The government is planning to have a more foolproof mechanism to foil the chances of company promoters diverting funds fraudulently before filing for personal insolvency.
As per a new section 164A introduced in the Insolvency and Bankruptcy Code (Amendments) Bill, 2025, the resolution professionals (RPs) can approach National Company Law Tribunal (NCLT) to bring all kinds of |”avoidance transactions” back into the pool.
Closing loopholes in personal insolvency cases
Experts said that this section will discourage personal guarantors from hiving off assets before filing for bankruptcy under the Code. “The proposed section 164A of the IBC empowers the adjudicating authority to claw back undervalued transactions in cases of personal or partnership insolvency. Mirroring corporate insolvency provisions, it safeguards creditor interests by preventing debtors from shielding assets through manipulative transfers, thereby preserving estate value and ensuring fairer recoveries,” said Hardeep Sachdeva, senior partner at AZB & Partners.
Experts said that it is common for promoters in India to transfer funds to their family or trust before initiating personal insolvency. “Currently, there’s no mechanism to tackle avoidance transactions done by the personal guarantors. Also, there’s no limitation on the lookback period for such transactions,” said an IBC lawyer.
Restoring pre-transfer position
The new section, however, plugs this loophole by clearly stating that “where the debtor has entered into an undervalued transaction… and the adjudicating authority is satisfied that such transaction was deliberately entered into by such debtor for keeping its assets beyond the reach of any person who is entitled to make a claim against the debtor, the adjudicating authority shall make an order restoring the position as it existed before such transaction, as if the transaction had not been entered into.”
Though some experts said that the efficacy of this new norm will be tested over time, several subjective aspects will only be clarified through evolving jurisprudence.
Last month, the finance minister Nirmala Sitharaman introduced the IBC Amendments Bill in the Lok Sabha, by including provisions related to group insolvency, cross-border cases, and a creditor-led process to expedite resolution of bankrupt companies. The bill has been referred to the select committee.