2 L cr ‘Avoidance Transaction’ Claims pending with NCLTs

Claims of over 2 lakh crore field as ‘avoidance transactions’ under the Insolvency & Bankruptcy code are pending with various company law tribunals across the country. Under the code are pending with various company law tribunals across the country. Under the code, resolution professionals have powers to reverse any transactions entered by the debtors’ 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 claw back provisions are aimed to typically target any related party transactions, fund diversions and other corporate action 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 caseload in the NCLT’s  is adversely impacting these cases with as many as 90% of the total claims under avoidance transactions are still pending, said lawyers. According to the latest data published by insolvency Bank ruptcy 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 lakhs crore.

However, as on March 31,2022, NCLTs have rendered their verdicts only in 71 cases involving an amount of  105.16  crore. On this, RPs have been able to claw back only 50 crore data showed. “Avoidance transactions is an important mechanism to ensure that asset stripping done in relation to corporate debtors is brought back to the fold of the corporate for its resolution,” said Ajay Shaw, partner, DSK Legal. The pendency of avoidance transaction claims at NCLTs is not helping in the ultimate claw back  where time is If  the essence, as with time not only the net present value for recovery reduces, it makes its difficult for the actual claw back. Legal experts say the procedure to provide an avoidance transactions requires substantial proof  and trial 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 country party itself being under resolution or liquidation or defunct, adds to the plight.” Said Babu Sivaprakasam, head of banking practice, Economic Law 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 adjustments of incurred costs may incentivise the stakeholders,”.                       

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