Parliamentary panel backs govt steps to strengthen IBC recovery, seeks deeper action on fund diversion
New Delhi, August 13
A Parliamentary Standing Committee on Finance has backed steps taken by the government to strengthen recovery under the Insolvency and Bankruptcy Code, while seeking deeper and time-bound action to tackle diversion and siphoning of funds during insolvency proceedings.
The panel, in its report on action taken by the government on its earlier recommendations on the working of the IBC, noted the steps taken by the Ministry of Corporate Affairs and the Insolvency and Bankruptcy Board of India (IBBI) to improve recovery and deal with assets attached under the Prevention of Money Laundering Act (PMLA).
The committee's concern over fund diversion stems from the large gap between the value of avoidance transaction cases and actual recovery.
It noted that 1,326 applications involving avoidance transactions valued at Rs 3.76 lakh crore had resulted in recovery of only about Rs 7,500 crore. The panel said this gap highlights the serious impact of diversion of funds on asset quality and recovery for lenders.
The committee had earlier recommended that the Ministry of Corporate Affairs and IBBI strengthen coordination with the Reserve Bank of India (RBI) and the Enforcement Directorate (ED) to improve forensic audit capabilities during the Corporate Insolvency Resolution Process (CIRP).
It had also recommended amendments to the IBC to explicitly empower Resolution Professionals to conduct "deeper, time-bound investigations into avoidance transactions and diversion of funds" and ensure that the claw-back process is expedited.
The panel further called for avoidance transaction petitions to be adjudicated by the National Company Law Tribunal (NCLT) without undue delay.
In its action taken reply, the government pointed to steps already taken by the IBBI. The IBBI issued a circular on November 4, 2025, providing a mechanism for restitution of assets attached under the PMLA.
Under the mechanism, insolvency professionals have been advised to approach the Special Court under the PMLA for restitution of attached assets, using a standardised undertaking developed jointly by the IBBI and the ED.
The government said this was expected to improve value realisation in insolvency cases where substantial assets remain attached.
The government also said directions would be given to the IBBI to strengthen the coordination mechanism with the RBI and ED for forensic audits.
On the recommendation to give Resolution Professionals greater powers to investigate avoidance transactions and diversion of funds, it stated "the Ministry has issued directions to IBBI to make suitable regulations in this regard".
The panel has also highlighted broader delays in the IBC process. It noted that the average time taken for resolution had risen to 853 days in 2024-25 against the mandated 330-day timeline, while 30,600 IBC cases were pending before 30 NCLT benches.
The committee said the government was working on increasing the number of NCLT and NCLAT benches, with a proposal already under consideration.
Govt in response stated "prescribing a mandatory upfront threshold deposit for unsuccessful resolution applicants filing appeals, etc in order to deter vexatious challenges, it is stated that it would be incorporated in the Rules applicable to NCLT & NCLAT which would be notified by the Ministry".
Overall, the committee has recognised several government measures to strengthen the IBC framework, including proposed reforms aimed at faster admission of cases, stronger scrutiny of avoidance transactions and improved regulatory enforcement.
— ANI
Reader Comments
The 853-day average resolution time is deeply concerning. India's IBC was supposed to be a game-changer for credit culture, but if cases drag on for nearly 2.5 years, it defeats the whole purpose. The government needs to expedite NCLT bench appointments urgently, not just talk about it.
As someone working in banking, I see the havoc that fund diversion creates. Promoters take loans, shift money to shell companies, and then declare bankruptcy. The PMLA restitution mechanism is a step forward, but we need quicker NCLT rulings too. Otherwise, creditors just keep chasing shadows. 😔
The mandatory upfront deposit for unsuccessful resolution applicants sounds like a sensible deterrent. India's insolvency framework has come a long way, but ensuring timely justice remains key. The government deserves credit for acknowledging these gaps, though action will be the ultimate test.
Honestly, seeing 30,600 pending cases across just 30 NCLT benches breaks my heart. Small businesses and employees lose livelihoods waiting for resolution. The government must fast-track additional benches and ensure forensic audits start early in the CIRP, not just as an afterthought.
The IBC is a good law, but like everything in India, implementation is where we stumble. Need stronger powers for resolution professionals and better coordination between RBI and ED. At least the committee is pushing for time-bound investigations - we can't let defaulters use legal loopholes to escape. 🇮🇳
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