New Delhi: The Insolvency and Bankruptcy Board of India (IBBI) is developing an inter-agency mechanism to improve the identification and recovery of funds and assets linked to fraudulent and suspicious transactions in corporate insolvency cases. The proposed framework is expected to facilitate faster and more coordinated sharing of information among the Ministry of Corporate Affairs (MCA), Reserve Bank of India (RBI), banks and the Enforcement Directorate (ED).
According to sources, a mechanism could be introduced within the next four to five months. The proposed system is aimed at providing Resolution Professionals (RPs) with better access to financial information, banking records and asset-related data during insolvency proceedings. This could help creditors assess the actual value of a corporate debtor’s assets and improve the prospects of recovery.
Under the Insolvency and Bankruptcy Code (IBC), avoidance transactions refer to financial or property transfers made by a corporate debtor before insolvency that may unfairly reduce the company’s assets or benefit certain parties. When an RP identifies such suspicious transactions, an application can be filed before the National Company Law Tribunal (NCLT) seeking reversal of the transactions and recovery of funds or assets.
A major challenge under the existing system is tracing the actual movement of funds and assets after suspicious transactions are identified. A recent parliamentary committee report highlighted fund diversion and avoidance transactions as significant concerns. According to the report, 1,326 avoidance applications involving transactions valued at ₹3.76 lakh crore had been filed, but recoveries amounted to only around ₹7,500 crore.
The large gap between the value of transactions under challenge and the amount recovered has raised concerns about the possible diversion of funds and its impact on the asset quality of distressed companies. The Reserve Bank of India told the parliamentary panel that fund diversion is subject to measures such as credit audits, while banks remain primarily responsible for monitoring large borrower accounts.
The parliamentary committee has recommended amendments to the IBC to empower Resolution Professionals to conduct deeper and time-bound investigations into avoidance transactions and fund diversion. According to the committee, faster investigations could facilitate the claw-back of diverted assets and maximise the value available for creditors.
Avoidance proceedings often require detailed examination of the valuation and commercial substance of transactions, relationships between related parties, timing and impact of transactions and the intent of the parties involved. These factors can make such proceedings complex and time-consuming. Given the time-bound nature of insolvency proceedings, the NCLT generally prioritises matters relating to insolvency admission, continuation of the Corporate Insolvency Resolution Process (CIRP) and approval of resolution plans. As a result, avoidance applications may be taken up later, delaying potential recoveries.
Experts believe a time-bound mechanism could improve the process. Under such a framework, RPs could conduct an early transaction-risk assessment, obtain forensic inputs and submit their findings and proposed course of action to the Committee of Creditors and the NCLT within prescribed timelines.
Existing regulations require an RP to form an opinion on the existence of avoidance transactions by the 75th day from the insolvency commencement date. The RP is required to make a determination by the 115th day and file the relevant application before the adjudicating authority by the 135th day. However, experts have noted that these timelines have generally been treated as directory rather than strictly enforceable. Stronger implementation could help identify and pursue avoidance claims more quickly.
Under the proposed mechanism, IBBI and the ministry could establish a secure, protocol-based information-sharing system involving the RBI, banks, information utilities and the ED. The key challenge in such investigations is often not a lack of legal powers but fragmented data and delays in accessing relevant financial and asset information.
At the same time, experts have pointed out that any data-sharing framework would require safeguards for confidential and commercially sensitive information. Challenges could also remain in locating assets, recovering them and dealing with assets under attachment by enforcement agencies.
The proposed inter-agency framework is therefore expected to strengthen coordination among regulators, financial institutions and enforcement agencies. By enabling faster access to financial records and improving the tracking of suspicious transactions, the mechanism could help identify diverted assets earlier and improve recoveries for creditors in corporate insolvency cases.
About the author — Suvedita Nath is a science student with a growing interest in cybercrime and digital safety. She writes on online activity, cyber threats, and technology-driven risks. Her work focuses on clarity, accuracy, and public awareness.
