Parliamentary panel backs govt steps to strengthen IBC recovery, seeks deeper action on fund diversion

A Parliamentary Standing Committee on Finance expressed support for government actions aimed at enhancing recovery under the Insolvency and Bankruptcy Code (IBC), while simultaneously urging for more comprehensive and time-bound measures to address the diversion and misappropriation of funds during insolvency proceedings. The committee's report highlighted the steps taken by the Ministry of Corporate Affairs and the Insolvency and Bankruptcy Board of India (IBBI) to bolster recovery and tackle assets seized under the Prevention of Money Laundering Act (PMLA).

The committee expressed particular concern regarding the significant disparity between the number of avoidance transaction cases and the actual amount recovered. As of the latest figures, 1,326 avoidance transactions, valued at Rs 3.76 lakh crore, led to a recovery of just about Rs 7,500 crore. This stark contrast underscores the detrimental effects of fund diversion on asset quality and overall recovery rates for lenders.

The committee's earlier recommendations included strengthening coordination between the Reserve Bank of India (RBI) and the Enforcement Directorate (ED) to bolster forensic audit capabilities during the Corporate Insolvency Resolution Process (CIRP). It also proposed amendments to the IBC to grant Resolution Professionals expanded, time-sensitive investigative powers into avoidance transactions and fund diversion, ensuring expedited claw-back processes.

Furthermore, the panel emphasized the necessity for avoidance transaction petitions to be resolved swiftly by the National Company Law Tribunal (NCLT) without undue delay.

In response, the government detailed the actions already undertaken by the IBBI. On November 4, 2025, the IBBI issued a circular introducing a mechanism for the restitution of assets attached under the PMLA. This mechanism directs insolvency professionals to seek restitution through the Special Court under the PMLA, utilizing a standardized undertaking developed jointly by the IBBI and the ED.

The government anticipates that this will enhance asset realization in cases where significant assets remain attached. Additionally, the government stated that instructions would be issued to the IBBI to enhance coordination with the RBI and ED for forensic audits, in line with the committee's recommendation.

The committee also pointed out broader delays within the IBC framework. It noted that the average resolution time widened to 853 days in 2024-25, surpassing the mandated 330-day period, with 30,600 IBC cases pending before 30 NCLT benches. The committee highlighted the government's ongoing efforts to augment the number of NCLT and NCLAT benches, a proposal currently under consideration.

The government's proposed solution to deter vexatious challenges includes prescribing a mandatory upfront threshold deposit for unsuccessful resolution applicants filing appeals, which is planned for inclusion in the Rules applicable to NCLT & NCLAT.