India’s insolvency regime is facing a major test as efforts to claw back funds from promoters of bankrupt firms have remained largely unsuccessful.
Despite an expanding number of cases and favourable tribunal orders, the actual recoveries are proving elusive, raising questions over the effectiveness of the Insolvency and Bankruptcy Code’s (IBC) avoidance framework.
Official data for FY25 showed that 1,396 avoidance cases, collectively valued at Rs 3.8 lakh crore have been filed across various National Company Law Tribunal (NCLT) benches. While orders have been passed in 202 of these cases sanctioning clawbacks worth Rs 65,650 crore, the resolution professionals have managed to actually recover only Rs 6,434 crore from erstwhile promoters.
Several high-profile insolvency cases have highlighted this problem. In the ongoing insolvency of Hindusthan Glass & Industries (HNG) - with admitted claims of Rs 3,012 crore - a forensic audit by BDO flagged multiple transactions that breached IBC provisions. Last week, the employees union of HNG had filed complaint with various agencies seeking action against previous promoters for alleged diversion of funds from the company, according to news reports.
Similar suspect dealings were reported during Tata Steel’s acquisition of Bhushan Steel and Piramal Housing’s takeover of DHFL. In most cases, assets are found to have been alienated or dissipated long before recovery proceedings can conclude, leaving little for creditors to claw back.
Legal practitioners point out that avoidance transactions - covering preferential, undervalued, fraudulent, or extortionate dealings - were meant to protect creditors from unjust asset transfers.
“While avoidance provisions under the IBC are well intentioned, delays in adjudication often erode their impact. Without tighter timelines and accountability, the claw-back objective risks being more theoretical than real. Unless the system ensures quicker adjudication and stronger enforcement, the deterrent value of these provisions will remain unfulfilled,” said Alay Razvi, Managing Partner, Accord Juris.
The Jaypee Infratech matter stands out as a rare exception, where Resolution Professionals were able to successfully retrieve 758 acres of land, valued at around Rs 5,500 crore. This recovery was possible only because the asset was tangible and easily traceable, said experts. By contrast, in cases involving financial transactions routed through related parties, assets are often moved out of reach by the time forensic audits are completed.
“The IBC’s avoidance framework suffers from a design flaw, orders exist on paper, but recoveries remain minimal because promoters dissipate assets long before proceedings mature. Jaypee Infra was an exception because the land was tangible and traceable; in most cases like Hindusthan Glass or DHFL, assets vanish by the time forensic reports arrive,” said Rishabh Gandhi, Founder, Rishabh Gandhi and Advocates.
The Insolvency and Bankruptcy (IBC) law clearly has a major challenge due to the pendency of cases. While the code was originally envisaged for resolution within 330 days, however, the actual time taken stretches into years due to high pendency at various NCLTs, along with often frivolous litigation by erstwhile promoters, in an attempt to stall the process.
“The Legislature may consider tweaking the statutory mechanism to introduce automatic interim attachment of suspected assets to protect such assets and boost the recovery percentage and ensure real-time tracking of such assets with swift forensic analysis of such transactions,” said Srisatya Mohanty, Advocate-on-Record, Supreme Court of India.
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