- personal assets of directors,
- related party gains,
- and even reversed land/asset transfers.
NCLT now expects actual accountability, not merely paperwork.
5. Resolution Applicants Are Not Automatically Entitled to Avoidance Recoveries
- A major theme from Supreme Court observations and NCLAT’s detailed orders:
Avoidance recoveries belong to the creditors, not the RA, unless explicitly assigned.
This principle has reshaped plan drafting and negotiations.
Why This Matters for RPs and Liquidators
6. Personal responsibility is increasing
Tribunals are calling out delays, poorly documented reviews, and non-filing.
Failure to file avoidance applications can be treated as:
- dereliction of duty,
- breach of the Code of Conduct,
- or professional misconduct.
7. Expect More Litigation Against Promoters
Promoters who treated companies as personal piggy banks are now facing:
- clawback suits,
- personal liability,
- criminal referrals in extreme fraud cases.
8. CoCs Are Using Avoidance Proceedings Strategically
Banks now demand:
- separate tracking of avoidance values,
- ring-fencing of potential recoveries,
- quicker filing during CIRP,
- and updates on hearings.
9. Liquidators Must Not “Start Fresh”
They must build upon the RP’s findings and file additional evidence.
Tribunals dislike duplication and prefer continuity.
Practical Checklist for Practitioners
Here’s what every RP/Liquidator should do immediately:
√ Review 2–3 years of financials aggressively
Look for:
- related party transactions,
- sudden write-offs,
- transfer of assets without consideration.
√ Build a strong forensic trail
Forensic audits are now foundational, not optional.
√ File early — even if evidence is preliminary
Tribunals allow amendments later.
Delay = suspicion.
√ Maintain clean documentation
Minutes, emails, board resolutions, bank statements — EVERYTHING matters.
√ Educate CoC early
CoCs must understand:
avoidance recoveries may come late, but they can be substantial.
The New Reality: Avoidance = Recovery + Accountability + Deterrence
Avoidance proceedings are no longer footnotes. They are becoming the backbone of creditor recoveries and the sharpest accountability tool against errant promoters.
Tribunals have declared:
IBC is not only about restructuring — it is about reversing the wrongs that caused the insolvency.
The future of insolvency will be shaped not just by resolution plans, but by how effectively the system pursues avoidance actions. And the professionals who master this space will define the next era of IBC practice.
I am Insolvency Resolution Professional handled/ handling many insolvency cases. In case of any queries related to IBC, you may contact me at Krit Narayan Mishra, kritmassociates@gmail.com | Mob: 9910859116
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