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IBBI Mandates Disclosure of Avoidance Transactions in the Information Memorandum Under Fifth Amendment to CIRP Regulations

  • Writer: Kaustav Chowdhury
    Kaustav Chowdhury
  • 2 days ago
  • 4 min read

The Insolvency and Bankruptcy Board of India (IBBI) has strengthened disclosure norms in the Corporate Insolvency Resolution Process (CIRP) through the Fifth Amendment to the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Effective from July 4, 2025, the amendment mandates that resolution professionals disclose all identified avoidance transactions in the information memorandum (IM) before it is shared with the committee of creditors (CoC) and prospective resolution applicants.


Background: The Information Memorandum in the CIRP

Under Section 29(2) of the Insolvency and Bankruptcy Code, 2016 (IBC), the resolution professional is required to prepare an information memorandum containing information relevant to forming a resolution plan. Regulation 36 of the CIRP Regulations prescribes the detailed contents of this document, which serves as the primary disclosure instrument for prospective resolution applicants evaluating the corporate debtor.

Prior to the Fifth Amendment, while the IM was required to contain financial, operational, and legal information about the corporate debtor, there was no express obligation to include details of avoidance transactions identified under Sections 43 to 51 and Section 66 of the IBC. This gap meant that prospective resolution applicants often lacked a complete picture of the recoveries available to the corporate debtor's estate through avoidance proceedings.


Key Changes Under the Fifth Amendment

The amendment introduces three significant changes to the disclosure framework.


1. Mandatory Disclosure Under Regulation 36(2)(ha)

The IM must now disclose details of all identified avoidance transactions. These include preferential transactions under Section 43, undervalued transactions under Section 45, extortionate credit transactions under Section 50, fraudulent trading under Section 66(1), and wrongful trading under Section 66(2). The IM must also include details of any applications filed before the Adjudicating Authority in respect of such transactions.


2. Restriction on Assignment of Avoidance Transactions

A resolution plan cannot provide for the assignment of avoidance transactions unless such transactions have been disclosed in the IM and communicated to prospective resolution applicants before the final date of plan submission. This provision does not apply retrospectively to plans already submitted to the Adjudicating Authority before the commencement of the amendment.


3. Updated Timeline and Continuous Disclosure

The resolution professional must provide the IM to each CoC member on or before the ninety-fifth day from the insolvency commencement date. The amendment explicitly requires the inclusion of all subsequent updates, ensuring continuous and up-to-date disclosure throughout the resolution process.


Practical Significance for Stakeholders

In practice: Avoidance transactions can materially affect the valuation of a corporate debtor. If a resolution professional identifies undervalued transactions worth several hundred crores, a prospective resolution applicant unaware of these potential clawbacks may significantly undervalue the debtor in its resolution plan. The mandatory disclosure requirement addresses this information asymmetry, enabling bidders to factor potential recoveries into their commercial assessment and submit more informed and competitive plans.


For resolution professionals, the amendment imposes an additional compliance obligation. They must conduct a thorough investigation of the corporate debtor's transaction history, identify all transactions falling within the avoidance framework under Sections 43 to 51 and Section 66, and document these findings comprehensively in the IM. Failure to make adequate disclosures could expose the resolution professional to regulatory action by the IBBI and could provide grounds for challenging a resolution plan that relies on undisclosed avoidance transaction assignments.


For members of the CoC, the amendment strengthens their ability to evaluate resolution plans on a fully informed basis. Where a plan proposes assignment of avoidance claims to the resolution applicant, the CoC can now verify that these claims were properly disclosed and assess whether the plan adequately accounts for the potential value of such claims.


Judicial Context

The Supreme Court in Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited v. Axis Bank Limited, (2020) 8 SCC 401, extensively discussed the scope of avoidance transactions under the IBC. The Court held that the adjudicating authority's power to examine such transactions is essential to preserving the integrity of the resolution process and maximizing value for creditors. The Court emphasized that avoidance provisions serve a dual purpose: they deter pre-insolvency asset stripping and enhance the pool of assets available for distribution.


In Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17, the Supreme Court observed that the IBC is designed to ensure transparency in the insolvency resolution process and that all material information affecting the value of the corporate debtor's estate must be available to stakeholders. The Fifth Amendment aligns with this judicial mandate by codifying the disclosure obligation for avoidance transactions.


Sources and References


Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers should consult qualified legal professionals for advice specific to their circumstances.

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