How IBC 2025 Amendment Bill Seeks to Fix Biggest Pain Point for RPs & Liquidators

Avoidance Transactions Under IBC: How IBC 2025 Amendment Bill Seeks to Fix Biggest Pain Point for RPs & Liquidators

As India’s insolvency regime matures, one area has consistently created the greatest friction for Resolution Professionals (RPs) and Liquidators—Avoidance Transactions under Sections 43 to 51 and 66 of the IBC. These provisions were designed to protect value by reversing fraudulent, preferential, or undervalued deals.

But in practice, avoidance actions have become the slowest, most complex, and litigation-heavy component of the insolvency process. The IBC Amendment Bill, 2025 finally attempts to reform this space.

This article analyses why avoidance transactions have long been a bottleneck, and how the new amendments aim to streamline the process.

 Understanding Avoidance Transactions

Under IBC, RPs/Liquidators must examine and report the following pre-insolvency transactions:

• Section 43 – Preferential transactions
• Section 45 to 51 – Undervalued and extortionate credit transactions
• Section 66 – Fraudulent and wrongful trading

While these tools are essential for value maximisation, their implementation has been challenging.

Why Avoidance Actions Became the Biggest Pain Point

1. Severe Delays in Obtaining Financial Data

RPs often do not receive full access to:

• audited books
• bank statements
• ERP systems
• emails or transactional backup

Despite Section 19 obligations, promoters frequently resist providing information.
Without a complete dataset, identifying suspect transactions becomes nearly impossible.

2025 Amendment Impact:

Proposes stronger obligations on management and promoters, including clearer penalties for non-cooperation. This should improve the RP’s ability to conduct early-stage analysis.

2. Timelines of CIRP Are Incompatible with Forensic Requirements

Forensic audits for Sections 43/45/50/66 transactions often require examination of 2–5 years of data. But CIRP is time-bound (180–330 days). By the time findings emerge, CIRP is nearly over or already in liquidation.

2025 Amendment Impact:
The Bill proposes:

• separate procedural treatment for avoidance transactions
• possibility of continuation even after CIRP ends
• clarity that avoidance matters do not halt resolution or liquidation

This is a major improvement.

3. NCLT Backlog: Disposal Takes Years, Not Months

Even after RP files detailed applications, NCLTs take years to adjudicate.
This results in:

• uncertain recovery timelines
• value erosion
• prolonged litigation for Liquidators

2025 Amendment Impact:

The Bill introduces:

• dedicated timelines for NCLT disposal of avoidance matters
• potential guidelines for summary proceedings

If implemented effectively, this could reduce the current pendency significantly.

4. Confusion on Distribution of Avoidance Recoveries

Post the judgement in the case of Anuj Jain, avoidance recoveries belong to the Corporate Debtor’s estate, not directly to any creditor. This created uncertainty, especially when:

• CIRP ends before avoidance recovery
• Liquidation starts while avoidance matters are pending
• Resolution Applicants refuse to factor avoidance recoveries in their bids

2025 Amendment Impact:

The Bill provides clarity on:

• how avoidance recoveries are to be treated during CIRP
• how they are distributed in liquidation
• how recoveries post-resolution should be passed on

This prevents CoC–RP disputes and encourages resolution applicants to make cleaner bids.

5. Increased Scrutiny on RPs for Non-Filing

IBBI has been tightening oversight. RPs now face disciplinary action for:

• not identifying avoidance transactions
• delayed filings
• “relying completely” on forensic reports

The risk profile for RPs has gone up.

2025 Amendment Impact:

The Bill proposes:

• more structured reporting responsibilities,
• potential safe-harbour provisions where RPs act in good faith
• clarity on when an RP must file and what constitutes sufficient material

This could reduce fear and uncertainty among Insolvency Professionals.

6. No Standardised Framework for Identifying Transactions

Avoidance matters depend on manual review and subjective judgments. Different forensic firms use different methodologies, causing inconsistency.

2025 Amendment Impact:

The Government/IBBI is expected to notify:

• standardised templates
• early-warning indicators
• transaction red-flag algorithms
• uniform reporting formats

This will professionalize and streamline the process.

 Broader Impact on CIRP & Liquidation

Resolution Applicants Gain More Certainty

With clarity on treatment of avoidance recoveries, RAs may be more willing to bid aggressively.

Faster Process for Liquidators

Clear guidelines help avoid disputes over filing, responsibility, and distribution.

• Stronger Pushback Against Fraud & Siphoning

By strengthening Sections 43–51 & 66, the amendment reinforces the Code’s core objective of value preservation and creditor protection.

 How the 2025 Bill Attempts to Fix the System

• Allow post-CIRP pursuit of avoidance cases

Ensures that resolution/liquidation is not delayed due to pending avoidance actions.

• Define clear timelines & faster NCLT disposal

This is critical to prevent multi-year pendency.

• Strengthen promoter obligations to cooperate

Making data access easier for RPs.

• Introduce structured formats

Reducing forensic inconsistencies.

• Provide clarity on distribution of recoveries

Ending long-standing confusion.

• Provide risk-protection for RPs acting in good faith

A major professional relief.

Conclusion

Avoidance transactions are crucial to protect creditors and uphold the integrity of India’s insolvency framework. Yet for years, they have been the biggest bottleneck, consuming significant time and professional energy.

The IBC Amendment Bill, 2025 finally recognises this structural problem and introduces a more balanced, efficient, and transparent mechanism. If implemented effectively, it can be a turning point for insolvency resolution, improving outcomes for creditors while reducing unnecessary burdens on RPs and Liquidators.

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Author Note: The author is an Insolvency Resolution Professional with extensive experience in managing multiple CIRP and liquidation assignments. For queries or professional discussions related to the Insolvency and Bankruptcy Code (IBC), you may reach out to: Krit Narayan Mishra at kritmassociates@gmail.com | +91 99108 59116.