Rs two lakh crore 'avoidance transaction' claims pending with NCLTs

Claims of over ₹2 lakh crore filed as 'avoidance transactions' under the Insolvency & Bankruptcy Code are pending with various company law tribunals across the country.

Under the code, resolution professionals have powers to reverse any transaction entered by the debtor company before the IBC is invoked if he feels that the transaction was intended to divert funds or alienate assets.

However, such claims need approval of National Company Law Tribunal (NCLT).


These clawback provisions are aimed to typically target any related party transactions, fund diversions and other corporate actions like sale of assets or mergers that were undertaken with fraudulent motives and the money that is clawed back is distributed amongst the lenders of the company.

The pile-up of caseload in the NCLTs is adversely impacting these cases with as many as 90% of the total claims filed under avoidance transactions are still pending, said lawyers.

According to the latest data published by Insolvency and Bankruptcy Board of India (IBBI), till date a total of 777 avoidance transaction cases have been filed and the total value of such claims is ₹2.2 lakh crore. However, as on March 31,2022, NCLTs have rendered their verdict only in 71 cases involving an amount of ₹15,106 crore. Of this, RPs have been able to clawback only ₹50 crore, data showed.

"Avoidance transactions is an important mechanism to ensure that asset stripping done in relation to corporate debtor is brought back to the fold of the corporate debtor for its resolution," said Ajay Shaw, partner, DSK Legal. "The pendency of avoidance transaction claims at NCLTs is not helping in the ultimate clawback where time is if the essence, as with time not only the net present value for recovery reduces, it makes it difficult for the actual clawback."

Legal experts say the procedure to provide an avoidance transaction requires substantial proof and trail based on evidence that is time consuming. Also, the cases are often complicated where even the recipient of the money/assets is being probed or bankrupt.

"In some transactions, the counter party itself being under resolution or liquidation or defunct, adds to the plight," said Babu Sivaprakasam, head of banking practice, Economic Laws Practice. "Entrusting this to a dedicated bench to conduct these matters on a summary trial basis within an identified timeframe along with the distribution of the amount to be recovered to the creditors post adjustment of incurred costs may incentivise the stakeholders,".